EX-99.1 2 a2020-q2earningsrelease.htm EX-99.1 Document

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Natus Medical Announces Second Quarter 2020 Financial Results


Q2-2020
Key Results
Revenue (millions)$84.8
Ø Newborn Care revenue increased 1% compared to second quarter last year
Ø Reduced debt by $13.0 million during the quarter
Ø NICVIEW II released during the quarter
GAAP loss per share$0.26
Non-GAAP loss per share$0.13

PLEASANTON, Calif. (July 30, 2020) - 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 six months ended June 30, 2020.

For the second quarter ended June 30, 2020, the Company reported revenue of $84.8 million, a decrease of 32.4% compared to $125.5 million reported for the second quarter 2019. GAAP gross margin was 47.8% during the second quarter of 2020 compared to 56.9% in the second quarter 2019. GAAP net loss was $8.9 million, or $0.26 per share, compared with GAAP net income of $3.5 million, or $0.10 per diluted share in the second quarter 2019.

Non-GAAP loss per share was $0.13 for the second quarter 2020, compared to earnings per diluted share of $0.32 in the second quarter 2019. Non-GAAP net loss was $4.4 million in the second quarter 2020 compared to net income of $10.6 million in the second quarter 2019. Non-GAAP gross margin was 51.5% in the second quarter 2020 compared to 59.1% reported for the second quarter of 2019.

For the six months ended June 30, 2020, the Company reported revenue of $194.2 million, a decrease of 19.2% compared to $240.3 million reported for the same period in 2019. GAAP gross margin was 53.2% vs. 57.4% reported for the same period in 2019. GAAP net loss was $12.5 million, or $0.37 per share, compared with GAAP net loss of $26.9 million, or $0.80 per share in the same period in 2019.

Non-GAAP loss per share was $0.09 for the first six months in 2020, compared to earnings per diluted share of $0.39 in the same period in 2019. The Company reported non-GAAP net loss of $3.1 million for the six months ended June 30, 2020, compared to the prior year's non-GAAP net income of $13.3 million. Non-GAAP gross margin was 55.8% in 2020 vs. 59.3% reported for the same period in 2019.

COVID-19 Operational Impacts

Beginning in March of this year, Natus implemented safeguards in its facilities to protect its team members. These measures included social distancing practices, the ability to work from home and other safety procedures consistent with specific regulatory requirements and guidance from health authorities. As an essential supplier of healthcare products and services, all of Natus's manufacturing, engineering and
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customer support functions remain fully operational and continue to support customers with vital supplies, service and equipment. Our Company has adapted quickly and efficiently to this new environment and we will continue to operate in this manner until the global pandemic subsides.

Natus made investments in inventory during the second quarter to help mitigate any potential supply chain disruptions. Going into the third quarter, supply appears to be stable, which could allow for the reduction of inventory levels in future quarters. The Company has also taken actions to reduce costs, including reducing travel, tradeshows, employee and certain discretionary expenses. Natus will continue to prioritize investment spending to allow for continued innovation in its products and services, which is a key element of its strategy for profitable growth in the years ahead.

“As expected, we saw significant impact from COVID-19 during the second quarter, with revenue declining 32.4% compared to the second quarter of 2019. Our Neuro end market was impacted by the decline in spending at many hospitals and Hearing & Balance revenue declined due to the reduced activity in audiologist's offices and retail hearing centers. Our Newborn Care business performed well during the quarter increasing 1% compared to the second quarter last year as births continued at normal rates and we benefited from the release of our NICVIEW II NICU video streaming product,” said Jonathan Kennedy, President and Chief Executive Officer of Natus.

“Looking ahead to the third quarter, we expect Neuro and Hearing & Balance revenues to remain below pre-pandemic levels, but to improve compared to the second quarter. We expect Newborn Care to remain closer to historical levels. We see our customers adapting to the COVID environment with elective procedures resuming, which we believe will result in increased capital spending, improving our business over the remainder of 2020,” Mr. Kennedy continued.

Financial Guidance

Although we see our revenues and margins improving compared to the second quarter for the remainder of 2020, a significant amount of uncertainty still exists as a result of the COVID-19 pandemic. With this in mind, the Company will not provide detailed guidance at this time.
Use of Non-GAAP Financial Measures

The Company presents in this release its non-GAAP net income and loss, non-GAAP earnings per diluted share and loss 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 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
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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, July 30, 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 1467486. 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 1467486. 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.


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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 and Quarterly Report on Form 10-Q for the period ended March 31, 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 

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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Revenue$84,780  $125,539  $194,163  $240,296  
Cost of revenue42,573  52,393  87,506  98,903  
Intangibles amortization1,654  1,746  3,322  3,502  
  Gross profit40,553  71,400  103,335  137,891  
Gross profit margin47.8 %56.9 %53.2 %57.4 %
Operating expenses:
  Marketing and selling22,802  32,324  53,532  66,054  
  Research and development14,336  13,324  31,905  26,718  
  General and administrative11,187  12,690  24,368  28,996  
  Intangibles amortization 3,644  3,763  7,305  7,549  
  Restructuring621  2,668  1,492  40,040  
    Total operating expenses52,590  64,769  118,602  169,357  
Income (loss) from operations(12,037) 6,631  (15,267) (31,466) 
Interest expense(976) (1,388) (1,693) (2,894) 
Other income (expense), net219  188  (558) (418) 
Income (loss) before provision for (benefit from) income tax(12,794) 5,431  (17,518) (34,778) 
Provision for (benefit from) income tax(3,891) 1,944  (5,018) (7,865) 
Net income (loss)$(8,903) $3,487  $(12,500) $(26,913) 
Net income (loss) per share:
  Basic$(0.26) $0.10  $(0.37) $(0.80) 
  Diluted$(0.26) $0.10  $(0.37) $(0.80) 
Weighted-average shares:
  Basic33,827  33,639  33,624  33,630  
  Diluted33,827  33,690  33,624  33,630  


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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
June 30,December 31,
20202019
ASSETS
Current assets:
Cash and investments$84,878  $63,297  
Accounts receivable89,230  115,889  
Inventories83,589  71,368  
Other current assets21,059  19,195  
Total current assets278,756  269,749  
Property and equipment26,673  24,702  
Operating lease right-of-use assets12,926  15,046  
Goodwill and intangible assets249,901  261,166  
Deferred income tax30,204  30,355  
Other assets22,346  21,509  
Total assets$620,806  $622,527  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$31,654  $27,253  
Current portion of long-term debt35,000  35,000  
Accrued liabilities38,857  54,451  
Deferred revenue21,186  20,246  
Current portion of operating lease liabilities5,533  5,871  
Total current liabilities132,230  142,821  
Long-term debt51,761  19,665  
Deferred income tax14,267  14,251  
Operating lease liabilities10,224  12,051  
Other long-term liabilities16,851  17,616  
Total liabilities225,333  206,404  
Total stockholders’ equity395,473  416,123  
Total liabilities and stockholders’ equity$620,806  $622,527  








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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three Months EndedSix Months Ended
 June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Operating activities:
Net income (loss)$(8,903) $3,486  $(12,500) $(26,913) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for losses on accounts receivable1,480  360  3,044  960  
Impairment on intangibles held for sale—  —  —  —  
Depreciation and amortization6,683  7,716  13,677  15,427  
Loss on disposal of property and equipment(20) 303  22  482  
Warranty reserve576  1,323  1,280  1,677  
Share-based compensation2,373  1,908  4,664  4,462  
Loss on commencement of sales-type leases800  —  1,095  —  
Impairment charge for held for sale assets—  —  —  24,571  
Changes in operating assets and liabilities:
Accounts receivable10,582  3,615  25,152  19,170  
Inventories(7,751) 2,370  (11,194) (2,106) 
Prepaid expenses and other assets(3,007) (3,016) (4,066) (10,383) 
Accounts payable(1,714) 221  4,324  (3,215) 
Accrued liabilities(7,014) (1,301) (16,343) (2,620) 
Deferred revenue(1,888) 757  302  2,739  
Deferred income tax52  (188) 155  (205) 
Net cash provided by (used in) operating activities(7,751) 17,554  9,612  24,046  
Investing activities:
Purchase of property and equipment(3,352) (458) (6,927) (2,919) 
Purchase of intangible assets—  (13) —  (13) 
Net cash used in investing activities(3,352) (471) (6,927) (2,932) 
Financing activities:
Proceeds from stock option exercises and ESPP658  1,406  658  1,674  
Repurchase of common stock—  (10,495) —  
Taxes paid related to settlement of equity awards(43) (6) (1,926) (1,573) 
Principal payments of financing lease liability(109) (100) (242) (265) 
Proceeds from long-term borrowings—  —  60,000  —  
Payments on borrowings(13,000) (20,000) (28,000) (25,000) 
Net cash provided by (used in) financing activities(12,494) (18,700) 19,995  (25,164) 
Exchange rate changes effect on cash and cash equivalents1,459  203  (1,099) (314) 
Net increase (decrease) in cash and cash equivalents(22,138) (1,414) 21,581  (4,364) 
Cash and cash equivalents, beginning of period107,016  53,423  63,297  56,373  
Cash and cash equivalents, end of period$84,878  $52,009  $84,878  $52,009  



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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
GAAP based results:
Income (loss) before provision for income tax$(12,794) $5,431  $(17,518) $(34,778) 
Non-GAAP adjustments:
Intangibles amortization (COGS)1,654  1,746  3,322  3,502  
Recall accrual and remediation efforts (COGS)—  322  —  67  
Restructuring and other non-recurring costs (COGS)1,486  738  1,776  989  
Direct costs of acquisitions (COGS)—  40  —  123  
Intangibles amortization (OPEX)3,644  3,763  7,305  7,549  
Direct costs of acquisitions (OPEX)—  151  —  258  
Restructuring and other non-recurring costs (OPEX)590  2,594  1,407  40,258  
Litigation (OPEX)—  10  —  697  
Non-GAAP income (loss) before provision for (benefit from) income tax(5,420) 14,795  (3,708) 18,665  
Income tax expense (benefit), as adjusted$(1,009) $4,180  $(600) $5,342  
Non-GAAP net income (loss)$(4,411) $10,615  $(3,108) $13,323  
 Non-GAAP earnings (loss) per share:
  Basic$(0.13) $0.32  $(0.09) $0.40  
  Diluted$(0.13) $0.32  $(0.09) $0.39  
 Weighted-average shares used to compute
   Basic non-GAAP earnings per share33,827  33,639  33,624  33,630  
   Diluted non-GAAP earnings per share33,827  33,690  33,624  33,733  








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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
GAAP Gross Profit$40,553  $71,400  $103,335  $137,891  
Amortization of intangibles1,654  1,746  3,322  3,502  
Direct cost of acquisitions—  40  —  123  
Recall accrual and remediation efforts—  322  —  67  
Restructuring and other non-recurring costs1,486  738  1,776  989  
Non-GAAP Gross Profit$43,693  $74,246  $108,433  $142,572  
Non-GAAP Gross Margin51.5 %59.1 %55.8 %59.3 %
GAAP Operating Income (Loss)$(12,037) $6,631  $(15,267) $(31,466) 
Amortization of intangibles5,298  5,509  10,627  11,051  
Recall accrual and remediation efforts—  322  —  67  
Litigation—  10  —  697  
Restructuring and other non-recurring costs2,076  3,332  3,183  41,247  
Direct cost of acquisitions—  191  —  381  
Non-GAAP Operating Income (Loss)$(4,663) $15,995  $(1,457) $21,977  
Non-GAAP Operating Margin(5.5)%12.7 %(0.8)%9.1 %
GAAP Income Tax Expense (Benefit)$(3,891) $1,944  $(5,018) $(7,865) 
Effect of accumulated change of pretax income2,524  2,662  4,091  5,707  
Effect of change in annual expected tax rate358  (503) 327  (606) 
Repatriation tax adjustment—  —  —  (177) 
Restructuring and other expenses—  77  —  8,283  
Non-GAAP Income Tax Expense (Benefit)$(1,009) $4,180  $(600) $5,342  



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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Neuro:
Revenue$43,509  $71,598  $108,830  $133,988  
Cost of revenue21,194  27,674  47,605  50,575  
Intangibles amortization826  940  1,705  1,882  
  Gross profit$21,489  $42,984  $59,520  $81,531  
Gross profit margin49.4 %60.0 %54.7 %60.8 %
Newborn care:
Revenue$26,916  $26,563  $51,148  $56,099  
Cost of revenue13,989  11,656  24,329  23,826  
Intangibles amortization64  64  127  129  
  Gross profit$12,863  $14,843  $26,692  $32,144  
Gross profit margin47.8 %55.9 %52.2 %57.3 %
Hearing & balance:
Revenue$14,355  $27,378  $34,185  $50,209  
Cost of revenue7,390  13,063  15,572  24,502  
Intangibles amortization764  742  1,490  1,491  
  Gross profit$6,201  $13,573  $17,123  $24,216  
Gross profit margin43.2 %49.6 %50.1 %48.2 %
Consolidated:
Revenue$84,780  $125,539  $194,163  $240,296  
Cost of revenue42,573  52,393  87,506  98,903  
Intangibles amortization1,654  1,746  3,322  3,502  
  Gross profit$40,553  $71,400  $103,335  $137,891  
Gross profit margin47.8 %56.9 %53.2 %57.4 %
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.




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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Neuro:
GAAP Gross Profit$21,489  $42,984  $59,520  $81,531  
Amortization of intangibles826  940  1,705  1,882  
Acquisition charges—  40  —  123  
Restructuring and other non-recurring costs414  —  704  —  
Non-GAAP Gross Profit$22,729  $43,964  $61,929  $83,536  
Non-GAAP Gross Margin52.2 %61.4 %56.9 %62.3 %
Newborn care:
GAAP Gross Profit$12,863  $14,843  $26,692  $32,144  
Amortization of intangibles64  64  127  129  
Recall accrual and remediation efforts—  (316) —  (571) 
Restructuring and other non-recurring costs—  738  —  814  
Non-GAAP Gross Profit$12,927  $15,329  $26,819  $32,516  
Non-GAAP Gross Margin48.0 %57.7 %52.4 %58.0 %
Hearing & balance:
GAAP Gross Profit$6,201  $13,573  $17,123  $24,216  
Amortization of intangibles764  742  1,490  1,491  
Recall accrual and remediation efforts—  638  —  638  
Restructuring and other non-recurring costs1,072  —  1,072  175  
Non-GAAP Gross Profit$8,037  $14,953  $19,685  $26,520  
Non-GAAP Gross Margin56.0 %54.6 %57.6 %52.8 %
Consolidated:
GAAP Gross Profit$40,553  $71,400  $103,335  $137,891  
Amortization of intangibles1,654  1,746  3,322  3,502  
Acquisition charges—  40  —  123  
Recall accrual and remediation efforts—  322  —  67  
Restructuring and other non-recurring costs1,486  738  1,776  989  
Non-GAAP Gross Profit$43,693  $74,246  $108,433  $142,572  
Non-GAAP Gross Margin51.5 %59.1 %55.8 %59.3 %

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NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
Three Months EndedSix Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Consolidated Revenue:
United States$51,175  $73,531  $119,513  $139,598  
International33,605  52,008  74,650  100,698  
Totals$84,780  $125,539  $194,163  $240,296  
United States60 %59 %62 %58 %
International40 %41 %38 %42 %
Totals100 %100 %100 %100 %


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
REVENUE AFTER EXITED PRODUCTS (unaudited)
(in millions)
Three Months EndedSix Months EndedYear Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019December 31, 2019December 31, 2018
Revenue$84.8  $125.5  $194.2  $240.3  $495.1  $530.9  
Newborn care*—  (1.8) —  (4.0) (4.5) (20.6) 
Neuro*—  (0.2) —  (1.0) (1.2) (14.3) 
Hearing & balance*—  —  —  (0.1) (0.1) (11.3) 
Revenue after exited products$84.8  $123.5  $194.2  $235.2  $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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