Natus Medical second-quarter revenue increases to $52.7 million

Natus Medical Incorporated (Nasdaq:BABY) today announced financial results for the three and six months ended June 30, 2010.

“We are very pleased to see countries in the Middle East putting this strong emphasis on newborn care and we are hopeful that this will continue throughout the region and elsewhere.”

For the second quarter ended June 30, 2010, Natus reported revenue of $52.7 million, compared to $37.3 million reported in the comparable quarter of the previous year. Net income was $3.1 million, or $0.11 per diluted share, for the second quarter of 2010, compared with net income of $2.3 million, or $0.08 per diluted share, for the second quarter of 2009.

For the six months ended June 30, 2010, the Company reported net income of $2.8 million, or $0.10 per diluted share, compared to net income of $3.1 million, or $0.11 per diluted share, for the comparable period in 2009.

On a non-GAAP basis the Company reported net income $4.3 million, or $0.15 per diluted share, for the second quarter of 2010, compared with net income of $2.9 million, or $0.10 per diluted share, for the second quarter of 2009. The non-GAAP results for the second quarter of 2010 excluded $1.2 million of amortization expense associated with certain acquisition-related intangible assets, a charge of $758,000 associated with the discontinuance of the Clarity newborn hearing screening product line, and a restructuring charge of $77,000, adjusting the charge previously recorded in connection with a reorganization plan the company adopted in January 2010.

Natus discontinued the Sonamed Clarity screener and associated disposable supplies in the second quarter of 2010 and began converting users to the Company's other newborn hearing screening products. The non-recurring charge reduced reported gross profit by 0.9 percentage points and increased operating expenses by $300,000.

"I am pleased with our second quarter results as we exceeded our expectations in both revenue and non-GAAP earnings," said Jim Hawkins, President and Chief Executive Officer of the Company. "We saw strong demand in all of our product categories in the United States and throughout the world. We continued to see an acceleration of large orders in the United States in the second quarter and believe this signifies the improving financial strength of hospitals. We also shipped a $1.6 million order directly to the Iraq Ministry of Health for our NeoBLUE phototherapy product, an order we had been working on for over a year."

"Also of note is an order for 80 Cool-Caps we recently received from Saudi Arabia, suggesting they have chosen selective head cooling as a standard of care for the treatment of HIE in newborns. As we discussed in a press release earlier this week, the Saudi order for our newborn care products is valued at $2.8 million in total and also includes our ALGO newborn hearing screeners and disposable supplies, as well as Cerebral Function Monitors. We expect to ship that order in the second half of 2010," added Hawkins. "We are very pleased to see countries in the Middle East putting this strong emphasis on newborn care and we are hopeful that this will continue throughout the region and elsewhere."

HIE is an abbreviation for Hypoxic-Ischemic Encephalopathy, a condition resulting from an interruption of blood flow and oxygen supply during labor and delivery. HIE is a serious condition that causes significant mortality and long-term morbidity. Results of the clinical study for the Cool-Cap confirmed that when head cooling therapy was administered to patients within the first six hours of life, thereby lowering the body temperature two to three degrees centigrade, the severity of brain injury was significantly decreased compared to the untreated control group. In the United States, the Cool-Cap is the only FDA-approved device for the treatment of HIE in term newborns.

As of June 30, 2010 the Company had cash, cash equivalents, and short-term investments of $39.9 million, stockholders' equity of approximately $249 million, and working capital of approximately $83 million.

Financial Guidance on a GAAP and non-GAAP Basis

Natus updated its revenue and earnings guidance for the full year 2010.

On a GAAP basis for the full year 2010, the Company now expects revenue to be approximately $211 million and earnings per share to range from $0.46 to $0.48. The Company had previously said it expected that revenue would be approximately $205 million and earnings per share would range from $0.47 to $0.49. The Company's previous guidance did not take into account the charge for the discontinuance of the Clarity hearing screener, which reduced second quarter GAAP earnings per share by $0.02.

Natus also announced revenue and earnings guidance for the third and fourth quarters of 2010.

For the third quarter of 2010, the Company expects revenue to be approximately $54 million and earnings per share to range from $0.16 to $0.17. This compares to revenue of $44.3 million and earnings per share of $0.13 reported in the third quarter of 2009.

For the fourth quarter of 2010, the Company expects revenue to be approximately $55.0 million and earnings per share to range from $0.20 to $0.21. This compares to revenue of $51.6 million and earnings per share of $0.15 reported in the fourth quarter of 2009.

On a non-GAAP basis the Company expects earnings per share to range from $0.65 to $0.67 for the full year 2010, $0.18 to $0.19 for the third quarter of 2010, and $0.23 to $0.24 for the fourth quarter of 2010. The Company had earlier said that non-GAAP earnings per share for the full year would range from $0.64 to $0.66. The non-GAAP earnings guidance excludes amortization expense associated with certain acquisition-related intangible assets, the charge associated with the discontinuance of the Clarity hearing screener and associated disposable supplies, and the restructuring charge. The Company has elected to provide its guidance on a non-GAAP basis that excludes the amortization of acquisition related intangibles as this presentation is common among companies that are active acquirors and whose results are, accordingly, affected by such charges. The Company also excludes these charges, charges related to the product discontinuance, and restructuring charges because this information is used by management to evaluate operating results and because it believes this information will assist investors in making period to period comparisons of the Company's operating results.

The Company's GAAP-based guidance includes the impact of expensing employee equity based compensation. All earnings per share amounts are on a diluted basis.