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Update to Natus Medical First Quarter 2019 Financial Results

  • GAAP loss per share changed to $0.89 from $0.74
  • No change to non-GAAP earnings per share

PLEASANTON, Calif., May 06, 2019 (GLOBE NEWSWIRE) -- Natus Medical Incorporated (BABY) (the “Company” or “Natus”), a leading provider of medical devices and services, today announced an update to its previously announced financial results for the three months ended March 31, 2019. After the release of its financial results on April 25th, the Company identified non-cash currency translation adjustments and related tax effects that should have been accounted for in connection with the impairment charge for the divestiture of Medix. The additional impairment was identified through the Company's internal reconciliation process and resulted in an additional non-cash restructuring charge of $5.2 million, net of tax, related to deferred currency translation adjustments, for the three months ended March 31, 2019, resulting in a net loss of $30.0 million for the quarter (compared to $24.8 million previously reported) or $0.89 per share (compared to $0.74 per share previously reported). There was no impact to non-GAAP net income for the quarter. The financial statements within today's press release include the impact of this update, which will also be reflected in our Form 10-Q for the first quarter ending March 31, 2019. The Company also reclassified the assets and liabilities of Medix to held for sale on the balance sheet, which did not impact earnings per share.

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.

About Natus Medical Incorporated

Natus is a leading provider of neurology, newborn care, and hearing and balance assessment healthcare products and services used for the screening, treatment and monitoring of common medical conditions in newborn care, hearing, balance impairment, neurological dysfunction, 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, 2018. 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
  March 31, 2019   March 31, 2018
Revenue $ 114,757     $ 128,609  
Cost of revenue 46,370     55,369  
Intangibles amortization 1,756     1,587  
Gross profit 66,631     71,653  
Gross profit margin 58.1 %   55.7 %
Operating expenses:      
Marketing and selling 33,729     35,872  
Research and development 13,058     15,443  
General and administrative 16,305     17,448  
Intangibles amortization 3,786     4,806  
Restructuring 37,372     812  
Total operating expenses 104,250     74,381  
Income (loss) from operations (37,619 )   (2,728 )
Interest expense (1,506 )   (1,949 )
Other income (expense) (606 )   128  
Income (loss) before tax (39,731 )   (4,549 )
Provision for income tax expense (benefit) (9,730 )   (1,401 )
Net loss $ (30,001 )   $ (3,148 )
Loss per share:      
Basic $ (0.89 )   $ (0.10 )
Diluted $ (0.89 )   $ (0.10 )
Weighted-average shares:      
Basic 33,590     32,760  
Diluted 33,590     32,760  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
       
  March 31,   December 31,
  2019   2018
ASSETS      
       
Current assets:      
Cash and investments $ 53,423     $ 56,373  
Accounts receivable 110,900     127,041  
Inventories 82,866     79,736  
Other current assets 26,793     22,625  
Total current assets 273,982     285,775  
       
Property and equipment 26,280     22,913  
Current portion of operating lease right-of-use assets 18,982      
Goodwill and intangible assets 279,595     287,097  
Deferred income tax 19,165     22,639  
Other assets 20,559     19,716  
Total assets $ 638,563     $ 638,140  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
       
Current liabilities:      
Accounts payable $ 25,103     $ 28,805  
Short-term debt 35,000     35,000  
Accrued liabilities 51,157     52,568  
Deferred revenue 19,017     17,073  
Current portion of operating lease liabilities 6,251      
Liabilities and accrued impairment held for sale 24,786      
Total current liabilities 161,314     133,446  
       
Long-term liabilities:      
Long-term debt 64,522     69,474  
Deferred income tax 8,467     16,931  
Operating lease liabilities 15,234      
Other long-term liabilities 21,325     19,845  
Total liabilities 270,862     239,696  
Total stockholders’ equity 367,701     398,444  
Total liabilities and stockholders’ equity $ 638,563     $ 638,140  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
       
  Quarter Ended
  March 31, 2019   March 31, 2018
Operating activities:      
Net loss $ (30,001 )   $ (3,148 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Provision for losses on accounts receivable 600     918  
Depreciation and amortization 7,711     7,915  
(Gain) loss on disposal of property and equipment 179     52  
Warranty reserve 354     (1,125 )
Share-based compensation 2,554     2,362  
Impairment charge on held for sale entity 24,571      
Changes in operating assets and liabilities:      
Accounts receivable 15,555     (2,242 )
Inventories (4,616 )   2,885  
Prepaid expenses and other assets (7,703 )   (5,390 )
Accounts payable (3,436 )   (622 )
Accrued liabilities (1,319 )   3,319  
Deferred revenue 1,982     1,314  
Deferred income tax 62     87  
Net cash provided by (used in) operating activities 6,493     6,325  
Investing activities:      
Purchases of property and equipment (2,461 )   (2,473 )
Net cash used in investing activities (2,461 )   (2,473 )
Financing activities:      
Proceeds from stock option exercises and ESPP 268     577  
Repurchase of common stock     (4,736 )
Taxes paid related to settlement of equity awards (1,567 )   (19 )
Principal payments of financing lease liability (165 )    
Contingent consideration earn-out     (147 )
Payments on borrowings (5,000 )   (25,000 )
Net cash used in financing activities (6,464 )   (29,325 )
Exchange rate changes effect on cash and cash equivalents (518 )   994  
Net decrease in cash and cash equivalents (2,950 )   (24,479 )
Cash and cash equivalents, beginning of period 56,373     88,950  
Cash and cash equivalents, end of period $ 53,423     $ 64,471  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
       
  Quarter Ended
  March 31, 2019   March 31, 2018
GAAP based results:      
Loss before provision for income tax $ (39,731 )   $ (4,549 )
       
Non-GAAP adjustments:      
Intangibles amortization (COGS) 1,756     1,587  
Recall accrual and remediation efforts (COGS) (255 )   268  
Restructuring and other non-recurring costs (COGS) 251      
Direct costs of acquisitions (COGS) 83     2,408  
Intangibles amortization (OPEX) 3,786     4,806  
Direct costs of acquisitions (M&S) 17     22  
Recall accrual and remediation efforts (R&D)     1,846  
Direct costs of acquisitions (R&D) 46     46  
Restructuring and other non-recurring costs (OPEX) 37,664     967  
Direct costs of acquisitions (G&A) 45     2,391  
Restructuring and other non-recurring costs (OI&E)     368  
Litigation (OPEX) 687     242  
Non-GAAP income before provision for income tax 4,349     10,402  
       
Income tax expense, as adjusted $ 1,241     $ 2,375  
       
Non-GAAP net income $ 3,108     $ 8,027  
Non-GAAP earnings per share:      
Basic $ 0.09     $ 0.25  
Diluted $ 0.09     $ 0.24  
       
Weighted-average shares used to compute      
Basic non-GAAP earnings per share 33,590     32,760  
Diluted non-GAAP earnings per share 33,709     33,149  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
         
    Quarter Ended
    March 31, 2019   March 31, 2018
GAAP Gross Profit   $ 66,631     $ 71,653  
Amortization of intangibles   1,756     1,587  
Direct cost of acquisitions   83     2,408  
Recall accrual and remediation efforts   (255 )   268  
Restructuring and other non-recurring costs   251      
Non-GAAP Gross Profit   $ 68,466     $ 75,916  
Non-GAAP Gross Margin   59.7 %   59.0 %
         
GAAP Operating Loss   $ (37,619 )   $ (2,728 )
Amortization of intangibles   5,542     6,393  
Recall accrual and remediation efforts   (255 )   2,114  
Litigation   687     242  
Restructuring and other non-recurring costs   37,915     967  
Direct cost of acquisitions   191     4,867  
Non-GAAP Operating Profit   $ 6,461     $ 11,855  
Non-GAAP Operating Margin   5.6 %   9.2 %
         
GAAP Income tax benefit   $ (9,730 )   $ (1,401 )
Effect of accumulated change of pretax income   3,044     3,721  
Effect of change in annual expected tax rate   (102 )   (53 )
Repatriation tax adjustment   (177 )   188  
Stock-based compensation adjustment       (80 )
Restructuring expenses   8,206      
Non-GAAP Income tax expense   $ 1,241     $ 2,375  
         
    Quarter Ended   Year Ended
    June 30, 2019   December 31, 2019
GAAP EPS Guidance   $0.10 -$0.17   ($0.25) - $0.02
Amortization of Intangibles   0.18   0.68
Restructuring and other non-recurring costs   0.01   1.16
Litigation     0.02
Direct cost of acquisitions   0.01   0.01
Tax effect   (0.05)   (0.45)
Non-GAAP EPS Guidance   $0.25 - $0.32   $1.17 - $1.44