Natus Medical second quarter revenue increases 10% to $58.1 million

Natus Medical Incorporated (Nasdaq:BABY) today announced financial results for the three and six months ended June 30, 2011.

For the second quarter ended June 30, 2011, the Company reported revenue of $58.1 million, an increase of 10% over revenue of $53.0 million in the comparable quarter of the previous year. Net income was $2.3 million or $0.08 per diluted share, compared to net income of $3.4 million or $0.12 per diluted share for the second quarter of 2010.

For the six months ended June 30, 2011, the Company reported net income of $5.4 million, or $0.18 per diluted share, compared to net income of $3.0 million, or $0.10 per diluted share, for the comparable period in 2010.

The Company reported non-GAAP earnings per share of $0.13 per diluted share for the second quarter of 2011 compared to $0.16 per share diluted share for the same period in 2010. Non-GAAP net income was $3.8 million in the 2011 period compared to $4.6 million in 2010. For the six months ended June 30, 2011 non-GAAP net income was $7.8 million compared to $7.4 million in the same period in 2010. Non-GAAP earnings per share was $0.26 for the six-month periods in both 2011 and 2010.

In commenting on the second quarter revenue results, Jim Hawkins, Chief Executive Officer of the Company said, "We were disappointed with our second quarter results, as orders did not materialize as we expected in both the United States and our international markets."

"In our business planning for 2011, we had targeted to receive certain large international orders throughout the year for our newborn care products, just as we had in 2010 when we delivered four large orders into the Middle East, Canada, and Australia," said Hawkins. "While we still expect these orders to come in, our latest indications are that customers may defer some or all of them until 2012. This, coupled with a revised relatively flat second half domestic revenue forecast, has led us to revise our guidance for the remainder of 2011."

With regard to the lower than expected non-GAAP gross profit margin of 57.9% for the second quarter 2011, Mr. Hawkins said, "Our second quarter operating results were also impacted by lower than expected gross margins. In addition to the lower gross margin we had expected from the Medix business, unexpected changes in our product mix during the second quarter adversely affected our margins, and market conditions prevented the full realization of price increases that had been planned."

"We were pleased that our neurology business remained solid during the second quarter, with organic growth of approximately 6% on a year-over-year basis, as we continued to grow in this market segment in both the United States and international markets," added Hawkins. "We also continue our active pursuit of acquisition opportunities and plan to complete a transaction in 2011, as we have in virtually every year since 2004."

"During the last seven years Natus has grown from $36 million in revenue to our revised expectation of approximately $236 million this year. We believe our proven business model will continue to show strong growth in the years ahead, notwithstanding what looks to be a challenging 2011. We remain committed to our goal of achieving annual revenue of $500 million in 2014, and look to accomplish this through a combination of internal growth and accretive acquisitions," said Hawkins.

As of June 30, 2011, the Company had cash, cash equivalents, and short-term investments of $37.7 million, stockholders' equity of approximately $275 million, and working capital of approximately $97 million.

Financial Guidance

Natus updated its 2011 financial guidance. For the full year 2011, the Company expects to report revenue of approximately $236 million and non-GAAP earnings per share of $0.58 to $0.60. The Company had earlier said that it expected to report revenue of approximately $250 million and non-GAAP earnings per share of $0.80 to $0.81.

The Company expects to report revenue of approximately $58 million and non-GAAP earnings per share of $0.13 to $0.14 in the third quarter of 2011. This compares to revenue of $53.2 million and non-GAAP earnings per share of $0.16 reported in the third quarter of 2010.

For the fourth quarter 2011, the Company expects to report revenue of approximately $61 million and non-GAAP earnings per share of $0.19 to $0.20. This compares to revenue of $63.2 million and non-GAAP earnings per share of $0.24 reported in the fourth quarter of 2010.

The Company's third quarter, fourth quarter, and full year 2011 non-GAAP earnings per share guidance excludes amortization expense associated with acquisition-related intangible assets, which the Company expects to be approximately $5.2 million and $1.3 million for the full year and each of the third and fourth quarters 2011, respectively, and which the Company expects will reduce GAAP earnings per share by approximately $0.11 for the full year and $0.03 in each quarterly period. The non-GAAP earnings per share guidance for those periods also excludes the effects of restructuring charges that the Company expects it may incur in the remainder of 2011, the amount and timing of which have not yet been determined, as well as the impact any future acquisitions might have on its results of operations.

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

The Company's 2011 non-GAAP financial guidance excludes amortization of acquisition-related intangible assets, restructuring charges, and the impact that any future acquisitions may have on results of operations. The Company believes that the presentation of financial guidance excluding these factors provides meaningful information to both management and investors that is indicative of the Company's core operating results. Therefore, the Company believes its non-GAAP financial guidance facilitates comparison of operating results across reporting periods.