Natus Medical Incorporated

Good morning, everyone, and thank you for joining us today to review our results for the fourth quarter of 2021. On the call today from Natus is Thomas J. Sullivan, Natus President and Chief Executive Officer, and Drew Davis, Natus Executive Vice President and Chief Financial Officer. During the call, Mr. Sullivan will provide a brief overview of the fourth quarter 2021 and discuss the strategic direction of Natus. Drew will discuss the fourth quarter financial performance and 2022 guidance. Today's call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements include management's beliefs and expectations about our future results. Our actual results may differ materially from these forward-looking statements. For a description of relevant risks and uncertainties pertaining to our business, please see yesterday's press release and our periodic and annual reports filed with the SCC. Management's presentation of the financial results would be on a GAAP and non-GAAP basis. The non-GAAP results exclude amortization expense, restructurings, and certain other charges and their related tax effects. Management believes that the presentation of these non-GAAP measures along with our GAAP financial statements provide a more thorough analysis of our ongoing financial performance. You can find a reconciliation of financial results on a GAAP versus non-GAAP basis in yesterday's earnings release. I will now like to turn the call over to Mr. Sullivan, President and Chief Executive Officer of Natus Medical. Mr. Sullivan?

Thank you, Carmen. Good morning, everyone. Thank you for investing your time to listen to our discussion of Natus' fourth quarter 2021 financial results, as well as an investment presentation of Natus' strategic review and go-forward clinical focus and business model. A copy of today's investor deck is available on the Investors Relations page of the Natus website at www.investor.natus.com. I am joined on today's call by our Executive Vice President and Chief Financial Officer, Drew Davies. Drew and I will refer to the presentation throughout our comments. On page three of the presentation, you will find the agenda for today's call. Following my brief introduction, Drew will review the fourth quarter and full year 2021 financial results. Following this, I will discuss our strategic review and the actions we are taking as a result. Drew will then provide our financial guidance for the full year 2022 and will turn it back to me for closing comments and Q&A. Today marks the completion of my ninth week with Natus Medical. I consider it an honor and a privilege to lead this company. Over the past two months, I've had the opportunity to engage teammates throughout Natus, and I have been impressed with the talent, experience, and passion that they bring to our company. I would like to thank them for their efforts for the patients whose lives are touched by Natus products every day. I've also been impressed with the breadth and depth of Natus' industry-leading products around the world. We are fortunate to be building from such a great position of strength. Yesterday, we reported the results for the fourth quarter of 2021. Our revenue and EPS for the quarter were at the high end of our guidance, bolstered by a strong finish to the end of the year despite continuing challenges from COVID and supply chain constraints. Our focus remains on ensuring that NADIS products are available for clinicians, which resulted in over $1.7 million in extraordinary costs in the fourth quarter. Unfortunately, these challenges are expected to continue into 2022, as we will describe later. At this time, I would like to turn the call over to our CFO, Drew Davies, and refer you to page four of the presentation. Drew?

Thank you, Tom. For the fourth quarter of 2021, we reported revenue of $128.7 million, an 8.4% increase from the fourth quarter of 2020. Revenues grew in each of our businesses during the quarter, led by neural hardware and service contracts. Our backlog grew for the seventh consecutive quarter to $26 million from $25.6 million. 2021 full year revenue of $473 million increased 14% compared to 2020. Revenue from our neuro end market was $75.2 million or 58% of total revenue during the fourth quarter of 2021 compared to $68.1 million or 57% of total revenue during the same quarter last year. Revenue from the neuro business increased 10.5% compared to the same quarter last year The increase was driven by growth in devices and service. Revenue from our newborn care end market increased 0.3% to $28.3 million, or 22% of total revenue during the fourth quarter of 2021, compared to $28.2 million, or 24% of total revenue during the same quarter last year. Revenue from international screening grew during the quarter, offset by a decline in phototherapy device sales. Revenue from our hearing imbalance end market was $25.2 million, or 20% of total revenue during the fourth quarter of 2021, compared to $22.5 million, or 19% of total revenue during the same quarter last year. Hearing assessment and hearing fitting devices drove the year-on-year increase in hearing imbalance. Revenue from devices and systems contributed 77% of total revenue in the fourth quarter of 2021 compared to 75% in the 2020 period. Revenue from supplies and services was 23% of total revenue in the fourth quarter of 2021 compared to 25% in the 2020 period. Revenue from domestic sales was approximately 59% of total revenue and 41% from international in the fourth quarter of 2021 compared to 58% and 42%, respectively, in the same period last year. On a non-GAAP basis, our gross margin increased by 1.2% in the fourth quarter of 2021 to 59.3%, compared to 58.1% in the fourth quarter of 2020. The increase in gross margin was attributable to the positive leverage on increased revenues and lower operations overhead. The improvements in gross margin were offset by $1.7 million of unforecasted increases in freight and extraordinary costs associated with securing supply of semiconductors for our devices. GAAP gross margin increased 1.5% to 56.7% in the fourth quarter of 2021, compared to 55.3% in the same period last year. Non-GAAP gross margin for the full year of 2021 improved to 60% compared to 56.6% for 2020 on higher revenues and lower manufacturing overhead. GAAP gross margin for the full year of 2021 improved to 57.8% compared to 52.1% for 2020. Fourth quarter non-GAAP operating expenses increased by $1.4 million compared to the same quarter last year. The increase in expense was driven by higher incentive pay related to the increase in revenues and savings from last year from required time off that did not repeat this year. Our non-GAAP operating margin increased by 3.6% compared to the same quarter last year on the increase in revenues and the improvements in gross margin. Non-GAAP operating expenses for the full year of 2021 increased to $227 million compared to $217 million last year. Non-GAAP operating margin for the full year increased to 12% compared to 4.5% in 2020. Again, higher revenues and gross margins drove the improvement. Our other expense was $0.9 million for the fourth quarter driven by exchange rate fluctuations. Interest expense was $0.2 million during the quarter and $1.9 million for the full year. We expect interest expense for the full year of 2022 to be approximately $1.2 million. Our fourth quarter non-GAAP effective tax rate was 20.1%, and it was 22.2% for the full year. We anticipate our overall 2022 non-GAAP tax rate to be between 21 and 24 percent. On a GAAP basis, our fourth quarter 2021 net income was $1.7 million, or five cents per diluted share, compared to net income of $5.2 million the same quarter last year. Non-GAAP net income increased $3.1 million compared to the same quarter last year. Non-GAAP earnings per share was 47 cents. For the full year of 2021, GAAP net income was $13.2 million, or 39 cents, per diluted share. And non-GAAP net income was $40.8 million, or $1.20 per share. In the fourth quarter, we recorded $9.1 million of depreciation and amortization expense. Share-based compensation was $5.9 million during the fourth quarter. And now let's take a look at some highlights from the balance sheet and statement of cash flow. We ended the quarter with $75.6 million in cash. Cash flow from operations was $12.8 million during the quarter. For the full year of 2021, cash flow from operations was $64 million. Our day sales outstanding increased four days versus the same period in the prior year to 86 days. Non-GAAP shares outstanding increased at 34.1%. million shares compared to 33.9 million shares in the same period last year. I will now turn it back to Tom to discuss the strategic direction of Natus.