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Natus Medical Announces Fourth Quarter 2020 Financial Results

 Q4-2020 Key Results
Revenue (millions)$118.7 
  • Revenue increased 15.5% compared to 3rd quarter
  • Generated $16.3 million in operating cash flow
  • Reduced debt by $10.0 million during the quarter
  • Acquired Babybe GmbH during the quarter
GAAP EPS$0.15 
Non-GAAP EPS$0.39 
   

PLEASANTON, Calif., Feb. 25, 2021 (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 months and full year ended December 31, 2020.

For the fourth quarter ended December 31, 2020, the Company reported revenue of $118.7 million, a decline of 9.7% compared to $131.4 million reported for the fourth quarter 2019. GAAP gross margin was 55.3% during the fourth quarter of 2020 compared to 61.2% in the fourth quarter 2019. GAAP net income was $5.2 million, or $0.15 earnings per diluted share, compared with GAAP net income of $3.0 million, or $0.09 earnings per diluted share in the fourth quarter 2019.

Non-GAAP gross margin was 58.1% in the fourth quarter 2020 compared to 62.0% reported for the fourth quarter of 2019. Non-GAAP earnings per diluted share was $0.39 for the fourth quarter 2020, compared to $0.46 in the fourth quarter 2019. Non-GAAP net income was $13.1 million in the fourth quarter 2020 compared to $15.6 million in the fourth quarter 2019.

For the full year ended December 31, 2020, the Company reported revenue of $415.7 million, a decrease of 16.1% compared to $495.2 million reported for the same period in 2019. GAAP gross margin was 52.1% vs. 58.9% reported for the same period in 2019. GAAP net loss was $16.6 million, or $0.49 per share, compared with GAAP net loss of $15.7 million, or $0.47 per share in the same period in 2019.

Non-GAAP gross margin was 56.6% in 2020 vs. 60.6% reported for the same period in 2019. Non-GAAP earnings per diluted share was $0.39 for the full year ended December 31, 2020, compared to $1.21 in the same period in 2019. The Company reported non-GAAP net income of $13.1 million for the full year ended December 31, 2020, compared to prior year's non-GAAP net income of $40.8 million.

“The dynamic environment in 2020 produced significant and unforeseen challenges for our Company. Our business began to recover in the second half of the year and that recovery continued in the fourth quarter, with revenues increasing 15.5% from third quarter. While the effects of the pandemic had a major impact on our business, the strategic decisions, organizational changes and cost structure improvements we made over the last two years enabled us to manage through this demanding period and emerge a stronger and more efficient company. These steps helped us generate over $34 million in operating cash this year and allowed us to continue investing in new and refreshed products which will drive our success in the future,” said Jonathan Kennedy, President and Chief Executive Officer of Natus.

“Our focus and commitment to providing new and improved products to our customers was evident in the fourth quarter with the release of our new standard setting pediatric ocular imaging system, Retcam Envision, as was the acquisition of Babybe GmbH and its patented remote mother to baby communication technology. Looking ahead to 2021, we expect to continue to bring innovative new products and solutions including a new handheld newborn hearing screener, cloud telemedicine capability for select products and a variety of product software enhancements,” Mr. Kennedy concluded.

Financial Guidance

For the first quarter 2021, the Company's revenue is expected to be between $108.0 million and $112.0 million and non-GAAP earnings per share is expected to be between $0.11 and $0.18.

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 $4.4 million for the first quarter 2021, which the Company expects will reduce GAAP earnings per share by approximately $0.13.

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, February 25, 2021. 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 8646785. 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 8646785. 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 periods ended March 31, 2020, June 30, 2020, September 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 Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Revenue$118,718   $131,416   $415,684   $495,175  
Cost of revenue51,247   49,259   185,912   196,551  
Intangibles amortization1,801   1,679   13,241   6,916  
Gross profit65,670   80,478   216,531   291,708  
Gross profit margin55.3 % 61.2 % 52.1 % 58.9 %
Operating expenses:       
Marketing and selling27,715   32,268   107,282   129,109  
Research and development14,722   17,567   61,296   58,733  
General and administrative12,359   15,261   49,113   59,649  
Intangibles amortization3,894   3,844   15,224   15,144  
Restructuring1,966   3,592   3,809   44,739  
Total operating expenses60,656   72,532   236,724   307,374  
Income (loss) from operations5,014   7,946   (20,193)  (15,666) 
Interest expense(856)  (775)  (3,656)  (4,835) 
Other income (expense), net2,182   105   1,784   (756) 
Income (loss) before provision for (benefit from) income tax6,340   7,276   (22,065)  (21,257) 
Provision for (benefit from) income tax1,135   4,266   (5,452)  (5,586) 
Net income (loss)$5,205   $3,010   $(16,613)  $(15,671) 
Net income (loss) per share:       
Basic$0.15   $0.09   $(0.49)  $(0.47) 
Diluted$0.15   $0.09   $(0.49)  $(0.47) 
Weighted-average shares:       
Basic33,861   33,691   33,562   33,696  
Diluted33,903   33,829   33,562   33,696  


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
    
 December 31, December 31,
 2020 2019
ASSETS   
    
Current assets:   
Cash and investments$82,082  $63,297 
Accounts receivable93,133  115,889 
Inventories75,650  71,368 
Other current assets20,837  19,195 
Total current assets271,702  269,749 
    
Property and equipment24,516  24,702 
Operating lease right-of-use assets11,669  15,046 
Goodwill and intangible assets244,040  261,166 
Deferred income tax27,563  30,355 
Other assets20,904  21,509 
Total assets$600,394  $622,527 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
    
Current liabilities:   
Accounts payable$23,429  $27,253 
Current portion of long-term debt50,000  35,000 
Accrued liabilities44,236  54,451 
Deferred revenue21,308  20,246 
Current portion of operating lease liabilities6,779  5,871 
Total current liabilities145,752  142,821 
    
Long-term debt5,840  19,665 
Deferred income tax10,298  14,251 
Operating lease liabilities8,959  12,051 
Other long-term liabilities18,451  17,616 
Total liabilities189,300  206,404 
Total stockholders’ equity411,094  416,123 
Total liabilities and stockholders’ equity$600,394  $622,527 


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
      
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Operating activities:       
Net income (loss)$5,205   $3,010   $(16,613)  $(15,671) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:       
Provision for losses on accounts receivable32   328   1,190   4,262  
Impairment of intangible assets      6,678     
Depreciation and amortization7,126   7,776   28,115   30,722  
Loss on equity method investment adjustment133      133     
(Gain) loss on disposal of property and equipment119   (33)  268   449  
Warranty reserve880   298   2,009   2,886  
Share-based compensation2,507   1,975   9,566   8,352  
Loss on commencement of sales-type leases20      1,881     
Impairment charge for held for sale assets         24,571  
Non cash lease expense1,353      1,353     
Changes in operating assets and liabilities:       
Accounts receivable(12,716)  (7,711)  17,651   7,139  
Inventories8,356   9,259   1,939   7,185  
Prepaid expenses and other assets9,021   7,041   (1,055)  (2,486) 
Accounts payable(4,504)  (3,443)  (4,523)  (1,367) 
Accrued liabilities417   (5,083)  (13,427)  (4,010) 
Deferred revenue1,779   1,021   838   3,392  
Deferred income tax(3,403)  (2,292)  (1,577)  (5,364) 
Net cash provided by operating activities16,325   12,146   34,426   60,060  
Investing activities:       
Acquisition of businesses, net of cash acquired(1,997)     (1,997)    
Purchase of property and equipment(992)  (1,454)  (8,609)  (5,326) 
Purchase of intangible assets         (13) 
Purchase of equity investments(1,000)     (2,000)    
Net cash used in investing activities(3,989)  (1,454)  (12,606)  (5,339) 
Financing activities:       
Proceeds from stock option exercises and ESPP656   1,442   1,314   3,635  
Repurchase of common stock      (10,495)    
Taxes paid related to settlement of equity awards(58)  (93)  (1,994)  (1,689) 
Deferred debt issuance costs      (1,175)    
Principal payments of financing lease liability(112)  (74)  (527)  (478) 
Proceeds from long-term borrowings      60,000     
Payments on borrowings(10,000)  (15,000)  (58,000)  (50,000) 
Net cash used in financing activities(9,514)  (13,725)  (10,877)  (48,532) 
Exchange rate changes effect on cash and cash equivalents4,724   3,268   7,842   735  
Net increase (decrease) in cash and cash equivalents7,546   235   18,785   6,924  
Cash and cash equivalents, beginning of period74,536   63,062   63,297   56,373  
Cash and cash equivalents, end of period$82,082   $63,297   $82,082   $63,297  


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
GAAP based results:       
Income (loss) before provision for income tax$6,340    $7,276    $(22,065)  $(21,257) 
        
Non-GAAP adjustments:       
Intangibles amortization (COGS)1,801   1,679   13,241   6,916  
Recall accrual and remediation efforts (COGS)(63)  (492)  (428)  (425) 
Restructuring and other non-recurring costs (COGS)1,615      5,849   989  
Direct costs of acquisitions (COGS)   (159)     881  
Intangibles amortization (OPEX)3,894   3,844   15,224   15,145  
Direct costs of acquisitions (OPEX)112   617   112   1,573  
Restructuring and other non-recurring costs (OPEX)3,033   6,759   4,793   20,653  
Restructuring and other non-recurring costs (OI&E)206   (103)  206   28,115  
Litigation (OPEX)   185      887  
Non-GAAP income (loss) before provision for (benefit from) income tax16,938   19,606   16,932   53,477  
        
Income tax expense (benefit), as adjusted$3,885   $3,996   $3,790   $12,662  
        
Non-GAAP net income$13,053    $15,610    $13,142    $40,815   
Non-GAAP earnings per share:       
Basic$0.39   $0.46   $0.39   $1.21  
Diluted$0.39   $0.46   $0.39   $1.21  
        
Weighted-average shares used to compute       
Basic non-GAAP earnings per share33,861   33,692   33,562   33,696  
Diluted non-GAAP earnings per share33,903   33,829   33,628   33,800  
        


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (unaudited)
(in thousands, except per share amounts)
        
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
GAAP Gross Profit$65,670   $80,478   $216,531   $291,708  
Amortization of intangibles1,801   1,679   13,241   6,916  
Direct cost of acquisitions   (159)     881  
Recall accrual and remediation efforts(63)  (492)  (428)  (425) 
Restructuring and other non-recurring costs1,615      5,849   989  
Non-GAAP Gross Profit$69,023   $81,506   $235,193   $300,069  
Non-GAAP Gross Margin58.1  % 62.0  % 56.6  % 60.6  %
        
GAAP Operating Income (Loss)$5,014   $7,946   $(20,193)  $(15,666) 
Amortization of intangibles5,695   5,523   28,465   22,061  
Recall accrual and remediation efforts(63)  (492)  (428)  (425) 
Litigation   185      887  
Restructuring and other non-recurring costs4,648   6,759   10,642   49,860  
Direct cost of acquisitions112   458   112   2,454  
Non-GAAP Operating Income$15,406   $20,379   $18,598   $59,171  
Non-GAAP Operating Margin13.0  % 15.5  % 4.5  % 11.9  %
        
GAAP Income Tax Expense (Benefit)$1,135   $4,266   $(5,452)  $(5,586) 
Effect of accumulated change of pretax income2,237   643   8,729   9,489  
Effect of change in annual expected tax rate(139)  (692)  (139)  (2,432) 
Repatriation tax adjustment         (177) 
Restructuring and other expenses652   (221)  652   11,368  
Non-GAAP Income Tax Expense (Benefit)$3,885   $3,996   $3,790   $12,662  
        
        
 Three Months Ended      
 March 31,
2021
      
GAAP EPS Guidance($0.02) - $0.05      
Amortization of intangibles0.16
      
Restructuring and other non-recurring costs0.01
      
Tax effect(0.04)      
Non-GAAP EPS Guidance$0.11 - $0.18      


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GROSS MARGIN BY END MARKETS (unaudited)
(in thousands)
    
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Neuro:       
Revenue$68,228  $81,057  $236,156  $287,236 
Cost of revenue29,301  28,412  98,745  104,255 
Intangibles amortization828  883  9,697  3,702 
Gross profit$38,099  $51,762  $127,714  $179,279 
Gross profit margin55.8% 63.9% 54.1% 62.4%
        
Newborn Care:       
Revenue$28,003  $27,807  $104,634  $110,912 
Cost of revenue10,763  10,027  46,277  45,293 
Intangibles amortization67  64  260  257 
Gross profit$17,173  $17,716  $58,097  $65,362 
Gross profit margin61.3% 63.7% 55.5% 58.9%
        
Hearing & Balance:       
Revenue$22,487  $22,552  $74,894  $97,027 
Cost of revenue11,183  10,820  40,890  47,003 
Intangibles amortization906  732  3,284  2,957 
Gross profit$10,398  $11,000  $30,720  $47,067 
Gross profit margin46.2% 48.8% 41.0% 48.5%
        
Consolidated:       
Revenue$118,718  $131,416  $415,684  $495,175 
Cost of revenue51,247  49,259  185,912  196,551 
Intangibles amortization1,801  1,679  13,241  6,916 
Gross profit$65,670  $80,478  $216,531  $291,708 
Gross profit margin55.3% 61.2% 52.1% 58.9%
        
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 Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Neuro:       
GAAP Gross Profit$38,099   $51,762   $127,714   $179,279  
Amortization of intangibles828   883   9,697   3,702  
Direct costs of acquisitions   (153)     887  
Recall accrual and remediation efforts   (67)     (67) 
Restructuring and other non-recurring costs511      2,804     
Non-GAAP Gross Profit$39,438   $52,425   $140,215   $183,801  
Non-GAAP Gross Margin57.8  % 64.7  % 59.4  % 64.0  %
        
Newborn Care:       
GAAP Gross Profit$17,173   $17,716   $58,097   $65,362  
Amortization of intangibles67   64   260   257  
Recall accrual and remediation efforts(63)  (425)  (428)  (996) 
Restructuring and other non-recurring costs753      1,075   814  
Non-GAAP Gross Profit$17,930   $17,355   $59,004   $65,437  
Non-GAAP Gross Margin64.0  % 62.4  % 56.4  % 59.0  %
        
Hearing & Balance:       
GAAP Gross Profit$10,398   $11,000   $30,720   $47,067  
Amortization of intangibles906   732   3,284   2,957  
Direct costs of acquisitions   (6)     (6) 
Recall accrual and remediation efforts         638  
Restructuring and other non-recurring costs351      1,970   175  
Non-GAAP Gross Profit$11,655   $11,726   $35,974   $50,831  
Non-GAAP Gross Margin51.8  % 52.0  % 48.0  % 52.4  %
        
Consolidated:       
GAAP Gross Profit$65,670   $80,478   $216,531   $291,708  
Amortization of intangibles1,801   1,679   13,241   6,916  
Direct costs of acquisitions   (159)     881  
Recall accrual and remediation efforts(63)  (492)  (428)  (425) 
Restructuring and other non-recurring costs1,615      5,849   989  
Non-GAAP Gross Profit$69,023   $81,506   $235,193   $300,069  
Non-GAAP Gross Margin58.1  % 62.0  % 56.6  % 60.6  %


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
GEOGRAPHIC REVENUE (unaudited)
(in thousands)
        
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
Consolidated Revenue:       
United States$69,317  $79,344  $252,496  $292,400 
International49,401  52,072  163,188  202,775 
Totals$118,718  $131,416  $415,684  $495,175 
        
United States58% 60% 61% 59%
International42% 40% 39% 41%
Totals100% 100% 100% 100%


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
REVENUE AFTER EXITED PRODUCTS (unaudited)
(in millions)
          
 Three Months Ended Twelve Months Ended
 December 31,
2020
 December 31,
2019
 December 31,
2020
 December 31,
2019
 December 31,
2018
Revenue$118.7  $131.4   $415.7  $495.1   $530.9  
Newborn care*  (0.5)    (4.5)  (20.6) 
Neuro*  (0.1)    (1.2)  (14.3) 
Hearing & balance*  (0.1)    (0.1)  (11.3) 
Revenue after exited products$118.7  $130.7   $415.7  $489.3   $484.7  
          
*Newborn care, Neuro, and Hearing & balance include exited businesses (GND, Neurocom, Medix) and other end of sales products.