Natus Medical Incorporated (NASDAQ:BABY) today announced financial results for the three months ended September 30, 2016.

For the third quarter ended September 30, 2016, the Company reported revenue of $90.9 million, a decrease of 3.9% compared to $94.6 million reported for the third quarter 2015. GAAP Gross profit margin was 63.9% vs. 61.7% reported for the third quarter 2015. GAAP net income was $13.2 million, or $0.40 per diluted share, compared with GAAP net income of $10.9 million, or $0.33 per diluted share in thethird quarter 2015, representing a 21% increase in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share was $0.39 for the third quarter 2016, compared to $0.39 in the third quarter 2015. Non-GAAP net income was $12.8 million for the third quarter ended September 30, 2016 compared to the prior year’s non-GAAP net income of $12.9 million. Non-GAAP Gross profit margin was 64.6% vs. 62.5% reported for the third quarter of 2015.

For the nine months ended September 30, 2016, the Company reported revenue of $274.2 million, a decrease of 0.6% compared to $275.9 million reported for the same period in 2015. GAAP Gross profit margin was 61.9% vs. 61.4% reported for the same period in 2015. GAAP net income was $32.2 million, or $0.97 per diluted share, compared with GAAP net income of $29.4 million, or $0.89 per diluted share in the same period in 2015, staying constant in GAAP earnings per diluted share.

Non-GAAP earnings per diluted share increased 7% to $1.11 for the first nine months in 2016, compared to $1.04 in the same period in 2015. The Company reported non-GAAP net income of $36.7 million for the nine months ended September 30, 2016, compared to the prior year’s non-GAAP net income of $34.4 million.

Combined cash and investments increased by $10.2 million to $106.5 million during the quarter. The Company repurchased $1.5 million of its stock during the third quarter of 2016. Cash flow from operations for the third quarter was $35.5 million and includes $13.1 million of net cash increase from Venezuela prepayments, resulting in an adjusted cash flow from operations of $22.4 million.

“I am pleased with our non-GAAP earnings of $0.39 and our non-GAAP gross margin of 64.6% considering our reduced revenue. As previously reported, our revenue shortfall was the result of certain voluntary product ship holds and softness in our international markets,” said Jim Hawkins, President and Chief Executive Officer of the Company.

“We now expect our recently announced acquisition of Otometrics to close on January 1, 2017. With Otometrics next year, we look forward to achieving $500 million in revenue, an important milestone for Natus. We expect Otometrics to be accretive to our 2017 earnings with a non-GAAP contribution operating margin goal for the year of 10% and a 2018 goal of 20%,” said Hawkins.

Financial Guidance

The Company provided revenue and earnings guidance for the fourth quarter and updated its revenue and earnings guidance for the full year 2016.

For the fourth quarter 2016, the Company expects revenue of $107.0 million to $109.0 million, GAAP earnings per share of $0.46 to $0.49 and non-GAAP earnings per share guidance of $0.52 to $0.55.

The Company adjusted its full year 2016 revenue guidance and now expects revenue of $381.2 million to $383.2 million. Full year 2016 guidance for GAAP earnings per share is $1.43 to $1.46. Non-GAAP earnings per share guidance is being updated to $1.63 to $1.66.

Fourth quarter and full year revenue and earnings guidance includes approximately $7 million in shipments and service under its supply agreement with Venezuela.

The Company’s non-GAAP earnings guidance excludes amortization of acquisition related intangibles, acquisition related charges, restructuring charges, and their related tax effects. All non-GAAP earnings per share amounts are on a diluted basis.

Use of Non-GAAP Financial Measures

The Company presents in this release its non-GAAP net income, non-GAAP earnings per share, non-GAAP gross margin and non-GAAP operating margin results which exclude amortization expense associated with certain acquisition-related intangibles, restructuring charges, certain discreet items, direct costs of acquisitions and the related tax effects. A reconciliation between non-GAAP and GAAP financial measures is included in this press release.

The Company believes that the presentation of results excluding these charges or gains provides meaningful supplemental information to both management and investors that is indicative of the Company’s core operating results and better reflects the ongoing economics of the Company’s operations. The Company believes these non-GAAP financial measures facilitate comparison of operating results across reporting periods.

Specifically, the Company excludes the following charges, gains, and their related tax effects in the calculation of non-GAAP net income, non-GAAP earnings per share and non-GAAP operating expense and excludes all but Restructuring charges from the calculation of non-GAAP gross margin: 1) Non-cash amortization expense associated with certain acquisition-related intangibles. The charges reflect an estimate of the cost of acquired intangible assets over their estimated useful lives. 2) Restructuring charges. The Company has over time completed multiple acquisitions of other companies and businesses. Following an acquisition the Company will, as it determines appropriate, initiate restructuring events to eliminate redundant costs. Restructuring expenses which are excluded in the non-GAAP items are exclusively related to permanent reductions in our workforce and redundant facility closures. 3) Certain discreet items. These items represent significant infrequent charges or gains that management believes should be viewed outside of normal operating results. These items are specifically identified when they occur. 4) Direct costs of acquisitions. These are direct acquisition-related costs that occur when the Company makes an acquisition, such as professional fees, due diligence costs, and earn-out adjustments.

The Company applies GAAP methodologies in computing its non-GAAP tax provision by determining the annual expected effective tax rate after taking into account items excluded for non-GAAP financial reporting purposes.  The Company’s non-GAAP tax expense and its non-GAAP effective tax rate are generally higher than its GAAP tax expense and GAAP effective tax rate because the income subject to taxes would be higher due to the effect of the items excluded from non-GAAP financial reporting.

The Company’s management uses these non-GAAP financial measures in assessing the Company’s performance and when planning, forecasting, and analyzing future periods and the Company believes that investors also benefit from being able to refer to these non-GAAP financial measures along with the GAAP operating results. 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, October 19, 2016. Individuals interested in listening to the conference call may do so by dialing 1-844-634-1441 for domestic callers, or 1-508-637-5658 for international callers, and entering reservation code 94693349. A telephone replay will be available for 48 hours following the conclusion of the call by dialing 1-855-859-2056 for domestic callers, or 1-404-537-3406 for international callers, and entering reservation code 94693349. 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 and services used for the screening, detection, treatment, monitoring and tracking of common medical ailments in neurological dysfunction, epilepsy, sleep disorders, newborn care, hearing impairment and balance and mobility disorders.

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