Natus Medical Announces Second Quarter Financial Results

  • 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 revenue 52,897     54,589     108,266     111,502  
Intangibles amortization 2,717     1,500     4,305     2,500  
  Gross profit 75,039     66,138     146,690     132,885  
Gross profit margin 57.4%     54.1%     56.6%     53.8%  
Operating expenses:              
  Marketing and selling 33,401     30,354     69,273     62,569  
  Research and development 15,616     13,713     31,059     26,466  
  General and administrative 23,721     24,156     41,169     40,172  
  Intangibles amortization 4,151     3,885     8,957     7,959  
  Restructuring 1,938     307     2,750     593  
  Total operating expenses 78,827     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:              
  Basic 32,859     32,529     32,809     32,507  
  Diluted 32,859     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, net 122,971     128,056     126,809  
Inventories 76,630     74,543     71,529  
Other current assets 32,224     23,863     18,340  
Total current assets 286,733     290,933     305,628  
           
Property and equipment, net 21,645     22,618     22,071  
Goodwill and intangible assets 326,109     340,786     345,580  
Deferred income tax 10,296     10,632     10,709  
Other assets 18,855     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 liabilities 54,578     54,066     51,738  
Deferred revenue 17,188     16,615     15,157  
Total current liabilities 95,819     95,069     92,137  
           
Long-term liabilities:          
Long-term debt, net 119,379     129,331     154,283  
Deferred income tax 18,936     19,763     19,407  
Other long-term liabilities 21,970     21,925     21,995  
Total liabilities 256,104     266,088     287,822  
Total stockholders’ equity 407,534     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 receivable 3,171     5,353  
   Depreciation and amortization 8,779     7,075  
   Loss on disposal of property and equipment 108     (11 )
   Warranty reserve 2,100     2,902  
   Share-based compensation 3,219     2,219  
   Changes in operating assets and liabilities:      
       Accounts receivable 4,306     (6,532 )
       Inventories (5,369 )   1,470  
       Prepaid expenses and other assets (9,751 )   (1,709 )
       Accounts payable 258     352  
       Accrued liabilities (149 )   (2,245 )
       Deferred revenue 668     441  
       Deferred income tax 239     4,757  
           Net cash provided by operating activities 5,002     9,038  
Investing activities:      
   Acquisition of businesses, net of cash acquired 151     (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 purchases 4,515     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 period 64,471     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 expenses 2,214         2,214      
Extraordinary patent litigation 754     750     996     1,336  
Non-GAAP income before provision for income tax 14,346     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 share 32,859     32,529     32,809     32,507  
  Diluted non-GAAP earnings per share 33,241     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 Profit 75,039     66,138     146,690     132,885  
Amortization of intangibles 2,717     1,500     4,305     2,500  
Acquisition charges 1,072     2,401     3,480     4,370  
Recall accrual and remediation efforts 2,305     2,381     2,573     4,659  
Restructuring and other non-recurring costs (COGS)

27     1,684     27     1,684  
Non-GAAP Gross Profit 81,160     74,104     157,075     146,098  
Non-GAAP Gross Margin 62.1%     60.6%     60.6%     59.2%  
               
GAAP Operating Profit (3,788 )   (6,277 )   (6,518 )   (4,874 )
Amortization of intangibles 6,868     5,385     13,262     10,459  
Recall accrual and remediation efforts 4,046     4,787     6,160     9,762  
Extraordinary patent litigation 754     750     996     1,336  
Restructuring and other non-recurring costs 4,266     6,532     5,233     6,764  
Acquisition charges 2,386     3,222     7,253     5,247  
Extraordinary annual meeting expenses 2,214         2,214      
Non-GAAP Operating Profit 16,746     14,399     28,600     28,694  
Non-GAAP Operating Margin 12.8%     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 income 7,072     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 adjustment 911         831      
Effect on acquisition cost     204         204  
Non-GAAP Income tax expense, as adjusted 2,755     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 Intangibles 0.21     0.85          
Restructuring and other non-recurring costs     0.08          
Litigation     0.03          
Recall Accrual and Remediation Efforts 0.06     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 revenue 26,461     21,257     54,355     43,792  
Intangibles amortization 1,814     455     2,464     900  
  Gross profit 42,133     37,605     79,552     70,893  
Gross profit margin 59.8 %   63.4 %   58.3 %   61.3 %
               
Newborn care:              
Revenue $ 29,087     $ 34,108     $ 59,978     $ 74,742  
Cost of revenue 13,469     19,699     25,178     39,393  
Intangibles amortization 119     127     239     211  
  Gross profit 15,499     14,282     34,561     35,138  
Gross profit margin 53.3 %   41.9 %   57.6 %   47.0 %
               
Otometrics:              
Revenue $ 31,158     $ 28,802     $ 62,912     $ 56,560  
Cost of revenue 12,967     13,632     28,734     28,318  
Intangibles amortization 784     919     1,601     1,388  
  Gross profit 17,407     14,251     32,577     26,854  
Gross profit margin 55.9 %   49.5 %   51.8 %   47.5 %
               
Consolidated:              
Revenue $ 130,653     $ 122,227     $ 259,261     $ 246,887  
Cost of revenue 52,897     54,588     108,267     111,503  
Intangibles amortization 2,717     1,501     4,304     2,499  
  Gross profit 75,039     66,138     146,690     132,885  
Gross profit margin 57.4 %   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 Profit 42,133     37,605     79,552     70,893  
Amortization of intangibles 1,814     453     2,464     900  
Acquisition charges 1,022         3,430      
Recall accrual and remediation efforts             1,782  
Non-GAAP Gross Profit 44,969     38,058     85,446     73,575  
Non-GAAP Gross Margin 63.9%     64.2%     62.7%     63.7%  
               
Newborn care:              
GAAP Gross Profit 15,499     14,282     34,561     35,138  
Amortization of intangibles 119     128     239     212  
Recall accrual and remediation efforts 2,305     2,381     2,573     2,877  
Restructuring and other non-recurring costs 2     1,684     2     1,684  
Non-GAAP Gross Profit 17,925     18,475     37,375     39,911  
Non-GAAP Gross Margin 61.6%     54.2%     62.3%     53.4%  
               
Otometrics:              
GAAP Gross Profit 17,407     14,251     32,577     26,854  
Amortization of intangibles 784     919     1,602     1,388  
Acquisition charges 50     2,401     50     4,370  
Restructuring and other non-recurring costs 25         25      
Non-GAAP Gross Profit 18,266     17,571     34,254     32,612  
Non-GAAP Gross Margin 58.6%     61.0%     54.4%     57.7%  
               
Consolidated:              
GAAP Gross Profit 75,039     66,138     146,690     132,885  
Amortization of intangibles 2,717     1,500     4,305     2,500  
Acquisition charges 1,072     2,401     3,480     4,370  
Recall accrual and remediation efforts 2,305     2,381     2,573     4,659  
Restructuring and other non-recurring costs 27     1,684     27     1,684  
Non-GAAP Gross Profit 81,160     74,104     157,075     146,098  
Non-GAAP Gross Margin 62.1%     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 States 75,467     67,100     144,154     131,808  
International 55,186     55,127     115,107     115,079  
Totals 130,653     122,227     259,261     246,887  
               
United States 58%     55%     56%     53%  
International 42%     45%     44%     47%  
Totals 100%     100%     100%     100%  

 

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Source: Natus Medical Incorporated