BABY - Natus Medical Announces Fourth Quarter and Full Year 2018 Financial Results

February, 13 2019 07:00 AM Natus Medical Incorporated

Reports record fourth quarter revenue of $141.0 million
Reports fourth quarter GAAP loss per share of $0.35 and non-GAAP earnings per share of $0.43
Provides annual revenue and earnings guidance for 2019

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
%

Company Name:	Natus Medical Incorporated
Stock Symbol:	BABY
Market:	NASDAQ

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