NTUS - Earnings call transcript Q2 2019

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Operator

Good afternoon and thank you for joining us today to review our results for the Second Quarter of 2019.

On the call today from Natus is Jonathan Kennedy, Natus President and Chief Executive Officer; and Drew Davies, Natus Executive Vice President and Chief Financial Officer. Jonathan will begin today with a business overview of the second quarter 2019. Then Drew will discuss the second quarter financial performance and provide guidance for the third quarter and full year 2019.

Finally, we will open the call for your questions. Instructions] [Operator

results. include Reform the management’s Act. expectations our will Private of beliefs statements about Litigation Securities These future forward-looking call meaning within the and Today’s statements include

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

For a uncertainties our reports our please business, filed and risks with today’s release and pertaining press to see periodic of description relevant and annual the SEC.

Chief Mr. now over to President and call Kennedy? to Medical. Jonathan Natus the Executive turn like of I would Officer Kennedy,

Jonathan Kennedy

also Today, $XXX.X we growth second device continues of audiology EMG United of the everyone. device EEG our the neurosurgery Thank financial Revenue during driven the international you, afternoon, and expectations. QX from States Ashley. end growth for declined approximately reported X% quarter contributed to revenue was neuro product, market devices for from growth year-to-date ear continued our contributing market revenue X%. our neurodiagnostics. by scanning results Good the both offsetting other Revenue higher growth the neuro our guidance ramp sales and market. neuro markets. neuro its our the million, digital growth, revenue diagnostic products lead of strong in the up XXXX. our our from quarter in to the of with sales quarter was achieving but Otoscan, of some to Natus

overall that revenue However, certain in product offset ship decline holds an drove and market. growth

million. half we holds a QX had We about revenue to expect ship ship the to estimate negative that the these in $X and resolve holds impact second of

area. in neoBLUE phototherapy the devices of Sales newborn grew systems and screening nicely hearing our year-over-year care ALGO

are previously and adjusting well NICU exits. our products X% overall continued after NicView positioned systems, announced continues customers birth be care have like brand with monitor newborn declined increased. However, this from solution Olympic family RetCam and to while video to overall for benefit rates premature Products from important have care an trend. birth product rates retinal revenue brain newborn decline, Natus utilization and our approximately imaging to the

Drew to quarter, in payments. million $X have improvements capital also will from the cash million during included detail, very $XX.X pleased were of in a discuss cash but cash operations flow which we flow working generated more severance

has ability Our tremendous the capital-light generate coming quarters look flow One business the improvements and to a in cash continuing streamlining we to our project. benefits in to Natus due of forward cash

quality better we the announced This of more We efficient us Just a many Natus our the margins. during and making that fronts is progress effort our significant for in ongoing ago, see X our competitor. made improving we are half months positioning operating beginning to this initiative. first us product One and growth, initiative with year on

announced quarter, progress achievements leadership In organizational addition last further continue operations. to make our the to we supply integrating chain and and we

the year Our Completing driven responsibly with It’s over to are Natus shareholders year. changes in core and the efficiency of Medix our overall customers half sustainable first GND, increased staff has levels payoffs to operational many And will business offer execute divestitures that continued ahead. our and down the the and at our exits, businesses. the focus beginning the XX% of we to excluding years quarters cash grow of those and ability flows. Neurocom on increased in and associated since

XXXX. annual We Natus benefit year million benefits additional expect through for to to XXXX, of about As efficiencies of result a track savings of One a as on initiative. we in I achieve expect the continue immediate the full communicated remain these January gained $X direct ongoing beyond and

are organization central direction strategic within NASDAQ nurses initiatives in to expand portfolio ticker the focused sensory treatment margin With now nervous progressing goal able our in guide forward now solid markets. change we look the place, to plan, look we With solutions mid-term non-GAAP our to retiring announced and XX% system near a annual new remains are to a Natus that disorders beyond today focused our of rich position we on all a adopting the achievement. and reorganization. patients has symbol, and and operating Natus NTUS. to to a of we and One and of for of ages. grow Our ticker Also, our XX% according forward customer intact to BABY one,

XXXX. We core have the and neonatal market IPO our well beyond diversified in product care our back solutions since

healthcare as ages. our a The identity innovative ticker on and patients nervous better sensory NTUS system the treatment of for all of global focused central provider symbol solutions of new reflects disorders and diagnosis

months as Natus initiative. – you the our operating behind we finished our with we’re only expect margin the as the non-GAAP of with six from very you towards One expansion continued in of the guidance, half can year. business performance summary, pleased us As mid-teens we see In the second

to margins flow. the look our markets continue our we time, will same on lie for about We that that profitability as and leadership goal each be leading Natus. several the opportunities the expand businesses. and hold focus of in We excited ahead to end increasing At positions continue of with cash grow expanding to we

financial for Executive call into turn Officer Now to President a I’d dive Drew? Chief the like Financial Drew Vice over our our results. deeper Davies, and to

Drew Davies

you, on our Today Thank I financial a Jonathan. will non-GAAP GAAP and basis. results discussing basis on be

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

results margin our in find reconciliation more that to press earnings provide out today’s geographic basis I financial also a will gross continue revenue tables and a point GAAP our in on release. financial of to in release have can transparency market versus we included our You results. non-GAAP by

period excuse the from year period last a decrease, increase we Jonathan reported X% last same revenue XXXX $XXX.X same stated, – of As year. the in second quarter million, me,

driven XX% Revenue market neuro decline in revenue divestitures backlog mainly announced revenue by business. million quarter products, was a The shipping for QX X.X% the or our $XX.X to QX, end-of-sale and by and neuro revenue XXXX, the year. primarily same the of million offset strength of in exit by total our total in was offset in strong previously $XX.X quarter to increase neurosurgery growth or EEG from is last during the the our The GND XX% the second attributable the of revenue of decline during business neuro in with market other compared during quarter. the

driven million second quarter of market total compared revenue same the care newborn XX% the to last or to growth from and care business during of Revenue divestiture Medix revenue lines. in end decreased by XX% million year. total products, or and end Neometrics of XXXX, newborn the of $XX.X of decline Neoblue sale billings our for reduced products quarter relaunch The during the the $XX.X in our Algo XX% by and of Peloton, was offset product

during products previous year on products. products year. growth was Otoscan market year-over-year our as other anticipated, during audiology million end-of-sale million revenue quarter and in or revenue the due XXXX, offset decline was lower from total was and The product hold by registrations. the hearing than pending international $XX.X The XX% to revenue audiology second $XX.X Revenue total of or XX% same of end of last compared the quarter to fitting

‘XX and approximately of of quarter the of second the second XX% compared in XXXX. the Revenue the period revenue total was In XXXX sales the XXXX, compared revenue to total, domestic in XX% XX% and services quarter from to XXXX, revenue XX% XX% in period the XXXX quarter to contributed the compared second sales XX% in from in total devices in revenue Revenue in period. approximately the same in in systems period. from of making supplies quarter from XX% of international XX% compared XXXX second of was same approximately to

quarter quarter last did second that a to in gross reversal the XXX XXXX. On and which lower GAAP XX.X% the decreased basis did points XX.X% in second not basis, decrease margin quarter driven XXXX, of XXXX to was the period This of sales of not margin a XXXX gross XX.X% in of in decreased second this quarter compared recur to reserve, China to warranty the margin the second year. our quarter. XX.X% by in same benefited non-GAAP compared

year. quarter expenses decreased operating decrease cost by non-GAAP in last $X.X primarily expense operating driven Second removing impact The from operating by was including quarter of expenses million the to divested businesses. the the initiatives, same compared reduction

last to from XX.X% increased non-GAAP period same the operating Our year. XX.X% to compared margin

Interest a As rate was $XXX,XXX income the during in the the exchange lower driven expenses quarter. operating quarter. expense quarter Non-GAAP the was $X.X million by for other fluctuations. second result of

of XXXX be during be million. expense interest approximately million to $X.X $X and year third expect We quarter full to approximately the to

On million overall last expense. was the Our compared XXXX a income diluted We depreciation effective income second compared Non-GAAP rate quarter $X.X GAAP to share between earnings per second quarter Stock-based of is net tax amortization Non-GAAP and XXXX last quarter, net decreased year. $X.XX or during XX.X%. $XXX,XXX and recorded our non-GAAP rate million net $X.X same the same tax by second was of million year. the to $X.X compensation we million XX%. loss share basis, a in to be second $X.X was non-GAAP quarter anticipate XX% quarter the $X.XX. per quarter. In

repaid balance sheet million and some annualized statement Now expense outstanding $XX the cash quarter debt highlights let’s We of interest second which $XXX,XXX. at of the the look approximately in flow. by from our reduces XXXX, of

the flow was As with of a quarter. $XX.X million. result, the operations from we ended net debt Cash $XX.X during million quarter

XX year XX collections. period decreased primarily same outstanding days, days driven versus the prior by in sales days Our increased the to

non-current increased previous million net to same quarter. last year. the XX.X inventory shares in diluted the and Our Non-GAAP to shares million XX.X million $X.X total declined outstanding compared by period compared current to shares both

to $XX.X and income last to for is to guidance expected million combined be $X.XX in diluted per third the or the to guidance, XXXX or expect revenue to share. the million the of of the expected $X.X to range Neurocom $XXX XXXX $X.XX $X.XX quarter million. year revenues a contributed which between on for share. Turning of GAAP $X.XX to quarter $X.X basis. and million This to we million income third Medix range reflects be is in exit businesses, QX net of million Non-GAAP GND, million $XXX the per of our of net be $X.X $XX in

XXXX, $X.XX. guidance to to $XXX earnings a non-GAAP range full full a range range $X.XX For share of to narrowing with diluted $XXX to year per a the million was narrowed of million to year revenue of

to expected full of million $XX million to amortization of share a full of Neurocom businesses Expected non-GAAP GND, also our loss GAAP have exit $XX.X $X.XX. expect to exclude year charges. $XX of restructuring year earnings and per revenue guidance of Medix million to and are $X.XX We on diluted $XX.X million impact diluted XXXX. compared intangibles The

of estimated also decline $XX.X million determined and products a care our of of expect declines by this of year-over-year million businesses. calendar revenue $X previously year, $X in existing life We newborn offset growth million end other on

that questions. will open for I up it With now

Operator

Instructions] question [Operator And of Blair. the Weinstein Brian you. first Thank our William with from comes line

line open. now Your is

Brian Weinstein

Hey, neuro, been, on quarter why you second guys. so quarters. good on was growth neuro, of in out Thanks of of that’s sequentially, out for it just engine Starting a couple and the a for going the EEG comment Can specifically, results taking you’ve you questions. what’s just last seen EEG. much nice with step-up

JonathanKennedy

best We’ve a a strong force. that’s the We’ve mean leadership got play I the market. that some out got of really Yes. we in sales products role there.

like in said we my X% up are year-to-date. I comments, so And that,

was quarter second QX. definitely going into backlog The had – bit little we a up from of

I that moves is say, And the in X%. year-to-date, up so But out which there then that assistance was respect.

significant neurosurgery contributed as neuro business which the of the year, have I other of We growth remarks, pretty to the our not And Quantum of the market, is rest the for as device drives my amplifier in and seen late neuro X very a released flagship it well that business. of have that’s would doing and the out business. then growth device, the just said rest our in last was sales well,

Brian Weinstein

as as QX should a QX exit backlog about thinking you we as be for here. far Anything that

JonathanKennedy

holds doesn’t we backlog QX, Yes. No, The a pretty little backlog of some backlog. And fairly in ship it but QX and like was mean our things was more QX, with up because that, by vary. normal. bit ended normal that in usually a I

Brian Weinstein

with out? Otoscan where Great. you kind statistics update And how specific you can then provide on are, on an that model business some is more of playing

JonathanKennedy

Yes.

QX This in last So revenue year of was year. million on didn’t that’s a basis. of over – $X it’s year-over-year in We have device. for growing much QX the

continue hearing to leading sell into We dispensers. them aid

It’s manufacturers that, – I’d to really a not there, hearing the out so I time. before, aids. agreements of it’s know And device, the out that seen market say about growth build market We’ve I’ve a We some the the and predicate is for but not we’re interest excited said always a of you and as interested is it, going to of have very still think with slowdown new the going it. in. in number take

Brian Weinstein

as as mid-point And about the a the of down the far just narrowing was revenue around little bit and Great. just think $X.XX guidance then of you Can came mid-point [ph]. the range goes, talk down EPS the of I there. a

taken at have range, not the Specifically you things end that on the taking be that place might point. this may thought, high place of

JonathanKennedy

a pretty we QX backlog all knew into than into little backlog reduction because I going better much piece we I Well, was there, the the the was quarter. on guided think, had high mean, the

big know still So there But see the is space. impact for QX, it with my into just not the it a guidance. going rolling We quarters. up up in from Well, QX. the out year, cautious look we changes feel back previous and of of several get implied then And where that’s although numbers to points our QX going quarter spending, us, typically when always maybe better the for And into is that we as wanted have at was on market healthcare it the we and full gave an of we’re QX still field, hospital with half strongest terms there guidance, is QX the in versus we quarter, confident because we QX it’s we also year. thing.

again year sense wide and are in have the year, of So realistic really be. out range months as better – out, guidance. numbers we’ve starting and through passed it’s of guidance We that a the we put we now of to of there lowering the where the we’ve we seven, had going terms six believe going almost a of

got so, but Again, and we are there. into now initiatives still we way in find had the we QX we thing, that earning got have, their And we’ve put spending QX stronger we’re again, but confident starting little the then we comfortable it the up And with numbers side. and in ended out on numbers the that are to fairly want a side, kicked that QX. way feel fairly We’ve a out of to benefit same some on that with, way a the P&L. there’s unknowns internally number

history are we’ve remediation up the with they pretty number to through that year. think a on in a of keep this us past project products we probably big mentioned we until and I design file completed have next runs which time going need for

the much conservative just and we’re what so, the pretty QX, And pushes is. what, really for side where on guidance QX that spending and it

Brian Weinstein

in sure this correct Last some And wanted me, have to are heard them you you that just I from comments I Okay, point. made considering guys some make conferences. potentially M&A great. at one that,

that positioned pipeline so, sort think we front? talk for see a you do up And where might were previously that. of You can something you on your willingness maybe deals. about and are as you’re just What you guys better when building to Thanks.

Jonathan Kennedy

One house part While in able to initiative order or growth. do of that sort our do growth certainly strategic transformative was the be Natus to to of to get

but would growth we’ve months back than of We part to ago any to don’t that. to we I able comment recently. remains that do in organization though on, an names have shape were even of I here a today say or our are strategy, in areas pulled specific longer-term much terms several sort be better of

peripheral and release, we things area started of our focus our One system about look to about to nervous the press the sensory you’ll at. be notice with and what that Natus we devices central talking will in strategic is that we’re talk

So, M&A think from an I perspective.

what through defined review have, a is us for can pretty big Natus. in at where strategic a that to win, and space out Where us. where, already playing for We’ve see space You’ll look have big a we space. gone worked pretty we

terms get terms we of that read implied some in and way M&A in should M&A, we Natus where a strategic of might future. sense So, can of the for in talked you today direction, occur that in about of the go

Brian Weinstein

Thank you.

Jonathan Kennedy

Thanks, Brian.

Operator

from Thank with our the Bedford Jayson you. line Raymond Instructions] next [Operator question James. comes And of

open. now is line Your

Jayson Bedford

good taking Hi, for and the thanks questions. afternoon

a Just here. handful

So, getting EEG growth was of quarter? the was level always what the back quite piece to strong, in the the in neurology which

Jonathan Kennedy

quarter-to-quarter. EEG was X% think up about I

Jayson Bedford

Okay.

apologize, just line out And and I on the a my Okay. broke while. and on for least Otometrics business, at

the recognized, first that quarter, think did ship had you year, I in recognize you some of in think I you of international entering of holds $X that million the $X million XQ.

alluded to some was on unclear in business that that. XQ I think you and ship little impacting I holds

Drew Davies

did, We on impacted still QX was believe hold. about And we that plus $X was had by that we million $X Yes. million.

or $X recover shipped have in we some back in the So, million a QX still little we and bit half. to a more

Jayson Bedford

Okay.

Jonathan Kennedy

Is there [indiscernible]? anything else

Drew Davies

Yes. That’s all I.

Jonathan Kennedy

I I’ll you going to thought. XX%. have your on it’s said correct actually EEG I let to myself X%, the finish growth, said should closer XX%, was

Jayson Bedford

just back factored you XQ in got the into million about Otometrics, to is getting $X ship from the the Okay, hold so guidance. that

Drew Davies

to Well, in we’ve yes, that and got, back year. QX of get impacted the Yes. half million we was by expect the $X

Jayson Bedford

gross were benefits going the than Natus are XX% from margin One for. a bit have or initiatives what additional was or expect this plus level lift better other there that margin at other looking Gross that we from forward level? Is Okay. least could you the you

Drew Davies

Yes.

expect through margin we range the some team we’re in initiatives Natus XX%, do lot still up working gross on consolidated our have done but supply this side. we year. as depending get there. that a go We’ve chain think on We the mix, our XX% on. I plus We’ve One we

We our centers, are distribution consolidating all process. that in is

on We and we it have are got working there. opportunity

are margin. supply that our suppliers to look continuing on to there that for actual gross work well ways will consolidate to are we at amongst We and our as some base our outsource manufacturing trying looking improvement drive and

Jayson Bedford

flush has two not Okay. that’s been guessing is am to EEG back what And competitive of what run-rate double-digit from growth, had I you capital a is that market, Has the of jumping or the have Jonathan, maybe end natural that? there driving driving because disruption growth straight a quarters that? of standpoint? just been of some kind really

Jonathan Kennedy

Yes, are think are mean, taking we primarily almost just that are I we we working in every share. I successful on. that see we deal

I’d end an EEG advantage in operating to looking and devices our to We and a which out course the globally market fast. that years a features basically big X are couple X hospital follow-on now networks systems the hospitals obviously most newer And and increasingly market machines launched for X push end is that take in catalyst, think newer share The ago. issues the X in device are computers there Quantum Quantum we have changing case. of and is and markets grow new cybersecurity are hooked the the doesn’t is selling of and recall a taking products. the And say and Quantum we registered we then our registered you are got which is big if Quantum I is U.S. cybersecurity to that on of of the devices selling that

us So we piece to is the share. but taking that are maybe I market, the we would bigger believe for look catalyst as at

Jayson Bedford

portfolio portfolio the you pruning is want forward? we you should in then or And that anymore going want lastly meaning be maybe going of to this is expect where it this terms forward management,

Jonathan Kennedy

opportunities. done never have you Well, evaluating

I small of have fit. of a might work we to is pieces already. think what the that There continue and we done see lot a couple evaluate not

legacy think the direction across the done going more and But be terms in our products through going pipeline can the connection executing of we we on in I new falloff As some want here, how much and strokes, times have pretty together. nice we forward. goes remediations now over it’s we that broad to products. Jason, are time through of pieces a matter will products see we replaced share There a and these strategic pretty of is that by products and that about and getting new see the getting

Jayson Bedford

Okay, great. Thank you.

Jonathan Kennedy

Jason. Thanks,

Operator

any gentlemen, ladies over I closing now concludes session. And would you. to back Thank and turn like Q&A for call this the to today’s remarks. Natus

Jonathan Kennedy

call. over same and all operations. employees both That the you our changes tirelessly really operator. and past the like significant operating just have time at about area who would partners months every Natus of today’s for concludes worked and several Thank of thank customers to the driving our program our our business in serving I

team dedicated excellent customers, global our an of and to the committed have is our company. course workforce patients We and serving that

our thank to-date. us good so So your achievements today. Again, a Have joining thank you much you and for day. efforts everyone for

Operator

have thank conference. for all a Everyone participating gentlemen in you you day. and today’s and program This wonderful conclude Ladies disconnect. does may today’s

Natus Medical (NTUS) 25 Jul 192019 Q2 Earnings call transcript