Natus Medical Announces 2012 Third Quarter Financial Results

  Natus Medical Announces 2012 Third Quarter Financial Results

Business Wire

SAN CARLOS, Calif. -- November 07, 2012

Natus Medical Incorporated (Nasdaq:BABY) today announced financial results for
the three and nine months ended September 30, 2012.

For the third quarter ended September 30, 2012, the Company reported revenue
of $80.7 million, compared to $51.3 million in the comparable quarter of the
previous year. Net loss was $1.9 million, or a net loss of $0.07 per share,
compared with net income of $154,000 or $0.01 per diluted share for the third
quarter of 2011.

For the nine months ended September 30, 2012, the Company reported revenue of
$201.2 million, compared to $168.5 million in the comparable period of the
previous year. Net loss was $1.1 million, or $0.04 per share, compared with
net income of $5.6 million, or $0.19 per diluted share, for the nine months
ended September 30, 2011.

The Company reported non-GAAP earnings per share of $0.15 per diluted share
for the third quarter of 2012 compared to $0.07 per diluted share for the
third quarter of 2011, and $0.33 per diluted share for the nine months ended
September 30, 2012, compared to $0.34 per diluted share for the same period in
the previous year.

“I am pleased with our third quarter results as our non-GAAP earnings exceeded
our expectations and revenue was in line with our guidance,” said Jim Hawkins,
Chief Executive Officer of the Company.

“During the quarter we completed the acquisition of the Nicolet business from
CareFusion. This is the most significant acquisition in the history of the
Company. Natus is now the leading provider of products into the worldwide
neurodiagnostic market, with market-leading positions in EEG, EMG, and PSG
technologies in both the United States and abroad,” added Hawkins.

“In the third quarter we also initiated the reorganization of the Company into
two Strategic Business Units: Natus Newborn Care and Natus Neurology. As we
drive Natus towards our goal of $500 million in annual revenue, the new SBU
structure will give added focus to our business,” said Hawkins.

“Our Newborn Care hearing business posted increased revenue in the third
quarter compared to the 2011 quarter, signaling that birth rates around the
world may have stabilized, reversing the downward trend of the last few
years,” added Hawkins. “Nicolet also had excellent results in their first
quarter as part of Natus.”

“We remain committed to achieving our goal of a 12% pretax operating profit in
2013 on a non-GAAP basis and believe our third quarter results clearly
demonstrate progress towards this objective,” stated Hawkins.

As of September 30, 2012, the Company had cash and cash equivalents of $19.5
million, stockholders' equity of approximately $260 million, and working
capital of approximately $64 million. On June 28, 2012 the Company borrowed
$31 million on its line of credit and on July 2, 2012 used those proceeds and
approximately $27 million of its existing cash to fund the Nicolet
acquisition.

Financial Guidance

Natus updated its 2012 financial guidance. For the full year 2012, the Company
expects to report revenue of $293 million to $296 million and non-GAAP
earnings per share of $0.58 to $0.61. The Company had earlier said that it
expected to report revenue of $295 million to $300 million and non-GAAP
earnings per share of $0.58 to $0.63.

For the fourth quarter of 2012, the Company expects to report revenue of $92
million to $95 million and non-GAAP earnings per share of $0.25 to $0.28. This
compares to revenue of $64.1 million and non-GAAP earnings per share of $0.14
reported in the fourth quarter of 2011.

The Company's full year 2012 and quarterly non-GAAP earnings per share
guidance exclude the following charges:

- Amortization expense associated with acquisition-related intangible assets.

- Restructuring charges that the Company expects to incur in 2012 associated
with acquisitions and reorganizations, which charges were $8.9 million for the
nine months ended September 30, 2102. The charges are comprised primarily of
employee severance benefits and associated exit and disposal costs.

- Direct costs associated with acquisitions of $2.8 million in the nine months
ended September 30, 2012, principally for pre-acquisition due diligence and
outside legal costs. The Company does not expect to incur additional direct
costs associated with completed acquisitions.

- The impact on gross profit of the fair value adjustment to inventory
associated with Embla and Nicolet purchase accounting that was $626,000 during
the nine months ended September 30, 2012. The Company expects to write off the
remaining approximately $135,000 of inventory fair value adjustment associated
with Nicolet purchase accounting in the fourth quarter of 2012.

- During the three months ended September 30, 2012, the impact on marketing
and selling expense of recording the fair value of backlog associated with
Nicolet purchase accounting of $720,000. The Company does not expect
additional charges associated with the fair value of Nicolet backlog.

- During the first half of the year, the incremental accelerated depreciation
of previously capitalized software costs of $902,000 due to the Company’s
implementation in 2012 of the North American phase of a world-wide enterprise
resource planning platform.

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

Use of Non-GAAP Financial Measures

The Company's non-GAAP results for the three and nine months ended September
30, 2012 exclude amortization expense associated with certain
acquisition-related intangible assets, restructuring and severance charges,
direct costs associated with acquisitions, the impact of inventory and backlog
fair value adjustments recorded through purchase accounting, and the
accelerated write off of capitalized software as more fully detailed below.

The Company believes that the presentation of results excluding these charges
provides meaningful supplemental information to both management and investors
that is indicative of the Company's core operating results. Therefore, the
Company believes these non-GAAP financial measures facilitate comparison of
operating results across reporting periods. A reconciliation between the
Company's results of operations on a GAAP and non-GAAP basis for the periods
reported is included as part of the condensed consolidated statements of
operations at the end of this release.

The Company believes that both management and investors benefit from referring
to these non-GAAP financial measures in assessing the Company's performance
and when planning, forecasting, and analyzing future periods. These non-GAAP
financial measures also facilitate management's internal comparisons to the
Company's historical performance. The non-GAAP financial measures disclosed by
the Company should not be considered a substitute for or superior to financial
measures calculated in accordance with GAAP, and the financial results
calculated in accordance with GAAP and reconciliations to those financial
statements should be carefully evaluated.

Conference Call

Natus has scheduled an investment-community conference call to discuss this
announcement beginning at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time)
today, November 7, 2012. Individuals interested in listening to the conference
call may do so by dialing 866-700-7477 for domestic callers, or 1-617-213-8840
for international callers, and entering reservation code 84219701. A telephone
replay will be available for 48 hours following the conclusion of the call by
dialing 888-286-8010 for domestic callers, or 1-617-801-6888 for international
callers, and entering reservation code 60830781.

The conference call also will be available real-time via the Internet at
http://investor.natus.com, and a recording of the call will be available on
the Company’s Web site for 90 days following the completion of the call.

About Natus Medical Incorporated

Natus is a leading provider of healthcare products used for the screening,
detection, treatment, monitoring and tracking of common medical ailments in
newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep
disorders, and balance and mobility disorders. Product offerings include
computerized neurodiagnostic systems for audiology, neurology,
polysomnography, and neonatology, as well as newborn care products such as
hearing screening systems, phototherapy devices for the treatment of newborn
jaundice, head-cooling products for the treatment of brain injury in newborns,
incubators to control the newborn's environment, and software systems for
managing and tracking disorders and diseases for public health laboratories.

Additional information about Natus Medical can be found at www.natus.com.

This press release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995, particularly statements
regarding the expectations, beliefs, plans, intentions and strategies of
Natus. These forward-looking statements include statements regarding non-GAAP
pre-tax operating margins in 2013, a goal of $500 million in annual revenue,
benefits of moving to the SBU structure, and revenue and non-GAAP
profitability in the fourth quarter and full year 2012 These statements relate
to current estimates and assumptions of our management as of the date of this
press release, and future events or Natus' future financial performance or
results, and involve known and unknown risks, uncertainties and other factors
that may cause actual results, levels of activity, performance, or
achievements to differ materially from those expressed or implied by the
forward-looking statements. Forward-looking statements are only predictions
and the actual events or results may differ materially. Natus cannot provide
any assurance that its future results or the results implied by the
forward-looking statements will meet expectations. Our future results could
differ materially due to a number of factors, including the effects of
competition, the demand for our products and services, the impact of adverse
global economic conditions on our target markets, our ability to expand our
sales in international markets, our ability to maintain current sales levels
in a mature domestic market, our ability to control costs, risks associated
with bringing new products to market and integrating acquired businesses, and
our ability to fulfill product orders on a timely basis. Natus disclaims any
obligation to update information contained in any forward looking statement.

More information about potential risk factors that could affect the business
and financial results of Natus is included in Natus' annual report on Form
10-K for the year ended December 31, 2011, and its quarterly reports on Form
10-Q, and in other reports filed from time to time by Natus with the U.S.
Securities and Exchange Commission.

NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
                                                              
                           Three Months Ended        Nine Months Ended
                           September    September    September     September
                           2012         2011         2012          2011
                                                                   
Revenue                    $ 80,724     $ 51,338     $ 201,246     $ 168,541
Cost of revenue              36,453       23,765       89,265        73,165
                                                                  
Gross profit                 44,271       27,573       111,981       95,376
                                                                  
Operating expenses:
Marketing and selling        21,801       14,688       54,756        44,818
Research and development     8,512        6,119        21,860        18,577
General and                  18,809       7,809        39,250        24,828
administrative
                                                                  
Total operating expenses     49,122       28,616       115,866       88,223
                                                                  
Income (loss) from           (4,851 )     (1,043 )     (3,885  )     7,153
operations
                                                                  
Other income/(expense):
Interest income              11           6            20            23
Interest expense             (215   )     (47    )     (231    )     (160    )
Other income, net            (24    )     227          437           109
                                                                  
Total other                  (228   )     186          226           (28     )
income/(expense)
                                                                  
Income (loss) before         (5,079 )     (857   )     (3,659  )     7,125
provision for income tax
                                                                   
Provision for income tax     (3,130 )     (1,011 )     (2,513  )     1,507
(benefit) expense
                                                                  
Net income (loss)          $ (1,949 )   $ 154        $ (1,146  )   $ 5,618
                                                                  
Earnings (loss) per
share:
Basic                      $ (0.07  )   $ 0.01       $ (0.04   )   $ 0.20
Diluted                    $ (0.07  )   $ 0.01       $ (0.04   )   $ 0.19
                                                                   
Weighted-average shares
used to compute:
Basic earnings (loss)        29,062       28,643       28,947        28,477
per share
Diluted earnings (loss)      29,062       29,387       28,947        29,566
per share
                                                                   


NATUS MEDICAL INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP ADJUSTMENTS (UNAUDITED)
(in thousands, except per share amounts)
                                                                     
                       Three Months Ended        Nine Months Ended
                       September    September    September    September
                       2012         2011         2012         2011
                                                             
GAAP based results:

Income (loss) before
provision for income   $ (5,079 )   $ (857   )   $ (3,659 )   $ 7,125
tax (benefit)
                                                                           
Non-GAAP
adjustments:
                                                                           
Amortization expense
associated with
certain acquired                                                           (a)
intangible assets
reported as a
component of:
                                                                           
Cost of revenue          703          530          1,763        1,592
Marketing and            564          393          1,493        1,218
selling
Research and             338          250          1,013        990
development
                                                                           
Restructuring charge
reported as a
component of general     7,671        1,363        8,927        2,156      (b)
and administrative
expense
                                                                           
Direct costs of          786          290          2,778        290        (c)
acquisitions (G&A)
                                                                           
Inventory FMV            571          -            626          -          (d)
adjustments (COGS)
                                                                           
Backlog FMV
adjustments              720          -            720          -          (e)
(Marketing & Sales)
                                                                           
Accelerate ERP
system depreciation      -            -            902          -          (f)
(G&A)
                                                             
Non-GAAP income
before provision for     6,274        1,969        14,563       13,371
income tax
                                                                           
Provision for income
tax                      1,928        (128   )     4,768        3,450
expense/(benefit),
as adjusted
                                                             
                                                                           
Non-GAAP net income    $ 4,346      $ 2,097      $ 9,795      $ 9,921
                                                             
Non-GAAP earnings
per share:
Basic                  $ 0.15       $ 0.07       $ 0.34       $ 0.35
Diluted                $ 0.15       $ 0.07       $ 0.33       $ 0.34
                                                                           
Weighted-average
shares used to
compute:
Basic non-GAAP           29,062       28,643       28,947       28,477
earnings per share
Diluted non-GAAP         29,822       29,387       29,584       29,566
earnings per share
                                                                           
Memo, Gross profit
percentage:
GAAP basis               54.8   %     53.7   %     55.6   %     56.6   %
non-GAAP basis           56.4   %     54.7   %     56.8   %     57.5   %
                                                                           

Note:

The Company has elected to provide non-GAAP financial results that exclude the
items below as this presentation is common among companies that are active
acquirors and whose results are, accordingly, affected by such 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.

  (a)  Amortization expense associated with acquired intangible assets with
          definite lives.
    (b)   Restructuring charge consisting of accruals for employee severance
          costs and associated exit and disposal costs.
    (c)   Direct costs of acquisitions that are expensed pursuant to the
          requirement of ASC 805.
          Fair value adjustment of inventory associated with the acquisitions
    (d)   of Embla and Nicolet included as a component of cost of sales in
          accordance with ASC 805.
          Fair value adjustment of backlog associated with the acquisition of
    (e)   Nicolet included as a component of marketing and selling costs in
          accordance with ASC805.
          Acceleration of depreciation of pre-existing ERP systems associated
    (f)   with the implementation of the North American phase of a world-wide
          enterprise resource planning platform.

Contact:

Natus Medical Incorporated
Steven J. Murphy, 650-802-0400
Vice President Finance and Chief Financial Officer
InvestorRelations@Natus.com