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Natus Medical Announces Fourth Quarter and Full Year 2018 Financial Results

  • 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  $500,970 
Cost of revenue58,103  54,761  217,952  213,376 
Intangibles amortization2,689  2,590  8,924  6,380 
  Gross profit80,199  74,089  304,015  281,214 
Gross profit margin56.9% 56.4% 57.3% 56.1%
Operating expenses:       
  Marketing and selling34,206  31,060  136,680  126,166 
  Research and development15,296  13,724  61,482  51,822 
  General and administrative13,632  16,923  70,599  74,424 
  Intangibles amortization9,151  7,330  22,585  19,171 
  Restructuring23,049  1  37,231  914 
       Total operating expenses95,334  69,038  328,577  272,497 
Income (loss) from operations(15,135) 5,051  (24,562) 8,717 
Interest expense(1,545) (1,783) (6,785) (5,069)
Other income (expense)(1,209) (516) (913) 1,502 
Income (loss) before tax(17,889) 2,752  (32,260) 5,150 
Provision for income tax expense (benefit)(6,256) 9,846  (9,325) 25,443 
Net loss$(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:       
  Basic33,495  32,648  33,111  32,564 
  Diluted33,495  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 receivable127,041  121,113  126,809 
Inventories79,736  80,586  71,529 
Other current assets22,625  30,843  18,340 
Total current assets285,775  286,982  305,628 
      
Property and equipment22,913  21,564  22,071 
Goodwill and intangible assets287,097  318,618  345,580 
Deferred income tax22,639  10,135  10,709 
Other assets19,716  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 debt35,000  20,000   
Accrued liabilities52,568  52,015  51,738 
Deferred revenue17,073  16,816  15,157 
Total current liabilities133,446  109,426  92,137 
      
Long-term liabilities:     
Long-term debt69,474  94,426  154,283 
Deferred income tax16,931  18,896  19,407 
Other long-term liabilities19,845  21,338  21,995 
Total liabilities239,696  244,086  287,822 
Total stockholders’ equity398,444  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 receivable1,038  1,313  6,909  10,017 
     Depreciation and amortization8,211  9,239  33,863  30,098 
     Impairment of intangible assets8,192  1,674  8,192  1,674 
     Goodwill impairment14,846    14,846   
     (Gain) loss on disposal of property and equipment336  (35) 746  (21)
     Warranty reserve1,512  63  1,585  5,370 
     Share-based compensation1,605  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 assets9,280  4,097  (5,118) 5,492 
         Accounts payable7,904  8,145  4,105  (1,385)
         Accrued liabilities(2,912) 13,958  (1,944) 5,421 
         Deferred revenue331  658  2,076  (7,232)
         Deferred income tax(14,231) (12,738) (13,714) 4,032 
             Net cash provided by operating activities14,065  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 ESPP933  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 equivalents1,933  (43,455) (32,577) (124,601)
Cash and cash equivalents, beginning of period54,440  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 litigation310    1,306  1,642 
Non-GAAP income before provision for income tax18,194  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 share33,495  32,648  33,111  32,564 
  Diluted non-GAAP earnings per share33,658  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 Profit80,199  74,089  304,015  281,214 
Amortization of intangibles2,689  2,590  8,924  6,380 
Direct cost of acquisitions(439) 3,145  3,443  7,590 
Recall accrual and remediation efforts163  (437) 1,538  3,507 
Restructuring and other non-recurring costs(548)   326  1,684 
Non-GAAP Gross Profit82,064  79,387  318,246  300,375 
Non-GAAP Gross Margin58.2% 60.4% 59.9% 60.0%
        
GAAP Operating Profit(15,135) 5,051  (24,562) 8,717 
Amortization of intangibles11,840  9,920  31,515  25,551 
Recall accrual and remediation efforts1,491  629  7,741  11,144 
Extraordinary patent litigation310    1,306  1,642 
Restructuring and other non-recurring costs22,608  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 Profit20,948  21,126  67,874  66,166 
Non-GAAP Operating Margin14.9% 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 income24,704  8,244  20,003  13,343 
Effect of change in annual expected tax rate(16,719) (514) (2,599) (988)
Repatriation tax adjustment2,576  (22,188) 2,676  (22,188)
Stock-based compensation adjustment79    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 expense3,692  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 Intangibles0.21 0.72    
Restructuring and other non-recurring costs0.06 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 revenue28,401  26,964  108,033  91,992 
Intangibles amortization980  1,392  4,487  2,767 
  Gross profit44,285  39,833  167,279  148,384 
Gross profit margin60.1% 58.4% 59.8% 61.0%
        
Newborn care:       
Revenue$32,268  $35,223  $123,567  $143,631 
Cost of revenue13,186  13,994  51,410  66,233 
Intangibles amortization953  136  1,311  471 
  Gross profit18,129  21,093  70,846  76,927 
Gross profit margin56.2% 59.9% 57.3% 53.6%
        
Otometrics:       
Revenue$35,057  $28,028  $127,525  $114,196 
Cost of revenue16,516  13,803  58,509  55,151 
Intangibles amortization756  1,062  3,126  3,142 
  Gross profit17,785  13,163  65,890  55,903 
Gross profit margin50.7% 47.0% 51.7% 49.0%
        
Consolidated:       
Revenue$140,991  $131,440  $530,891  $500,970 
Cost of revenue58,103  54,761  217,952  213,376 
Intangibles amortization2,689  2,590  8,924  6,380 
  Gross profit80,199  74,089  304,015  281,214 
Gross profit margin56.9% 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 Profit44,285  39,833  167,279  148,384 
Amortization of intangibles980  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 costs159    159   
Non-GAAP Gross Profit44,975  42,779  175,308  154,486 
Non-GAAP Gross Margin61.1% 62.7% 62.7% 63.5%
        
Newborn care:       
GAAP Gross Profit18,129  21,093  70,846  76,927 
Amortization of intangibles953  136  1,311  471 
Acquisition charges  484    484 
Recall accrual and remediation efforts163    1,538  2,163 
Restructuring and other non-recurring costs(731)   118  1,684 
Non-GAAP Gross Profit18,514  21,713  73,813  81,729 
Non-GAAP Gross Margin57.4% 61.6% 59.7% 56.9%
        
Otometrics:       
GAAP Gross Profit17,785  13,163  65,890  55,903 
Amortization of intangibles756  1,062  3,126  3,142 
Acquisition charges10  670  60  5,115 
Restructuring and other non-recurring costs24    49   
Non-GAAP Gross Profit18,575  14,895  69,125  64,160 
Non-GAAP Gross Margin53.0% 53.1% 54.2% 56.2%
        
Consolidated:       
GAAP Gross Profit80,199  74,089  304,015  281,214 
Amortization of intangibles2,689  2,590  8,924  6,380 
Acquisition charges(439) 3,145  3,443  7,590 
Recall accrual and remediation efforts163  (437) 1,538  3,507 
Restructuring and other non-recurring costs(548)   326  1,684 
Non-GAAP Gross Profit82,064  79,387  318,246  300,375 
Non-GAAP Gross Margin58.2% 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 States78,725  70,369  300,860  270,860 
International62,266  61,071  230,031  230,110 
Totals140,991  131,440  530,891  500,970 
        
United States56% 54% 57% 54%
International44% 46% 43% 46%
Totals100% 100% 100% 100%

 

Wednesday, February 13, 2019 - 07:00