Natus Medical Announces Second Quarter Financial Results

| Source: Natus Medical Incorporated Natus Medical Incorporated

  • Reports record second quarter revenue of $130.7 million
  • Reports second quarter GAAP loss per share of $0.08 and non-GAAP earnings per share of $0.35
  • Updates annual revenue and earnings guidance for 2018

PLEASANTON, Calif., July 25, 2018 (GLOBE NEWSWIRE) --  Natus Medical Incorporated (NASDAQ:BABY) today announced financial results for the three months and full year ended June 30, 2018.

For the second quarter ended June 30, 2018, the Company reported revenue of $130.7 million, an increase of 7.0% compared to $122.2 million reported for the second quarter 2017. GAAP gross profit margin was 57.4% vs. 54.1% in the second quarter 2017. GAAP net loss was $2.6 million, or $0.08 per share, compared with GAAP net loss of $5.0 million, or $0.15 per share in the second quarter 2017.

Non-GAAP earnings per diluted share was $0.35 for the second quarter 2018, compared to $0.34 in the second quarter 2017. Non-GAAP net income was $11.6 million for the second quarter 2018 compared to the prior year's second quarter non-GAAP net income of $11.2 million. Non-GAAP gross profit margin was 62.1% vs. 60.6% reported for the second quarter of 2017.

For the six months ended June 30, 2018, the Company reported revenue of $259.3 million, an increase of 5.0% compared to $246.9 million reported for the same period in 2017. GAAP gross profit margin was 56.6% vs. 53.8% reported for the same period in 2017. GAAP net loss was $5.7 million, or $0.17 per share, compared with GAAP net loss of $4.7 million, or $0.14 per share in the same period in 2017.

Non-GAAP earnings per diluted share was $0.59 for the first six months in 2018, compared to $0.64 in the same period in 2017. The Company reported non-GAAP net income of $19.6 million for the six months ended June 30, 2018, compared to the prior year's non-GAAP net income of $21.0 million.

The Company repurchased $0.9 million of its stock and repaid $10.0 million of outstanding debt during the second quarter of 2018.

“Our non-GAAP earnings per share considerably exceeded our guidance at 35 cents.  Our improved margins reflect strength in our neuro business where organic revenue grew 2% in the quarter.  The quarter’s results also reflect meaningful progress in the integration of Otometrics and solid profitability from our newborn care business,” said Jonathan Kennedy, President and Chief Executive Officer of Natus.

“Our updated outlook reflects our assessment of the effects of potentially shifting seasonality and global trade uncertainty, which affects our visibility into second half results,” Kennedy continued.

Financial Guidance

For the third quarter of 2018, the Company provided revenue guidance to $131.0 million to $135.0 million and non-GAAP earnings per share guidance of $0.40 to $0.44.

For the full year 2018, the Company updated its revenue guidance to $525.0 million to $535.0 million from $535.0 million to $540.0 million and updated its non-GAAP earnings per share guidance to $1.50 to $1.60 from $1.60 to $1.65.

The Company's non-GAAP earnings per share guidance excludes charges for amortization expense associated with intangible assets from prior acquisitions, certain other expenses, and related tax effects, which the Company expects to be approximately $8.9 million and $47.3 million for the third quarter 2018 and full year, respectively, and which the Company expects will reduce GAAP earnings per share by approximately $0.21 and $1.15 for the respective periods.

Use of Non-GAAP Financial Measures

The Company presents in this release its non-GAAP net income, non-GAAP earnings per share, non-GAAP gross margin and non-GAAP operating margin results which exclude amortization expense associated with certain acquisition-related intangibles, restructuring charges, certain discrete items, direct costs of acquisitions, and the related tax effects. A reconciliation between non-GAAP and GAAP financial measures is included in this press release.

The Company believes that the presentation of results excluding these charges or gains provides meaningful supplemental information to both management and investors that is indicative of the Company's core operating results and better reflects the ongoing economics of the Company's operations. The Company believes these non-GAAP financial measures facilitate comparison of operating results across reporting periods.

Specifically, the Company excludes the following charges, gains, and their related tax effects in the calculation of non-GAAP net income, non-GAAP earnings per share and non-GAAP operating expense and excludes all but restructuring charges from the calculation of non-GAAP gross margin: 1) Non-cash amortization expense associated with certain acquisition-related intangibles. The charges reflect an estimate of the cost of acquired intangible assets over their estimated useful lives. 2) Restructuring charges. The Company has over time completed multiple acquisitions of other companies and businesses. Following an acquisition the Company will, as it determines appropriate, initiate restructuring events to eliminate redundant costs. Restructuring expenses, which are excluded in the non-GAAP items, are exclusively related to permanent reductions in our workforce and redundant facility closures. 3) Certain discrete items. These items represent significant infrequent charges or gains that management believes should be viewed outside of normal operating results, and each significant discrete transaction is evaluated to determine whether it should be excluded from non-GAAP reporting. These items are specifically identified when they occur. 4) Direct costs of acquisitions.  These are direct acquisition-related costs that occur when the Company makes an acquisition, such as professional fees, due diligence costs, and earn-out adjustments.

The Company applies GAAP methodologies in computing its non-GAAP tax provision by determining the annual expected effective tax rate after taking into account items excluded for non-GAAP financial reporting purposes.  The Company’s non-GAAP tax expense and its non-GAAP effective tax rate are generally higher than its GAAP tax expense and GAAP effective tax rate because the income subject to taxes would be higher due to the effect of the expenses excluded from non-GAAP financial reporting. The nature of each quarterly discrete transaction will be evaluated to determine whether it should be excluded from non-GAAP reporting.

The Company's management uses these non-GAAP financial measures in assessing the Company's performance and when planning, forecasting, and analyzing future periods and the Company believes that investors also benefit from being able to refer to these non-GAAP financial measures along with the GAAP operating results. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. The non-GAAP financial measures disclosed by the Company should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements should be carefully evaluated.

Conference Call

Natus has scheduled an investment-community conference call to discuss this announcement beginning at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time) today, July 25, 2018. Individuals interested in listening to the conference call may do so by dialing 1-844-634-1441 for domestic callers, or 1-508-637-5658 for international callers, and entering reservation code 3879826. A telephone replay will be available for 48 hours following the conclusion of the call by dialing 1-855-859-2056 for domestic callers, or 1-404-537-3406 for international callers, and entering reservation code 3879826. The conference call also will be available real-time via the Internet at http://investor.natus.com, and a recording of the call will be available on the Company’s Web site for 90 days following the completion of the call.

About Natus Medical Incorporated

Natus is a leading provider of healthcare products and services used for the screening, detection, treatment, monitoring and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, neurosurgery, epilepsy, sleep disorders, and balance and mobility disorders.

Additional information about Natus Medical can be found at www.natus.com.

Forward-Looking Statements

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, particularly statements regarding the expectations, beliefs, plans, intentions and strategies of Natus. These forward-looking statements include statements regarding the anticipated revenue and GAAP and non-GAAP earnings per share for the third quarter and full year 2018 and the impact of amortization expense associated with acquisition-related intangible assets, certain other expenses, and related tax effects. These statements relate to current estimates and assumptions of our management as of the date of this press release and involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are only predictions and the actual events or results may differ materially. Natus cannot provide any assurance that its future results or the results implied by the forward-looking statements will meet expectations. Our future results could differ materially due to a number of factors, including the effects of competition, our ability to successfully integrate and achieve our profitability goals from recent acquisitions, the demand for our products and services, the impact of adverse global economic conditions and changing governmental regulations, including foreign exchange rate changes, on our target markets, our ability to expand our sales in international markets, our ability to maintain current sales levels in a mature domestic market, our ability to control costs, risks associated with bringing new products to market, and our ability to fulfill product orders on a timely basis. Natus disclaims any obligation to update information contained in any forward looking statement.

More information about potential risk factors that could affect the business and financial results of Natus is included in Natus' annual report on Form 10-K for the year ended December 31, 2017, and its subsequent quarterly reports on Form 10-Q and in other reports filed from time to time by Natus with the U.S. Securities and Exchange Commission.

Natus Medical Incorporated
Sharon R. Villaverde
Interim Chief Financial Officer
(925) 223-6700
InvestorRelations@Natus.com               

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
        
  Quarter Ended Year Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Revenue$130,653  $122,227  $259,261  $246,887 
Cost of revenue52,897  54,589  108,266  111,502 
Intangibles amortization2,717  1,500  4,305  2,500 
  Gross profit75,039  66,138  146,690  132,885 
Gross profit margin57.4%  54.1%  56.6%  53.8% 
Operating expenses:       
  Marketing and selling33,401  30,354  69,273  62,569 
  Research and development15,616  13,713  31,059  26,466 
  General and administrative23,721  24,156  41,169  40,172 
  Intangibles amortization4,151  3,885  8,957  7,959 
  Restructuring1,938  307  2,750  593 
  Total operating expenses78,827  72,415  153,208  137,759 
Income from operations(3,788) (6,277) (6,518) (4,874)
Interest expense(1,647) (1,281) (3,596) (2,261)
Other income/(expense), net(751) 903  (622) 843 
Income before tax(6,186) (6,655) (10,736) (6,292)
Provision for income tax expense(3,609) (1,621) (5,009) (1,606)
Net (loss) income$(2,577) $(5,034) $(5,727) $(4,686)
Earnings (loss) per share:       
  Basic$(0.08) $(0.15) $(0.17) $(0.14)
  Diluted$(0.08) $(0.15) $(0.17) $(0.14)
Weighted-average shares:       
  Basic32,859  32,529  32,809  32,507 
  Diluted32,859  32,529  32,809  32,507 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
      
 June 30, March 31, December 31,
 2018 2018 2017
ASSETS     
      
Current assets:     
Cash and investments$54,908  $64,471  $88,950 
Accounts receivable, net122,971  128,056  126,809 
Inventories76,630  74,543  71,529 
Other current assets32,224  23,863  18,340 
Total current assets286,733  290,933  305,628 
      
Property and equipment, net21,645  22,618  22,071 
Goodwill and intangible assets326,109  340,786  345,580 
Deferred income tax10,296  10,632  10,709 
Other assets18,855  17,949  25,931 
Total assets$663,638  $682,918  $709,919 
      
LIABILITIES AND STOCKHOLDERS’ EQUITY     
      
Current liabilities:     
Accounts payable$24,053  $24,388  $25,242 
Accrued liabilities54,578  54,066  51,738 
Deferred revenue17,188  16,615  15,157 
Total current liabilities95,819  95,069  92,137 
      
Long-term liabilities:     
Long-term debt, net119,379  129,331  154,283 
Deferred income tax18,936  19,763  19,407 
Other long-term liabilities21,970  21,925  21,995 
Total liabilities256,104  266,088  287,822 
Total stockholders’ equity407,534  416,830  422,097 
Total liabilities and stockholders’ equity$663,638  $682,918  $709,919 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
  
  Quarter Ended
 June 30, 2018 June 30, 2017
Operating activities:   
Net loss$(2,577) $(5,034)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
   Provision for losses on accounts receivable3,171  5,353 
   Depreciation and amortization8,779  7,075 
   Loss on disposal of property and equipment108  (11)
   Warranty reserve2,100  2,902 
   Share-based compensation3,219  2,219 
   Changes in operating assets and liabilities:   
       Accounts receivable4,306  (6,532)
       Inventories(5,369) 1,470 
       Prepaid expenses and other assets(9,751) (1,709)
       Accounts payable258  352 
       Accrued liabilities(149) (2,245)
       Deferred revenue668  441 
       Deferred income tax239  4,757 
           Net cash provided by operating activities5,002  9,038 
Investing activities:   
   Acquisition of businesses, net of cash acquired151  (5,730)
   Purchases of property and equipment(914) (493)
   Purchase of intangible assets(298) — 
   Sale of short-term investments—  9,084 
          Net cash provided by (used in) investing activities(1,061) 2,861 
Financing activities:   
   Proceeds from stock option exercises and Employee Stock Purchase Program purchases4,515  1,825 
   Repurchase of common stock(894) (960)
   Taxes paid related to net share settlement of equity awards(307) (539)
   Deferred debt issuance costs—  — 
   Contingent consideration earn-out—  (500)
   Proceeds from borrowings—  — 
   Payments on borrowings(10,000) (40,000)
         Net cash used in financing activities(6,686) (40,174)
Exchange rate changes effect on cash and cash equivalents(6,818) 4,800 
Net decrease in cash and cash equivalents(9,563) (23,475)
Cash and cash equivalents, beginning of period64,471  103,778 
Cash and cash equivalents, end of period$54,908  $80,303 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
  Quarter Ended  Year Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
GAAP based results:       
Income before provision for income tax$(6,186) $(6,655) $(10,736) $(6,292)
        
Non-GAAP adjustments:       
Intangibles amortization - (COGS)2,717  1,500  4,305  2,500 
Recall accrual and remediation efforts (COGS)2,305  2,381  2,573  4,659 
Restructuring and other non-recurring costs (COGS)27  1,684  27  1,684 
Direct costs of acquisitions (COGS)1,072  2,401  3,480  4,370 
Intangibles amortization - (OPEX)4,151  3,885  8,957  7,959 
Direct costs of acquisitions (M&S)387  (31) 409  (36)
Recall accrual and remediation efforts (R&D)1,741  2,406  3,587  5,103 
Direct costs of acquisitions (R&D)138  —  184  — 
Restructuring and other non-recurring costs (G&A)4,239  4,848  5,206  5,080 
Direct costs of acquisitions (G&A)789  852  3,180  913 
Restructuring and other non-recurring costs (OI&E)(2) —  366  — 
Direct costs of acquisitions (OI&E)—  24  —  48 
Extraordinary annual meeting expenses2,214  —  2,214  — 
Extraordinary patent litigation754  750  996  1,336 
Non-GAAP income before provision for income tax14,346  14,045  24,748  27,324 
        
Income tax expense, as adjusted$2,755  $2,841  $5,130  $6,292 
        
Non-GAAP net income$11,591  $11,204  $19,618  $21,032 
 Non-GAAP earnings per share:       
  Basic$0.35  $0.34  $0.60  $0.65 
  Diluted$0.35  $0.34  $0.59  $0.64 
        
 Weighted-average shares used to compute       
  Basic non-GAAP earnings per share32,859  32,529  32,809  32,507 
  Diluted non-GAAP earnings per share33,241  33,034  33,196  33,061 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
  Quarter Ended  Year Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
GAAP Gross Profit75,039  66,138  146,690  132,885 
Amortization of intangibles2,717  1,500  4,305  2,500 
Acquisition charges1,072  2,401  3,480  4,370 
Recall accrual and remediation efforts2,305  2,381  2,573  4,659 
Restructuring and other non-recurring costs (COGS)

27  1,684  27  1,684 
Non-GAAP Gross Profit81,160  74,104  157,075  146,098 
Non-GAAP Gross Margin62.1%  60.6%  60.6%  59.2% 
        
GAAP Operating Profit(3,788) (6,277) (6,518) (4,874)
Amortization of intangibles6,868  5,385  13,262  10,459 
Recall accrual and remediation efforts4,046  4,787  6,160  9,762 
Extraordinary patent litigation754  750  996  1,336 
Restructuring and other non-recurring costs4,266  6,532  5,233  6,764 
Acquisition charges2,386  3,222  7,253  5,247 
Extraordinary annual meeting expenses2,214  —  2,214  — 
Non-GAAP Operating Profit16,746  14,399  28,600  28,694 
Non-GAAP Operating Margin12.8%  11.8%  11.0%  11.6% 
        
GAAP Provision for income tax expense (benefit)(3,609) (1,621) (5,009) (1,606)
Effect of accumulated change of pretax income7,072  3,791  10,791  7,041 
Effect of change in annual expected tax rate(1,531) 467  (1,584) 653 
Repatriation tax adjustment(88) —  101  — 
Stock-based compensation adjustment911  —  831  — 
Effect on acquisition cost—  204  —  204 
Non-GAAP Income tax expense, as adjusted2,755  2,841  5,130  6,292 
        
  Quarter Ended Year Ended    
 September 30, 2018 December 31, 2018    
GAAP EPS Guidance$0.19 - $0.23 $0.35 - $0.45    
Amortization of Intangibles0.21  0.85     
Restructuring and other non-recurring costs—  0.08     
Litigation—  0.03     
Recall Accrual and Remediation Efforts0.06  0.27     
Direct cost of acquisitions—  0.22     
Tax effect(0.06)  (0.30)     
Non-GAAP EPS Guidance$0.40 - $0.44 $1.50 - $1.60    


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY BUSINESS UNIT (unaudited)
(in thousands)
    
  Quarter Ended Year Ended
 June 30, 2018
 June 30, 2017 June 30, 2018 June 30, 2017 
    
Neuro:
Revenue$70,408  $59,317  $136,371  $115,585 
Cost of revenue26,461  21,257  54,355  43,792 
Intangibles amortization1,814  455  2,464  900 
  Gross profit42,133  37,605  79,552  70,893 
Gross profit margin59.8% 63.4% 58.3% 61.3%
        
Newborn care:       
Revenue$29,087  $34,108  $59,978  $74,742 
Cost of revenue13,469  19,699  25,178  39,393 
Intangibles amortization119  127  239  211 
  Gross profit15,499  14,282  34,561  35,138 
Gross profit margin53.3% 41.9% 57.6% 47.0%
        
Otometrics:       
Revenue$31,158  $28,802  $62,912  $56,560 
Cost of revenue12,967  13,632  28,734  28,318 
Intangibles amortization784  919  1,601  1,388 
  Gross profit17,407  14,251  32,577  26,854 
Gross profit margin55.9% 49.5% 51.8% 47.5%
        
Consolidated:       
Revenue$130,653  $122,227  $259,261  $246,887 
Cost of revenue52,897  54,588  108,267  111,503 
Intangibles amortization2,717  1,501  4,304  2,499 
  Gross profit75,039  66,138  146,690  132,885 
Gross profit margin57.4% 54.1% 56.6% 53.8%


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY BUSINESS UNIT (unaudited)
(in thousands)
        
  Quarter Ended  Year Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Neuro:       
GAAP Gross Profit42,133  37,605  79,552  70,893 
Amortization of intangibles1,814  453  2,464  900 
Acquisition charges1,022  —  3,430  — 
Recall accrual and remediation efforts—  —  —  1,782 
Non-GAAP Gross Profit44,969  38,058  85,446  73,575 
Non-GAAP Gross Margin63.9%  64.2%  62.7%  63.7% 
        
Newborn care:       
GAAP Gross Profit15,499  14,282  34,561  35,138 
Amortization of intangibles119  128  239  212 
Recall accrual and remediation efforts2,305  2,381  2,573  2,877 
Restructuring and other non-recurring costs2  1,684  2  1,684 
Non-GAAP Gross Profit17,925  18,475  37,375  39,911 
Non-GAAP Gross Margin61.6%  54.2%  62.3%  53.4% 
        
Otometrics:       
GAAP Gross Profit17,407  14,251  32,577  26,854 
Amortization of intangibles784  919  1,602  1,388 
Acquisition charges50  2,401  50  4,370 
Restructuring and other non-recurring costs25  —  25  — 
Non-GAAP Gross Profit18,266  17,571  34,254  32,612 
Non-GAAP Gross Margin58.6%  61.0%  54.4%  57.7% 
        
Consolidated:       
GAAP Gross Profit75,039  66,138  146,690  132,885 
Amortization of intangibles2,717  1,500  4,305  2,500 
Acquisition charges1,072  2,401  3,480  4,370 
Recall accrual and remediation efforts2,305  2,381  2,573  4,659 
Restructuring and other non-recurring costs27  1,684  27  1,684 
Non-GAAP Gross Profit81,160  74,104  157,075  146,098 
Non-GAAP Gross Margin62.1%  60.6%  60.6%  59.2% 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
        
  Quarter Ended Year Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Consolidated Revenue:       
United States75,467  67,100  144,154  131,808 
International55,186  55,127  115,107  115,079 
Totals130,653  122,227  259,261  246,887 
        
United States58%  55%  56%  53% 
International42%  45%  44%  47% 
Totals100%  100%  100%  100% 

 

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