Natus Medical Incorporated (NASDAQ:BABY) today
announced financial results for the three months ended
March 31, 2017.
For the first quarter ended March 31, 2017,
the Company reported revenue of $124.7 million, an increase of
42.8% compared to $87.3 million reported for the first quarter
2016. GAAP gross profit margin was 53.5% vs. 62.1% reported for the
first quarter 2016. GAAP net income was $0.3 million, or $0.01 per
diluted share, compared with GAAP net income of $8.5 million, or
$0.26 per diluted share in the first quarter 2016.
Non-GAAP earnings per diluted share was $0.30
for the first quarter 2017, compared to $0.34 in the first quarter
2016. Non-GAAP net income was $9.8 million for the first quarter
2017 compared to the prior year's first quarter non-GAAP net income
of $11.1 million. Non-GAAP gross profit margin was 57.8% vs. 63.1%
reported for the first quarter of 2016.
The Company repurchased $1.3 million of its
stock during the first quarter of 2017.
"While I am very pleased with our record first
quarter revenues, earnings came in below our guidance. Newly
acquired Otometrics had a strong quarter and is ahead of our plan
to achieve 10% non-GAAP operating profit margins for 2017. The
integration of Otometrics is going well and we continue to believe
Otometrics can grow revenues 5% to 10% in the years ahead. Lower
earnings were primarily due to a higher operation cost structure in
our newborn care business unit as well as reduced margins for
Peloton, our hearing screening service. We experienced lower birth
rates and a shift by government payers resulting in lower
reimbursements in our Peloton business. We are working to expand
the services offered by Peloton as well as customer payment sources
to improve profitability," said Jim Hawkins, President and Chief
Executive Officer of the Company.
"I am also pleased that we completed product
shipments for the prepaid portion of Venezuelan order by shipping
approximately $9.0 million in the quarter.
"Overall I am very pleased with the growth of
our business as we drive to achieve over $500 million in revenues
in 2017. By the end of the year we plan to have our costs back in
line with our business model." said Hawkins.
Financial Guidance
For the second quarter of 2017, the Company
provided revenue guidance of $121.0 million to $123.0 million and
non-GAAP earnings per share guidance of $0.32 to $0.33.
For the full year 2017, the Company maintained
revenue guidance of $505.0 million to $510.0 million and reduced
its non-GAAP earnings per share to $1.70 to $1.75 from $1.80 to
$1.85.
The Company's non-GAAP earnings per share
guidance excludes charges for amortization expense associated with
intangible assets from prior acquisitions, which the Company
expects to be approximately $4.9 million and $19.1 million for the
second quarter 2017 and full year, respectively, and which the
Company expects will reduce GAAP earnings per share by
approximately $0.15 and $0.60 for the respective periods.
Non-GAAP earnings per share also excludes the direct and transition
costs of the Otometrics acquisition, which are estimated to be
approximately $4 million to $5 million for the full year 2017.
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 discreet 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 and excludes all but restructuring charges from
the calculation of non-GAAP gross margin: 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 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. 3)
Certain discreet items. These items represent significant
infrequent charges or gains that management believes should be
viewed outside of normal operating results. 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 items excluded from non-GAAP financial
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 an investment-community
conference call to discuss this announcement beginning at 11:00
a.m. Eastern Time (8:00 a.m. Pacific Time) today, April 26, 2017.
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 2514858. 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 2514858. 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 healthcare
products and services used for the screening, detection, treatment,
monitoring and tracking of common medical ailments in neurological
dysfunction, epilepsy, sleep disorders, newborn care, hearing
impairment and balance and mobility disorders.
Additional information about Natus Medical can
be found at www.natus.com.
Forward-Looking Statements
This press release contains forward-looking
statements as defined in the Private Securities Litigation Reform
Act of 1995, particularly statements regarding the expectations,
beliefs, plans, intentions and strategies of Natus. These
forward-looking statements include statements regarding Otometrics
revenue growth rate, increasing the profitability of Otometrics,
our achieving $500 million in revenue in 2017, the anticipated
revenue and GAAP and non-GAAP earnings per share for the second
quarter and full year 2017 and the impact of amortization expense
associated with acquisition-related intangible assets. 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. Our future results could differ materially due to a
number of factors, including the effects of competition, our
ability to successfully integrate the Otometrics acquisition and
achieve our profitability goals for Otometrics, the demand for our
products and services, the impact of adverse global economic
conditions and changing governmental regulations, including foreign
exchange rate changes, on our target markets, our ability to
expand our sales in international markets, our ability to maintain
current sales levels in a mature domestic market, our ability to
control costs, risks associated with bringing new products to
market and integrating acquired businesses, shipments and revenue
associated with our Medix' subsidiary's contract with the Venezuela
Ministry of Health and our ability to fulfill product orders on a
timely basis. Natus disclaims any obligation to update information
contained in any forward looking statement.
More information about potential risk factors
that could affect the business and financial results of Natus is
included in Natus' annual report on Form 10-K for the year ended
December 31, 2016, and its subsequent quarterly reports on
Form 10-Q and in other reports filed from time to time by Natus
with the U.S. Securities and Exchange Commission.
NATUS MEDICAL INCORPORATED AND
SUBSIDIARIES |
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS |
(in thousands, except per share
amounts) |
|
|
|
|
|
Quarter Ended |
|
March 31, 2017 |
|
March 31, 2016 |
Revenue |
$ |
124,660 |
|
|
$ |
87,329 |
|
Cost of revenue |
56,913 |
|
|
32,469 |
|
Intangibles
amortization |
1,000 |
|
|
601 |
|
Gross
profit |
66,747 |
|
|
54,259 |
|
Gross profit
margin |
53.5 |
% |
|
62.1 |
% |
Operating
expenses: |
|
|
|
Marketing
and selling |
32,215 |
|
|
20,596 |
|
Research
and development |
12,753 |
|
|
7,802 |
|
General
and administrative |
16,016 |
|
|
12,481 |
|
Intangibles amortization |
4,074 |
|
|
2,134 |
|
Restructuring |
286 |
|
|
35 |
|
Total
operating expenses |
65,344 |
|
|
43,048 |
|
Income from
operations |
1,403 |
|
|
11,211 |
|
Interest expense |
(980 |
) |
|
(18 |
) |
Other income/(expense),
net |
(59 |
) |
|
474 |
|
Income before tax |
364 |
|
|
11,667 |
|
Provision for income
tax expense |
16 |
|
|
3,129 |
|
Net income |
$ |
348 |
|
|
$ |
8,538 |
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.01 |
|
|
$ |
0.26 |
|
Diluted |
$ |
0.01 |
|
|
$ |
0.26 |
|
Weighted-average
shares: |
|
|
|
Basic |
32,485 |
|
|
32,606 |
|
Diluted |
33,040 |
|
|
33,222 |
|
NATUS MEDICAL INCORPORATED AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) |
(in thousands) |
|
|
|
|
|
March 31, |
|
December 31, |
|
2017 |
|
2016 |
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
Cash and
investments |
$ |
112,862 |
|
|
$ |
247,570 |
|
Accounts
receivable, net |
114,386 |
|
|
86,638 |
|
Inventories |
67,684 |
|
|
49,587 |
|
Other
current assets |
21,539 |
|
|
22,004 |
|
Total current
assets |
316,471 |
|
|
405,799 |
|
|
|
|
|
Property
and equipment, net |
20,896 |
|
|
17,333 |
|
Goodwill
and intangible assets |
316,639 |
|
|
190,277 |
|
Deferred
income tax |
14,678 |
|
|
14,915 |
|
Other
assets |
20,171 |
|
|
20,688 |
|
Total assets |
$ |
688,855 |
|
|
$ |
649,012 |
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
Accounts
payable |
$ |
26,073 |
|
|
$ |
18,700 |
|
Accrued
liabilities |
44,652 |
|
|
37,895 |
|
Deferred
revenue |
14,811 |
|
|
23,346 |
|
Total current
liabilities |
85,536 |
|
|
79,941 |
|
|
|
|
|
Long-term
liabilities: |
|
|
|
Long-term
debt, net |
149,889 |
|
|
140,000 |
|
Deferred
income tax |
24,811 |
|
|
3,684 |
|
Other
long-term liabilities |
8,208 |
|
|
8,012 |
|
Total liabilities |
268,444 |
|
|
231,637 |
|
Total stockholders’
equity |
420,411 |
|
|
417,375 |
|
Total liabilities and
stockholders’ equity |
$ |
688,855 |
|
|
$ |
649,012 |
|
NATUS MEDICAL INCORPORATED AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) |
(in thousands) |
|
|
|
Quarter Ended |
|
March 31, 2017 |
|
March 31, 2016 |
Operating
activities: |
|
|
|
Net
income |
$ |
348 |
|
|
$ |
8,538 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Provision
for losses on accounts receivable |
1,719 |
|
|
352 |
|
Depreciation and amortization |
6,744 |
|
|
4,223 |
|
Loss on
disposal of property and equipment |
5 |
|
|
15 |
|
Warranty
reserve |
2,563 |
|
|
929 |
|
Share-based compensation |
2,756 |
|
|
2,901 |
|
Changes
in operating assets and liabilities: |
|
|
|
Accounts
receivable |
(1,157 |
) |
|
10,266 |
|
Inventories |
4,453 |
|
|
(903 |
) |
Prepaid
expenses and other assets |
2,212 |
|
|
(15 |
) |
Accounts
payable |
(1,088 |
) |
|
(3,790 |
) |
Accrued
liabilities |
(7,929 |
) |
|
(3,688 |
) |
Deferred
revenue |
(9,183 |
) |
|
446 |
|
Deferred
income tax |
1,029 |
|
|
108 |
|
Net cash
provided by operating activities |
2,472 |
|
|
19,382 |
|
Investing
activities: |
|
|
|
Acquisition of businesses, net of cash acquired |
(141,705 |
) |
|
(5,649 |
) |
Purchases
of property and equipment |
(971 |
) |
|
(1,921 |
) |
Purchase
of intangible assets |
— |
|
|
2 |
|
Sale of
short-term investments |
24,935 |
|
|
— |
|
Net cash
used in investing activities |
(117,741 |
) |
|
(7,568 |
) |
Financing
activities: |
|
|
|
Proceeds
from stock option exercises and Employee Stock Purchase Program
purchases |
248 |
|
|
623 |
|
Repurchase of common stock |
(1,308 |
) |
|
(9,063 |
) |
Taxes
paid related to net share settlement of equity awards |
(2,597 |
) |
|
(2,017 |
) |
Deferred
debt issuance costs |
(38 |
) |
|
— |
|
Contingent consideration earn-out |
(2,000 |
) |
|
(1,284 |
) |
Proceeds
from borrowings |
10,000 |
|
|
6,000 |
|
Payments
on borrowings |
— |
|
|
(6,000 |
) |
Net cash
used in financing activities |
4,305 |
|
|
(11,741 |
) |
Exchange rate changes
effect on cash and cash equivalents |
1,191 |
|
|
(1,257 |
) |
Net increase in cash
and cash equivalents |
(109,773 |
) |
|
(1,184 |
) |
Cash and cash
equivalents, beginning of period |
213,551 |
|
|
82,469 |
|
Cash and cash
equivalents, end of period |
$ |
103,778 |
|
|
$ |
81,285 |
|
NATUS MEDICAL INCORPORATED AND
SUBSIDIARIES |
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(UNAUDITED) |
(in thousands, except per share
amounts) |
|
|
|
|
|
Quarter Ended |
|
March 31, 2017 |
|
March 31, 2016 |
GAAP based
results: |
|
|
|
Income before provision
for income tax |
$ |
364 |
|
|
$ |
11,667 |
|
|
|
|
|
Non-GAAP
adjustments: |
|
|
|
Intangibles
Amortization - Cost of revenue |
1,000 |
|
|
601 |
|
Intangibles
Amortization - Operating expense |
4,074 |
|
|
2,135 |
|
Recall Accrual and
Remediation Efforts (COGS) |
2,277 |
|
|
267 |
|
Recall Accrual and
Remediation Efforts (R&D) |
2,697 |
|
|
— |
|
Restructuring |
286 |
|
|
35 |
|
Litigation |
586 |
|
|
— |
|
Direct costs of
acquisitions (COGS) |
1,969 |
|
|
— |
|
Direct costs of
acquisitions (M&S) |
(5 |
) |
|
— |
|
Direct costs of
acquisitions (G&A) |
6 |
|
|
— |
|
Direct costs of
acquisitions (OI&E) |
24 |
|
|
— |
|
Non-GAAP income before
provision for income tax |
13,278 |
|
|
14,705 |
|
|
|
|
|
Income tax expense, as
adjusted |
$ |
3,450 |
|
|
$ |
3,575 |
|
|
|
|
|
Non-GAAP net
income |
$ |
9,828 |
|
|
$ |
11,130 |
|
Non-GAAP earnings per
share: |
|
|
|
Basic |
$ |
0.30 |
|
|
$ |
0.34 |
|
Diluted |
$ |
0.30 |
|
|
$ |
0.34 |
|
|
|
|
|
Weighted-average shares
used to compute |
|
|
|
Basic
non-GAAP earnings per share |
32,485 |
|
|
32,606 |
|
Diluted
non-GAAP earnings per share |
33,040 |
|
|
33,222 |
|
|
|
|
|
GAAP Gross profit |
66,747 |
|
|
54,259 |
|
Amortization of
intangibles |
1,000 |
|
|
601 |
|
Acquisition
charges |
1,969 |
|
|
— |
|
Recall Accrual and
Remediation Efforts |
2,277 |
|
|
267 |
|
Non-GAAP Gross
Profit |
71,993 |
|
|
55,127 |
|
Non-GAAP Gross
Margin |
57.8 |
% |
|
63.1 |
% |
|
|
|
|
GAAP Operating
profit |
1,403 |
|
|
11,211 |
|
Amortization of
intangibles |
5,074 |
|
|
2,736 |
|
Recall Accrual and
Remediation Efforts |
4,974 |
|
|
267 |
|
Litigation |
586 |
|
|
— |
|
Restructuring and
acquisition charges |
2,256 |
|
|
35 |
|
Non-GAAP Operating
profit |
14,293 |
|
|
14,249 |
|
Non-GAAP Operating
margin |
11.5 |
% |
|
16.3 |
% |
NATUS MEDICAL INCORPORATED AND
SUBSIDIARIES |
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(UNAUDITED) |
(in thousands, except per share
amounts) |
|
|
|
|
|
Quarter Ended |
|
March 31, 2017 |
|
March 31, 2016 |
GAAP Provision for
income tax expense |
16 |
|
|
3,129 |
|
Effect of accumulated
change of pretax income |
3,249 |
|
|
796 |
|
Effect of change in
annual expected tax rate |
185 |
|
|
200 |
|
Tax audit reserve |
— |
|
|
(550 |
) |
Non-GAAP Income tax
expense, as adjusted |
3,450 |
|
|
3,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Year to Date |
|
June 30, 2017 |
|
December 31, 2017 |
GAAP EPS Guidance |
$0.11 - $0.12 |
|
$0.96 - $1.01 |
Amortization of
Intangibles |
0.15 |
|
|
0.60 |
|
Restructuring |
— |
|
|
0.01 |
|
Litigation |
— |
|
|
0.03 |
|
Recall Accrual and
Remediation Efforts |
0.06 |
|
|
0.19 |
|
Direct cost of
acquisitions |
0.06 |
|
|
0.15 |
|
Tax effect |
(0.06 |
) |
|
(0.24 |
) |
Non-GAAP EPS
Guidance |
$0.32 - $0.33 |
|
$1.70 - $1.75 |
Natus Medical Incorporated
Jonathan A. Kennedy
Executive Vice President and Chief Financial Officer
(925) 223-6700
InvestorRelations@Natus.com
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