Natus Medical Beats on Q4 Earnings

Zacks

Natus Medical Inc. (BABY) reported fourth-quarter 2013 adjusted earnings per share (EPS) of 37 cents, surpassing the Zacks Consensus Estimate of 32 cents by 15.6%. The fourth-quarter earnings also steered ahead of the prior-year quarter figure of 29 cents by 27.6%.

For full year 2013, net earnings were $22.9 million or 74 cents per share, as against $3.9 million or 13 cents per share in the previous year.

On a reported basis, Natus Medical posted net income of $9.1 million or 29 cents per share against $5.0 million or 17 cents per share in the fourth-quarter of 2012.


Revenue in Details

Revenues marginally fell 0.2% to $90.6 million in the quarter, but marginally ahead of the Zacks Consensus Estimate of $90 million. However, revenues amounting to $2.2 million, related to sale proceeds from one-time shipment of proprietary product to CareFusion Corporation (CFN) as part of the Nicolet acquisition, were included in fourth-quarter 2012 results. For full year 2013, revenues were $344.1 million, reflecting a growth of 17.7% from the prior year.

On a geographic basis, international revenues accounted for 43% of total revenue and were higher than expected in the quarter, on the back of robust growth recorded from the Pacific Rim region, supported by improving sales in the European market. On the other hand, domestic business accounted for 57% of total revenue showing signs of stabilization.

Revenues from the Neurology product line rose marginally by 0.8% to $59.8 million from $59.3 million in the prior-year quarter. The Neurology product line consists of products for diagnostic electroencephalography (:EEG), electromyography (:EMG), diagnostic sleep analysis or polysomnography (:PSG), intraoperative monitoring (:IOM) and transcranial doppler ultrasound technology. Revenues in this segment represented 66% of the total revenue in the quarter against 65% in the comparable year-ago period.

Revenues from Newborn Care went down 2.2% to $30.8 million in the quarter. Natus Medical derived 34% of its fourth-quarter revenues from Newborn Care that comprises of products for newborn care including hearing screening, brain injury, thermoregulation, jaundice management, and various disposable products, as well as products for diagnostic hearing assessment for children through adult populations and products to diagnose and assist in treating balance and mobility disorders.

Margin Trends

Natus Medical’s adjusted gross margin was 59.2% in the reported quarter, up 200 basis points (bps) year over year. The increase can be attributed to lower cost of revenue in the reported quarter.

Adjusted research and development (R&D) expenses were down 1.18% to $8.36 million, while adjusted marketing and selling expenses rose 1.11% to $23.3 million, for the quarter respectively.

Adjusted operating margin was 19.1%, reflecting a rise of 580 bps from the year-ago quarter. The improvement was driven by lower labor cost and increased operating leverage and efficiencies due to effective execution of acquisition strategy.

Financial Update

Natus Medical exited the quarter with cash and cash equivalents of $56.1million compared with $23.0 million at the end of 2012. Total debt (current and long term) stood at $38.0 million as of Dec 31, 2013, compared with 32.8 million as of Dec 31, 2012.

Guidance

Following an impressive fourth-quarter performance, Natus Medical provided both its revenue and EPS outlook for full year 2014. The company expects revenues to vary in the range of $345 million to $350 million. Natus Medical anticipates EPS in the range of $1.14 to $1.18, reflecting an increase from the company’s previous guidance of $1.12 to $1.16. These compared favorably with the 2014 Zacks Consensus Estimate of $348 for revenues and $1.18 for EPS.

Natus Medical also provided its guidance for the first quarter of 2014. The company expects revenues of $82 million to $86 million and EPS of 21 to 24 cents in the quarter. The Zacks Consensus Estimate for the quarter is pegged at $83 million for revenues and 25 cents for EPS.

Our Take

Natus Medical delivered an impressive performance in the fourth quarter on the back of its strong domestic and international presence.

We are encouraged by the company’s growth strategies as it intends to expand its business through organic growth. At the same time, Natus Medical seeks to achieve its operating objectives through increased focus on earnings and healthy cash generation.

The consistent focus to drive the top line and eventually occupy a leading position in both Newborn Care and Neurology products market reinforces investors’ confidence in the future growth potential of Natus Medical.

Currently, Natus Medical carries a Zacks Rank #2 (Buy). Other well-placed stocks that are worth a look in the medical instruments industry include Cepheid (CPHD) carrying a Zacks Rank #1 (Strong Buy), and Echo Therapeutics, Inc. (ECTE) with a Zacks Rank #2.
 

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