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Natus Medical Announces First Quarter 2020 Financial Results

Q1-2020

Key Results

Revenue (millions)

$109.4

• Generated $17.4 million in operating cash flow

GAAP loss per share

$0.11

• Increased cash on hand to $107 million

Non-GAAP EPS

$0.04

• Repurchased $10.5 million of stock during the quarter

• Provides COVID-19 operations update

PLEASANTON, Calif., April 30, 2020 (GLOBE NEWSWIRE) -- Natus Medical Incorporated (NTUS) (the “Company” or “Natus”), a leading provider of medical device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages, today announced financial results for the three months ended March 31, 2020.

For the first quarter ended March 31, 2020, the Company reported revenue of $109.4 million, a decrease of 4.7% compared to $114.8 million reported for the first quarter 2019. GAAP gross margin was 57.4% during the first quarter of 2020 compared to 57.9% in the first quarter 2019. GAAP net loss was $3.6 million, or $0.11 per share, compared with GAAP net loss of $30.4 million, or $0.90 per share in the first quarter 2019.

Non-GAAP earnings per diluted share was $0.04 for the first quarter 2020, compared to $0.08 in the first quarter 2019. Non-GAAP net income was $1.3 million compared to $2.7 million in the first quarter 2019. Non-GAAP gross margin was 59.2% in the first quarter 2020 compared to 59.5% reported for the first quarter of 2019.

Response to COVID-19 and Business Conditions

“Healthcare providers and patients continue to depend on our products and services every day. Our team members and partners are working tirelessly to maintain our supply chain and deliver our products and services, and I sincerely thank them for their steadfast commitment,” said Jonathan Kennedy, President and Chief Executive Officer of Natus. “The health and welfare of our employees, our customers and our partners remain our top priority.”

Operational Impacts

Natus has implemented safeguards in its facilities to protect team members, including social distancing practices, work from home and other measures consistent with specific regulatory requirements and guidance from health authorities. As an essential supplier of healthcare products and services, all of Natus's manufacturing, engineering and customer support functions remain fully operational and will continue to support customers with vital supplies, service and equipment. Natus has made strategic investments in inventory to help mitigate potential supply chain disruptions, and the Company has taken actions to reduce costs, including reducing travel and discretionary expenses. Natus will continue to prioritize spending to allow continued investment in products and services that are key elements of its strategy for profitable growth in the years ahead.

“Despite seeing significant impact from COVID-19 during the first quarter, our Neuro end market continued to perform well, growing 4.7% versus the same period last year. Our Newborn Care and Hearing & Balance end markets declined during the quarter due to a world-wide softening of demand. While this brought our total revenues to $109.4 million, less than we originally expected, we still maintained strong operating cash flow of $17.4 million,” Mr. Kennedy continued. “In addition to the cash flow generated from our business, we also drew an additional $60 million on our credit line as a precaution to ensure we have the necessary capital to continue to reliably serve our customers during an extended period of uncertainty.”

“Looking ahead, we expect each of our end markets to experience significant decreases in demand as a result of shelter in place orders and the resultant decline in economic activity. In 2019, we completed a restructuring of the Company and strengthened our balance sheet by generating over $60 million in cash from operations and paying down $55 million in debt. These actions, in addition to implementing further cost control measures, have put us in a strong financial position and have positioned us well to succeed through this historically challenging time.”

Financial Guidance

Natus’s financial results for the remainder of 2020 will be impacted by continued global economic uncertainty due to the COVID-19 pandemic. As such, the Company withdrew its earnings guidance on April 6, 2020 and is not providing a financial outlook for 2020 at this time.

Use of Non-GAAP Financial Measures

The Company presents in this release its non-GAAP net income, non-GAAP earnings per diluted 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 diluted share and non-GAAP operating profit: 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 a conference call to discuss this announcement beginning at 4:30 p.m. Eastern Time (1:30 p.m. Pacific Time) today, April 30, 2020. 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 3480569. 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 3480569. 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 device solutions focused on the diagnosis and treatment of central nervous and sensory system disorders for patients of all ages.

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 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 business, social and economic impact of the COVID-19 outbreak on the Company's business and results of operations, 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, 2019. 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)

Three Months Ended

March 31, 2020

March 31, 2019

Revenue

$

109,383

$

114,757

Cost of revenue

44,933

46,509

Intangibles amortization

1,668

1,756

Gross profit

62,782

66,492

Gross profit margin

57.4

%

57.9

%

Operating expenses:

Marketing and selling

30,730

33,729

Research and development

17,569

13,394

General and administrative

13,182

16,306

Intangibles amortization

3,661

3,786

Restructuring

871

37,372

Total operating expenses

66,013

104,587

Loss from operations

(3,231

)

(38,095

)

Interest expense

(717

)

(1,506

)

Other expense

(777

)

(606

)

Loss before tax

(4,725

)

(40,207

)

Provision for income tax benefit

(1,128

)

(9,809

)

Net loss

$

(3,597

)

$

(30,398

)

Loss per share:

Basic

$

(0.11

)

$

(0.90

)

Diluted

$

(0.11

)

$

(0.90

)

Weighted-average shares:

Basic

33,800

33,590

Diluted

33,800

33,590


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands)

March 31,

December 31,

2020

2019

ASSETS

Current assets:

Cash and investments

$

107,016

$

63,297

Accounts receivable

101,219

115,889

Inventories

74,808

71,368

Other current assets

19,671

19,195

Total current assets

302,714

269,749

Property and equipment

26,267

24,702

Operating lease right-of-use assets

14,198

15,046

Goodwill and intangible assets

253,374

261,166

Deferred income tax

30,176

30,355

Other assets

20,741

21,509

Total assets

$

647,470

$

622,527

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

33,284

$

27,253

Current portion of long-term debt

35,000

35,000

Accrued liabilities

45,255

54,451

Deferred revenue

22,823

20,246

Current portion of operating lease liabilities

5,727

5,871

Total current liabilities

142,089

142,821

Long-term liabilities:

Long-term debt

64,713

19,665

Deferred income tax

14,035

14,251

Operating lease liabilities

11,212

12,051

Other long-term liabilities

17,268

17,616

Total liabilities

249,317

206,404

Total stockholders’ equity

398,153

416,123

Total liabilities and stockholders’ equity

$

647,470

$

622,527


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Operating activities:

Net loss

$

(3,597

)

$

(30,398

)

Adjustments to reconcile net loss to net cash provided by operating activities:

Provision for losses on accounts receivable

178

600

Loss on commencement of sales-type leases

295

Depreciation and amortization

6,994

7,711

Loss on disposal of property and equipment

42

179

Warranty reserve

704

354

Share-based compensation

2,291

2,554

Impairment charge for held for sale assets

24,571

Changes in operating assets and liabilities:

Accounts receivable

15,956

15,555

Inventories

(3,443

)

(4,476

)

Prepaid expenses and other assets

(1,060

)

(7,367

)

Accounts payable

6,038

(3,436

)

Accrued liabilities

(9,329

)

(1,319

)

Deferred revenue

2,190

1,982

Deferred income tax

103

(17

)

Net cash provided by operating activities

17,362

6,493

Investing activities:

Purchase of property and equipment

(3,575

)

(2,461

)

Net cash used in investing activities

(3,575

)

(2,461

)

Financing activities:

Proceeds from stock option exercises and ESPP

268

Repurchase of common stock

(10,495

)

Taxes paid related to settlement of equity awards

(1,883

)

(1,567

)

Principal payments of financing lease liability

(133

)

(165

)

Proceeds from long-term borrowings

60,000

Payments on borrowings

(15,000

)

(5,000

)

Net cash provided by (used in) financing activities

32,489

(6,464

)

Exchange rate changes effect on cash and cash equivalents

(2,557

)

(518

)

Net increase (decrease) in cash and cash equivalents

43,719

(2,950

)

Cash and cash equivalents, beginning of period

63,297

56,373

Cash and cash equivalents, end of period

$

107,016

$

53,423


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)

(in thousands, except per share amounts)

Three Months Ended

March 31, 2020

March 31, 2019

GAAP based results:

Loss before provision for income tax

$

(4,725

)

$

(40,207

)

Non-GAAP adjustments:

Intangibles amortization (COGS)

1,668

1,756

Recall accrual and remediation efforts (COGS)

(255

)

Restructuring and other non-recurring costs (COGS)

290

251

Direct costs of acquisitions (COGS)

83

Intangibles amortization (OPEX)

3,661

3,786

Direct costs of acquisitions (OPEX)

108

Restructuring and other non-recurring costs (OPEX)

817

37,664

Litigation (OPEX)

687

Non-GAAP income before provision for income tax

1,711

3,873

Income tax expense, as adjusted

$

410

$

1,162

Non-GAAP net income

$

1,301

$

2,711

Non-GAAP earnings per share:

Basic

$

0.04

$

0.08

Diluted

$

0.04

$

0.08

Weighted-average shares used to compute

Basic non-GAAP earnings per share

33,800

33,590

Diluted non-GAAP earnings per share

33,886

33,709


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)

(in thousands, except per share amounts)

Three Months Ended


March 31, 2020

March 31, 2019

GAAP Gross Profit

$

62,782

$

66,492

Amortization of intangibles

1,668

1,756

Direct cost of acquisitions

83

Recall accrual and remediation efforts

(255

)

Restructuring and other non-recurring costs

290

251

Non-GAAP Gross Profit

$

64,740

$

68,327

Non-GAAP Gross Margin

59.2

%

59.5

%

GAAP Operating Loss

$

(3,231

)

$

(38,095

)

Amortization of intangibles

5,329

5,542

Recall accrual and remediation efforts

(255

)

Litigation

687

Restructuring and other non-recurring costs

1,107

37,915

Direct cost of acquisitions

191

Non-GAAP Operating Profit

$

3,205

$

5,985

Non-GAAP Operating Margin

2.9

%

5.2

%

GAAP Income Tax Benefit

$

(1,128

)

$

(9,809

)

Effect of accumulated change of pretax income

1,568

3,044

Effect of change in annual expected tax rate

(30

)

(102

)

Repatriation tax adjustment

(177

)

Restructuring and other expenses

8,206

Non-GAAP Income Tax Expense

$

410

$

1,162


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

GROSS MARGIN BY END MARKETS (unaudited)

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Neuro:

Revenue

$

65,321

$

62,390

Cost of revenue

26,532

23,059

Intangibles amortization

879

942

Gross profit

$

37,910

$

38,389

Gross profit margin

58.0

%

61.5

%

Newborn care:

Revenue

$

24,232

$

29,536

Cost of revenue

10,324

12,168

Intangibles amortization

63

66

Gross profit

$

13,845

$

17,302

Gross profit margin

57.1

%

58.6

%

Hearing & balance:

Revenue

$

19,830

$

22,831

Cost of revenue

8,077

11,282

Intangibles amortization

726

748

Gross profit

$

11,027

$

10,801

Gross profit margin

55.6

%

47.3

%

Consolidated:

Revenue

$

109,383

$

114,757

Cost of revenue

44,933

46,509

Intangibles amortization

1,668

1,756

Gross profit

$

62,782

$

66,492

Gross profit margin

57.4

%

57.9

%

Note: The revenue and gross margin for our AccuScreen® newborn hearing screening product has been reclassified from Hearing & Balance to Newborn Care for both the current and prior periods. Hearing & Balance was formerly named Audiology.


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP GROSS MARGIN BY END MARKETS (unaudited)

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Neuro:

GAAP Gross Profit

$

37,910

$

38,389

Amortization of intangibles

879

942

Acquisition charges

83

Non-GAAP Gross Profit

$

38,789

$

39,414

Non-GAAP Gross Margin

59.4

%

63.2

%

Newborn care:

GAAP Gross Profit

$

13,845

$

17,302

Amortization of intangibles

63

66

Recall accrual and remediation efforts

(255

)

Restructuring and other non-recurring costs

290

76

Non-GAAP Gross Profit

$

14,198

$

17,189

Non-GAAP Gross Margin

58.6

%

58.2

%

Hearing & balance:

GAAP Gross Profit

$

11,027

$

10,801

Amortization of intangibles

726

748

Restructuring and other non-recurring costs

175

Non-GAAP Gross Profit

$

11,753

$

11,724

Non-GAAP Gross Margin

59.3

%

51.4

%

Consolidated:

GAAP Gross Profit

$

62,782

$

66,492

Amortization of intangibles

1,668

1,756

Acquisition charges

83

Recall accrual and remediation efforts

(255

)

Restructuring and other non-recurring costs

290

251

Non-GAAP Gross Profit

$

64,740

$

68,327

Non-GAAP Gross Margin

59.2

%

59.5

%


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

GEOGRAPHIC REVENUE (unaudited)

(in thousands)

Three Months Ended

March 31, 2020

March 31, 2019

Consolidated Revenue:

United States

$

68,338

$

66,067

International

41,045

48,690

Totals

$

109,383

$

114,757

United States

62

%

58

%

International

38

%

42

%

Totals

100

%

100

%


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES

REVENUE AFTER EXITED PRODUCTS (unaudited)

(in millions)

Three Months Ended

Year Ended

March 31, 2020

March 31, 2019

December 31, 2019

December 31, 2018

Revenue

$

109.4

$

114.8

$

495.1

$

530.9

Newborn care*

(2.3

)

(4.5

)

(20.6

)

Neuro*

(0.8

)

(1.2

)

(14.3

)

Hearing & balance*

(0.1

)

(11.3

)

Revenue after exited products

$

109.4

$

111.7

$

489.3

$

484.7

*Newborn care, Neuro, and Hearing & balance include exited businesses (GND, Neurocom, Medix) and other end of sales products.