Natus Medical Incorporated
Q1 2008 Earnings Call Transcript

Published: 18 May 2008

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to your Natus Medical 2008 first quarter financial results conference call. At this time, all participants are in a listen-only mode. And later, we will conduct a question-and-answer session. (Operator instructions) As a reminded, this conference is being recorded today, May 1, 2008, and contains time-sensitive information that is only accurate as of today. I'd now like to turn the call over to Brienne Fisher, Director of Investor Relations for Natus Medical. Please proceed.

[Brienne Fisher:]

Thank you, Operator. Earlier today, Natus Medical released financial results for the 2008 first quarter. If you have not received the news release or if you would like to be added to the company's distribution list, please call Natus Medical in San Carlos, California at 650-802-0400 or e-mail your request to [e-mail]. This call is being broadcast live over the Internet at www.natus.com and a replay of the call will be available on the company's website for the next 90 days. In terms of the structure for today's call, Jim Hawkins, President and Chief Executive Officer of Natus, will present opening comments and Steve Murphy, our Chief Financial Officer, will summarize the company's financial results. And then Jim will conclude the prepared remarks with comments about the company's strategy and financial guidance for 2008. Ken Traverso, Vice President, Marketing and Sales; and Dr. Chris Chung, Vice President, Medical Affairs and Research & Development will join in answering any questions. Some of the information to be furnished in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those focused on future performance, results, plans, and events and include the company's expected results for 2008. Natus reminds you that its future results may differ materially from these forward-looking statements due to a number of risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see its periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. I'd now like to turn the call over to Jim Hawkins, President and Chief Executive Officer of Natus Medical.

[Jim Hawkins:]

Thank you, Brienne. Well, I'm very pleased to report our record first-quarter 2008 results. In the first quarter, our revenue increased by 36% to $36.9 million, up from $27.1 million reported last year. Our net income was $2.6 million in the first quarter, up from $1.5 million on a comparable basis in 2007, representing a 73% increase. During the first quarter, we continued to see growth and increased market penetration in newborn hearing screening. Natus continues to be recognized as the worldwide market leader in newborn hearing screening in both technology and product breadth. We believe the market for newborn hearing screening outside the United States will continue to be a growth opportunity for Natus in the years ahead. The highlight of the quarter was the introduction of the ALGO 5, our next generation newborn hearing screener, featuring our AABR technology. We've been marketing our existing hearing screener, the ALGO 3, for seven years now, and we believe the improvement in the ALGO 5 will represent a significant upgrade to our customers. The improvements include user-friendly features such as data management, bar coding, and wireless transfer of data. We remain convinced that our customers will be motivated to upgrade their older products to the ALGO 5. In the first quarter, we also completed the integration of Xltek ahead of schedule and it contributed significantly to our revenue growth for the quarter. More importantly, as we had projected, the acquisition contributed to our earnings growth immediately, being accretive to earnings per share during the quarter. As we have previously discussed, the acquisition of Xltek has allowed us to realign our domestic sales force into two distinct sales organizations focused on the newborn care and neurology markets. We believe this has now allowed us to devote the appropriate sales resources to these two distinct markets. We completed this realignment during the first week of January, and I'm pleased to report that this transition has gone extremely well. And as we expected, we saw increased productivity from both sales groups with this new market focus. Our world class-sales organization was again successful in taking the new products we acquire and immediately increasing sales both in units and in average selling prices. In the first quarter, we also resumed domestic shipments of the Olympic Cool-Cap and filled substantially our entire backlog. Our sales force is now actively promoting the Cool-Cap, along with the cerebral function monitor or CFM that it is paired with and we are anticipating significant results for these products in 2008. During the first quarter, we also initiated a restructuring of our operating divisions that will consolidate product development activities by product category at our Olympic, Bio-logic and Xltek facilities. We believe this restructuring will result in more streamlined and efficient operations that will reduce redundant activities that had previously been performed at multiple sites. While we will incur costs associated with the realignment of responsibilities during the first three quarters of this year, we will start realizing savings later in the year. So, the restructuring will be cost neutral in 2008. However, this restructuring should result in a $2.4 million operating cost reduction in 2009 and beyond. On April 15, we entered into a definitive agreement to acquire SonaMed, who manufactures and markets a newborn hearing screening product and associated disposables. SonaMed, with annual revenues of $3.5 million, has been consistently profitable for many years, and we expect this acquisition to be accretive to earnings per share in our first full quarter of ownership. We expect the acquisition to close near the end of May. Shortly after I joined Natus in 2004, we laid out a plan to grow revenue to a $250 million annual run rate as we exited 2008 and to increase earnings by 50% per year. We are proud to say we have made consistent progress towards this very aggressive target, considering that in 2003, the company reported only $31 million of revenue and lost millions of dollars. We firmly believe and remain highly confident in this strategy. Natus is now positioned for a successful 2008, in which our goal is to achieve earnings growth of approximately 50%. We believe we are on target to achieve this goal, as reflected by our increased 2008 earnings guidance, which we are communicating today. As we have previously stated, we seek to acquire companies, products and/or technologies that will allow us to leverage our brand and establish sales channels, and we continue to look for our acquisitions to be immediately accretive in the first full quarter after acquisition. With that overview, I'd like to turn the call over to Steve Murphy. Steve?

[Steve Murphy:]

Thank you, Jim. Today, I will be discussing our 2008 first-quarter financial results on a basis consistent with accounting principles generally accepted in the United States, or GAAP. All per share amounts presented today are on a diluted basis. As Jim mentioned, we reported first-quarter revenue of $36.9 million, an increase of 36% or $9.8 million from revenue of $27.1 million for the first quarter of 2007. Revenue from our newborn hearing screening and diagnostic hearing product lines was up 18% on a year-over-year basis. On a GAAP basis, comparative results from our neurology product family are not meaningful, because our GAAP results from 2007 do not include sales from Xltek. On a pro forma basis, as though we had acquired Xltek on January 1, 2007, our neurology device sales increased by approximately 8% and our neurology disposable sales decreased by approximately 20%. The entire reduction in neurology disposable sales was the result of our de-emphasizing certain low margin Xltek disposable products. Revenue from devices and systems contributed to 65% of total revenue in the first quarter of 2008 compared with 59% reported for the first-quarter last year. Revenue from supplies and services contributed to 33% of total revenue in the first quarter of 2008 compared with 40% reported last year. Other revenue in both periods was between 1% and 2%. The increase in revenue from devices and systems as a percent of total revenue in 2008 was primarily attributable to the impact of Xltek device sales. Revenue from U.S. operations was $24.7 million for the first quarter of 2008 or 67% of total revenue compared with $18.5 million or 68% of total revenue reported last year. Revenue from international operations increased 42% to $12.1 million in the first quarter of 2008 compared with revenue of $8.5 million reported last year. The $3.6 million increase in international revenue was led primarily by sales of our Fischer-Zoth and Bio-logic newborn hearing screening products, as well as Xltek products sold in Canada. Our gross margin was 62% in the first quarter of 2008 compared to 62.4% reported in the first quarter of last year. Prior to our acquisition of Xltek, their historical gross profit was running at less than 50%. While we were able to improve Xltek's gross margin almost immediately by de-emphasizing their low margin disposables, as I mentioned, their sales results nonetheless reduced our consolidated gross profit for the quarter. Operating expenses for the first quarter of 2008 were 50.3% of total revenue, down from 53.4% of total revenue in the first quarter of last year. Our operating expenses as a percent of revenue are typically highest in our first fiscal quarter and we expect this percent to trail down throughout the year. Our effective tax rate for the first quarter of 2008 was approximately 39%. We now expect that our effective tax rate for the full year will be approximately 39% to 40%, which is lower than we have communicated in the past, because we expect that a relatively higher percentage of our income will be taxed in foreign jurisdictions, with tax rates lower than in the U.S. However, I note that tax deductions associated with disqualifying dispositions of stock purchased by our employees under our stock option and stock purchase plans can further reduce our effective tax rate and we are unable to predict the extent of that benefit. There are also many other factors impacting the effective tax rate. Because of the timing of our tax payments, we now believe that our cash tax payment rate in 2008 will be between 20% and 25%. During the first quarter 2008, we recorded approximately $1.5 million of depreciation and amortization expense and $721,000 of share-based compensation expense. At March 31, 2008, we reported cash, cash equivalents and short-term investments of $12.6 million, revolving and term debt totaling $35.6 million, stockholders' equity of approximately $118 million, and working capital of approximately $22 million. On April 9, we raised approximately $15.4 million through a public offering of 885,500 shares of our common stock. The offering was priced at $18.27 per share, which was the closing price of our stock on the NASDAQ global market the day before we priced the offering. With that, I'll turn the call back to Jim.

[Jim Hawkins:]

Thanks, Steve. Before opening up the call to questions, I'd like to make a few comments and review our guidance for 2008. We believe Natus is one of the fastest-growing profitable medical device companies in the country. Many of our product offerings enjoy market leading positions and we have accomplished this, in part, through five acquisitions over the last four years. We were very pleased to receive FDA approval of the Cool-Cap PMA supplement in February and we continue to be encouraged by the response the product is receiving in the market. We believe the combination of the Cool-Cap and the Olympic CFM will become very successful products for Natus. We also believe the recent integration plan we initiated at Xltek, coupled with the restructuring activities among our North American operating divisions, have positioned us to maintain the revenue and earnings growth we have achieved over the last four years. Now moving to our guidance for the full year and second-quarter 2008. We are today increasing our previously issued guidance for the full-year 2008. For the full year, we now expect to report revenue $161 million to $162 million and earnings of $0.70 per share to $0.72 per share. We previously said revenue would be approximately $160 million and earnings per share would be $0.68 to $0.70. Our 2008 annual guidance does not include the impact of the acquisition of SonaMed. We plan to update our annual guidance after the SonaMed acquisition closes near the end of May. For the second quarter of 2008, we expect revenue to range from $38 million to $39 million and earnings per share to range from $0.14 to $0.15. This compares to revenue of $28.3 million and earnings of $0.10 per share that was reported in the second quarter of 2007. Our 2008 earnings guidance is on a GAAP basis, including the impact of expensing employee equity-based compensation, which we expect to be approximately $3.6 million for the full-year 2008. We expect that depreciation and amortization expense will be approximately $6.7 million in 2008. Combined, this represents over $10 million of non-cash expenses that are included in our operating results for 2008. Our guidance does not include the impact of any non-recurring acquisition-related costs for potential acquisitions. All earnings per share amounts are on a diluted basis. In conclusion, we remain confident in our strategy as we continue to position the company for growth in 2008 and beyond. This growth will come from both our internal development of new products and product enhancements and when the opportunity arises, additional acquisitions that we expect to be accretive. With that said, Steve, Ken, Chris, and I would be happy to take your questions. Operator?

[Operator:]

(Operator instructions) And your first question comes from Eli Kammerman of Cowen and Company. Please proceed, sir.

[Eli Kammerman:]

Yes. Thank you and good morning. I've got a couple of questions on neurology, to start. Firstly, you told us what the year-over-year changes were for neurology for devices separately from disposables, but what was overall neurology, up or down year-over-year?

[Jim Hawkins:]

Steve, I'm not sure if we have that number handy.

[Steve Murphy:]

The disposable is a smaller portion of the total. So, Eli, it's not going to change the absolute difference by much. So, I'd guess it's going to be somewhere between 6% and 7%.

[Eli Kammerman:]

Okay. And can you tell us whether or not Xltek products grew or declined in the quarter?

[Jim Hawkins:]

They grew. But we don't really break out, Eli, dollars for each of our subsidiaries. It'd just be too burdensome.

[Eli Kammerman:]

Understood.

[Jim Hawkins:]

But with the first quarter of having Xltek, we do want to communicate that it went very well for us and it was very, very good growth.

[Eli Kammerman:]

Okay. That sounds good. Next question is how many units of Cool-Cap do you think you can sell this year?

[Jim Hawkins:]

You know, Eli, we don't break out our forecasts by units. I think we had said in our plan we've communicated previously, I want to say that we had 30 or 40 units, I want to say, in our plan, something like that, at the beginning of the year. But we don't update quarter-by-quarter.

[Eli Kammerman:]

All right. And next –

[Jim Hawkins:]

Last question, Eli, because we have a lot of people wanting to ask questions.

[Eli Kammerman:]

Thank you for taking those.

[Operator:]

And your next question comes from Daniel Owczarski from Avondale Partners. Please proceed.

[Daniel Owczarski:]

Thanks. Hi, Jim. Hi, Steve. Are you seeing any kind of slowdown in the hospital purchasing of equipment? Are there CapEx budgets being tightened or any kind of stretching out of the purchasing decisions going on here?

[Jim Hawkins:]

Dan, we have not experienced any such slowdown or even a hint of it in our businesses. That's what we think is very unique about our product niches. We are not big dollar equipment. We are small niches that have a standard of care in many, many cases that are just required and accepted. Yes, we just haven't seen it.

[Daniel Owczarski:]

Okay. And then for ALGO 5, you are actively selling that product. Are you getting any specific feedback from specific accounts or type of accounts that are the first ones to want to get out at this product?

[Jim Hawkins:]

Not really anything substantial. We are just convinced it's going to be a very good product for us and really be able to hit the upgrade cycle in a very timely way.

[Daniel Owczarski:]

Okay. Just the last question on SonaMed. How were they competing with you? What was their edge? Were they competing on price or technology or how were they gaining even a little bit of share?

[Jim Hawkins:]

I'm not sure if they were gaining share. Perhaps; I'm not sure. Their growth hadn't been anything to write home about. The U.S. market overall is not a growing market. So, we really don't think they were really getting much share from us. But they had their maybe 10% position in the market, and I'm not sure what else to day. We think certainly the AAVR technology we had is very good and they went about it a little different way and were able to get 10% of the customers and we're looking forward to being able to have both products and being able to give the customer exactly what they want.

[Daniel Owczarski:]

And then there are no antitrust concerns with you having such a big part of the market already?

[Jim Hawkins:]

No. We certainly are – it's very small and certainly there's no Hart-Scott filing required in this and if you look at hearing screening as part of the overall hearing market, the hearing market may be a $200 million market, the total hearing market, with hearing screening just being a segment of that, and we think that's how this segment would be looked at.

[Daniel Owczarski:]

Okay. Thank you.

[Operator:]

And your next question comes from Joshua Zable from Natixis. Please proceed, sir.

[Joshua Zable:]

Hey, guys, thanks for taking the question and congrats on a great quarter here.

[Jim Hawkins:]

Thanks.

[Joshua Zable:]

Just some clarity on the screening business, obviously, very strong. You did launch a new product. Can you just kind of give us a little bit more color on – I know it's been strong for a couple of quarters. Just sort of what the new product contributed, maybe some color on some stuff outside the U.S. Are there any contracts there?

[Jim Hawkins:]

The new product was launched at the end of the quarter and it had very good, significant results. We don't talk about the number of units shipped or anything like that, but it was very well received, Josh. International hearing screening was very strong again. It seems like, knock on wood, we've had orders come in from different countries pretty consistently most quarters recently and it's been a very nice growth business for us.

[Joshua Zable:]

Great. Okay, guys, thanks very much.

[Operator:]

And your next question comes from Ed Shenkan from Needham. Please proceed.

[Ed Shenkan:]

Thanks, Jim. Can you hear me?

[Jim Hawkins:]

Yes, we can hear you very well, Ed.

[Ed Shenkan:]

Good. So, for SonaMed, it's been $3.5 million, you said, trailing revenues. I'm just wondering what you're going to pay for that business.

[Jim Hawkins:]

Sure. We are going to be paying approximately $6.3 million when all the dust settles on it, which is a little more than the typical amount that we pay. But the profitability, especially when looking at it combined with the Natus organization, will be extremely profitable for us. So, certainly it was very justifiable and I think when we report results after our first quarter or two of ownership, it'll make real good sense.

[Ed Shenkan:]

This is certainly a small amount of revenue that you're picking up. Maybe you could explain why you think it'll be so important going forward or am I reading too much into it?

[Jim Hawkins:]

I think that certainly the device disposable stream that it generates, with our sales structure already in place, it just becomes very, very profitable. Also, it does make a more efficient sale to the customer and it does give us more leverage in the marketplace.

[Ed Shenkan:]

And the ALGO 5 new product, did you get a price increase on that compared to the earlier version of ALGO that you were selling?

[Jim Hawkins:]

Yes, we did. I think our list price was around $18,000 for an ALGO 3 and it's around $22,000, $23,000 for an ALGO 5.

[Ed Shenkan:]

Well, tremendous. I'll get back in queue. Thanks.

[Operator:]

Your next question comes from Jayson Bedford from Raymond James. Please proceed, sir.

[Jayson Bedford:]

Good morning, guys. Just a couple quick questions. To an earlier question, you mentioned, Jim, I think, 30 to 40 Cool-Cap units for your plan going into the year. Was that including the backlog or incremental to the backlog that you had already built up?

[Steve Murphy:]

I'd guess that – I'm trying to remember when we put that together, Jayson, but it probably did not include the backlog. So the backlog would be additive to that number.

[Jayson Bedford:]

Okay. That's helpful. And then just on the Cool-Cap, are you still typically selling it with the CFM and then maybe if you could comment on any type of sources of resistance, if you will, from the hospital level?

[Steve Murphy:]

Certainly, when we sell a Cool-Cap, it's almost always accompanied by a CFM. Resistance? I would say, just to review, we just started aggressively marketing the product again at the end of February, when we got our supplement PMA approval. So, it's a little bit of a re-launch. So, we're having to regain the momentum there. As far as resistance, it's like what we've said when we launched the first time. It's a new technology into a new application and so there are budget applications or budgets that have to be approved. There's also – since it's a new practice of medicine in the hospital, the hospital then has to set their own standards and procedures in place before they buy a piece of equipment like this. But overall, we see this as certainly something that is just a delay, I'd say, but certainly not a large obstacle.

[Jayson Bedford:]

Okay, great. And just, lastly, operating expense is a little higher than we had modeled, obviously, higher sales, but I'm just wondering if there were any one-time costs related to the sales force realignment that may not recur going forward. And then, secondly, on the OpEx question, in terms of your integration and restructuring costs for the next three quarters related to Xltek, is that assumed in your guidance?

[Steve Murphy:]

Yes, it is. So that's all in our guidance for both the quarter and the year. And as far as the operating costs, yes, they were a little high in Q1. Some of it was some integration and severance cost. Q1 is always a little high. We've national sales meetings and some of those type things. There are just a lot of different costs in Q1 that we have a tendency to accumulate there. But certainly for the year, our models are still intact.

[Jayson Bedford:]

Okay. Thanks, guys.

[Operator:]

And your next question comes from Matt Dolan from Roth Capital. Please proceed, sir.

[Matt Dolan:]

Hi guys, good morning.

[Steve Murphy:]

Morning, Matt.

[Matt Dolan:]

First, a question on the sales force. It sounds like the bifurcation itself went fairly smoothly. Are there any plans to add reps in either the neuro or the newborn segment here to keep up the demand either in '08 or maybe some initial plans for '09?

[Steve Murphy:]

We think for '08 we'll be keeping the status quo of the certain same amount of sales people that we entered the year with.

[Matt Dolan:]

Okay, great. And then, second, on the gross margin, it was fairly strong relative to what I was looking for in the quarter and even with Xltek having a lower level than the rest of Natus, and I think, on the last call, we were looking for 62 to 63 for the year. So, can you just maybe comment there on the strength and is this a good base level to build off going forward?

[Steve Murphy:]

I think it is a good base level. I think we had communicated we put through our price increases and happy to report that they've all pretty much stuck and so that's always a positive. Discounting at a minimum, products are doing very well in the marketplace, and we think these margins can continue and we hope to improve upon them as we go through the year.

[Matt Dolan:]

Okay. And finally, a follow-on on the SonaMed deal. What level of contribution are you expecting relative to margins or maybe can you qualitatively tell us what that business looked like from a gross and operating margin standpoint?

[Jim Hawkins:]

Sure. From a gross margin standpoint, they've been running very close to 75% gross margin. So, I think that certainly will give some indication how it can be very profitable for Natus.

[Matt Dolan:]

Okay, great. Thanks, guys, nice job.

[Operator:]

And your next question comes from Julie Hoggatt from Noble Financial. Please proceed, ma'am.

[Julie Hoggatt:]

Hi, guys. Thanks for taking the question. First, I'd like to start with the ALGO 5. I know you indicated that there was a nice increase in the price of the equipment. Can you talk about the gross margin compared to the older ALGO 3?

[Steve Murphy:]

We really don't like to communicate gross margins overall on an individual product, just for customer and competitive reasons.

[Julie Hoggatt:]

Okay. On the ALGO, can you tell me how long a customer typically keeps a unit before they upgrade and what percentage of upgrades are still needed in the U.S.?

[Steve Murphy:]

Jim, why don't I pass that on to you?

[Jim Hawkins:]

It's about five to six years in the U.S. and that's where the ALGO 5 is primarily sold.

[Julie Hoggatt:]

Do you have an idea of what percentage of your installed base are five years or older?

[Jim Hawkins:]

Yes, we do, but we don't disclose those numbers externally.

[Julie Hoggatt:]

Okay. And if I could have one more question on the expenses. I know you indicated there's some integration and severance costs this quarter. Are you expecting a significant decline in overall operating expenses going forward in terms of amount, not percentage of sales?

[Steve Murphy:]

This year is a little tricky, Julie. This year, as we are going through this reorganization and in Q1, Q2 and Q3, we are having extra costs tied to that reorganization. It will be completed by the end of Q3 and we'll start seeing the benefit in Q4 that could be quite substantial and I think we've said, in going forward into 2009, we look for a $2.4 million benefit from this reorganization going forward each year.

[Julie Hoggatt:]

Okay. Thank you.

[Operator:]

And your next question comes from David Nierenberg from Nierenberg Investments. Please proceed.

[David Nierenberg:]

Good morning, team. Nice job on a good quarter.

[Jim Hawkins:]

Thanks, David.

[David Nierenberg:]

I wonder if you could give us a bit of strategic update on your overall neurology business, because you've made a number of acquisitions in it over the years. How would you characterize your absolute and relative market share in neurology vis-a-vis competition? And without trying to pin you down to specific times, could you give us a general sense of what you're doing to incorporate the various and best feature sets and technologies of the various acquisitions that you've made in this domain?

[Jim Hawkins:]

Sure, David. A lot of questions there. We've certainly focused on the neurology business, EEG side of it, to become a specialty here at Natus. We started with the acquisition of Bio-logic, followed up with DeltaMed, and then with the acquisition of Xltek, we believe we are now the market leader in EEG in the United States. That's a very nice position for us to be in considering we've only really been in the business for two years. Outside of the United States, we have some very strong base heads established, France and Germany we do quite well in, and we look to be opportunistic. It is an area of focus for potential acquisitions outside the U.S. for really all of our products, but certainly EEG is something that we'll be looking at, as well. I'm trying to remember some of the other points to your questions. Maybe I covered them all.

[Operator:]

And your next question comes as a follow-up from Eli Kammerman from Cowen and Company. Please proceed.

[Eli Kammerman:]

Yes, thank you for taking the follow-up. I wanted to ask about R&D spending. I noticed it was flat year-over-year. Are you looking for R&D to be flat for the whole year?

[Jim Hawkins:]

Yes. We've communicated, Eli, for really the last couple of years, we've communicated sort of an overall business model, a financial model, and we've communicated that our R&D spend was really high over the last number of years and that getting it down to a 9% rate, we think, is more than appropriate for products in this market with our market positions going forward. And so we think that the spend levels where we're at are more than adequate.

[Eli Kammerman:]

Okay. Thank you.

[Operator:]

You have a follow-up question from Julie Hoggatt from Noble Financial. Please proceed. Ma'am, your line is open.

[Julie Hoggatt:]

I'm sorry, sorry about that. I was wondering, on the expense side of things, if you could give us a better idea as to how much this quarter were really the integration and severance costs, the more one-time type expenses, although you might see some more integration costs associated in the next quarter or two. Can you just give us an idea, just to help us going forward?

[Jim Hawkins:]

We really don't have those numbers and even if we did, we wouldn't want to give them out at this time. There were some costs in there and there will be costs in Q2, but it's in our annual guidance.

[Operator:]

Your next follow-up question comes from Daniel Owczarski from Avondale Partners. Please proceed.

[Daniel Owczarski:]

Just on the hearing screening side, are there any developments, either newer recommendations or guidance for testing the kids that are going to be two or three years old, pre-kindergarten type of thing?

[Jim Hawkins:]

No, not that we're aware of. But there is certainly the reimbursement that's been in place now for a couple of years and that business has done very well for us.

[Daniel Owczarski:]

Okay. Thanks.

[Operator:]

And your last question comes from David Nierenberg from Nierenberg Investments. Please proceed.

[David Nierenberg:]

Jim, I just wanted to come back to the second half of my long question. It strikes me that the various acquisitions you've made in neurology give you some great technologies and feature sets to build upon. If you are already the leading market share in EEG in the United States, it probably can only get better from here. Can you give us a sense of what your plans are to start integrating those various technologies and features into new products?

[Jim Hawkins:]

Sure. That is a good question, David. Part of the reason we've established these centers of excellence for engineering, one of the big drivers of that is the neurology side of the business, and we are focusing that up at Xltek, that just has a great team of engineers. And we certainly look to be able to differentiate our product lines, get into new markets and applications. There's a lot going on with the brain and all neurological functions and we just think there's a lot of opportunity there and being now a market leader in that, we're very well positioned to take advantage of that, we think, for many years to come.

[David Nierenberg:]

Thank you, Jim.

[Jim Hawkins:]

Sure.

[Operator:]

There are no further questions, sir.

[Jim Hawkins:]

First or to finish, I'd like to certainly thank everyone for participating in our conference call. We remain very excited about the future of Natus. We are off to a great start in 2008 and really look to continue this throughout the year. We are very excited. I'd also like to thank everyone for participating in the call and your continued interest and support. Thanks again.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may disconnect. Good day.