NTUS - Earnings call transcript Q3 2017

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Natus Medical Third Quarter 2017 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, October 25, 2017 and contains time-sensitive information that is accurate only as of today. Earlier today, Natus Medical released financial results for the third quarter 2017.

If you have not received the news release or if you would like to be added to the company’s distribution list, please e-mail your request to investorrelations@natus.com. website broadcast natus.com, the the and be on being company’s on call is XX available at next website a the call live Internet over the will days. This the for replay of The agenda follows. for will as call today’s be and Officer of President opening be Natus, Executive Chief Hawkins, will presenting Jim comments. Vice Chief company’s Kennedy, Financial results. Then financial Natus, of Executive Jonathan Officer President and the will summarize the comments call Jim will for XXXX conclude about with the Hawkins remarks for company’s then, And before prepared opening up questions. guidance financial the

Some information will be the in constitute Act furnished forward-looking Litigation of of Securities of meaning to the today’s XXXX. statements session within Private Reform the

the Forward-looking factors. forward-looking performance, a company’s future results, differ risk statements materially include statements future number XXXX. the of on expected and those are plans results due and that Natus to results from focused may these events for you reminds

risks of and Mr. like Forms company’s the periodic to Jim see description its of the a call Executive and Natus to filed Hawkins, For the Officer uncertainties XX-Q relevant the Mr. affect Medical. would Chief over that now business, Commission. I and Hawkins? with on may reports turn and President XX-K Exchange Securities

Jim Hawkins

you, Thank operator.

we $XXX.X that million results this quarter revenue earlier of third Our year. reported million morning $XX.X to compared released last

in The I exceeded to our plan Both our compared strong We Florida per quarter share, operating integration and another reduced quarter $X.XX reported very the of business. U.S. also I posted is non-GAAP growth revenues and neurodiagnostic our to earnings profit non-GAAP pleased our go our acquired achieved with hurricanes am well. of segments non-GAAP continues earnings Otometrics by we year-over-year high-end and pleased in ahead Recently had international third in guidance. growth. Otometrics achieve solid XX% XXXX. revenue margins Texas and quarter our X%. to third quarter, approximately in $X.XX am of which our last our revenues the year. record In U.S.

are hearing solid of market future aid The Otometrics. of future be excited We for continues these for a as expand. worldwide very to grower foreseeable hearing growth and will diagnostic the with products the fitting the

believe in underpenetrated They for an pipeline. growth past. market further also an market exciting has this as U.S. we also Otometrics the new We have in have opportunity product the

All revenue confidence us these of of factors the believe to will give in XX% Otometrics XXXX. achieve over growth

the in acquiring an operating aid fitting the of safer it product the of initial greatly manufacturer set process as hearing also office. business. than the growing represents saves first Otoscan impression believe a XX% the ear in impressions XXXX. has hearing goal upload-download Otoscan, image. XX% to breakeven anticipate been combination X the fitting Otoscan product. a aids digitizes had the high-end attained revolutionize be with Otoscan would the We in had opportunity well Day the We $XXX market and from translates dispensers have many new Otoscan human a a silicone hearing and as and introduction Otometrics of market days as to compelling dental fitting, worldwide of is in we to Otoscan scanner our sales an customer. City, of for and of hearing believe providing At hearing the an aid We New same Natus digital there approximately sold quarter York hardware large are million aid risk a that and reduces the impression, opportunity the be the in comfortable market. aid Today, through process specifications revolutionary This more Natus intraoral we aid million. in in charge. The digital for manufacturers and that it for the eligible Otometrics, would is profit XXXX. to June annual and dental Prior fitting of approximately unveiled error. opportunity an Otoscan cloud XXXX digital they We to Analyst hearing as Otometrics’ This in data

by can it believe reduce also patients the due well number use as aid their We of hearing fitting with are as as many that customers stop revisits to for continue to to fitting factors. aids unsatisfied hearing

global X product historic In October Otoscan which been the marks acquisition launch third standard transaction annual EVD to acquisition been their U.S. testing rights quarter, market-leading has of all-cash revenue relating dural collection neurosurgery billion acquired DURAFORM manufacturing graft the from catheters sales business rights key system, In an we as Integra into response on to market. neurosurgery ICP, forward next the The a LifeSciences, entry positive. look $XX.X for showing San the of the certain closed extremely have Natus also transaction, We and Natus’ and year. Integra’s pressure approximately Diego in systems. $X customers, well intracranial We including implants, the shunts and announced with With include the facility. assets as U.S. monitoring million. $XX CSF fixed-pressure the million, to

dedicated the a will all announced placed this a in on This, this also have the fully need immediately in historically is reward shielded depending infant routine images we the is to be better to neonatal premature doctors Natus, able to magnet very as – of intensive located process the self-contained and being is Because able an States. often the to a now great MRIs escort includes neonates high-risk system System performed as for and NICU. for Embrace that both these exclusive an of designed believe, accretive The to risk diagnostic does the that Embrace been the system on complexity and babies critical receive for margins agent It with that the system. for get Embrace be configuration. a are it commission being images, as Based to distance Embrace to the earnings incubator unit, will not basis this as The care which seen the enclosed needed the for make as scan price. not have into of price operating an MR and was seen NICU. is Along disruptive patented the not technology, directly located Embrace to MRI, allow quality for MRI other MRI. radiology, require Embrace happen not transporting performed imaging $X.X room agent, of The will to can typically nurses to $X to in due be from be acquisition will temperature-control a allow would with setups these images sales expensive, similar sales factors, risk attention for special as of and a The Embrace beneficial. MRI our consolidated can neonates. United expect the would On baby. Monday, neonate. MRI sales medicine well be Embrace NICU monitoring taken most would the million, will to a XX% margins. million We be XX% as now that gross Embrace has to on the images Natus be

times renovations While the other two does often special or that price three cost the point, MRI. cause the Embrace a not a can require shielded high of expensive room and

many that babies, will by imaging for remain hope become conditions. neonate on Our is in a safely care shared – the they MR while standard NICU, certain

show Radiology RSNA of in Chicago We at XX market North America, November the Embrace the XX. the introduce will Society to through the the U.S. on

believe the of have As Embrace an and a receive the practiced part breakthrough We equities Imaging and Natus of original today. meaningful the partnership is with is technology owner investment product of of Embrace, after recovered. XX% is medicine Aspect how participation change neonate Imaging, the on can a Aspect the will

and marketing We we the – are will be the of remain million In as pleased the growth of a Natus. excited help business the and Embrace to Embrace as of make in building drive our XXXX, support we of team our about revenue the first a future summary, success. with well in over progress as months of I ownership. $XXX sales, nine performance Otometrics

continue markets. and to our partner positions products strengthen expand products market-leading and of have and to plan with We companies majority and in our markets. the acquire to We

As our always, be immediately will acquisitions for to look we accretive.

also Natus, Officer Jonathan? to over with We Otometrics will I look with along integrate review to financial we call Financial improve results. in added of profitability XXXX as our the products. turn Chief for a the neurosurgery our Jonathan now Kennedy,

Jonathan Kennedy

our you, basis. non-GAAP as Jim. discussing a well as Today basis GAAP I’ll financial results be Thank a on

of analysis basis of excluded statements, you non-GAAP ongoing our results in results believe that non-GAAP measures charges can non-GAAP our provide We tax their certain effects. financial press a with a and other restructuring, reconciliation these presentation financial performance. GAAP financial verus of GAAP more find on the today’s a related thorough along release. expense, Our And amortization our

the $XX.X million where XXXX expenses to quarter driven during outside the the in from the approximately was was million Otometrics, revenue increased decreased In for gross approximately while was million the the XX% from from the is last units the period, of total quarter $XX business Care X.X% of international quarter was during operating of basis same in of Revenue million As our XXXX year. period. period On to third decreased the about of non-GAAP third systems compared margins OpEx stated, the approximately driven margins XX%. partially to in total third from XX% quarter our compared from period device in XXXX partially the or XXXX. our third quarter XX.X% XXX XX% by offset Otometrics, business we in in Newborn during of is XX% to quarter from same in in by year. XX.X% XX% third and X.X% $XX.X the higher last to revenue million third for to total the XX.X% the $XX.X quarter compared revenue quarter contributed total $XXX.X sales total compared XXXX. to in The by was sales Revenue generated in quarter total by year, revenue and of Jim million, our third the approximately in compared by in in where in the the quarter quarter of to same revenue third same revenue during or XX.X% quarter of XX% Otometrics primarily third the or of United Newborn from to $XX.X compared total reported gross the same in business total, revenue to mix a The basis, revenue by Otometrics. to last compared Otometrics addition XX.X% a The Again, margin driven quarter non-GAAP to XXXX. was Revenue revenue operating approximately points was gross the of XX% XX% to XX% States. And third business and same margin and domestic to of of year, and margin XX% increase from addition revenue period supplies devices mix last million last operating change Revenue decline the during lower was compared compared by increase unit. Care XX% decreased driven the decrease Neurology our XXXX year. the and of addition Otometrics. for Non-GAAP of same revenue XX% or neurology increase of services $XX.X device revenue in quarter owing increased XX% XXXX. XX% revenue

U.S. – non-GAAP we tax During assets. a tax our This increased by the on GAAP noncash onetime quarter, million. expense our valuation recorded $XX.X allowance allowance

believe have Our against U.S. practices although two use reserve them assets ample over we require accounting about opportunity of years, We will us XX have decades. next that a tax the the to and life them.

and owing was and primarily exchange interest was from tax fluctuations, we million $X.X approximately fluctuations the we quarter overall to million the to to quarter. fourth year, was per third In income in approximately the XX%. depreciation tax non-GAAP expect and ahead net Interest was recorded in Non-GAAP rate. million about the $XX.X our third GAAP be in diluted the On and based Danish a same quarter FX the full was compensation decrease third quarter, gain about to $X rate valuation allowance, expense. again, compared quarter million earnings rate QX million Our the million, share was during $X to net expense effective quarter XXXX loss Other basis, $XX non-GAAP and about quarter. non-GAAP same and was from increase year kroner last interest the expect that’s $X.X the $X.XX year. amortization or $X.XX. increased to be expense a and million the $X.X but dollar $X we last net XX.X% income looking euro and during million of Share

at we the flow we look the cash during during increased to $X borrowings million quarter sheet about Integra increased the asset ended million the $XX.X $XX quarter as acquisition, the Net let’s million. debt a net Now, fund cash and was $XX.X and flow. quarter. balance million with Cash of from operations by

back year. XX call that second Jim. flat Our versus count at day of sales to days. the million period With non-GAAP since last days remained quarter $XX the turn shares to I’ll And share outstanding the diluted increased one same

Jim Hawkins

Thanks Jonathan.

I Before the XXXX, quarter full to non-GAAP review would opening call questions, a guidance our to and all like year basis. our up financial fourth the on for

For $XXX million non-GAAP of revenues to earnings the and XXXX, $X.XX. fourth we $X.XX million expect quarter to share of of $XXX per

we non-GAAP per earnings the share of full guidance a $XXX.X year now For revenue $X.XX million a million expect to $XXX.X $X.XX. to and of XXXX,

over the will questions. call turn to Operator? We now

Operator

William Instructions] Blair. first comes [Operator from from question Our Weinstein Brian

Your line is now open.

Brian Weinstein

guys, taking the Hey thanks for question.

start Otometrics. let’s with First

kind of Can pulled this You forward think what’s of where for guys plan kind XX% been you here ahead your growth. will you’re profitability year? end of that said that for you and describe

Jim Hawkins

And very been mean, term our but beyond business been it’s very all at U.S. just across all business I Brian, expectations know Yes, the really just world don’t has I been Otometrics. good The fronts. the about been steadily pull-forward, up, is good. it’s around

SBU. by be just get As will much far a of as, each to give guidance we don’t It cluster. too

the guidance just we So annual company. give for

Brian Weinstein

of bit are there profitability. than was something place from about it better understand, things Is planned trying actually within the and that integration Or the sort are has it’s gone into and expected that just terms maybe the dig revenues up of little XXXX? you XXXX just Yes, in has better gone I to itself what in better? has moved taking in

Jim Hawkins

No, revenues in. I you think kicked have the certainly Yes. know

are plan. little budget. at better integration operating original profit well margins – through a gross overall Our been just margins budget really has the as And from spend our under or

better in coming operating than look XX% we goal. certainly profit where So to it’s the do all

Jonathan Kennedy

so Jonathan, so Jim on live we plan. this aspects, Otometrics, implementation as of and that gross we get call And the I’d we is strength I’d week revenue and on last Otometrics Later too, through track point in – is originally, for as did think and track the on – the point from Oracle that. out the we I on go but we’re bulk with were really margins integration on out where that’s pointed the

Brian Weinstein

update was kind what’s there. you That again down this related an on markets Got at what’s side are talk on the to of on update Peloton guys it. anything quarter. digging going end I And then and Can hear you time? and, kind you into specifically, with Care Newborn on guys give didn’t kind in going about those where us of this an of

Jim Hawkins

Jonathan, you Sure. questions? why those address don’t

Jonathan Kennedy

perspective about in was so we we before, talked points were a percentage the revenue up U.S. down bit down, Actually, business baby. in revenue a The coming in the Yes, due was Care, a lower U.S. couple little mostly as per Newborn from revenue. down international in Peloton to

In operating and earlier least It’s margins. a we’ve report terms profitable, the to well that and Peloton actually not quite that today, doing I’m year, business happy restructured Peloton getting above the track, up margin at that, from was current of is in on

from although perspective, think, but to a Peloton priced than continue will continue will lower to grow, grow. expectations, I past growth

warning customers have hospitals and having it We perspective. rest letter. the to added issues facility The continues would and several the performance quarter, be net business during of our a and the that from enjoy be service a want the

We’re getting progress we’re in positive certificates open FDA. with quarter. shipping resolving items on our the that foreign able track restart third the had to for We for late

needed the mostly track. was from certificates, the in so the that of And revenue. year-over-year we’re difference in Peloton just out a that’s positive down the revenue countries development. U.S., on product’s to It’s overall, Our some the

Brian Weinstein

question know me It is last quarter. guidance. Then I the like well, they doing typically on is for a Otometrics Okay. and strong fourth sounds quite have

You just of said off so just added not these think but of about million $XX.X you would what I revenue. to neurology sure assets, which add or the I’m seasonality, based would

only You revenue only guidance to $X.XX by be by the you this going quarter. to amount raised your and quarter expectation that increased beat assets this $X dip the accretive, neuro million. guidance the are with your And

is you’re signal me? fourth reconcile Or trying things being the the just So to weaker for Thanks. on there business those you in something can base quarter?

Jim Hawkins

Yes.

certainly, may was Integra think, – year, peak was Integra. That there’s XX be a I Brian, a what months is, at $XX the where revenues little for running misunderstanding trailing million. at historic

didn’t of We’re quarter, own only Integra. week the – we first the

that’s assets. those So certainly

revenues a peak a – of had fall So that obviously, week asked, this the casually, we we’ve talked year in off. big to it do when business that, the we lost from expect for when quarter. On think, being to which people, Integra a of was I’d top I transition, have communicated, full business in some transition, we at besides them, buying revenues, say,

product out products manufactured of start receiving certainly a of we’re Rico. are our to We conservative. the off sales week are of being with Puerto have to we’re a own we that in Rico. loss some that issues the just the first force loss a chain – that of there’s and supply in top of set And On Puerto combining some slow up of quarter, that, getting some

reflected think, in of guidance. So those all the things, our combination is I

Brian Weinstein

you. thank Okay,

Operator

from from Myers question Thank Raymond our And next you. Benchmark. comes

is line now Your open.

Raymond Myers

Jim, the Yes, about machine also thank dollars you more a you. and maybe what opportunity? the or way? be might the for you market discuss units size, can little MRI Embrace talk or in think, you in Can any either

Jim Hawkins

we’re for provide. better an for the impossible. the opportunities, medicine the Sure. get just excited One, Embrace. be having No, was near MRI neonate going business about to but Historically, a also very to it’s able

as follow that in, able be yards MRI is minutes, that able scrum Being could the and a get huge, just baby back to NICU, babies, and is next much where critically the It able that understand hospitals. an a doing away have baseline both take would say, able that You be right being risk able and he radiology so and right even to was MR would was of in MR in this images to diagnostic where the to to images is to this that be big. weren’t the taken. NICU can was. being only baseline of transport opportunity, to have even majority self-contained after MRI, a to up nurses the just later application, that would able get the MR the NICU, disruption in and old at, patents or babies just on to have doctors and to not of you this of at the major time matter Aspect in to And scan thousands has baby place the these baby these hundreds the suite baby’s degradation. so hundreds where able to right unit this which the that be the be suite. of newborn the progress I big to able And amazing for technology, life, have quality doctors and that have the the baby tied the around vast and all follow to of By these being but get in is

the XXX United So excited. years the first that we’re right in the The in is of very market States. we major probably now believe NICUs number

million you guess, is based market range the market. So configuration, $XXX say, million the total could upon the $XXX somewhere to I in the

I something extremely being we well, Of almost happen X won’t take I see product. customers potential think, guess, overnight, slow. a that course, go we Level it’s care, think standard the can this this can becomes if hold. NICUs, things and States XXX as of United which, will but now And be then, in there’s of then, It other this

it’s So very something is that exciting.

Raymond Myers

you. And you to we that Can a Okay, what’s talk at exceed achieve gives double you going year? XX% Otometrics? confidence what well to year? specifically What that you is very next bit good. XX% little goal operating about Thank can your and allowing possibly this

Jim Hawkins

Let’s see.

together focus, of to I a put would can think, part say, stand-alone the for think, come. the to drive business And diagnostics side, the the important Otometrics in quality many working combination part we for company with number United and aid, of the in most growth I many can having really world. States. our of very those fitting equipment believe of continue driven the both plans aid being a achieve it’s and think, The fitting And in one that it demographics, and are kind solid we market Natus has hearing Natus, to the States outside hearing favor. is United in other The diagnostic of it’s around plans, things. or the that years have, this intensity On believe where The modalities. hearing a I is I of

Raymond Myers

good. very Okay,

Jim Hawkins

of Yes, the and revenues, there part. XX% – side, that profitability being with I important it’s would the a big our having Otometrics factor Natus roughly of is very say on part being

really With to small and their aid, look of fine- be their their like didn’t a as a in complete where part hearing And business. to hearing and at X% as just it looked tune something stand-alone we help R&D it to at support or they for almost help aids that, able the a was maybe matter. prior owner, it business, very it the

put look the years that fortunate profitability. team with in We to most enough a very together grow that the recently quality, we focused on We’ve that so to the mind, business been And have in gotten come. we were organization. for efficiencies high had, is management part, that the in

Raymond Myers

with letter at Okay, Has very I hope any you to spring? ask that progress warning feel neoBLUE. you do good. comfortable still get letter progress? lifted to And about And been wanted warning the that next there

Jim Hawkins

to that? want you address Jonathan

Jonathan Kennedy

obviously, hold pass, the now letter next neoBlue on meet confident audit, and product year the Yes, the plan much neoBLUE comes warning But out part we hold thing I original other, when I the when our in the pretty was mean that’s light, warning the and away. the will of next requirements our that ship today feel terms CFG so we comes. blanket out we’ll to original from products, a are ship FDA of letter the is all those grade get that this that shipping make inspection. is only left we is that point the of

Raymond Myers

my Okay, questions. great. That’s Thank all you.

Operator

you. next Instructions] And Thank Bedford comes [Operator James. Jayson question form our from Raymond

Your line is now open.

Jayson Bedford

question, revenue is of few Hi, a I’ve and kind But the in jumped the an quarter questions for assets and what here. bit A maybe earnings good guidance a for around from thanks perspective? little implied and earlier guys. morning fourth questions, taking Integra to the

Jim Hawkins

future. each that’s how, doing going as I quarter the in as we’ve and guidance not on a guidance just how plan We quarter-by-quarter we we’re historically Jayson, break to down it done it give goes. think, far and SBU

Jayson Bedford

recognized be an event? you XXXX Jim, about think, on in Is more Is the neurodiagnostic I call of Okay. last fourth a early quarter? track order. – the that large to that on talked, for still

Jim Hawkins

the guess, track. We ship it. of order in some did on is Jayson, for as was almost certainly that I the customer half QX Yes, was shipped in neighborhood ready of acceptance. would

And do so we that. to were able

plan end would that we, on certainly by the the of year. shipped all So having say, I

Jayson Bedford

if gave an basis guys apologize quarter? year-over-year from I Okay. And in did but this, a I on you impact exchange foreign missed the

Jonathan Kennedy

mean? we On didn’t. No, revenue, you

Jayson Bedford

Yes.

Jonathan Kennedy

hedge. little a We we much in of The time. pretty And have we this did Jayson, revenue did not tremendously then side, keep from gone favor No, a has mind, not. recently, the year last expense natural on bit in euro not.

it affect in washed yes, line. So for us, the It’s FX. revenue in bottom any pretty cost does out the changes by much

Jayson Bedford

Okay. And just… Jonathan,

Jonathan Kennedy

almost doesn’t It impact. line Bottom matter.

Jayson Bedford

Sure, okay.

CFGs, bolus of on the is quantify there the did CFGs of a revenue terms or the in And out those having just Just upfront? way – of to kind of, lifted how is any is of benefit there kind accepted? play there

Jonathan Kennedy

Yes. quarter. them, third I the like, I mean, think last week we’ve got of the

little it on a we was of of will product wouldn’t hold million, mostly able $X So was in And of shipping to call associated neighborhood year ship will, backlog, that. bolus, you go in China were per if to that that with revenue, were mostly $X.X a the I the bit, those out million because QX. it

Jayson Bedford

you displayed Okay, okay. in And – disconnect then be next but to release, the of it revenue year? going is in you with product the it’s with RSNA. talked earnest at recognition? used, mid forgot there? words you’ll respect the about you will marketing What’s Or recognizing start mentioned I revenue the But the in XXXX. second that agreement Aspect of Or to basically, Medical, half you the kind

Jim Hawkins

Yes.

through walk the to So, Jayson, everyone just there. whole model

sales that. – a a We agent are commissioned on

would we receive This orders to product has, for at and not Aspect. budgeted going get any we’re price guess, XX% sales year this probably a I when next to to point. them forward in say, it’s say, the So and, year hospital of certainly even this to I XX% would safe

When of placed next the in guidance low the it’s, would kind being year. units would what in it, give we our So first we I we for the might have, But expectations call looking Embrace. mid-single-digit for communicate year. XXXX, I we’re say, for

don’t exciting Natus. an And opportunity shareholders on our since half really many expect second anything so just for are the of add, the call, of we until too, next year. also I’ll it’s

are As partnership our monetized has get this in business. on develops part and were well if Aspect the we of business. would million after as of the getting the business down And the XX% road our – value over partnership get equity rights the with to And Aspect, planned, $XXX we they a invested participation. appreciation

we partnership. real it’s a So – certainly are

They valuation. products a drive big out this. certainly, a We – This the have, one not also only They a exciting website. We’re be line of the but as of Aspect everyone technology. developments flagship really, with to breakthrough have company. and looking in, they’ll to go full coming opportunity to see really is I MR encourage Imaging’s revenues neonate that

it so received put I six breakthrough commenting approval So much be practice they about FDA neonates. last, of this weeks, really FDA medicine was a press would when what think out in for the the a the about release, for even

start of it next though even year, really a can slow a care be standard get over will time. So probably it that we’re hopeful

Jayson Bedford

Okay. That’s helpful, Jim.

– that your to right be building team not this think, big is comments, Is team. your existing going sales build? I how in marketed And by product prepared on you mentioned now? the a Just

Jim Hawkins

technical newborn it world-class so certainly, will being or But of does clinicians, mark workflow existing able to not to to the be need we our communicate kinds radiologists or experienced things reading, staff systems and whole on force either technical with how how marketed be the to familiar to some be this or radiology images all and radiologists. experience high-level that pack communicate is by MRI radiology Yes, our capabilities that displaying have able hire working, sales able are with team. image being will and the images understand to those to

together, putting be group we’ll support. what that’s that of So is

Jayson Bedford

Okay, queue. thanks. I back in get will

Jim Hawkins

Okay. Thanks Jayson.

Operator

Executive turn for President Thank showing further no Officer I to you. like Natus Chief back would call Jim and am time, of the At closing questions. to over I remarks. Hawkins, this Medical

Jim Hawkins

for revenue closing, of Thanks, an to today’s reaching support. the operator. for in milestone we and exciting and at interest XXXX look forward remainder everyone, in your participating Thanks, Natus. continued and call $XXX million Well,

Operator

for program. and today’s conference. in thank Ladies the concludes you This gentlemen, participation your

disconnect. You may now

Natus Medical (NTUS) 25 Oct 172017 Q3 Earnings call transcript