NTUS - Earnings call transcript Q2 2018

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Operator

Good morning everyone and thank you for joining us today to review our Results for the Second Quarter of 2018.

On the call today from Natus is Jonathan Kennedy, Natus' President and Chief Executive Officer; and Sharon Villaverde, Natus' Interim Chief Financial Officer. Jonathan will begin today with a business overview of the second quarter and provide guidance for the third quarter and full year 2018. Then Sharon will discuss the second quarter financial performance.

Finally, we will open the call for your questions. will Securities statements Litigation call of the Today's Private the Reform Instructions] include within forward-looking meaning [Operator Act. These expectations statements about and our future include results. management's beliefs

these Our statements. materially may actual from results differ forward-looking

Natus relevant risks today's Kennedy, the filed Mr. call to see and Medical. with For a SEC. release Officer and description and pertaining Chief would business, press annual to and periodic Jonathan turn I over President uncertainties Executive our the to please our reports of Kennedy? like of now

Jonathan Kennedy

Thank Good financial everyone. Revenue we results $XXX.X end Today, for quarter XXXX. high million, the you, of of morning operator. reported our near the the our second for guidance. was quarter

per Our $X.XX exceeded share. share at guidance considerably non-GAAP earnings per

into measurable strength our and care a bit Our in and progress solid newborn improved Otometrics margins deeper, neuro profitability in dive earnings, into market, business. integration will which of the our Natus, from reflects Sharon

to Overall, of exchange the and did revenue our to little Meaningful like primarily contributed by business more addition I'd by a growth in foreign last organic as driven year. neuro the on fluctuations. QX QX in grew favorable versus revenue neurosurgery increase color provide year, Now, quarter. last of the Otometrics for X%

the XXXX. quarter Excluding business by quarter our our second the in break year-over-year organic by which recently our the the comparison about let's versus of acquired primarily of second exchange, Otometrics it effects declined unit. revenue for foreign X% affects business and But neurosurgery down business,

pricing declined the corporate from the market orders been significant in last our back This growth U.S. versus and of a of where year. strength was non-repeat organically held rate growth driven X.X% by Otometrics handful markets, have Otometrics by from fulfilled and improving. market we share grew year. primarily of QX business Our Revenue international last

market. last was in driven particularly in QX growth by organically U.S. business year. versus the orders, of neuro Our strength global grew The X.X% in neuro

continues we that from business the be viable. to intentional to products the was in for not solutions leader declined and share. neuro Revenue did year. quarter newborn same Our decline required approximately versus our This neurodiagnostics business continue certain decisions we market end-of-life to led by believe have care market scale last the gain XX% remain

which have us of we in decisions, our quarters. most you over turn, the profitability. expect newborn most these liability will, revenue increase downward While see to successful should effects invest made and marginal In product expect these focus in term, products, will critical we the care allow our several long-term decisions next longer to on and

Next, half I'd even second and represents long value-creation like a marks to of years. perspective past give share the a for this us. CFO so as And and believe today as CEO, my near-term. as I CEO, over on opportunities the more significant the value-creation ahead lie as week run opportunity in the having and I CFO served now five while you perspective Previously that with my Natus significant benefit that only both

from current benefit care include need longer practices' and safety. products health hospitals' increase to reduce and operations, physician are term, streamline very These market-leading Over trends. the costs, well-positioned patient Natus' trends to

dramatically our increase launched and help injury, aid Otoscan, high-value reduce patients. experience throughput, custom recently physicians For like example, will for and hearing products, niche practitioners the fitting improve

improve MDSAP are are newborn care, brings ultrasound recently care, And our quality superior to refreshing in and not demand major access Medical as next-generation continuing increasing launched form lower prepared in InVisus. Increasing EU's the portfolio. as Medical cost smaller Another ultrasound systems markets. MDR Canada's convenient the Program in our Regulations for in will up important Device quality Also make and Device example the quality to the underway in such increasing competitiveness only or or our regulations foundation less we investments more InVisus but neuromuscular several systems. global on to neuro regulatory requirements struggle driven in a newborn device, competitors patient's we Single by business very quality well new is technologies our with bedside. and keep necessity, products Audit to

opportunities, significant product-specific in to addition In in or we Natus the share leading market of participate. which categories enjoys many

continue to long-term, positions expand leveraging share, and the Over product we expect margins. our solutions selectively market these increase increase to

related for our the completing most product requirements So, implementations we completed includes and to Otometrics. that's Natus. to Delivering succeed. long-term. employees the final customers. Otometrics, systems sheer to our on In operations our the the the these better integration With and improving benefits ERP to opportunities the with leadership the complete, team prioritizing begin we this costs of meet investments, is provides. the and In integrations drive modern better now quality optimize six of operational us a a immediate round and to complete the and leverage This of short-term systems opportunity ERP that and the at of of dedicated, experienced, can system needs June, requires

meet current are to we our and well-positioned criteria, management, the Fortunately, win. leadership, these global employee teams and

But who may you important for two Dr. our Quality who was to worked the safety past Sharon perspectives very Villaverde, and lead Programs business and capable Chung, an who with who our Buhl, functions leader. is also team to joined Care Regulatory XXXX. since tenured has Chung five-plus Chris Chief Natus XXXX; joined bench we to just outstanding Newborn business; our the Natus of Sharon us team; Otometrics patient scenes Financial tirelessly leading financial appointed extraordinary the Interim success from efforts. Dr. who we integration team. has business. our behind and led led our years, Officer, this our Carsten leadership brings more physician, to clinical, and in many and As has since business a members Leslie recall appointed earlier have our in Neuro of new Austin year, also lead to including members, February and McDonnell, February Noll,

many progress rewards our from the and and more forward our to we ahead, financial expect and team about you I Over short-term them. sharing the our opportunities, quarters look long with that

for Now, let's year. turn our updated outlook half the second of to the

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

than organic per the reflects year-over-year of The year, assumes half approximately growth, non-GAAP previous guidance. earnings of the view we very growth $XXX This a cautious year For year to QX $XXX earnings second more X%. share million and share and full expect overall guidance guidance revenue reflects X% $X.XX per updated of $X.XX. the earnings for to outlook full million flat slight of while non-GAAP to our to of revenue the

signs are We the quarter by promising encouraged in financial results. our second reflected

effects into account effects global of and trade potentially shifting taking half. of However, seasonality which affects uncertainty, second the the we are into our the visibility

turn over Financial who'll Chief our Villaverde, on the Officer, questions. call we'll provide commentary Sharon Then Next, our Interim to financial results. Sharon? your I'll additional take

Sharon Villaverde

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

performance. more non-GAAP charges Our exclude effects. non-GAAP thorough that results believe GAAP costs, financial financial provide our a their product of other statements, presentation remediation our We the amortization and along of analysis with ongoing measures, these and expense, tax related restructuring, certain

margin will our GAAP our and financial we've our release in in reconciliation also more included You out gross business provide basis table will geographical non-GAAP by that a financial results release. a point today's revenue to transparency on find results. unit of I on press versus press

quarter or of quarter neuro total of $XX.X acquired business revenue The reported year. from we million, growth the attributable care Otometrics neuro business. $XX.X XX.X% revenue stated, the increase was last of last primarily year. of the supplemented of and in compared an revenue growth Most total Jonathan driven million million revenue business. and revenue -- of to and Revenue XXXX newborn As organic the offset during second XX% XXXX unit same the by in second neuro from addition from in business during period XX% newly our neurosurgery unit, X% is by quarter neurosurgery to our declines business $XXX.X increase of from the our same was

XXXX. the exchange growth or X.X% also of while rationalization. services of and approximately of rates. in was Revenue The total Otometrics during business year. contributed revenue or line million the addition during from to XXXX. by achieved in on X.X%. device operating last total have margin to the margin the system the for of last Declines year. second XX% total a to in quarter same XX% XXXX increased gross decreased same international our for compared same increase last The primarily business revenue the business. supplies last last XXXX result was On $XX.X RetCam. from due in as during realized of revenue to neurosurgery current new quarter the driven of which XX% increase million total, XX.X% was total XXX of to quarter $X.X spending quarter from during and Interest quarter compared approximately acquired for additional expense million sales to of revenue compared the favorable quarter including for of second margin total is increased XXXX growth, services XX% the unit to quarter, same our and $X.X XX% revenue XXXX the higher compared by current non-GAAP period. million year. of in Other -- This as Otoscan compared XX% quarter the basis, Otometrics by operating in quarter Non-GAAP and in XX% from of the compared same fluctuations. domestic OpEx was systems exchange well and second driven by X.X% business was development, the was neuro quarter foreign exchange XX% our believe year. from our the our benefits the the X.X%, second Revenue in revenue million the quarter primarily of was $X.X was product nearly than Revenue in and revenue and to period, Revenue and the are XX% the favorable XX% driven remainder from compared newborn realize was which the to non-GAAP expense to care organic by second increased $XX.X compared increase organic by business this increased the quarter. to revenue year. second during the product total unit part as sales quarter in supplies to OpEx In integration. expenses for Despite sales, a revenue contributed XX% devices same expenses the growth compared XX% approximately XX.X% We XX.X% compared period of business unit million XX% of However, Otometrics care of operating to $XX.X $XX.X beginning the points our driven or newborn another rates basis was rate to approximately of period second quarter the million XX% gross

annual interest $X.X expense the $X.X third million during be approximately to quarter We be million. to expect approximately and interest

non-GAAP share million anticipate in tax our overall second decrease non-GAAP million was we to or we This million Share-based second of approximately loss and GAAP compared rate between the same the Non-GAAP $X.X increased per net XX%. On $X.XX. earnings $X.X due $X.X Our year. lower be from compensation discrete last our quarter second million a effective approximately diluted resulting last share, was net quarter XX.X%. several XXXX basis, same million is non-GAAP to $X.X than was In depreciation to expected We quarter. quarter per non-recurring rate XX% tax $X.XX and the a rate during expense. amortization $X.X quarter, recorded income items. year, of the

$XX Now, during million flow. stock and $X the the million We balance was debt of $XX.X in at million. $X.X operations quarter. Net Cash company let's repaid flow the outstanding million of of from sheet the debt second quarter essentially quarter was look repurchased cash during and unchanged XXXX. at

XXXX of our system. Non-GAAP sales Otometrics of shares days by increased the This four primarily AR in year. quarter in in due same the XX.X period questions. your that, to shares decline the days business provided capabilities to decreased driven the Our last call XX million to part XX million outstanding versus by days, to unit. With I'll our decline was global Operator? ERP outstanding in now achieved by turn outstanding implementation to shares diluted over compared of first

Operator

with Thank you. Our question is Instructions] Brian [Operator first from William Weinstein Blair.

Your now is line open.

Andrew Brackmann

you X% you still Otometrics congrats first in all, and now first Hi, of business Brian those the growth. term a a for some weeks, guys start off goals and forth Andrew This overall with stand? as last on only to new guys. you wanted been In for Sharon, to about the actually role of is well. with kind growth legacy the your some on related Jonathan, for of set longer on you've couple X% today. for leadership, had to Or topline expectations had Under chair you the Brackmann question and the thinking Jonathan, sort those Analyst helping that. Day, going are M&A forward? do of double-digit how and your -- recognizing

Jonathan Kennedy

work your Yes, pretty a Two amount Andrew. for question, overall. time, the is short is thanks given of of weeks period that involved

now, And opportunities clear focused pretty completing our we on right get think or in prepared of any before sort into I our remarks need these integrations Natus of us on my and the be profitability to opportunities immediate are. I short-term and think about longer-term it's for what long-term of goals our reviewed what I that focusing was examined.

realize now, on I we're somewhat focused non-answer for right but near-term. of the So, you, that's a

Andrew Brackmann

this quarter Got more second more the expense second SAP this you and had focused and year? on the the Otometrics the kind the was then the your going operating little the my had expenses. that assumptions some half going you second into help the was takes In completed Thanks. a you you integration, guide operating your talk question of half you how of of half. it. Thanks. past, about in to on talked in puts integration have And line Can about bit second

Jonathan Kennedy

to working of going being that bit the little not bit It's expected. we've than on, higher implementation green we saw Sure. matter. quarter, Oracle little The with been in we see you'd shoots a second a profitability

the due half, higher half. second bit that the typically revenue into to with traditional in go second a we mostly the have seasonality, better comes little As we profitability, seasonality

seen we year, If seasonality you the quarter in we'd big from recall many, years a fourth many really was downward traditional last It quarter. didn't what have quite before. versus

And recent that -- see profitability terms But That second Oracle can the that -- have from that's continue so get in that what view you we in very be the flat we to recent the the half the our revenue guidance in slightly do -- implied today. would guidance that our to in that's is of of results surely, our up. benefit is guidance some opportunity achievements provided. provided

Andrew Brackmann

Got it. Thanks a bunch.

Operator

Jayson question Our next is from Bedford with Raymond James.

now open. Your line is

Jayson Bedford

Good again to congrats morning and both.

related couple So, questions just to quarter a then of quarter questions. the couple big-picture and of -- a

quarters. of In terms orders the of slow to were you you I realized a out, that any particularly couple mentioned kind eat the of that called into the the U.S. think strength I U.S., And and in you large contributed strength? there been in has backlog? did that neuro neuro for

of wondering Just wondering of I'm a strength -- fulfillment the backlog. a bit if the was

Jonathan Kennedy

that backlog a into eat did about We comment bit was the in shifting my seasonality. question. great to Yes, neuro and

looked if for forward, trend for recall year. the and we in have at this last applies to assumed looking And year, saw the If curve the middle year, last that we strength year. of of purposes you you guidance

if revert happened to neuro. the then our to we what -- in that's historical Now, But back more maybe seasonality, there's it. that's

sense normal hundred extraordinarily neuro, in large nothing couple normal a within was there yes, but big in orders, the but of orders. they're big but dollar-type thousand few a the of orders So, big, large,

Jayson Bedford

Or you is that a neuro trends? you U.S. are if up markets those few the firming market again, end will. better of end quarters, source Do that you the in the -- market Okay. your seeing are here? think has And Jonathan, end been over sense last fragility,

Jonathan Kennedy

quarter quarter probably and -- in also We've neuro. firming hospital gives the We IT more call trend, of before some last equipment. outside especially in the for getting seen it the U.S., better process department a it neuro helped are around selling the up We probably weaker about by that's of on involvement U.S. the seen that's our where power. the that In of the purchasing although of involved we've the customers trends the dollar, talked

we've And used get requirements cycle, IT. and firms more of in so the the that, of ability shift ability to purchase needs there customers' of to in I more understand along our the as up predict process our the selling way and to learned and itself, sort and think include to meet the

Jayson Bedford

is Okay. that some is pruning layer will, complete? another [Indiscernible], Or of there And intentionally end you that's the you to lines, if necessary mentioned optimize of business? product

Jonathan Kennedy

go this its of to lot A there. regularly. process We complete

And newborn started the was really VP/GM successful said, of from just world, If scale takes chart, It make did some you -- pull we're that, new the decision the see products starting we device. business, I medical turn the the fall revenue for now. to meeting those a weren't it's you just device as in recall off. to and requirements for time be back off like when products on med the don't one to then to to very and to difficult that care things that I things back

would least decisions course reductions see to on pressure, the at time lap in future. normal I this comps rationalization say you'll for making in so the care continued that from and to So, large in we the newborn in expect today. also I sure, that newborn we're many portfolio, just made decisions and come. not would are, months of say starting but and of more across see Otometrics, in ago, these the in many some I'm But neuro revenue product There were those I period. until to revenue wouldn't see things they're in But product sure,

Jayson Bedford

just we the how little And of the least Gross estimate, then should our relative for revenue year? about gross think mix is quarter? margin, related stronger. to at it margin a to the Is Okay. in

Jonathan Kennedy

the the Well, is included margin guidance. gross into

So, stays the gross see a if you do that at level. math, margin you'll healthy

it we strong what actually achieved in we QX. guidance, in Although our as don't as have

We that. revenue. lower have And it maybe a than trend bit with that would little typically

our So, true, stronger in XX% in go that see slightly if guidance. margin than absorption. back margin what is above that's have half the we'll then XX%, the maybe that gross up implies, we'd holds a then see we implied guidance range If on guidance

Jayson Bedford

the you've Jonathan, years, Okay. couple a bigger picture organization question. for And been weeks. only last in question, more of been but with seat obviously just the for of you've many a CEO

trying the timeline this, you So, push that on expect put but to should on your imprint we really you business? what's I'm for to not this

Jonathan Kennedy

Well, on what I a is it's for in than I several more stake gradual where a increase that a in for more going past. call date the in things think business, the future don't know ground so I flag done. my it there's involvement did been in I magic see it my and imprint strategic decisions years. the in operational I'd to be as the and

tuned to you'll our watch business near-term increasing profitability. I and we think have stay while opportunities on the of and optimizing focus

point will becomes message at maybe before super this clear. think be months, that many I sometime and for it

Jayson Bedford

back get queue. in I'll Thanks. right. All

Jonathan Kennedy

Sure.

Operator

next with Our Capital question is from David Solomon Partners. ROTH

Your open. line now is

David Solomon

Hey guys. my new the on congratulations and Thanks questions for taking role.

Just Newborn here. start-off want with to

out Just the numbers. trying to clear

we work the these lines within higher sense the expected services? get systems, of -- Was You on pruning segment. just each the it supply the or I'm of and trying side than XX% how said to so at more than the of Newborn company. kind a for the systems on devices was

Jonathan Kennedy

would neuro. the We still Yes, of which quarter there, couple David. sales in so we are devices devices. more less I care, reported things -- that newborn in care. good driven off was neuro, on products as of been think probably And supplies dilution newborn more more so get then in a hire Otometrics have and falling previously But -- the that specifically, from

David Solomon

Excellent.

of up, basis, Otometrics should just Otometrics. And revenue couple we here margins Okay. non-GAAP how went next that goes thinking as they the about gross be to then look And of on I margins gross just moving noticed wondering on are, down. like over years? kind a

Jonathan Kennedy

we expect to complete of over business. we trend upward the and Well, have couple that next trending years, integration optimize would an there the as

say up. would I So, it goes

see little have the where we pretty In that's margins a year terms to good you little operating mix, not on came gross mostly this near-term, I of down and business this so that owing did margin gross year at a device had stronger margin. the U.S. last so But bit, think the well. much. from to year that side, had shipped in we some improvement margins repeat, on And -- little last then year orders that that's Otometrics as last going reflect side. we on favorable U.S. pretty margin the would I in to some corporate time a guess unique we

David Solomon

And to Excellent. to kind of back circle want just neuro.

how on You get that want little more the like that if came with and is care how just health bit color integration mentioned was It lead-times. and respect impact responding how you a is how looks things and we the in and systems IT purchases are and a larger and with that. I be can evolving everything about lead-times, could company to thinking the of just should wondering to to couple the working. understand departments

Jonathan Kennedy

IT how interact of our with individuals the added Well, in have systems, in our to neurodiagnostic sales IT, process hospital the -- more tools how hospitals who are the and terms ground, we experts network. on

than on those at come earlier involved the back So, are them the in having in more end. folks process

is If what's Today, departments IT this IT hospitals, driving, under so until times, sure pressure you the cybersecurity, ago the microscope not many to that look be our in really of security threats interactions IT are do so might systems to a just and of with was added going understand make up more cybersecurity what it and what and and and more recent they're connect devices years hospital's aren't purchase. involved. a or using devices neurodiagnostics network, involved was those in were gets involved that as create networks to are we're security threat, there. so could to Most in what for

for and expertise in to the us sales help to products questions added as well things of able of competitive requirements. to we've those patches better be to as team needs terms the security and meet address security customer answer we've more that and in area of So, to features added teams be

David Solomon

Excellent. Thanks questions. my for taking

Jonathan Kennedy

Thank you. David. Sure

Operator

back I like turn the And I'm questions. now further to would for showing Natus to further any no remarks. call

Jonathan Kennedy

the you, today. program have a great Thank day. Okay. everyone call and completes Well, that

Operator

Ladies and for you gentlemen, thank today's in participating conference.

You now have Everyone, may disconnect. day. a great

Natus Medical (NTUS) 25 Jul 182018 Q2 Earnings call transcript