Q3-2020 Key Results
Revenue (millions)$102.8 
  • Revenue increased 21.3% compared to 2nd quarter
  • Generated $7.5 million in operating cash flow
  • Revenue declined 16.8% year over year
  • Reduced debt by $20.0 million during the quarter
GAAP loss per share$0.28 
Non-GAAP EPS$0.09 
   

PLEASANTON, Calif., Oct. 29, 2020 (GLOBE NEWSWIRE) -- Natus Medical Incorporated (NASDAQ: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 and nine months ended September 30, 2020.

For the third quarter ended September 30, 2020, the Company reported revenue of $102.8 million, a decline of 16.8% compared to $123.5 million reported for the third quarter 2019. GAAP gross margin was 46.2% during the third quarter of 2020 compared to 59.4% in the third quarter 2019. GAAP net loss was $9.3 million, or $0.28 loss per share, compared with GAAP net income of $8.2 million, or $0.24 earnings per diluted share in the third quarter 2019.

Non-GAAP gross margin was 56.2% in the third quarter 2020 compared to 61.5% reported for the third quarter of 2019. Non-GAAP earnings per diluted share was $0.09 for the third quarter 2020, compared to $0.35 in the third quarter 2019. Non-GAAP net income was $3.2 million in the third quarter 2020 compared to $11.9 million in the third quarter 2019.

For the nine months ended September 30, 2020, the Company reported revenue of $297.0 million, a decrease of 18.4% compared to $363.8 million reported for the same period in 2019. GAAP gross margin was 50.8% vs. 58.1% reported for the same period in 2019. GAAP net loss was $21.8 million for the nine months ended September 30, 2020, or $0.65 per share, compared with GAAP net loss of $18.7 million, or $0.55 per share in the same period in 2019.

Non-GAAP gross margin was 56.0% in 2020 vs. 60.1% reported for the same period in 2019. Non-GAAP earnings per diluted share was $0.00 for the nine months ended September 30, 2020, compared to $0.75 in the same period in 2019. The Company reported non-GAAP net income of $0.1 million for the nine months ended September 30, 2020, compared to prior year's non-GAAP net income of $25.2 million.

“We are very encouraged by the rate of business recovery in the third quarter. Our revenue grew by 21% compared to the second quarter of 2020. The revenue increase was led by Neuro and Hearing & Balance, respectively. Our Newborn Care end market continues to be the least impacted by the pandemic compared to last year. Although, revenues remain below historical levels, we generated $7.5 million of cash flows from operations, paid down $20.0 million of debt and returned to a net cash position. Looking ahead, we expect further business recovery in the fourth quarter,” said Jonathan Kennedy, President and Chief Executive Officer of Natus.

“We expect revenues from all three of our end markets to increase sequentially in the fourth quarter. Our supplies revenue increased sequentially 26% during the third quarter, indicating a return toward a more normal pace of hospital activity. Device sales increased from the previous quarter as well, up 21%, highlighting an increase in capital spending. Our backlog and pipeline rose in the fourth quarter compared the third quarter, increasing the confidence in our outlook for the fourth quarter,” Mr. Kennedy continued.

Financial Guidance

For the fourth quarter 2020, the Company's revenue guidance is expected to be between $104.0 million and $114.0 million and non-GAAP earnings per share guidance is expected to be between $0.19 and $0.31.

For the full year 2020, the Company's revenue guidance is expected to be between $401.0 million and $411.0 million and non-GAAP earnings per share guidance is expected to be between $0.20 and $0.31.

The Company's non-GAAP earnings per share guidance excludes charges for amortization expense associated with intangible assets from prior acquisitions, certain other expenses, and related tax effect, which the Company expects to be approximately $4.1 million and $26.1 million for the fourth quarter 2020 and full year, respectively, and which the Company expects will reduce GAAP earnings per share by approximately $0.12 and $0.77 for the respective periods.

Guidance for the fourth quarter assumes a steady, but gradual increase in our business and does not consider the potential of a significant COVID-19 resurgence and its impact, if any, on the economy and our customers.

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, October 29, 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 7889667. 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 7889667. 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 pandemic 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, Quarterly Report on Form 10-Q for the period ended March 31, 2020, and Quarterly Report on Form 10-Q for the period ended June 30, 2020. 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 Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Revenue$102,803    $123,463    $296,966    $363,759   
Cost of revenue47,160    48,389    134,665    147,291   
Intangibles amortization8,117    1,736    11,440    5,237   
  Gross profit47,526    73,338    150,861    211,231   
Gross profit margin46.2  % 59.4  % 50.8  % 58.1  %
Operating expenses:       
  Marketing and selling26,035    30,787    79,567    96,841   
  Research and development14,670    14,447    46,574    41,166   
  General and administrative12,384    15,394    36,754    44,390   
  Intangibles amortization4,025    3,751    11,330    11,300   
  Restructuring350    1,106    1,842    41,147   
    Total operating expenses57,464    65,485    176,067    234,844   
Income (loss) from operations(9,938)  7,853    (25,206)  (23,613) 
Interest expense(1,107)  (1,165)  (2,800)  (4,059) 
Other income (expense), net160    (444)  (398)  (862) 
Income (loss) before provision for (benefit from) income tax(10,885)  6,244    (28,404)  (28,534) 
Benefit from income tax(1,569)  (1,987)  (6,588)  (9,852) 
Net income (loss)$(9,316)  $8,231    $(21,816)  $(18,682) 
Net income (loss) per share:       
  Basic$(0.28)  $0.24    $(0.65)  $(0.55) 
  Diluted$(0.28)  $0.24    $(0.65)  $(0.55) 
Weighted-average shares:       
  Basic33,828    33,655    33,577    33,666   
  Diluted33,828    33,738    33,577    33,666   


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
    
 September 30, December 31,
 2020 2019
ASSETS   
    
Current assets:   
Cash and investments$74,536   $63,297  
Accounts receivable84,107   115,889  
Inventories80,135   71,368  
Other current assets27,740   19,195  
Total current assets266,518   269,749  
    
Property and equipment24,245   24,702  
Operating lease right-of-use assets11,960   15,046  
Goodwill and intangible assets241,746   261,166  
Deferred income tax28,749   30,355  
Other assets23,672   21,509  
Total assets$596,890   $622,527  
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
    
Current liabilities:   
Accounts payable$27,597   $27,253  
Current portion of long-term debt40,000   35,000  
Accrued liabilities39,034   54,451  
Deferred revenue20,034   20,246  
Current portion of operating lease liabilities5,343   5,871  
Total current liabilities132,008   142,821  
    
Long-term debt25,697   19,665  
Deferred income tax14,786   14,251  
Operating lease liabilities9,358   12,051  
Other long-term liabilities19,574   17,616  
Total liabilities201,423   206,404  
Total stockholders’ equity395,467   416,123  
Total liabilities and stockholders’ equity$596,890   $622,527  


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
      
 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Operating activities:       
Net income (loss)$(9,316)  $8,230    $(21,816)  $(18,682) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:       
Provision for losses on accounts receivable209    711    1,158    3,934   
Impairment of intangible assets6,678    —    6,678    —   
Depreciation and amortization7,312    7,519    20,989    22,946   
Loss on disposal of property and equipment127    —    149    482   
Warranty reserve(151)  911    1,129    2,588   
Share-based compensation2,395    1,915    7,059    6,377   
Loss on commencement of sales-type leases766    —    1,861    —   
Impairment charge for held for sale assets—    —    —    24,571   
Changes in operating assets and liabilities:       
Accounts receivable3,120    (2,057)  30,367    14,850   
Inventories4,777    32    (6,417)  (2,074) 
Prepaid expenses and other assets(7,012)  856    (11,078)  (9,527) 
Accounts payable(4,343)  5,291    (19)  2,076   
Accrued liabilities2,499    3,693    (13,844)  1,073   
Deferred revenue(1,243)  (368)  (941)  2,371   
Deferred income tax1,671    (2,867)  1,826    (3,072) 
Net cash provided by operating activities7,489    23,866    17,101    47,913   
Investing activities:       
Purchase of property and equipment(690)  (953)  (7,617)  (3,872) 
Purchase of intangible assets—    —    —    (13) 
Net cash used in investing activities(690)  (953)  (7,617)  (3,885) 
Financing activities:       
Proceeds from stock option exercises and ESPP—    519    658    2,193   
Repurchase of common stock  —    (10,495)  —   
Taxes paid related to settlement of equity awards(10)  (23)  (1,936)  (1,596) 
Deferred debt issuance costs(1,175)  —    (1,175)  —   
Principal payments of financing lease liability(173)  (139)  (415)  (404) 
Proceeds from long-term borrowings—    —    60,000    —   
Payments on borrowings(20,000)  (10,000)  (48,000)  (35,000) 
Net cash used in financing activities(21,358)  (9,643)  (1,363)  (34,807) 
Exchange rate changes effect on cash and cash equivalents4,217    (2,217)  3,118    (2,532) 
Net increase (decrease) in cash and cash equivalents(10,342)  11,053    11,239    6,689   
Cash and cash equivalents, beginning of period84,878    52,009    63,297    56,373   
Cash and cash equivalents, end of period$74,536    $63,062    $74,536    $63,062   


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
GAAP based results:       
Income (loss) before provision for income tax$(10,885)  $6,244   $(28,404)  $(28,534) 
        
Non-GAAP adjustments:       
Intangibles amortization (COGS)8,117    1,736   11,440    5,237   
Recall accrual and remediation efforts (COGS)(366)  —   (366)  67   
Restructuring and other non-recurring costs (COGS)2,457    —   4,233    989   
Direct costs of acquisitions (COGS)—    917   —    1,040   
Intangibles amortization (OPEX)4,025    3,751   11,330    11,300   
Direct costs of acquisitions (OPEX)—    698   —    956   
Restructuring and other non-recurring costs (OPEX)353    1,855   1,760    42,112   
Litigation (OPEX)—    5   —    702   
Non-GAAP income (loss) before provision for (benefit from) income tax3,701    15,206   (7)  33,869   
        
Income tax expense (benefit), as adjusted$505    $3,325   $(95)  $8,666   
        
Non-GAAP net income$3,196    $11,881   $88    $25,203   
 Non-GAAP earnings per share:       
  Basic$0.09    $0.35   $0.00    $0.75   
  Diluted$0.09    $0.35   $0.00    $0.75   
        
 Weighted-average shares used to compute       
   Basic non-GAAP earnings per share33,828    33,655   33,577    33,666   
   Diluted non-GAAP earnings per share33,841    33,738   33,637    33,772   
        


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
GAAP Gross Profit$47,526    $73,338    $150,861    $211,231   
Amortization of intangibles8,117    1,736    11,440    5,237   
Direct cost of acquisitions—    917    —    1,040   
Recall accrual and remediation efforts(366)  —    (366)  67   
Restructuring and other non-recurring costs2,457    —    4,233    989   
Non-GAAP Gross Profit$57,734    $75,991    $166,168    $218,564   
Non-GAAP Gross Margin56.2  % 61.5  % 56.0  % 60.1  %
        
GAAP Operating Income (Loss)$(9,938)  $7,853    $(25,206)  $(23,613) 
Amortization of intangibles12,142    5,487    22,770    16,537   
Recall accrual and remediation efforts(366)  —    (366)  67   
Litigation—    5    —    702   
Restructuring and other non-recurring costs2,810    1,855    5,993    43,101   
Direct cost of acquisitions—    1,615    —    1,996   
Non-GAAP Operating Income$4,648    $16,815    $3,191    $38,790   
Non-GAAP Operating Margin4.5  % 13.6  % 1.1  % 10.7  %
        
GAAP Income Tax Expense (Benefit)$(1,569)  $(1,987)  $(6,588)  $(9,852) 
Effect of accumulated change of pretax income2,402    3,140    6,493    8,847   
Effect of change in annual expected tax rate(328)  (1,134)  —    (1,740) 
Repatriation tax adjustment—    —    —    (177) 
Restructuring and other expenses—    3,306    —    11,588   
Non-GAAP Income Tax Expense (Benefit)$505    $3,325    $(95)  $8,666   
        
        
 Three Months Ended Year Ended    
 December 31, 2020 December 31, 2020    
GAAP EPS Guidance$0.07 - $0.19 ($0.57) - ($0.46)    
Amortization of intangibles0.16  0.83     
Restructuring and other non-recurring costs—  0.17     
Tax effect(0.04)  (0.23)     
Non-GAAP EPS Guidance$0.19 - $0.31 $0.20 - $0.31    


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
    
 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Neuro:       
Revenue$58,735   $72,192   $167,681   $206,179  
Cost of revenue27,157   25,207   73,765   75,749  
Intangibles amortization7,163   938   8,869   2,819  
  Gross profit$24,415   $46,047   $85,047   $127,611  
Gross profit margin41.6 % 63.8 % 50.7 % 61.9 %
        
Newborn care:       
Revenue$25,711   $27,005   $76,744   $83,105  
Cost of revenue12,610   11,359   37,105   35,238  
Intangibles amortization66   64   193   193  
  Gross profit$13,035   $15,582   $39,446   $47,674  
Gross profit margin50.7 % 57.7 % 51.4 % 57.4 %
        
Hearing & balance:       
Revenue$18,357   $24,266   $52,541   $74,475  
Cost of revenue7,393   11,823   23,795   36,304  
Intangibles amortization888   734   2,378   2,225  
  Gross profit$10,076   $11,709   $26,368   $35,946  
Gross profit margin54.9 % 48.3 % 50.2 % 48.3 %
        
Consolidated:       
Revenue$102,803   $123,463   $296,966   $363,759  
Cost of revenue47,160   48,389   134,665   147,291  
Intangibles amortization8,117   1,736   11,440   5,237  
  Gross profit$47,526   $73,338   $150,861   $211,231  
Gross profit margin46.2 % 59.4 % 50.8 % 58.1 %
        
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 Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Neuro:       
GAAP Gross Profit$24,415    $46,047   $85,047    $127,611   
Amortization of intangibles7,163    938   8,869    2,819   
Direct costs of acquisitions—    917   —    1,040   
Restructuring and other non-recurring costs1,588    —   2,292    —   
Non-GAAP Gross Profit$33,166    $47,902   $96,208    $131,470   
Non-GAAP Gross Margin56.5  % 66.4 % 57.4  % 63.8  %
        
Newborn care:       
GAAP Gross Profit$13,035    $15,582   $39,446    $47,674   
Amortization of intangibles66    64   193    193   
Recall accrual and remediation efforts(366)  —   (366)  (571) 
Restructuring and other non-recurring costs322    —   322    814   
Non-GAAP Gross Profit$13,057    $15,646   $39,595    $48,110   
Non-GAAP Gross Margin50.8  % 57.9 % 51.6  % 57.9  %
        
Hearing & balance:       
GAAP Gross Profit$10,076    $11,709   $26,368    $35,946   
Amortization of intangibles888    734   2,378    2,225   
Recall accrual and remediation efforts—    —   —    638   
Restructuring and other non-recurring costs547    —   1,619    175   
Non-GAAP Gross Profit$11,511    $12,443   $30,365    $38,984   
Non-GAAP Gross Margin62.7  % 51.3 % 57.8  % 52.3  %
        
Consolidated:       
GAAP Gross Profit$47,526    $73,338   $150,861    $211,231   
Amortization of intangibles8,117    1,736   11,440    5,237   
Direct costs of acquisitions—    917   —    1,040   
Recall accrual and remediation efforts(366)  —   (366)  67   
Restructuring and other non-recurring costs2,457    —   4,233    989   
Non-GAAP Gross Profit$57,734    $75,991   $166,168    $218,564   
Non-GAAP Gross Margin56.2  % 61.5 % 56.0  % 60.1  %


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
        
 Three Months Ended Nine Months Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019
Consolidated Revenue:       
United States$63,553   $73,553   $183,181   $213,055  
International39,250   49,910   113,785   150,704  
Totals$102,803   $123,463   $296,966   $363,759  
        
United States62 % 60 % 62 % 59 %
International38 % 40 % 38 % 41 %
Totals100 % 100 % 100 % 100 %


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
REVENUE AFTER EXITED PRODUCTS (unaudited)
(in millions)
            
 Three Months Ended Nine Months Ended Year Ended
 September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 December 31, 2019 December 31, 2018
Revenue$102.8   $123.5    $297.0   $363.8    $495.1    $530.9   
Newborn care*—   (0.6)  —   (4.6)  (4.5)  (20.6) 
Neuro*—   (0.2)  —   (1.2)  (1.2)  (14.3) 
Hearing & balance*—   —    —   (0.1)  (0.1)  (11.3) 
Revenue after exited products$102.8   $122.7    $297.0   $357.9    $489.3    $484.7   
            
*Newborn care, Neuro, and Hearing & balance include exited businesses (GND, Neurocom, Medix) and other end of sales products.

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