Bay Street News

Natus Medical Announces Fourth Quarter and Full Year 2018 Financial Results

PLEASANTON, Calif., Feb. 13, 2019 (GLOBE NEWSWIRE) — Natus Medical Incorporated (NASDAQ: BABY) (the “Company” or “Natus”) today announced financial results for the three months and full year ended December 31, 2018.

For the fourth quarter ended December 31, 2018, the Company reported revenue of $141.0 million, an increase of 7.3% compared to $131.4 million reported for the fourth quarter 2017. GAAP gross profit margin was 56.9% vs. 56.4% in the fourth quarter 2017. GAAP net loss was $11.6 million, or $0.35 per share, compared with GAAP net loss of $7.1 million, or $0.22 per share in the fourth quarter 2017.

Non-GAAP earnings per diluted share was $0.43 for the fourth quarter 2018, compared to $0.42 in the fourth quarter 2017. Non-GAAP net income was $14.5 million for the fourth quarter 2018 compared to the prior year’s fourth quarter non-GAAP net income of $14.0 million. Non-GAAP gross profit margin was 58.2% in 2018 compared to 60.4% reported for the fourth quarter of 2017.

For the full year ended December 31, 2018, the Company reported revenue of $530.9 million, an increase of 6.0% compared to $501.0 million reported for the same period in 2017. GAAP gross profit margin was 57.3% in 2018 compared to 56.1% reported in 2017. GAAP net loss was $22.9 million, or $0.69 per share, compared with GAAP net loss of $20.3 million, or $0.62 per share in the same period in 2017.

Non-GAAP earnings per diluted share was $1.42 for the full year ended December 31, 2018, compared to $1.45 in 2017. The Company reported non-GAAP net income of $47.5 million for the year ended December 31, 2018, compared to the prior year’s non-GAAP net income of $48.1 million.

Cash flow from operations during the three months ended December 31, 2018 was $14.1 million and the Company repaid $10.0 million of outstanding debt during the fourth quarter of 2018.

“Record revenue during the fourth quarter 2018 was driven by strong demand across multiple product and market segments. We saw particular strength in our U.S. neurodiagnostics and international hearing assessment markets,” said Jonathan Kennedy, President and Chief Executive Officer of Natus. “Shipments of Otoscan during the fourth quarter more than doubled last quarter when the product was launched and we ended the year with over 180 Otoscan devices in the field. We remain very encouraged by the ramping adoption of our new digital ear scanning technology.”

“The Natus team is truly energized by our recently announced “One Natus” initiative to create a single unified company through consolidation of our three core business units.  This ongoing effort will make Natus a stronger, higher quality and more efficient competitor in the rapidly changing medical device market.  The new organization will continue to advance our proven go-to-market strategies while leveraging common engineering, operations and supply chain infrastructure,” Kennedy concluded.

Financial Guidance

For the first quarter of 2019, the Company’s revenue guidance is expected to be between $111.0 million and $115.0 million and non-GAAP earnings per share guidance is expected to be between $0.01 and $0.08.

For the full year 2019, the Company’s revenue guidance is expected to be between $490.0 million and $510.0 million and non-GAAP earnings per share guidance is expected to be between $1.12 and $1.49.

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 $6.7 million and $19.8 million for the first quarter 2019 and full year, respectively, and which the Company expects will reduce GAAP earnings per share by approximately $0.21 and $0.61 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: 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. Other non-recurring costs are associated with the transition of the executive management team. These costs can include stock compensation from accelerated vesting of stock, severance payouts and related payroll expenses.  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, February 13, 2019. 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 8797211. 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 8797211. 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 medical devices and services used for the screening, treatment and monitoring of common medical conditions in newborn care, hearing, balance impairment, neurological dysfunction, neurosurgery and sleep disorders.

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 forward-looking statements include, without limitation, statements regarding creating a more efficient operating model, creating a stronger and more profitable company, enhancing focus on operational excellence, positioning the company for growth and driving long-term value for stakeholders. 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 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, 2017. 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)
               
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Revenue $ 140,991     $ 131,440     $ 530,891     $ 500,970  
Cost of revenue 58,103     54,761     217,952     213,376  
Intangibles amortization 2,689     2,590     8,924     6,380  
  Gross profit 80,199     74,089     304,015     281,214  
Gross profit margin 56.9 %   56.4 %   57.3 %   56.1 %
Operating expenses:              
  Marketing and selling 34,206     31,060     136,680     126,166  
  Research and development 15,296     13,724     61,482     51,822  
  General and administrative 13,632     16,923     70,599     74,424  
  Intangibles amortization 9,151     7,330     22,585     19,171  
  Restructuring 23,049     1     37,231     914  
       Total operating expenses 95,334     69,038     328,577     272,497  
Income (loss) from operations (15,135 )   5,051     (24,562 )   8,717  
Interest expense (1,545 )   (1,783 )   (6,785 )   (5,069 )
Other income (expense) (1,209 )   (516 )   (913 )   1,502  
Income (loss) before tax (17,889 )   2,752     (32,260 )   5,150  
Provision for income tax expense (benefit) (6,256 )   9,846     (9,325 )   25,443  
Net loss $ (11,633 )   $ (7,094 )   $ (22,935 )   $ (20,293 )
Loss per share:              
  Basic $ (0.35 )   $ (0.22 )   $ (0.69 )   $ (0.62 )
  Diluted $ (0.35 )   $ (0.22 )   $ (0.69 )   $ (0.62 )
Weighted-average shares:              
  Basic 33,495     32,648     33,111     32,564  
  Diluted 33,495     32,648     33,111     32,564  

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
           
  December 31,   September 30,   December 31,
  2018   2018   2017
ASSETS          
           
Current assets:          
Cash and investments $ 56,373     $ 54,440     $ 88,950  
Accounts receivable 127,041     121,113     126,809  
Inventories 79,736     80,586     71,529  
Other current assets 22,625     30,843     18,340  
Total current assets 285,775     286,982     305,628  
           
Property and equipment 22,913     21,564     22,071  
Goodwill and intangible assets 287,097     318,618     345,580  
Deferred income tax 22,639     10,135     10,709  
Other assets 19,716     16,746     25,931  
Total assets $ 638,140     $ 654,045     $ 709,919  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable $ 28,805     $ 20,595     $ 25,242  
Short-term debt 35,000     20,000      
Accrued liabilities 52,568     52,015     51,738  
Deferred revenue 17,073     16,816     15,157  
Total current liabilities 133,446     109,426     92,137  
           
Long-term liabilities:          
Long-term debt 69,474     94,426     154,283  
Deferred income tax 16,931     18,896     19,407  
Other long-term liabilities 19,845     21,338     21,995  
Total liabilities 239,696     244,086     287,822  
Total stockholders’ equity 398,444     409,959     422,097  
Total liabilities and stockholders’ equity $ 638,140     $ 654,045     $ 709,919  

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
           
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Operating activities:              
Net loss $ (11,633 )   $ (7,095 )   $ (22,935 )   $ (20,293 )
Adjustments to reconcile net loss to net cash provided by operating activities:              
     Provision for losses on accounts receivable 1,038     1,313     6,909     10,017  
     Depreciation and amortization 8,211     9,239     33,863     30,098  
     Impairment of intangible assets 8,192     1,674     8,192     1,674  
     Goodwill impairment 14,846         14,846      
     (Gain) loss on disposal of property and equipment 336     (35 )   746     (21 )
     Warranty reserve 1,512     63     1,585     5,370  
     Share-based compensation 1,605     2,222     17,051     9,445  
     Changes in operating assets and liabilities:              
         Accounts receivable (8,154 )   (16,813 )   (5,199 )   (30,473 )
         Inventories (2,260 )   790     (7,443 )   7,581  
         Other assets 9,280     4,097     (5,118 )   5,492  
         Accounts payable 7,904     8,145     4,105     (1,385 )
         Accrued liabilities (2,912 )   13,958     (1,944 )   5,421  
         Deferred revenue 331     658     2,076     (7,232 )
         Deferred income tax (14,231 )   (12,738 )   (13,714 )   4,032  
             Net cash provided by operating activities 14,065     5,478     33,020     19,726  
Investing activities:              
     Acquisition of businesses, net of cash acquired     (48,296 )   151     (190,888 )
     Purchases of property and equipment (2,748 )   (1,317 )   (7,875 )   (4,066 )
     Purchase of intangible assets (28 )       (665 )    
     Sale of short-term investments             34,019  
             Net cash used in investing activities (2,776 )   (49,613 )   (8,389 )   (160,935 )
Financing activities:              
     Proceeds from stock option exercises and ESPP 933     1,219     11,448     3,466  
     Repurchase of common stock         (5,630 )   (2,268 )
     Taxes paid related to settlement of equity awards (10 )   (3,367 )   (5,183 )   (7,052 )
     Deferred debt issuance costs             (354 )
     Contingent consideration earn-out     (20 )   (147 )   (2,966 )
     Proceeds from long-term borrowings             60,000  
     Payments on borrowings (10,000 )       (50,000 )   (45,000 )
             Net cash provided by (used in) financing activities (9,077 )   (2,168 )   (49,512 )   5,826  
Exchange rate changes effect on cash and cash equivalents (279 )   2,848     (7,696 )   10,782  
Net Increase (decrease) in cash and cash equivalents 1,933     (43,455 )   (32,577 )   (124,601 )
Cash and cash equivalents, beginning of period 54,440     132,405     88,950     213,551  
Cash and cash equivalents, end of period $ 56,373     $ 88,950     $ 56,373     $ 88,950  

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
GAAP based results:              
Income (loss) before provision for income tax $ (17,889 )   $ 2,752     $ (32,260 )   $ 5,150  
               
Non-GAAP adjustments:              
Intangibles amortization – (COGS) 2,689     2,590     8,924     6,380  
Recall accrual and remediation efforts (COGS) 163     (437 )   1,538     3,507  
Restructuring and other non-recurring costs (COGS) 3,094         3,968     1,684  
Direct costs of acquisitions (COGS) (439 )   3,145     3,443     7,590  
Intangibles amortization – (OPEX) 9,151     7,330     22,591     19,171  
Direct costs of acquisitions (M&S) 7     467     431     129  
Recall accrual and remediation efforts (R&D) 1,328     1,066     6,203     7,637  
Direct costs of acquisitions (R&D) 43     100     277     125  
Restructuring and other non-recurring costs (OPEX) 19,514     1     37,834     5,401  
Direct costs of acquisitions (G&A) 223     1,813     3,691     4,183  
Restructuring and other non-recurring costs (OI)         366      
Direct costs of acquisitions (OI)             48  
Extraordinary annual meeting expenses         2,230      
Extraordinary patent litigation 310         1,306     1,642  
Non-GAAP income before provision for income tax 18,194     18,827     60,542     62,647  
               
Income tax expense, as adjusted $ 3,692     $ 4,866     $ 13,049     $ 14,537  
               
Non-GAAP net income $ 14,502     $ 13,961     $ 47,493     $ 48,110  
 Non-GAAP earnings per share:              
  Basic $ 0.43     $ 0.43     $ 1.43     $ 1.48  
  Diluted $ 0.43     $ 0.42     $ 1.42     $ 1.45  
               
Weighted-average shares used to compute              
  Basic non-GAAP earnings per share 33,495     32,648     33,111     32,564  
  Diluted non-GAAP earnings per share 33,658     33,225     33,455     33,129  

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
GAAP Gross Profit 80,199     74,089     304,015     281,214  
Amortization of intangibles 2,689     2,590     8,924     6,380  
Direct cost of acquisitions (439 )   3,145     3,443     7,590  
Recall accrual and remediation efforts 163     (437 )   1,538     3,507  
Restructuring and other non-recurring costs (548 )       326     1,684  
Non-GAAP Gross Profit 82,064     79,387     318,246     300,375  
Non-GAAP Gross Margin 58.2 %   60.4 %   59.9 %   60.0 %
               
GAAP Operating Profit (15,135 )   5,051     (24,562 )   8,717  
Amortization of intangibles 11,840     9,920     31,515     25,551  
Recall accrual and remediation efforts 1,491     629     7,741     11,144  
Extraordinary patent litigation 310         1,306     1,642  
Restructuring and other non-recurring costs 22,608     1     41,802     7,085  
Direct cost of acquisitions (166 )   5,525     7,842     12,027  
Extraordinary annual meeting expenses         2,230      
Non-GAAP Operating Profit 20,948     21,126     67,874     66,166  
Non-GAAP Operating Margin 14.9 %   16.1 %   12.8 %   13.2 %
               
GAAP Provision for income tax expense (benefit) (6,256 )   9,846     (9,325 )   25,443  
Effect of accumulated change of pretax income 24,704     8,244     20,003     13,343  
Effect of change in annual expected tax rate (16,719 )   (514 )   (2,599 )   (988 )
Repatriation tax adjustment 2,576     (22,188 )   2,676     (22,188 )
Stock-based compensation adjustment 79         1,701      
Tax audit reserve     (1,263 )       (1,263 )
Valuation Allowance for GAAP purposes (15 )   10,755     1,270      
Restructuring expenses (677 )       (677 )    
Effect on acquisition cost     (14 )       190  
Non-GAAP Income tax expense 3,692     4,866     13,049     14,537  
               
  Quarter Ended   Year Ended        
  March 31, 2019   December 31,
2019
       
GAAP EPS Guidance ($0.20) – ($0.13)   $0.51 – $0.88        
Amortization of Intangibles 0.21   0.72        
Restructuring and other non-recurring costs 0.06   0.08        
Tax effect (0.06)   (0.19)        
Non-GAAP EPS Guidance $0.01 – $0.08   $1.12 – $1.49        

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY BUSINESS UNIT (unaudited)
(in thousands)
       
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Neuro:              
Revenue $ 73,666     $ 68,189     $ 279,799     $ 243,143  
Cost of revenue 28,401     26,964     108,033     91,992  
Intangibles amortization 980     1,392     4,487     2,767  
  Gross profit 44,285     39,833     167,279     148,384  
Gross profit margin 60.1 %   58.4 %   59.8 %   61.0 %
               
Newborn care:              
Revenue $ 32,268     $ 35,223     $ 123,567     $ 143,631  
Cost of revenue 13,186     13,994     51,410     66,233  
Intangibles amortization 953     136     1,311     471  
  Gross profit 18,129     21,093     70,846     76,927  
Gross profit margin 56.2 %   59.9 %   57.3 %   53.6 %
               
Otometrics:              
Revenue $ 35,057     $ 28,028     $ 127,525     $ 114,196  
Cost of revenue 16,516     13,803     58,509     55,151  
Intangibles amortization 756     1,062     3,126     3,142  
  Gross profit 17,785     13,163     65,890     55,903  
Gross profit margin 50.7 %   47.0 %   51.7 %   49.0 %
               
Consolidated:              
Revenue $ 140,991     $ 131,440     $ 530,891     $ 500,970  
Cost of revenue 58,103     54,761     217,952     213,376  
Intangibles amortization 2,689     2,590     8,924     6,380  
  Gross profit 80,199     74,089     304,015     281,214  
Gross profit margin 56.9 %   56.4 %   57.3 %   56.1 %

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY BUSINESS UNIT (unaudited)
(in thousands)
               
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Neuro:              
GAAP Gross Profit 44,285     39,833     167,279     148,384  
Amortization of intangibles 980     1,392     4,487     2,767  
Acquisition charges (449 )   1,991     3,383     1,991  
Recall accrual and remediation efforts     (437 )       1,344  
Restructuring and other non-recurring costs 159         159      
Non-GAAP Gross Profit 44,975     42,779     175,308     154,486  
Non-GAAP Gross Margin 61.1 %   62.7 %   62.7 %   63.5 %
               
Newborn care:              
GAAP Gross Profit 18,129     21,093     70,846     76,927  
Amortization of intangibles 953     136     1,311     471  
Acquisition charges     484         484  
Recall accrual and remediation efforts 163         1,538     2,163  
Restructuring and other non-recurring costs (731 )       118     1,684  
Non-GAAP Gross Profit 18,514     21,713     73,813     81,729  
Non-GAAP Gross Margin 57.4 %   61.6 %   59.7 %   56.9 %
               
Otometrics:              
GAAP Gross Profit 17,785     13,163     65,890     55,903  
Amortization of intangibles 756     1,062     3,126     3,142  
Acquisition charges 10     670     60     5,115  
Restructuring and other non-recurring costs 24         49      
Non-GAAP Gross Profit 18,575     14,895     69,125     64,160  
Non-GAAP Gross Margin 53.0 %   53.1 %   54.2 %   56.2 %
               
Consolidated:              
GAAP Gross Profit 80,199     74,089     304,015     281,214  
Amortization of intangibles 2,689     2,590     8,924     6,380  
Acquisition charges (439 )   3,145     3,443     7,590  
Recall accrual and remediation efforts 163     (437 )   1,538     3,507  
Restructuring and other non-recurring costs (548 )       326     1,684  
Non-GAAP Gross Profit 82,064     79,387     318,246     300,375  
Non-GAAP Gross Margin 58.2 %   60.4 %   59.9 %   60.0 %

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
               
  Quarter Ended   Year Ended
  December 31,
2018
  December 31,
2017
  December 31,
2018
  December 31,
2017
Consolidated Revenue:              
United States 78,725     70,369     300,860     270,860  
International 62,266     61,071     230,031     230,110  
Totals 140,991     131,440     530,891     500,970  
               
United States 56 %   54 %   57 %   54 %
International 44 %   46 %   43 %   46 %
Totals 100 %   100 %   100 %   100 %