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Natus Medical Continues Its Restructuring

Brian Orelli, The Motley Fool

Natus Medical (NASDAQ: BABY) continued its restructuring, which resulted in an ugly first quarter. Fortunately, with expectations low, investors were able to shrug it off in hopes that the medical device maker will be able to come out the other side a better company.

Natus Medical results: The raw numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Revenue

$114.8 million

$128.6 million

(10.7%)

Income from operations

($24.2 million)

($2.7 million)

N/A

Earnings per share (EPS)

($0.74)

($0.10)

N/A

Adjusted EPS

$0.09

$0.24

(62.5%)

Data source: Natus Medical.

What happened with Natus Medical this quarter?

  • The revenue decline was mostly driven by the previously announced exit of its NeuroCom Balance product line, and the ambulatory EEG video service called Global Neurodiagnostics (GND).
  • Lower revenue from the Medix business in Argentina also contributed to the decline. Earlier this month, after the close of the quarter, Natus announced plans to sell the low-margin Medix business to the subsidiary's employees.
  • There was also a year-over-year decline in sales of audiology products that were on hold pending product registrations, but most of those registrations were completed near the end of the first quarter, so their impact should wane in the quarters ahead.
  • Helping to balance out the declines, sales of EEG products increased 12.5% year over year.
  • The GAAP loss was almost entirely due to nearly $24 million in restructuring expenses -- $19 million for the divestiture of Medix and $4.6 million of severance in other parts of the company. Intangible amortization and other adjustments brought the adjusted EPS into the black.
A technician helps a woman with her hearing aid

Image source: Getty Images.

What management had to say

Natus' president and CEO Jonathan Kennedy highlighted the $4 million that the company plans to save this year as part of the restructuring, which it's dubbed One Natus: "I'm happy to report that we are on track to achieve these savings, and continue to expect additional ongoing annual benefits beyond 2019 that will enable us to achieve our immediate target model of ... 15% to 17% non-GAAP operating margin."

Kennedy also hinted that the cuts might not be done:

So a big part of One Natus is: This is a portfolio review, and trying to identify businesses that are not profitable and take up our time for no reward. And so you've seen us do that with the Medix business now, you've seen us do that with GND. We continue to look at the portfolio for other business that meets that criteria.

Looking forward

Management lowered 2019 guidance slightly: Revenue is now expected to come in between $489 million and $505 million, down from previous guidance of $490 million to $510 million. Adjusted earnings guidance was tightened to between $1.17 and $1.44 per share from previous guidance of $1.12 to $1.49 per share, although the new range is still pretty wide, and could signal the company's turnaround may take a while.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Natus Medical. The Motley Fool has a disclosure policy.