Exhibit 99.1
Natus Medical Reports Record Revenue and
First-Quarter Non-GAAP Earnings
SAN CARLOS, Calif.--(BUSINESS WIRE)--May 2, 2006--Natus Medical
Incorporated (Nasdaq:BABY) today reported financial results for the
three months ended March 31, 2006. Natus reported revenue of $19.4
million for the quarter ended March 31, 2006, compared to $9.7 million
reported in the same period in 2005. The increase was primarily
attributable to the acquisition of Bio-logic Systems Corp. Gross
margin improved to 62.4% for the three months ended March 31, 2006,
compared with 60.1% for the first quarter of 2005. The gross margin
for the 2006 period was favorably impacted by the results of Bio-logic
as well as product mix among the Company's other products.
On a GAAP basis the Company reported a net loss of $4.7 million or
$(0.25) per diluted share in the first quarter of 2006, compared to
net income of $910,000 or $0.05 per diluted share in the first quarter
of 2005. Non-GAAP net income was $1.4 million or $0.07 per diluted
share, representing increases of 56% and 40%, respectively, as
compared to the same period in 2005. The non-GAAP measures exclude the
effect of employee equity-based compensation expense and an in-process
research and development charge associated with the January 5, 2006
acquisition of Bio-logic. However, the non-GAAP measures do include
the impact of a higher effective tax rate as described below.
"I am extremely pleased with our first quarter results," stated
Jim Hawkins, President and Chief Executive Officer of Natus. "Our top
line results and pre-tax earnings on a non-GAAP basis were beyond our
expectations, with strong sales among all our product lines, and we
continue to believe that 2006 will be an excellent year for
Natus."
"The integration of Bio-logic is nearly complete," added Hawkins.
"It has gone very smoothly and is ahead of schedule. We are also
pleased that Bio-logic's operating results were accretive to our
earnings in the first quarter."
On January 1, 2006, the Company adopted SFAS 123R and is reporting
employee equity-based compensation expense in its GAAP results. The
first quarter also included an after-tax in-process research and
development charge of $5.9 million associated with the acquisition of
Bio-logic. These charges have been excluded from the non-GAAP net
income and earnings per share numbers reported above. A reconciliation
of GAAP and non-GAAP results is provided in the attached tables.
The Company has determined, in consultation with its tax advisors
and independent auditors, that the application of purchase accounting
rules to the Bio-logic acquisition will result in an increase to its
effective tax rate for accounting purposes, although the Company's tax
obligations will not change. In 2005 the Company was able to offset
much of its tax expense for accounting purposes against its deferred
tax assets for which a valuation allowance had been provided. Because
of the purchase accounting entries, beginning in the first quarter of
2006 the Company is no longer able to offset its tax expense against
its deferred tax assets. As a result, the Company's effective tax rate
for the first quarter of 2006 increased to 43.7%, compared to 14.4%
for the first quarter of 2005, and the Company expects that its future
tax rate for accounting purposes will approximate statutory rates.
Mr. Hawkins noted, "This change in tax circumstance does not
effect our ability to benefit from our deferred tax assets. For U.S.
federal tax purposes, we still expect to benefit from our net
operating loss carryforward, and for cash flow purposes nothing has
changed. This change in our effective tax rate for accounting purposes
increased our tax provision by approximately $650,000, compared to the
15% rate we had expected for 2006 and cited in our previous guidance.
Even with this increase, we still reported non-GAAP earnings per share
of 7 cents. Had this change in accounting for income tax expense not
occurred, our earnings per share would have exceeded the high range of
the guidance we provided in February by 3 cents and on a non-GAAP
basis our diluted earnings per share would have been 11 cents."
The Company will present a more detailed explanation of the change
in its effective tax rate during the Company's financial results
conference call.
Financial Guidance
Natus increased revenue guidance for 2006. For the full year, the
Company expects to report revenue of $80.5 to $82.0 million. The
Company had previously said that it expected to report revenue of
$78.0 to $80.0 million. For the second quarter of 2006, the Company
expects to report revenue of $19.3 to $19.5 million. The Company had
previously said that it expected to report revenue of $19.0 to $19.3
million. For the third quarter of 2006, the Company expects to report
revenue of $20.3 to 20.5 million.
The Company had previously provided financial guidance for 2006
that was based on an effective tax rate of 15% for accounting
purposes. The Company has adjusted its financial guidance for the
remainder of 2006, which is now based on an increase in its effective
tax rate to approximately 45%.
The Company's prior guidance also did not include the impact of
expensing employee equity-based compensation ("option expense"). The
Company is now adjusting its guidance to include this cost, which it
expects to be approximately $1.6 million for 2006. The Company expects
that this cost will reduce its earnings by $0.04 to $0.05 per diluted
share in 2006.
The Company increased its guidance on a before-tax basis for the
full year 2006. The new guidance is based on the Company reporting
income before tax of $11.2 to $12.3 million. In the guidance the
Company provided in February, the estimate of income before tax would
have been $9.9 to $10.4 million, had the Company included option
expense in that guidance.
For the full year 2006, the Company now expects to report earnings
per share of $0.30 to $0.33. Natus had previously said it expected to
earn $0.49 to $0.51 per diluted share in 2006 on a non-GAAP basis
because that guidance excluded option expense. In addition the
previous guidance was based on the lower effective tax rate.
In February, the Company provided guidance for the second quarter
of 2006. With the increase in the effective tax rate, the Company now
expects to report diluted earnings per share in the second quarter
2006 of $0.05 to $0.06. This guidance is based on the Company
recording approximately $360,000 of option expense and reporting
income before taxes of $1.8 to $2.2 million.
The Company provided guidance for the third quarter of 2006. For
the third quarter of 2006, the Company expects to report diluted
earnings per share of $0.08 to $0.09. This guidance is based on the
Company recording approximately $460,000 of option expense and
reporting income before taxes of approximately $3.0 to $3.4 million.
The Company's 2006 annual guidance above excludes the impact of
the $5.9 million in-process research and development charge recorded
in the first quarter. That charge is expected to reduce earning per
share for the full year by approximately $0.29 per diluted share.
However, this guidance includes the impact of expensing employee
options, which as mentioned above will be $0.04 to $0.05 per diluted
share in 2006.
Use of Non-GAAP Financial Measures
In addition to disclosing financial results calculated in
accordance with GAAP, this release contains non-GAAP financial
measures that exclude the effects of equity-based compensation expense
as a result of the Company's adoption of SFAS 123R on January 1, 2006
and costs associated with the January 5, 2006 acquisition of Bio-logic
Systems Corp. The Company believes that the presentation of results
excluding equity-based compensation expense and the
acquisition-related charges provides meaningful supplemental
information to both management and investors that is indicative of the
Company's core operating results. The Company is using the modified
prospective method in its adoption of SFAS 123R and as such, will not
restate prior year results for the impact of employee stock option
expensing. The Company also believes the in-process research and
development charge is not indicative of resources devoted to ongoing
research and development efforts. Therefore, the Company believes
these non-GAAP financial measures facilitate comparison of operating
results across reporting periods. A reconciliation between the
Company's results of operations on a GAAP and non-GAAP basis for the
periods reported is included as part of the condensed consolidated
statements of operations at the end of the Company's financial results
release.
The Company believes that both management and investors benefit
from referring to these non-GAAP financial measures in assessing the
Company's performance and when planning, forecasting, and analyzing
future periods. 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 investor conference call to discuss this
announcement beginning at 9:00 a.m. Eastern Time today. Individuals
interested in listening to the conference call may do so by dialing
(866) 356-4281 for domestic callers, or (617) 597-5395 for
international callers, and entering reservation code 29190744. A
telephone replay will be available for 48 hours following the
conclusion of the call by dialing (888) 286-8010 for domestic callers,
or (617) 801-6888 for international callers, and entering reservation
code 71522734.
The time of the conference call above is an update of the time
indicated in the Company's press release issued on April 24, 2005
announcing the conference call.
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 used for
screening, detection, treatment, monitoring and tracking of common
medical ailments such as hearing impairment, neurological dysfunction,
epilepsy, sleep disorders, newborn jaundice and newborn metabolic
testing.
Additional information about Natus Medical can be found at
www.natus.com.
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, but are
not limited to, statements regarding anticipated revenue and
profitability for the full-year 2006 as well as for the second and
third quarters of 2006, and the ability to utilize deferred tax assets
to offset future tax obligations. These statements relate to future
events or Natus' future financial performance or results, 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, the demand
for our products and services, 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, and risks
associated with bringing new products to market and integrating
acquired businesses. 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, 2005, and
its 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 STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended
March March
2006 2005
--------- ---------
Revenue $ 19,383 $ 9,702
Cost of revenue 7,294 3,870
--------- ---------
Gross profit 12,089 5,832
--------- ---------
Operating expenses:
Marketing and selling 5,161 2,605
Research and development 2,490 993
General and administrative 2,155 1,363
Acquired IPR&D 5,900 -
--------- ---------
Total operating expenses 15,706 4,961
--------- ---------
Income (loss) from operations (3,617) 871
--------- ---------
Other income/(expense):
Interest income 169 183
Interest expense (165) -
Other income, net (117) 9
--------- ---------
Total other income/(expense) (113) 192
--------- ---------
Income (loss) before
provision for income tax (3,730) 1,063
Provision for income tax 949 153
--------- ---------
Net income (loss) $ (4,679) $ 910
========= =========
Earnings (loss) per share:
Basic: $ (0.25) $ 0.05
Diluted: $ (0.25) $ 0.05
Weighted-average shares used to compute
Basic earnings per share 18,485 17,156
Diluted earnings per share 18,485 18,435
NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended
March March
2006 2005
--------- ---------
GAAP net income (loss) $ (4,679) $ 910
--------- ---------
Earnings per share
Basic $ (0.25) $ 0.05
Diluted $ (0.25) $ 0.05
non-GAAP adjustments:
Equity-based compensation expense
under SFAS 123R (see note below) (a) 357 -
Acquired in-process research
and development (see note below) (b) 5,900 -
Income tax effect (see notes below) (c) (161) -
--------- ---------
Non-GAAP net income $ 1,417 $ 910
--------- ---------
non-GAAP earnings per share
Basic $ 0.08 $ 0.05
Diluted $ 0.07 $ 0.05
Weighted-average shares used to compute
Non-GAAP basic earnings per share 18,485 17,156
Non-GAAP diluted earnings per share 20,239 18,435
Non-GAAP Adjustments
(a) Non-cash equity-based compensation expense of $357,000 related to
the Company's adoption of SFAS No. 123R on January 1, 2006 allocated
as follows: $24,000 to cost of sales, $139,000 to marketing and
selling, $56,000 to research and development, and $138,000 to general
and administrative. Management believes that it is useful to investors
to understand how the expenses associated with the adoption of SFAS
123R are reflected in net income. Net income for the three months
ending March 31, 2005 did not include equity-based compensation
expense under SFAS 123.
(b) A charge of $5.9 million for acquired in-process research and
development expense related to the acquisition of Bio-logic Systems
Corp. on January 5, 2006. Management believes that excluding this
charge facilitates comparisons to Natus' core operating results during
periods when there were no acquisitions.
(c) Amount reflects the expected tax impact on the above noted
non-GAAP adjustments.
Non-GAAP earnings per diluted share in the table above are based on an
effective tax rate of approximately 43.7%. Had the tax provision been
based on a 15% rate, which the Company believes approximates the rate
that would have been applied had it not been for the impact of the
purchase accounting rules associated with the Bio-logic acquisition,
then the tax provision would have been approximately $650,000 less and
non-GAAP earnings per diluted share would have been $0.11 as follows:
GAAP income before tax $(3,730)
Non-GAAP adjustments:
Equity-based compensation expense 357
Acquired in-process research and
development 5,900
--------
Non-GAAP income before tax 2,527
Provision for income tax at 15% 379
--------
Non-GAAP net income $2,147
========
Non-GAAP Earnings per diluted share $0.11
Weighted-average shares used to compute
diluted earnings per share 20,239
CONTACT: Natus Medical Incorporated
Steven J. Murphy, 650-802-0400
InvestorRelations@Natus.com