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Natus Medical Is All Grown Up

Brian Orelli, The Motley Fool

Natus Medical (NASDAQ: NTUS) continues its revamping, complete with a new ticker. While the old "BABY" ticker was a great pun for its legacy business, Natus has expanded well beyond its newborn hearing tests, into neurology and hearing aid fitting.

Natus Medical results: The raw numbers

Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Revenue

$125.5 million

$130.7 million

(4%)

Income from operations

$7.5 million

($3.8 million)

N/A

Earnings per share

$0.12

($0.08)

N/A

Data source: Natus Medical.

What happened with Natus Medical this quarter?

  • Excluding previously announced exits from businesses, revenue would have been up 5% year over year.
  • Sales in the neurology segment increased 1.7%, boosted by sales of electroencephalogram (EEG) devices, although that was muted by the exit from its ambulatory EEG video service called Global Neurodiagnostics and a 6% decline in sales of neurosurgery products.
  • Revenue from the newborn care market decreased 13%. The relaunch of Neoblue phototherapy products and growth in its Neometrics case management tool and Algo hearing screener product lines weren't enough to counter declines in the divestiture of Medix -- incubators, warmers, and the like -- and reduced billings for Peloton, its newborn hearing screening testing service.
  • Revenue from audiology products slipped 7.7%, although that was expected as it phased out old products and waits for international approval of new ones.
  • Natus was able to turn an operating profit, despite the lower revenue, by cutting general and administrative expenses by almost in half through its restructuring. All told, Natus expects to achieve a $4 million benefit this year as a result of the restructuring.
Mother and newborn in a hospital bed

Image source: Getty Images.

What management had to say

Jonathan Kennedy, Natus' president and CEO, highlighted the growth of Otoscan, the company's new digital scanner for hearing aid fitting:

This year was over $1 million in Q2 of revenue for the device. We continue to sell them into leading hearing aid dispensers. We have agreements with number of the manufacturers for hearing aids. And I'd say that, you know as I've said before, the build out and the growth of that market is going to -- always going to take some time. It's a new device, it's not a predicate out there, but I think the market is still very interested in. We've not seen really a slowdown in the interest of it, and so we're excited about it.

Kennedy also talked about the potential to get back to Natus' tradition of growing through acquisitions: "We are in much better shape today than we were several months ago in terms of an organization to be able to do that. I don't have any specific names or areas to comment on, but I would say that remains a part of our longer-term growth strategy, even though we've sort of pulled back here recently."

Looking forward

Management tightened 2019 guidance and now expects revenue of $492 million and $500 million, from previous guidance of $489 million to $505 million. Adjusted earnings-per-share guidance was also tightened to between $1.19 and $1.32, from $1.17 to $1.44.

Longer term, lapping the divestitures should help Natus get back to year-over-year revenue growth, but substantial growth is likely to come from acquisitions, as Kennedy hinted at.

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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.