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Update to Natus Medical Fourth Quarter and Full Year 2019 Financial Results

  • Fourth quarter GAAP earnings per diluted share changed to $0.09 from $0.10
  • Full year GAAP loss per diluted share changed to $0.47 from $0.42
  • Fourth quarter non-GAAP earnings per diluted share remained $0.46
  • Full year non-GAAP earnings per diluted share changed to $1.21 from $1.24

PLEASANTON, Calif., March 02, 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 an update to its previously announced financial results for the three months and full year ended December 31, 2019. After the release of its financial results on February 6, 2020, the Company identified and made certain immaterial corrections and related tax effects to its previously reported results. Some of these adjustments relate to quarters previously reported in 2019.

The adjustments resulted in a GAAP net income of $3.0 million for the fourth quarter of 2019 (compared to $3.2 million previously reported) or $0.09 per diluted share (compared to $0.10 previously reported) and a non-GAAP net income of $15.6 million (compared to $15.4 million previously reported) or $0.46 per diluted share (which remained the same as previously reported).

The adjustments resulted in a GAAP net loss of $15.7 million for the full year 2019 (compared to $14.1 million previously reported) or $0.47 per diluted share (compared to $0.42 previously reported) and non-GAAP net income of $40.8 million (compared to $42.0 million previously reported) or $1.21 per diluted share (compared to $1.24 previously reported).

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 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 forward-looking statements include, without limitation, statements regarding the Company's ability to achieve improvements in operational efficiency and to execute its strategic plans and the anticipated performance and product offerings of the Company's business units. 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, 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)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Revenue $ 131,416     $ 140,991     $ 495,175     $ 530,891  
Cost of revenue 49,259     58,103     196,551     217,952  
Intangibles amortization 1,679     2,689     6,916     8,924  
  Gross profit 80,478     80,199     291,708     304,015  
Gross profit margin 61.2 %   56.9 %   58.9 %   57.3 %
Operating expenses:              
  Marketing and selling 32,268     34,206     129,109     136,680  
  Research and development 17,567     15,296     58,733     61,482  
  General and administrative 15,261     13,632     59,649     70,599  
  Intangibles amortization 3,844     9,151     15,144     22,585  
  Restructuring 3,592     23,049     44,739     37,231  
  Total operating expenses 72,532     95,334     307,374     328,577  
Income (loss) from operations 7,946     (15,135 )   (15,666 )   (24,562 )
Interest expense (775 )   (1,545 )   (4,835 )   (6,785 )
Other income (expense) 105     (1,209 )   (756 )   (913 )
Income (loss) before tax 7,276     (17,889 )   (21,257 )   (32,260 )
Provision for income tax expense (benefit) 4,266     (6,256 )   (5,586 )   (9,325 )
Net income (loss) $ 3,010     $ (11,633 )   $ (15,671 )   $ (22,935 )
Earnings (loss) per share:              
  Basic $ 0.09     $ (0.35 )   $ (0.47 )   $ (0.69 )
  Diluted $ 0.09     $ (0.35 )   $ (0.47 )   $ (0.69 )
Weighted-average shares:              
  Basic 33,691     33,495     33,696     33,111  
  Diluted 33,829     33,495     33,696     33,111  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
           
  December 31,   September 30,   December 31,
  2019   2019 (1)   2018
ASSETS          
           
Current assets:          
Cash and investments $ 63,297     $ 63,062     $ 56,373  
Accounts receivable 115,889     108,964     127,041  
Inventories 71,368     75,311     79,736  
Other current assets 19,195     27,302     22,625  
Total current assets 269,749     274,639     285,775  
           
Property and equipment 24,702     25,095     22,913  
Operating lease right-of-use assets 15,046     16,059      
Goodwill and intangible assets 261,166     265,152     287,097  
Deferred income tax 30,355     21,955     22,639  
Other assets 21,509     25,984     19,716  
Total assets $ 622,527     $ 628,884     $ 638,140  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable $ 27,253     $ 30,097     $ 28,805  
Current portion of long-term debt 35,000     35,000     35,000  
Accrued liabilities 54,451     56,657     52,568  
Deferred revenue 20,246     19,242     17,073  
Current portion of operating lease liabilities 5,871     5,901      
Liabilities and accrued impairment held for sale          
Total current liabilities 142,821     146,897     133,446  
           
Long-term liabilities:          
Long-term debt 19,665     34,618     69,474  
Deferred income tax 14,251     8,129     16,931  
Operating lease liabilities 12,051     13,112      
Other long-term liabilities 17,616     20,200     19,845  
Total liabilities 206,404     222,956     239,696  
Total stockholders’ equity 416,123     405,928     398,444  
Total liabilities and stockholders’ equity $ 622,527     $ 628,884     $ 638,140  

(1) During the fourth quarter of 2019, we corrected certain previously reported financial information for the quarter September 30, 2019 related to accounting for certain research and development activities in an arrangement with a third party, certain immaterial invoice accruals, adjustments resulting from physical inventory observations, and the income tax impacts of the adjustments to these expenses. The immaterial adjustments resulted in an increase in inventory of $0.2 million, a decrease in prepaid expenses and other assets of $0.4 million, and a decrease in retained earnings of $0.2 million for the quarter ended September 30, 2019.


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)
           
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Operating activities:              
Net income (loss) $ 3,010     $ (11,633 )   $ (15,671 )   $ (22,935 )
Adjustments to reconcile net loss to net cash provided by operating activities:              
Provision for losses on accounts receivable 90     1,038     1,584     6,909  
Depreciation and amortization 7,776     8,211     30,722     33,863  
Goodwill impairment     14,846         14,846  
(Gain) loss on disposal of property and equipment (33 )   336     449     746  
Warranty reserve 298     2,095     2,886     2,168  
Share-based compensation 1,975     1,605     8,352     17,051  
Impairment of intangible assets     8,192         8,192  
Impairment charge for sale of entity         24,571      
Changes in operating assets and liabilities:              
Accounts receivable (7,473 )   (8,154 )   9,817     (5,199 )
Inventories 9,259     (2,260 )   7,185     (7,443 )
Prepaid expenses and other assets 7,041     9,280     (2,486 )   (5,118 )
Accounts payable (3,443 )   7,904     (1,367 )   4,105  
Accrued liabilities (5,083 )   (3,495 )   (4,010 )   (2,527 )
Deferred revenue 1,021     331     3,392     2,076  
Deferred income tax (2,291 )   (14,231 )   (5,364 )   (13,714 )
Net cash provided by operating activities 12,147     14,065     60,060     33,020  
Investing activities:              
Acquisition of businesses, net of cash acquired             151  
Purchases of property and equipment (1,454 )   (2,748 )   (5,326 )   (7,875 )
Purchase of intangible assets     (28 )   (13 )   (665 )
Net cash used in investing activities (1,454 )   (2,776 )   (5,339 )   (8,389 )
Financing activities:              
Proceeds from stock option exercises and ESPP 1,442     933     3,635     11,448  
Repurchase of common stock             (5,630 )
Taxes paid related to settlement of equity awards (93 )   (10 )   (1,689 )   (5,183 )
Principal payments of financing lease liability (74 )       (478 )    
Contingent consideration earn-out             (147 )
Payments on borrowings (15,000 )   (10,000 )   (50,000 )   (50,000 )
Net cash used in financing activities (13,725 )   (9,077 )   (48,532 )   (49,512 )
Exchange rate changes effect on cash and cash equivalents 3,267     (279 )   735     (7,696 )
Net decrease in cash and cash equivalents 235     1,933     6,924     (32,577 )
Cash and cash equivalents, beginning of period 63,062     54,440     56,373     88,950  
Cash and cash equivalents, end of period $ 63,297     $ 56,373     $ 63,297     $ 56,373  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
GAAP based results:              
Income (loss) before provision for income tax $ 7,276     $ (17,889 )   $ (21,257 )   $ (32,260 )
               
Non-GAAP adjustments:              
Intangibles amortization (COGS) 1,679     2,689     6,916     8,924  
Recall accrual and remediation efforts (COGS) (492 )   163     (425 )   1,538  
Restructuring and other non-recurring costs (COGS)     (548 )   989     326  
Direct costs of acquisitions (COGS) (159 )   (439 )   881     3,443  
Intangibles amortization (OPEX) 3,844     9,151     15,145     22,591  
Recall accrual and remediation efforts (R&D)     1,328         6,203  
Restructuring and other non-recurring costs (OPEX) 6,759     23,156     20,653     41,476  
Restructuring and other non-recurring costs (OI&E) (103 )       28,115     366  
Direct costs of acquisitions (OPEX) 617     273     1,573     4,399  
Extraordinary annual meeting expenses             2,230  
Litigation (OPEX) 185     310     887     1,306  
Non-GAAP income before provision for income tax 19,606     18,194     53,477     60,542  
               
Income tax expense, as adjusted $ 3,996     $ 3,692     $ 12,662     $ 13,049  
               
Non-GAAP net income $ 15,610     $ 14,502     $ 40,815     $ 47,493  
Non-GAAP earnings per share:              
Basic $ 0.46     $ 0.43     $ 1.21     $ 1.43  
Diluted $ 0.46     $ 0.43     $ 1.21     $ 1.42  
               
Weighted-average shares used to compute              
Basic non-GAAP earnings per share 33,691     33,495     33,696     33,111  
Diluted non-GAAP earnings per share 33,829     33,658     33,800     33,455  


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
GAAP Gross Profit $ 80,478     $ 80,199     $ 291,708     $ 304,015  
Amortization of intangibles 1,679     2,689     6,916     8,924  
Direct cost of acquisitions (159 )   (439 )   881     3,443  
Recall accrual and remediation efforts (492 )   163     (425 )   1,538  
Restructuring and other non-recurring costs     (548 )   989     326  
Non-GAAP Gross Profit $ 81,506     $ 82,064     $ 300,069     $ 318,246  
Non-GAAP Gross Margin 62.0 %   58.2 %   60.6 %   59.9 %
               
GAAP Operating Income (Loss) $ 7,946     $ (15,135 )   $ (15,666 )   $ (24,562 )
Amortization of intangibles 5,523     11,840     22,061     31,515  
Recall accrual and remediation efforts (492 )   1,491     (425 )   7,741  
Litigation 185     310     887     1,306  
Restructuring and other non-recurring costs 6,759     22,608     49,860     41,802  
Direct cost of acquisitions 458     (166 )   2,454     7,842  
Extraordinary annual meeting expenses             2,230  
Non-GAAP Operating Profit $ 20,379     $ 20,948     $ 59,171     $ 67,874  
Non-GAAP Operating Margin 15.5 %   14.9 %   11.9 %   12.8 %
               
GAAP Income Tax Benefit (Expense) $ 4,266     $ (6,256 )   $ (5,586 )   $ (9,325 )
Effect of accumulated change of pretax income 643     24,704     9,489     20,003  
Effect of change in annual expected tax rate (692 )   (16,719 )   (2,432 )   (2,599 )
Repatriation tax adjustment     2,576     (177 )   2,676  
Stock-based compensation adjustment     79         1,701  
Valuation allowance for GAAP purposes     (15 )       1,270  
Restructuring and other expenses (221 )   (677 )   11,368     (677 )
Non-GAAP Income Tax Expense $ 3,996     $ 3,692     $ 12,662     $ 13,049  
               
  Three Months
Ended
  Year Ended        
  March 31,
2020
  December 31,
2020
       
GAAP EPS Guidance $0.06 - $0.12   $0.89 - $0.99        
Amortization of intangibles 0.16   0.64        
Restructuring and other non-recurring costs 0.01   0.02        
Tax effect (0.04)   (0.10)        
Non-GAAP EPS Guidance $0.19 - $0.25   $1.45 - $1.55        


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS PROFIT MARGIN BY END MARKETS (unaudited)
(in thousands)
       
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Neuro:              
Revenue $ 81,057     $ 73,664     $ 287,236     $ 279,787  
Cost of revenue 28,929     28,273     104,336     107,845  
Intangibles amortization 883     980     3,702     4,487  
Gross profit $ 51,245     $ 44,411     $ 179,198     $ 167,455  
Gross profit margin 63.2 %   60.3 %   62.4 %   59.9 %
               
Newborn care:              
Revenue $ 27,807     $ 35,174     $ 110,912     $ 133,872  
Cost of revenue 10,073     13,634     45,283     57,054  
Intangibles amortization 64     953     257     1,311  
Gross profit $ 17,670     $ 20,587     $ 65,372     $ 75,507  
Gross profit margin 63.5 %   58.5 %   58.9 %   56.4 %
               
Hearing & balance:              
Revenue $ 22,552     $ 32,153     $ 97,027     $ 117,232  
Cost of revenue 10,257     16,196     46,932     53,053  
Intangibles amortization 732     756     2,957     3,126  
Gross profit $ 11,563     $ 15,201     $ 47,138     $ 61,053  
Gross profit margin 51.3 %   47.3 %   48.6 %   52.1 %
               
Consolidated:              
Revenue $ 131,416     $ 140,991     $ 495,175     $ 530,891  
Cost of revenue 49,259     58,103     196,551     217,952  
Intangibles amortization 1,679     2,689     6,916     8,924  
Gross profit $ 80,478     $ 80,199     $ 291,708     $ 304,015  
Gross profit margin 61.2 %   56.9 %   58.9 %   57.3 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Neuro:              
GAAP Gross Profit $ 51,245     $ 44,411     $ 179,198     $ 167,455  
Amortization of intangibles 883     980     3,702     4,487  
Acquisition charges (153 )   (449 )   887     3,383  
Recall accrual and remediation efforts (67 )       (67 )    
Restructuring and other non-recurring costs     159         159  
Non-GAAP Gross Profit $ 51,908     $ 45,101     $ 183,720     $ 175,484  
Non-GAAP Gross Margin 64.0 %   61.2 %   64.0 %   62.7 %
               
Newborn care:              
GAAP Gross Profit $ 17,670     $ 20,587     $ 65,372     $ 75,507  
Amortization of intangibles 64     953     257     1,311  
Recall accrual and remediation efforts (425 )   163     (996 )   1,538  
Restructuring and other non-recurring costs     (731 )   814     118  
Non-GAAP Gross Profit $ 17,309     $ 20,972     $ 65,447     $ 78,474  
Non-GAAP Gross Margin 62.2 %   59.6 %   59.0 %   58.6 %
               
Hearing & balance:              
GAAP Gross Profit $ 11,563     $ 15,201     $ 47,138     $ 61,053  
Amortization of intangibles 732     756     2,957     3,126  
Acquisition charges (6 )   10     (6 )   60  
Recall accrual and remediation efforts         638      
Restructuring and other non-recurring costs     24     175     49  
Non-GAAP Gross Profit $ 12,289     $ 15,991     $ 50,902     $ 64,288  
Non-GAAP Gross Margin 54.5 %   49.7 %   52.5 %   54.8 %
               
Consolidated:              
GAAP Gross Profit $ 80,478     $ 80,199     $ 291,708     $ 304,015  
Amortization of intangibles 1,679     2,689     6,916     8,924  
Acquisition charges (159 )   (439 )   881     3,443  
Recall accrual and remediation efforts (492 )   163     (425 )   1,538  
Restructuring and other non-recurring costs     (548 )   989     326  
Non-GAAP Gross Profit $ 81,506     $ 82,064     $ 300,069     $ 318,246  
Non-GAAP Gross Margin 62.0 %   58.2 %   60.6 %   59.9 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Consolidated Revenue:              
United States $ 79,344     $ 78,725     $ 292,400     $ 300,860  
International 52,072     62,266     202,775     230,031  
Totals $ 131,416     $ 140,991     $ 495,175     $ 530,891  
               
United States 60 %   56 %   59 %   57 %
International 40 %   44 %   41 %   43 %
Totals 100 %   100 %   100 %   100 %


 
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
REVENUE AFTER EXITED PRODUCTS (unaudited)
(in millions)
               
  Quarter Ended   Year Ended
  December 31,
2019
  December 31,
2018
  December 31,
2019
  December 31,
2018
Revenue $ 131.4     $ 141.0     $ 495.2     $ 530.9  
Newborn care* (0.4 )   (5.3 )   (4.5 )   (20.6 )
Neuro* (0.1 )   (3.4 )   (1.2 )   (14.3 )
Hearing & balance* (0.1 )   (1.5 )   (0.1 )   (11.3 )
Revenue after exited products $ 130.8     $ 130.8     $ 489.4     $ 484.7  
               
*Newborn care, Neuro, and Hearing & balance include exited businesses (GND, Neurocom, Medix) and other end of sales products.