Natus Medical Announces Third Quarter 2021 Financial Results

  Q3-2021   Key Results
Revenue (millions) $113.9   • Revenue increased 11% compared to Q3 2020
GAAP EPS $0.16   • Generated $7.1 million in operating cash flow
Non-GAAP EPS $0.28    
       

PLEASANTON, Calif., Nov. 04, 2021 (GLOBE NEWSWIRE) -- Natus Medical Incorporated (NASDAQ:NTUS) (the “Company” or “Natus”), a leading provider of medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages, today announced financial results for the three and nine months ended September 30, 2021.

For the third quarter ended September 30, 2021, the Company reported revenue of $113.9 million, an increase of 10.8% compared to $102.8 million reported for the third quarter of 2020. GAAP gross margin was 59.5% during the third quarter of 2021 compared to 46.2% in the third quarter of 2020. GAAP net income was $5.6 million, or $0.16 earnings per diluted share, compared with GAAP net loss of $9.3 million, or $0.28 loss per share in the third quarter of 2020.

Non-GAAP gross margin was 61.0% in the third quarter of 2021 compared to 56.2% reported for the third quarter of 2020. Non-GAAP earnings per diluted share was $0.28 for the third quarter of 2021, compared to $0.09 in the third quarter of 2020. Non-GAAP net income was $9.3 million in the third quarter of 2021 compared to $3.2 million in the third quarter of 2020.

For the nine months ended September 30, 2021, the Company reported revenue of $344.8 million, an increase of 16.1% compared to $297.0 million reported for the same period in 2020. GAAP gross margin was 58.2% vs. 50.8% reported for the same period in 2020. GAAP net income was $11.4 million, or $0.34 per diluted share, compared with GAAP net loss of $21.8 million, or $0.65 loss per share in the same period in 2020.

Non-GAAP earnings per diluted share was $0.73 for the first nine months in 2021, compared to $0.00 in the same period in 2020. The Company reported non-GAAP net income of $24.6 million for the nine months ended September 30, 2021, compared to the prior year's non-GAAP net income of $0.1 million. Non-GAAP gross margin was 60.2% in 2021 vs. 56.0% reported for the same period in 2020.

“We are encouraged by the 11% increase in revenue in the third quarter of 2021 compared to the same quarter in 2020 despite recent supply chain constraints. Demand for our products and services continued to improve throughout the quarter,” said Jonathan Kennedy, President and Chief Executive Officer of Natus.

“We saw the benefits of our investments in innovation this quarter with the release of the new Retcam Envision newborn eye imaging system in the United States, the first successfully performed clinical case using Natus’ newly launched XactTrode™ family of platinum subdural electrodes and another quarter of growing sales for our UltraPro EMG device, which was released in the fourth quarter of 2020,” Mr. Kennedy concluded.

Financial Guidance

For the fourth quarter of 2021, the Company's revenue is expected to be between $124.0 million and $128.0 million and non-GAAP earnings per share is expected to be between $0.41 and $0.46.

For the full year of 2021, the Company's updated revenue guidance is expected to be between $468.8 million and $472.8 million and non-GAAP earnings per share is expected to be between $1.13 and $1.18.

Supply chain delays and constraints have impacted our ability to ship products in the last few quarters, and as a result, we have seen backlog for certain products continue to grow. The guidance above reflects further supply chain delays anticipated in the fourth quarter of 2021.

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 effect, which the Company expects to be approximately $4.4 million and $17.3 million for the fourth quarter and full year of 2021, respectively, which the Company expects will reduce GAAP earnings per share by approximately $0.13 and $0.51 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 diluted 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 diluted share and non-GAAP operating profit: 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 and other non-recurring 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 a conference call to discuss this announcement beginning at 8:00 a.m. Eastern Time (5:00 a.m. Pacific Time) tomorrow, November 5, 2021. 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 3842689. 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 3842689. 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 website for 90 days following the completion of the call.

About Natus Medical Incorporated

Natus is a leading provider of medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages.

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

Forward-Looking Statements

This press release contains forward-looking statements, which are generally statements that are not historical facts. Forward-looking statements can be identified by the words “expects”, “anticipates”, “believes”, “intends”, “estimates”, “plans”, “will”, “outlook” and similar expressions. Forward-looking statements are based on management's current plans, estimates, assumptions and projections, and speak only as of the date they are made. 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. The Company's future results could differ materially due to a number of factors, including supply chain delays and constraints, the business, social and economic impact of the COVID-19 pandemic on the Company's business and results of operations, the ability of the Company to realize the anticipated benefits from its new structure or from its consolidation strategy, effects of competition, the Company's ability to successfully integrate and achieve its profitability goals from recent acquisitions, the demand for Natus products and services, the impact of adverse global economic conditions and changing governmental regulations, including foreign exchange rate changes, on the Company's target markets, the Company's ability to expand its sales in international markets, the Company's ability to maintain current sales levels in a mature domestic market, the Company's ability to control costs, risks associated with bringing new products to market, and the Company's ability to fulfill product orders on a timely basis, as well as those factors identified under the heading Item 1A “Risk Factors” in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Natus disclaims any obligation to update information contained in any forward looking statement, except as required by law.

Natus Medical Incorporated
Drew Davies
Executive Vice President and 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)
               
  Three Months Ended   Nine Months Ended
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
Revenue $ 113,877       $ 102,803       $ 344,782       $ 296,966    
Cost of revenue 44,487       47,160       139,019       134,665    
Intangibles amortization 1,642       8,117       5,126       11,440    
Gross profit 67,748       47,526       200,637       150,861    
Gross profit margin 59.5   %   46.2   %   58.2   %   50.8   %
Operating expenses:              
Marketing and selling 28,260       26,035       86,719       79,567    
Research and development 14,267       14,670       42,556       46,574    
General and administrative 12,853       12,384       40,316       36,754    
Intangibles amortization 3,681       4,025       11,497       11,330    
Restructuring 142       350       469       1,842    
Total operating expenses 59,203       57,464       181,557       176,067    
Income (loss) from operations 8,545       (9,938 )     19,080       (25,206 )  
Interest expense (332 )     (1,107 )     (1,655 )     (2,800 )  
Other income (expense), net (716 )     160       (1,700 )     (398 )  
Income (loss) before provision for (benefit from) income tax 7,497       (10,885 )     15,725       (28,404 )  
Provision for (benefit from) income tax 1,924       (1,569 )     4,292       (6,588 )  
Net income (loss) $ 5,573       $ (9,316 )     $ 11,433       $ (21,816 )  
Net income (loss) per share:              
Basic $ 0.17       $ (0.28 )     $ 0.34       $ (0.65 )  
Diluted $ 0.16       $ (0.28 )     $ 0.34       $ (0.65 )  
Weighted-average shares:              
Basic 33,638       33,828       33,649       33,577    
Diluted 33,865       33,828       33,877       33,577    


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
       
  September 30,   December 31,
  2021   2020
ASSETS      
       
Current assets:      
Cash and investments $ 68,779     $ 82,082  
Accounts receivable 97,370     93,133  
Inventories 71,545     75,650  
Other current assets 23,977     20,837  
Total current assets 261,671     271,702  
       
Property and equipment 22,837     24,516  
Operating lease right-of-use assets 9,946     11,669  
Goodwill and intangible assets 222,895     244,040  
Deferred income tax 26,296     27,563  
Other assets 17,606     20,904  
Total assets $ 561,251     $ 600,394  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
       
Current liabilities:      
Accounts payable $ 28,322     $ 23,429  
Current portion of long-term debt     50,000  
Accrued liabilities 44,575     44,236  
Deferred revenue 25,737     21,308  
Current portion of operating lease liabilities 5,167     6,779  
Total current liabilities 103,801     145,752  
       
Long-term debt     5,840  
Deferred income tax 9,826     10,298  
Long-term operating lease liabilities 7,370     8,959  
Other long-term liabilities 17,732     18,451  
Total liabilities 138,729     189,300  
Total stockholders’ equity 422,522     411,094  
Total liabilities and stockholders’ equity $ 561,251     $ 600,394  


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
           
  Three Months Ended   Nine Months Ended
  September 30, 2021   September 30, 2020   September 30, 2021   September 30, 2020
Operating activities:              
Net income (loss) $ 5,573     $ (9,316 )   $ 11,433     $ (21,816 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                              
Provision for losses on accounts receivable (14 )   209     273     1,158  
Impairment of intangible assets     6,678         6,678  
Depreciation and amortization 6,887     7,312     21,337     20,989  
Loss on equity method investment 178         443      
(Gain) loss on disposal of property and equipment (1,525 )   127     (1,516 )   149  
Warranty reserve 509     (151 )   1,523     1,129  
Share-based compensation 2,649     2,395     8,271     7,059  
Loss on commencement of sales-type leases     766     3     1,861  
Changes in operating assets and liabilities:              
Accounts receivable (2,631 )   3,120     (428 )   30,367  
Inventories (3,379 )   4,777     3,655     (6,417 )
Prepaid expenses and other assets (3,082 )   (7,012 )   (3,878 )   (11,078 )
Accounts payable 1,615     (4,343 )   5,229     (19 )
Accrued liabilities (803 )   2,499     (822 )   (13,844 )
Deferred revenue 1,185     (1,243 )   4,629     (941 )
Deferred income tax (46 )   1,671     1,060     1,826  
   Net cash provided by operating activities 7,116     7,489     51,212     17,101  
Investing activities:              
Purchase of property and equipment (982 )   (690 )   (2,949 )   (7,617 )
Purchase of equity method investments         (1,000 )    
Proceeds from sale of property and equipment 2,674         2,674      
   Net cash provided by (used in) investing activities 1,692     (690 )   (1,275 )   (7,617 )
Financing activities:              
Proceeds from stock option exercises and ESPP         612     658  
Repurchase of common stock             (10,495 )
Taxes paid related to settlement of equity awards (10 )   (10 )   (1,254 )   (1,936 )
Deferred debt issuance costs     (1,175 )       (1,175 )
Principal payments of financing lease liability (110 )   (173 )   (326 )   (415 )
Proceeds from long-term borrowings             60,000  
Payments on borrowings     (20,000 )   (57,000 )   (48,000 )
   Net cash used in financing activities (120 )   (21,358 )   (57,968 )   (1,363 )
Exchange rate changes effect on cash and cash equivalents (2,403 )   4,217     (5,272 )   3,118  
Net increase (decrease) in cash and cash equivalents 6,285     (10,342 )   (13,303 )   11,239  
Cash and cash equivalents, beginning of period 62,494     84,878     82,082     63,297  
Cash and cash equivalents, end of period $ 68,779     $ 74,536     $ 68,779     $ 74,536  


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Three Months Ended   Nine Months Ended
  September 30, 2021   September 30,
2020
  September 30,
2021
  September 30,
2020
GAAP based results:                              
Income (loss) before provision for income tax $ 7,497      $ (10,885 )   $ 15,725      $ (28,404 )
                               
Non-GAAP adjustments:                              
Intangibles amortization (COGS) 1,642      8,117      5,126      11,440   
Recall accrual and remediation efforts (COGS) —      (366 )   —      (366 )
Restructuring and other non-recurring costs (COGS) 136      2,457      2,369      4,233   
COVID-19 relief (COGS) (82 )   —      (484 )   —   
Intangibles amortization (OPEX) 3,681      4,025      11,497      11,330   
Direct costs of acquisitions (OPEX) —      —      21      —   
Restructuring and other non-recurring costs (OPEX) 292      353      1,101      1,760   
COVID-19 relief (OPEX) (668 )   —      (3,125 )   —   
Restructuring and other non-recurring costs (OI&E) (80 )   —      (80 )   —   
Non-GAAP income (loss) before provision for (benefit from) income tax 12,418      3,701      32,150      (7 )
               
Income tax expense (benefit), as adjusted $ 3,087      $ 505      $ 7,554      $ (95 )
               
Non-GAAP net income $ 9,331      $ 3,196      $ 24,596      $ 88   
Non-GAAP earnings per share:              
Basic $ 0.28      $ 0.09      $ 0.73      $ 0.00   
Diluted $ 0.28      $ 0.09      $ 0.73      $ 0.00   
               
Weighted-average shares used to compute              
Basic non-GAAP earnings per share 33,638      33,828      33,649      33,577   
Diluted non-GAAP earnings per share 33,865      33,841      33,877      33,637   
               


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Three Months Ended   Nine Months Ended
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
GAAP Gross Profit $ 67,748       $ 47,526       $ 200,637       $ 150,861    
Amortization of intangibles 1,642       8,117       5,126       11,440    
Recall accrual and remediation efforts       (366 )           (366 )  
COVID-19 relief (82 )           (484 )        
Restructuring and other non-recurring costs 136       2,457       2,369       4,233    
Non-GAAP Gross Profit $ 69,444       $ 57,734       $ 207,648       $ 166,168    
Non-GAAP Gross Margin 61.0    %   56.2    %   60.2    %   56.0    %
               
GAAP Operating Income (Loss) $ 8,545       $ (9,938 )     $ 19,080       $ (25,206 )  
Amortization of intangibles 5,323       12,142       16,623       22,770    
COVID-19 relief (750 )           (3,609 )        
Recall accrual and remediation efforts       (366 )           (366 )  
Restructuring and other non-recurring costs 428       2,810       3,470       5,993    
Direct cost of acquisitions             21          
Non-GAAP Operating Income $ 13,546       $ 4,648       $ 35,585       $ 3,191    
Non-GAAP Operating Margin 11.9    %   4.5    %   10.3    %   1.1    %
               
GAAP Income Tax Expense (Benefit) $ 1,924       $ (1,569 )     $ 4,292       $ (6,588 )  
Effect of accumulated change of pretax income 1,456       2,402       4,415       6,493    
Effect of change in annual expected tax rate (293 )     (328 )     (614 )        
Difference in GAAP vs Non-GAAP discrete             (539 )        
Non-GAAP Income Tax Expense (Benefit) $ 3,087       $ 505       $ 7,554       $ (95 )  
               
               
  Three Months
Ended
  Twelve Months
Ended
       
  December 31, 2021   December 31, 2021        
GAAP EPS Guidance $0.28 - $0.33   $0.62 - $0.67        
Amortization of intangibles 0.16
  0.65
       
Restructuring and other non-recurring costs
  (0.01)        
Tax effect (0.03)   (0.13)        
Non-GAAP EPS Guidance $0.41 - $0.46   $1.13 - $1.18        


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
       
  Three Months Ended   Nine Months Ended
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
Neuro:              
Revenue $ 70,047     $ 58,781     $ 209,743     $ 167,679  
Cost of revenue 26,507     24,418     81,598     69,297  
Intangibles amortization 750     7,163     2,274     8,869  
Gross profit $ 42,790     $ 27,200     $ 125,871     $ 89,513  
Gross profit margin 61.1 %   46.3 %   60.0 %   53.4 %
               
Newborn Care:              
Revenue $ 24,474     $ 25,710     $ 76,586     $ 76,860  
Cost of revenue 10,036     12,440     31,923     35,690  
Intangibles amortization     66     135     193  
Gross profit $ 14,438     $ 13,204     $ 44,528     $ 40,977  
Gross profit margin 59.0 %   51.4 %   58.1 %   53.3 %
               
Hearing & Balance:              
Revenue $ 19,356     $ 18,312     $ 58,453     $ 52,427  
Cost of revenue 7,944     10,302     25,498     29,678  
Intangibles amortization 892     888     2,717     2,378  
Gross profit $ 10,520     $ 7,122     $ 30,238     $ 20,371  
Gross profit margin 54.4 %   38.9 %   51.7 %   38.9 %
               
Consolidated:              
Revenue $ 113,877     $ 102,803     $ 344,782     $ 296,966  
Cost of revenue 44,487     47,160     139,019     134,665  
Intangibles amortization 1,642     8,117     5,126     11,440  
Gross profit $ 67,748     $ 47,526     $ 200,637     $ 150,861  
Gross profit margin 59.5 %   46.2 %   58.2 %   50.8 %
               


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
               
  Three Months Ended   Nine Months Ended
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
Neuro:              
GAAP Gross Profit $ 42,790       $ 27,200       $ 125,871       $ 89,513    
Amortization of intangibles 750       7,163       2,274       8,869    
COVID-19 relief (27 )           (149 )        
Restructuring and other non-recurring costs 87       1,588       1,724       2,292    
Non-GAAP Gross Profit $ 43,600       $ 35,951       $ 129,720       $ 100,674    
Non-GAAP Gross Margin 62.2    %   61.2    %   61.8    %   60.0    %
               
Newborn Care:              
GAAP Gross Profit $ 14,438       $ 13,204       $ 44,528       $ 40,977    
Amortization of intangibles       66       135       193    
Recall accrual and remediation efforts       (366 )           (366 )  
Restructuring and other non-recurring costs       322       363       322    
Non-GAAP Gross Profit $ 14,438       $ 13,226       $ 45,026       $ 41,126    
Non-GAAP Gross Margin 59.0    %   51.4    %   58.8    %   53.5    %
               
Hearing & Balance:              
GAAP Gross Profit $ 10,520       $ 7,122       $ 30,238       $ 20,371    
Amortization of intangibles 892       888       2,717       2,378    
COVID-19 relief (55 )           (335 )        
Restructuring and other non-recurring costs 49       547       282       1,619    
Non-GAAP Gross Profit $ 11,406       $ 8,557       $ 32,902       $ 24,368    
Non-GAAP Gross Margin 58.9    %   46.7    %   56.3    %   46.5    %
               
Consolidated:              
GAAP Gross Profit $ 67,748       $ 47,526       $ 200,637       $ 150,861    
Amortization of intangibles 1,642       8,117       5,126       11,440    
Recall accrual and remediation efforts       (366 )           (366 )  
COVID-19 relief (82 )           (484 )        
Restructuring and other non-recurring costs 136       2,457       2,369       4,233    
Non-GAAP Gross Profit $ 69,444       $ 57,734       $ 207,648       $ 166,168    
Non-GAAP Gross Margin 61.0    %   56.2    %   60.2    %   56.0    %


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
               
  Three Months Ended   Nine Months Ended
  September 30,
2021
  September 30,
2020
  September 30,
2021
  September 30,
2020
Consolidated Revenue:              
United States $ 72,114     $ 63,553     $ 210,624     $ 183,181  
International 41,763     39,250     134,158     113,785  
Totals $ 113,877     $ 102,803     $ 344,782     $ 296,966  
               
United States 63 %   62 %   61 %   62 %
International 37 %   38 %   39 %   38 %
Totals 100 %   100 %   100 %   100 %


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Source: Natus Medical Incorporated