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CST: 24/05/2019 00:28:05   

Natus Medical Announces First Quarter 2019 Financial Results

28 Days ago

  • First quarter revenue of $114.8 million
  • First quarter GAAP loss per share of $0.74; non-GAAP earnings per share of $0.09

PLEASANTON, Calif., April 25, 2019 (GLOBE NEWSWIRE) -- Natus Medical Incorporated (NASDAQ: BABY) (the “Company” or “Natus”), a leading provider of medical devices and services, today announced financial results for the three months ended March 31, 2019.

Key Results During the Quarter

  • Achieved high end of revenue expectations with earlier than expected completion of product registrations
  • GAAP and Non-GAAP gross margin increased due to better product mix and lower production costs
  • Announced our “One Natus” reorganization, streamlining our operations with expected benefits of over $4.0 million in 2019
  • Announced the exit of $26.4 million (fiscal year 2018) of non-profitable and non-core businesses (Neurocom, GND and Medix)
  • Generated $16.3 million in cash flow, excluding cash used for restructuring
  • Reduced long-term debt by $5.0 million

For the first quarter ended March 31, 2019, the Company reported revenue of $114.8 million, a decrease of 10.7% compared to $128.6 million reported for the first quarter 2018. GAAP gross profit margin was 58.1% during the first quarter of 2019 compared to 55.7% in the first quarter 2018. GAAP net loss was $24.8 million, or $0.74 per share, compared with GAAP net loss of $3.1 million, or $0.10 per share in the first quarter 2018.  The GAAP net loss includes a $14.8 million non-cash charge for foreign currency cumulative translation adjustment related to the divestiture of the Medix business in Argentina.

Non-GAAP earnings per diluted share was $0.09 for the first quarter 2019, compared to $0.24 in the first quarter 2018. Non-GAAP net income was $3.1 million for the first quarter 2019 compared to the prior year's first quarter non-GAAP net income of $8.0 million. Non-GAAP gross profit margin was 59.7% in the first quarter 2019 compared to 59.0% reported for the first quarter of 2018.

“Our first quarter results reflect performance at the high end of our expectations. Within our Neuro end market, EEG grew 12.5% year-over-year. Otoscan continued to ramp up in Audiology and our phototherapy products within Newborn care grew significantly with the relaunch of our neoBlue line of products,” said Jonathan Kennedy, President and Chief Executive Officer of Natus. “We have made progress on many fronts with our “One Natus” initiative since its announcement in January.  The new organization structure is in place and we have begun to realize financial benefits as well as improved operational efficiency of “One Natus” during the quarter.”

“Our previously announced divestiture of Medix marks another step toward making Natus more streamlined and profitable. This divestiture, along with those announced in January will reduce revenue, but increase our ongoing margins and earnings and allow us to focus on our best opportunities,” Kennedy continued. “Year-over-year revenue growth in the first quarter was 2.7% after adjusting for the exited businesses and discontinued products.”

Financial Guidance

For the second quarter of 2019, the Company's revenue guidance is expected to be between $121.0 million and $125.0 million and non-GAAP earnings per share guidance is expected to be between $0.25 and $0.32.

For the full year 2019, the Company's revenue expected guidance was updated to be between $489.0 million and $505.0 million from $490.0 million and $510.0 million and non-GAAP earnings expected per share guidance was updated to be between $1.17 and $1.44 from $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 $5.2 million and $37.7 million for the second quarter 2019 and full year, respectively, and which the Company expects will reduce GAAP earnings per share by approximately $0.15 and $1.12 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 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) today, April 25, 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 8493239. 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 8493239. 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 neurology, newborn care, and hearing and balance assessment healthcare products and services used for the screening, treatment and monitoring of common medical conditions in newborn care, hearing, balance impairment, neurological dysfunction, 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, 2018. 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
  March 31, 2019   March 31, 2018
Revenue $ 114,757     $ 128,609  
Cost of revenue 46,370     55,369  
Intangibles amortization 1,756     1,587  
Gross profit 66,631     71,653  
Gross profit margin 58.1 %   55.7 %
Operating expenses:      
Marketing and selling 33,729     35,872  
Research and development 13,058     15,443  
General and administrative 16,306     17,448  
Intangibles amortization 3,786     4,806  
Restructuring 23,939     812  
Total operating expenses 90,818     74,381  
Income (loss) from operations (24,187 )   (2,728 )
Interest expense (1,506 )   (1,949 )
Other income (expense) (605 )   128  
Income (loss) before tax (26,298 )   (4,549 )
Provision for income tax expense (benefit) (1,524 )   (1,401 )
Net loss $ (24,774 )   $ (3,148 )
Loss per share:      
Basic $ (0.74 )   $ (0.10 )
Diluted $ (0.74 )   $ (0.10 )
Weighted-average shares:      
Basic 33,590     32,760  
Diluted 33,590     32,760  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
       
  March 31,   December 31,
  2019   2018
ASSETS      
       
Current assets:      
Cash and investments $ 54,035     $ 56,373  
Accounts receivable 111,956     127,041  
Inventories 84,927     79,736  
Other current assets 24,006     22,625  
Total current assets 274,924     285,775  
       
Property and equipment 26,280     22,913  
Operating lease right-of-use assets 18,982      
Goodwill and intangible assets 279,595     287,097  
Deferred income tax 22,522     22,639  
Other assets 21,331     19,716  
Total assets $ 643,634     $ 638,140  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
       
Current liabilities:      
Accounts payable $ 25,925     $ 28,805  
Short-term debt 35,000     35,000  
Accrued liabilities 72,800     52,568  
Deferred revenue 19,173     17,073  
Total current liabilities 152,898     133,446  
       
Long-term liabilities:      
Long-term debt 64,522     69,474  
Deferred income tax 16,699     16,931  
Operating lease liabilities 15,234      
Other long-term liabilities 21,351     19,845  
Total liabilities 270,704     239,696  
Total stockholders’ equity 372,930     398,444  
Total liabilities and stockholders’ equity $ 643,634     $ 638,140  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)
       
  Quarter Ended
  March 31, 2019   March 31, 2018
Operating activities:      
Net loss $ (24,775 )   $ (3,148 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Provision for losses on accounts receivable 600     918  
Depreciation and amortization 7,711     7,915  
(Gain) loss on disposal of property and equipment 179     52  
Warranty reserve 354     (1,125 )
Share-based compensation 2,554     2,362  
Impairment of intangible assets held for sale 354      
Reclassification of currency translation adjustment for held for sale entities 14,785      
Changes in operating assets and liabilities:      
Accounts receivable 14,499     (2,242 )
Inventories (7,421 )   2,885  
Prepaid expenses and other assets (677 )   (5,390 )
Accounts payable (2,613 )   (622 )
Accrued liabilities (685 )   3,319  
Deferred revenue 2,137     1,314  
Deferred income tax 103     87  
Net cash provided by (used in) operating activities 7,105     6,325  
Investing activities:      
Purchases of property and equipment (2,461 )   (2,473 )
Net cash used in investing activities (2,461 )   (2,473 )
Financing activities:      
Proceeds from stock option exercises and ESPP 268     577  
Repurchase of common stock     (4,736 )
Taxes paid related to settlement of equity awards (1,567 )   (19 )
Principal payments of financing lease liability (165 )    
Contingent consideration earn-out     (147 )
Payments on borrowings (5,000 )   (25,000 )
Net cash used in financing activities (6,464 )   (29,325 )
Exchange rate changes effect on cash and cash equivalents (518 )   994  
Net decrease in cash and cash equivalents (2,338 )   (24,479 )
Cash and cash equivalents, beginning of period 56,373     88,950  
Cash and cash equivalents, end of period $ 54,035     $ 64,471  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
       
  Quarter Ended
  March 31, 2019   March 31, 2018
GAAP based results:      
Loss before provision for income tax $ (26,298 )   $ (4,549 )
       
Non-GAAP adjustments:      
Intangibles amortization (COGS) 1,756     1,587  
Recall accrual and remediation efforts (COGS) (255 )   268  
Restructuring and other non-recurring costs (COGS) 251      
Direct costs of acquisitions (COGS) 83     2,408  
Intangibles amortization (OPEX) 3,786     4,806  
Direct costs of acquisitions (M&S) 17     22  
Recall accrual and remediation efforts (R&D)     1,846  
Direct costs of acquisitions (R&D) 46     46  
Restructuring and other non-recurring costs (OPEX) 24,231     967  
Direct costs of acquisitions (G&A) 45     2,391  
Restructuring and other non-recurring costs (OI&E)     368  
Litigation (OPEX) 687     242  
Non-GAAP income before provision for income tax 4,349     10,402  
       
Income tax expense, as adjusted $ 1,241     $ 2,375  
       
Non-GAAP net income $ 3,108     $ 8,027  
Non-GAAP earnings per share:      
Basic $ 0.09     $ 0.25  
Diluted $ 0.09     $ 0.24  
       
Weighted-average shares used to compute      
Basic non-GAAP earnings per share 33,590     32,760  
Diluted non-GAAP earnings per share 33,709     33,149  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
         
    Quarter Ended
    March 31, 2019   March 31, 2018
GAAP Gross Profit   $ 66,631     $ 71,653  
Amortization of intangibles   1,756     1,587  
Direct cost of acquisitions   83     2,408  
Recall accrual and remediation efforts   (255 )   268  
Restructuring and other non-recurring costs   251      
Non-GAAP Gross Profit   $ 68,466     $ 75,916  
Non-GAAP Gross Margin   59.7 %   59.0 %
         
GAAP Operating Loss   $ (24,187 )   $ (2,728 )
Amortization of intangibles   5,542     6,393  
Recall accrual and remediation efforts   (255 )   2,114  
Litigation   687     242  
Restructuring and other non-recurring costs   24,482     967  
Direct cost of acquisitions   191     4,867  
Non-GAAP Operating Profit   $ 6,460     $ 11,855  
Non-GAAP Operating Margin   5.6 %   9.2 %
         
GAAP Income tax benefit   $ (1,524 )   $ (1,401 )
Effect of accumulated change of pretax income   3,044     3,721  
Effect of change in annual expected tax rate   (102 )   (53 )
Repatriation tax adjustment   (177 )   188  
Stock-based compensation adjustment       (80 )
Non-GAAP Income tax expense   $ 1,241     $ 2,375  
         
    Quarter Ended   Year Ended
    June 30, 2019   December 31, 2019
GAAP EPS Guidance   $0.10 -$0.17   $0.05 - $0.32
Amortization of Intangibles   0.18   0.68
Restructuring and other non-recurring costs   0.01   0.77
Direct cost of acquisitions   0.01   0.01
Tax effect   (0.05)   (0.35)
Non-GAAP EPS Guidance   $0.25 - $0.32   $1.17 - $1.44


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
     
    Year Ended
    March 31, 2019   March 31, 2018
Neuro:        
Revenue   $ 62,390     $ 65,947  
Cost of revenue   23,089     27,894  
Intangibles amortization   942     650  
Gross profit   $ 38,359     $ 37,403  
Gross profit margin   61.5 %   56.7 %
         
Newborn care:        
Revenue   $ 26,879     $ 30,891  
Cost of revenue   11,038     11,708  
Intangibles amortization   66     120  
Gross profit   $ 15,775     $ 19,063  
Gross profit margin   58.7 %   61.7 %
         
Audiology:        
Revenue   $ 25,488     $ 31,771  
Cost of revenue   12,243     15,767  
Intangibles amortization   748     817  
Gross profit   $ 12,497     $ 15,187  
Gross profit margin   49.0 %   47.8 %
         
Consolidated:        
Revenue   $ 114,757     $ 128,609  
Cost of revenue   46,370     55,369  
Intangibles amortization   1,756     1,587  
Gross profit   $ 66,631     $ 71,653  
Gross profit margin   58.1 %   55.7 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
         
    Year Ended
    March 31, 2019   March 31, 2018
Neuro:        
GAAP Gross Profit   $ 38,359     $ 37,403  
Amortization of intangibles   942     650  
Acquisition charges   83     2,408  
Non-GAAP Gross Profit   $ 39,384     $ 40,461  
Non-GAAP Gross Margin   63.1 %   61.4 %
         
Newborn care:        
GAAP Gross Profit   $ 15,775     $ 19,063  
Amortization of intangibles   66     120  
Recall accrual and remediation efforts   (255 )   268  
Restructuring and other non-recurring costs   76      
Non-GAAP Gross Profit   $ 15,662     $ 19,451  
Non-GAAP Gross Margin   58.3 %   63.0 %
         
Audiology:        
GAAP Gross Profit   $ 12,497     $ 15,187  
Amortization of intangibles   748     817  
Restructuring and other non-recurring costs   175      
Non-GAAP Gross Profit   $ 13,420     $ 16,004  
Non-GAAP Gross Margin   52.7 %   50.4 %
         
Consolidated:        
GAAP Gross Profit   $ 66,631     $ 71,653  
Amortization of intangibles   1,756     1,587  
Acquisition charges   83     2,408  
Recall accrual and remediation efforts   (255 )   268  
Restructuring and other non-recurring costs   251      
Non-GAAP Gross Profit   $ 68,466     $ 75,916  
Non-GAAP Gross Margin   59.7 %   59.0 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
       
  Quarter Ended
  March 31, 2019   March 31, 2018
Consolidated Revenue:      
United States $ 66,067     $ 68,688  
International 48,690     59,921  
Totals $ 114,757     $ 128,609  
       
United States 58 %   53 %
International 42 %   47 %
Totals 100 %   100 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
REVENUE AFTER EXITED PRODUCTS (unaudited)
(in thousands)
               
  Quarter Ended   Year Ended
  March 31, 2019   March 31, 2018   December 31, 2018   December 31, 2017
Revenue $ 114.8     $ 128.6     $ 530.9     $ 501.0  
Newborn care (2.3 )   (6.1 )   (20.6 )   (35.0 )
Neuro (0.9 )   (3.3 )   (14.3 )   (14.6 )
Audiology     (6.5 )   (7.9 )   (6.9 )
Impact of ship holds 3.8              
Revenue after exited products/ship holds $ 115.5     $ 112.6     $ 488.1     $ 444.5  
               
Note: Newborn care, Neuro, and Audiology include exited businesses (GND, Neurocom, Medix) and other end of sales products.

 

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