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Form 8-K NATUS MEDICAL INC For: Jul 20

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July 20, 2016 6:02 AM EDT



 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (date of earliest event reported): June 30, 2016
 

 Natus Medical Incorporated
(Exact name of registrant as specified in its charter)
 
000-33001
(Commission File Number)
 
 
 
 
Delaware
 
77-0154833
(State or other jurisdiction
of Incorporation)
 
(I.R.S. Employer
Identification No.)
6701 Koll Center Parkway, Suite 120
Pleasanton, CA 94566
(Address of principal executive offices)
925-223-6700
(Registrant’s telephone number, including area code)
 
 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
 
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02.
Results of Operations and Financial Condition
On July 20, 2016, Natus Medical Incorporated (the “Company”) is issuing a press release and holding a conference call regarding its financial results for the second quarter ended June 30, 2016 and other financial information. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Item 2.02 and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
 
Item 9.01.
Financial Statements and Exhibits
(d) Exhibits.
 
Exhibit No.
  
Description
99.1
  
Press release dated July 20, 2016 describing the Company's results for its second quarter ended June 30, 2016 and other financial information.




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
NATUS MEDICAL INCORPORATED
(Registrant)
 
 
 
 
Dated: April 20, 2016
 
 
 
By:
 /s/ Jonathan A. Kennedy
 
 
 
 
Senior Vice President Finance and Chief Financial Officer




Exhibit Index
 
Exhibit No.
  
Description
99.1
  
Press release dated July 20, 2016 describing the Company's results for its second quarter ended June 30, 2016 and other financial information.







Natus Medical Announces Record Second Quarter 2016 Financial Results

•
Record second quarter revenue of $96.0 million
•
Record second quarter GAAP earnings per share of $0.32 and non-GAAP of $0.39
•
Increases revenue and earnings guidance for the third quarter and fiscal year 2016

PLEASANTON, Calif. (July 20, 2016) - Natus Medical Incorporated (NASDAQ: BABY) today announced financial results for the three months ended June 30, 2016.

For the second quarter ended June 30, 2016, the Company reported revenue of $96.0 million, an increase of 4.5% compared to $91.9 million reported for the second quarter 2015. GAAP Gross profit margin was 59.9% vs. 62.4% reported for the second quarter 2015. GAAP net income was $10.5 million, or $0.32 per diluted share, compared with GAAP net income of $9.9 million, or $0.30 per diluted share in the second quarter 2015, representing a 7% increase in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share increased 15% to $0.39 for the second quarter 2016, compared to $0.34 in the second quarter 2015. Non-GAAP net income was $12.8 million for the second quarter ended June 30, 2016 compared to the prior year's non-GAAP income of $11.2 million. Non-GAAP Gross profit margin was 60.5% vs. 63.2% reported for the second quarter of 2015.

For the six months ended June 30, 2016, the Company reported revenue of $183.3 million, an increase of 1.1% compared to $181.3 million reported for the same period in 2015. GAAP Gross profit margin was 61.0% vs. 61.2% reported for the same period in 2015. GAAP net income was $19.1 million, or $0.58 per diluted share, compared with GAAP net income of $18.4 million, or $0.56 per diluted share in the same period in 2015, representing a 4% increase in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share increased 11% to $0.72 for the first six months in 2016, compared to $0.65 in the same period in 2015. The Company reported non-GAAP net income of $23.9 million for the six months ended June 30, 2016, compared to the prior year's non-GAAP net income of $21.4 million.

Cash and cash equivalents increased by $15.0 million to $96.3 million during the quarter. The Company repurchased $7.7 million of its stock during the second quarter of 2016. Cash flow from operations for the second quarter was $13.6 million.

"I am very pleased with our record second quarter revenues and earnings per share. Our domestic neurodiagnostic and newborn care businesses reported record results in the second quarter. Our fast growing new service initiatives continued their strong performance as NicView revenues grew by 90 percent, Peloton by 80 percent and GND by 45 percent verse our second quarter last year. We remain committed to achieving our full year 2016 non-Gaap operating margin goal of 20%." said Jim Hawkins, President and Chief Executive Officer of the Company.

"We recently announced the acquisition of RetCam, the worldwide leader in imaging systems used to diagnose and monitor a range of ophthalmic maladies in premature infants. We believe RetCam technology has exciting growth opportunities in the years ahead and are looking forward to further developing the newborn retinal imaging and screening market. Our growth strategy continues to include selective acquisitions like RetCam

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and potentially larger acquisitions that will expand our product offerings in the markets we serve." said Hawkins.

Financial Guidance

The Company provided revenue and earnings guidance for the second quarter and updated its revenue and earnings guidance for the full year 2016.

For the third quarter 2016, the Company expects revenue of $97.0 million to $98.0 million, GAAP earnings per share of $0.35 to $0.37 and non-GAAP earnings per share guidance of $0.41 to $0.43.

The Company increased its full year 2016 revenue guidance and now expects revenue of $388 million to $390 million compared to previous guidance of $378 million to $382 million. The updated revenue guidance includes $7 million attributable to the acquisition of RetCam. Full year 2016 guidance for GAAP earnings per share is $1.35 to $1.38. Non-GAAP earnings per share guidance is being updated to $1.67 to $1.70 compared to previous guidance of $1.61 to $1.65.

The Company's non-GAAP earnings guidance excludes amortization of acquisition related intangibles, acquisition related charges, restructuring charges, and their related tax effects. All non-GAAP earnings per share amounts are on a diluted basis.

 
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.


2


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, July 20, 2016. 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 42221163. 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 42221163. 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 our long term goals of revenue growth, improved margins, and revenue and non‑GAAP profitability for the second quarter and full year 2016. These statements relate to estimates and assumptions regarding future events including Natus' future financial performance. These statements 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, the demand for our products and services, the impact of adverse global economic conditions on our target markets, negative effects of currency exchange

3


rates, 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, risks associated with bringing new products to market and integrating acquired businesses, risks associated with our Venezuela contract, risks associated with product recalls 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, 2015 and in other reports filed from time to time by Natus with the U.S. Securities and Exchange Commission.

Natus Medical Incorporated
Jonathan A. Kennedy
Sr. Vice President and Chief Financial Officer
(925) 223-6700


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
 
 
 
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
 
 
 
(in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 Quarter Ended
 
 Year to Date
 
June 30, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Revenue
$
95,958

 
$
91,937

 
$
183,287

 
$
181,332

Cost of revenue
37,879

 
33,844

 
70,348

 
68,948

Intangibles amortization
604

 
683

 
1,205

 
1,366

  Gross profit
57,475

 
57,410

 
111,734

 
111,018

Gross profit margin
59.9
%
 
62.4
%
 
61.0
%
 
61.2
%
Operating expenses:
 
 
 
 
 
 
 
  Marketing and selling
21,236

 
22,108

 
41,832

 
42,850

  Research and development
7,105

 
7,309

 
14,907

 
14,167

  General and administrative
11,924

 
11,656

 
24,403

 
23,208

  Intangibles amortization
2,197

 
2,174

 
4,332

 
3,129

  Restructuring
1,083

 
161

 
1,118

 
316

    Total operating expenses
43,545

 
43,408

 
86,592

 
83,670

Income from operations
13,930

 
14,002

 
25,142

 
27,348

Other income/(expense), net
25

 
(380
)
 
481

 
(1,210
)
Income before tax
13,955

 
13,622

 
25,623

 
26,138

Provision for income tax expense
3,443

 
3,771

 
6,573

 
7,691

Net income
$
10,512

 
$
9,851

 
$
19,050

 
$
18,447

Earnings per share:

 
 
 
 
 
 
  Basic
$
0.32

 
$
0.31

 
$
0.59

 
$
0.57

  Diluted
$
0.32

 
$
0.30

 
$
0.58

 
$
0.56

Weighted-average shares:
 
 
 
 
 
 
 
  Basic
32,438

 
32,273

 
32,521

 
32,201

  Diluted
32,983

 
33,204

 
33,118

 
33,158



4



NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands)
 
 
 
 
 
 
 
June 30,
 
March 31,
 
December 31,
 
2016
 
2016
 
2015
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
96,284

 
$
81,285

 
$
82,469

Accounts receivable, net
93,102

 
90,013

 
99,080

Inventories
43,620

 
45,691

 
48,572

Other current assets
12,925

 
11,360

 
11,235

Total current assets
245,931

 
228,349

 
241,356

 
 
 
 
 
 
Property and equipment, net
17,174

 
17,624

 
16,967

Goodwill and intangible assets
192,173

 
196,413

 
194,002

Deferred income tax
12,809

 
12,695

 
12,782

Other assets
18,005

 
17,649

 
14,389

Total assets
$
486,092

 
$
472,730

 
$
479,496

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
18,836

 
$
19,418

 
$
23,660

Short-term borrowings
10,000

 
—

 
—

Accrued liabilities
37,306

 
36,911

 
42,137

Deferred revenue
11,262

 
11,460

 
11,311

Total current liabilities
77,404

 
67,789

 
77,108

 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
Deferred income tax
3,839

 
3,881

 
3,897

Other long-term liabilities
8,633

 
8,708

 
7,781

Total liabilities
89,876

 
80,378

 
88,786

Total stockholders’ equity
396,216

 
392,352

 
390,710

Total liabilities and stockholders’ equity
$
486,092

 
$
472,730

 
$
479,496














5


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
 
 
 
 Quarter Ended
 
June 30, 2016
 
June 30, 2015
Operating activities:
 
 
 
Net income
$
10,512

 
$
9,850

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for losses on accounts receivable
408

 
307

Excess tax benefit on the exercise of stock options
—

 
(3,317
)
Depreciation and amortization
4,173

 
4,195

Impairment of intangible assets
—

 
—

Impairment of property and equipment
(46
)
 
—

Warranty reserve
1,383

 
2,277

Share-based compensation
2,102

 
1,760

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,673
)
 
(1,380
)
Inventories
1,255

 
(3,637
)
Prepaid expenses and other assets
(1,778
)
 
1,505

Accounts payable
(896
)
 
(2,945
)
Accrued liabilities
(336
)
 
(4,510
)
Deferred revenue
(172
)
 
2,984

Deferred income tax
(322
)
 
(1,378
)
Liabilities acquired in acquisitions
—

 
—

Net cash provided by operating activities
13,610

 
5,711

Investing activities:
 
 
 
Acquisition of businesses, net of cash acquired
(501
)
 
519

Purchases of property and equipment
(181
)
 
(976
)
Purchase of intangible assets
(243
)
 
(890
)
Net cash used in investing activities
(925
)
 
(1,347
)
Financing activities:
 
 
 
Proceeds from stock option exercises and Employee Stock Purchase Program purchases
1,584

 
4,396

Excess tax benefit on the exercise of stock options
—

 
3,317

Repurchase of common stock
(7,691
)
 
(4,203
)
Taxes paid related to net share settlement of equity awards
(558
)
 
(1,189
)
Contingent consideration earn-out
—

 
(664
)
Proceeds from short-term borrowings
10,000

 
—

Payments on borrowings
—

 
—

Net cash used in financing activities
3,335

 
1,657

Exchange rate changes effect on cash and cash equivalents
(1,021
)
 
218

Net increase in cash and cash equivalents
14,999

 
6,239

Cash and cash equivalents, beginning of period
81,285

 
66,999

Cash and cash equivalents, end of period
$
96,284

 
$
73,238



6


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 Quarter Ended
 
June 30, 2016
 
June 30, 2015
GAAP based results:
 
 
 
Income before provision for income tax
$
13,955

 
$
13,622

 
 
 
 
Non-GAAP adjustments:
 
 
 
Intangibles Amortization - Cost of revenue
604

 
683

Intangibles Amortization - Operating expense
2,197

 
2,174

Restructuring 1
1,083

 
161

Direct costs of acquisitions (M&S) 2
(583
)
 
—

Direct costs of acquisitions (OI&E)
74

 
—

Non-GAAP income before provision for income tax
17,330

 
16,640

 
 
 
 
Income tax expense, as adjusted
4,554

 
5,482

 
 
 
 
Non-GAAP net income
$
12,776

 
$
11,158

 Non-GAAP earnings per share:
 
 
 
  Basic
$
0.39

 
$
0.35

  Diluted
$
0.39

 
$
0.34

 
 
 
 
 Weighted-average shares used to compute
 
 
 
   Basic non-GAAP earnings per share
32,438

 
32,273

   Diluted non-GAAP earnings per share
32,983

 
33,204

 
 
 
 
GAAP Gross profit
57,475

 
57,410

Amortization of intangibles
604

 
683

Non-GAAP Gross Profit
58,079

 
58,093

Non-GAAP Gross Margin
60.5
%
 
63.2
%
 
 
 
 
GAAP Operating profit
13,930

 
14,002

Amortization of intangibles
2,801

 
2,857

Restructuring and other charges
500

 
161

Non-GAAP Operating profit
17,231

 
17,020

Non-GAAP Operating margin
18.0
%
 
18.5
%

1 Restructuring costs primarily consist of facility abandonment charges related to our Munich, Germany and Austin, Texas facilities, and severance costs associated with the ceasing operations in Munich, Germany.
2 Amount represents a reduction in our anticipated earn-out payment for the GND acquisition.






7


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 Quarter Ended
 
June 30, 2016
 
June 30, 2015
GAAP Provision for income tax expense
3,443

 
3,771

Effect of accumulated change of pretax income
846

 
995

Effect of change in annual expected tax rate
265

 
90

Effect on acquisition cost
—

 
626

Non-GAAP Income tax expense, as adjusted
4,554

 
5,482

 
 
 
 
 
 Quarter Ended
 
 Year to Date
 
September 30, 2016
 
December 31, 2016
GAAP EPS Guidance
$0.35 - $0.37
 
$1.35 - $1.38
Amortization of Intangibles
0.08
 
0.41
Restructuring
—
 
0.03
Recall Accrual
—
 
0.01
Direct cost of acquisitions
—
 
(0.02)
Tax effect
(0.02)
 
(0.11)
Non-GAAP EPS Guidance
$0.41 - $0.43
 
$1.67 - $1.70


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