Natus Medical Incorporated
Q2 2008 Earnings Call Transcript

Published: 12 Sep 2008

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Natus Medical 2008 second quarter financial results conference call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference call is being recorded today, July 31, 2008, and contains time-sensitive information that is accurate only as of today. I would now like to turn the call over to Brienne Fisher, Director of Investor Relations for Natus Medical. Please proceed.

[Brienne Fisher:]

Thank you. Good morning, everyone. Earlier today, Natus Medical released financial results for the 2008 second 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 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. Then Steve Murphy, Chief Financial Officer of Natus, 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 R&D, 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 our periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. I would now like to turn the call over to Jim Hawkins, President and Chief Executive Officer of Natus Medical. Jim?

[Jim Hawkins:]

Thank you, Brienne. I am very pleased to report our record second quarter 2008 results. In the second quarter, our revenue increased by 41% to $39.9 million, up from $28.3 million reported last year. Our net income was $3.8 million in the second quarter, up $2.3 million on a comparable basis in 2007, representing a 62% increase. During the second quarter, we continued to see growth and increased market penetration in newborn hearing screening. Natus continues to be recognized as a 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. A highlight in the quarter was the shipping of the ALGO 5, our next-generation newborn hearing screener featuring our AABR technology. We have been marketing our existing hearing screener, the ALGO 3 for seven years now, and we believe the improvements 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 second quarter, we continued to have excellent results from our recently-acquired Excel-Tech division, as they 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 in both our first and second full quarters of ownership. As we have previously discussed, the acquisition of Excel-Tech 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 are complete – we completed this realignment during the second week of January and I am pleased to report that this transition has gone extremely well. As we had 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 average selling prices. During the second quarter, we continued the restructuring of our operating divisions, consolidating product development activities by product category at our Olympic, Bio-logic and Excel-Tech facilities. We also announced and are implementing a consolidation of our customer and technical service organizations. We believe these restructurings will result in a more streamlined and efficient operation and will reduce redundant activities that had previously been performed at multiple sites. While we have and will incur costs associated with the realignment of responsibilities during the first three quarters of this year, we will start realizing savings in the fourth quarter, so the restructuring will be cost neutral or slightly negative in 2008. However, this restructuring should result in a $2.4 million annual operating cost reduction in 2009 and beyond. In the second quarter, we also strengthened our balance sheet by completing two offerings – public offerings of our common stock raising almost $100 million in new equity. As we exited the second quarter, we had approximately $77 million in cash with minimal debt. This compares to cash of approximately $13 million and $36 million in debt as of the beginning of the quarter. Our current strong cash position supports our strategy of identifying acquisitions and integrating businesses that will be accretive to our earnings. We completed the acquisition of SonaMed on May 28. SonaMed manufactures and markets a newborn hearing screening product and associated disposables. We initiated the integration of SonaMed very quickly and by the end of June, we had moved all other operations to our Bio-logic facility in Mundelein. SonaMed with annual revenue of approximately $35 million has been consistently profitable for many years, and this acquisition was immediately accretive to earnings per share and we expect this to continue. On July 2, we completed another acquisition of the neurology business of Schwarzer GmbH located in Munich, Germany. Schwarzer Neurology develops and markets EEG systems and disposable supplies used in the detection, diagnosis, and monitoring of neurologic disorders. With this acquisition, we now have a market-leading position for diagnostic neurology systems in the German-speaking regions of Europe. We expect Schwarzer Neurology to be accretive to our earnings in the third and fourth quarters of this year. 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 revenues and lost millions of dollars. We remain focused on 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 earning guidance, which we are communicating today. And 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 acquisitions to be immediately accretive in the first full quarter after acquisition. With that overview, I would like to turn the call over to Steve Murphy. Steve?

[Steve Murphy:]

Thank you, Jim. Today I will be discussing our 2008 second-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. I will also present some non-GAAP financial measures as an aid to understanding our results on a basis comparative with those from last year. For the second quarter ended June 30, 2008, we reported net income of $3.8 million or $0.15 per share, compared with net income of $2.3 million or $10.10 per share for the second quarter of 2007. For the six months ended June 30, 2008, we reported net income of $6.4 million or $0.26 per share, compared with net income of $3.8 million or $0.17 per share for the comparable period in 2007. Our results for the first six months of 2008 reflect increases in net income and earnings per share of 66% and 56%, respectively, over the same period in 2007. Average diluted shares outstanding were 24.3 million shares for the six months ended June 30, 2008, compared to 22.8 million shares in the 2007 period. As Jim mentioned, we reported record second quarter revenue of $39.9 million, an increase of 41%, or $11.6 million, from revenue of $28.3 million for the second quarter of 2007. For the six months ended June 30, 2008, we reported revenue of $76.7 million, an increase of 39% from $55.3 million reported in the 2007 period. Revenue from devices and systems contributed to 61% of total revenue in the second quarter of 2008, compared with 62% reported for the second quarter last year. Revenue from supplies and services contributed to 37% of total revenue in the second quarter of 2008, compared with 35% reported last year. Other revenue, consisting primarily of freight charges, was between 2% and 3% in both periods. Revenue from U.S. operations was $28.6 million for the second quarter of 2008 or 72% of total revenue, compared with $19.2 million, or 68% of total revenue, reported last year. Revenue from international operations increased 25% to $11.3 million in the second quarter of 2008 compared with revenue of $9.1 million reported last year. Early this year, we communicated in broad terms our expectations for revenue contribution and product mix from our three product families as follows

[Jim Hawkins:]

Thanks, Steve. Before opening up the call to questions, I would 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 seven acquisitions over the last four years. We continue to be the worldwide leader in newborn hearing screening. It is a growing business with a great recurring disposable revenue model. 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 integration plan we initiated at Excel-Tech last year, coupled with the restructuring activities among our North American operating divisions we initiated earlier this year, 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 remainder of 2008. We are today increasing our previously-issued guidance for the full year 2008. For the full year, we now expect to report revenue of $166 million to $169 million and earnings per share of $0.68 to $0.71. We previously said revenue would range from $160 million to $164 million and earnings per share would be $0.68 to $0.70. We are pleased that we have been able to update our annual guidance with only minimal adjustment in light of the significant dilution from our recent stock offerings. For the third quarter of 2008, we expect revenue to range from $42.2 million to $43.2 million and earnings per share to range from $0.17 to $0.18. This compares to revenues of $28.8 million and earnings per share of $0.14 reported in the third quarter of 2007. For the fourth quarter of 2008, we expect revenue to range from $47 million to $49 million and earnings per share to range from $0.25 to $0.27. This compares to revenue of $34.2 million and earnings on a per-share basis of $0.12 reported in the fourth quarter of 2007. On a non-GAAP basis, we reported earnings per share of $0.17 in the fourth quarter of 2007. The non-GAAP results for the fourth quarter of 2007 excluded acquisition-related costs associated with the Excel-Tech acquisition. Our 2008 guidance is on a GAAP basis, including the impact of expensing employee equity-based compensation, which we expect to be approximately $3.3 million for the full year 2008. We expect that depreciation and amortization expense will be approximately $7 million in 2008. Combined, this represents over $10 million of non-cash expenses included in our operating results for 2008. Our guidance does not include the impact of any nonrecurring acquisition-related costs for potential acquisitions, so all earnings per share amounts are on a dilutive basis. In conclusion, we remain confident in our strategy as we continue to position the company for growth in 2008 and beyond. The 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 is from the line of Erik Schneider, UBS Securities.

[Erik Schneider:]

Good morning, gentlemen. Just a quick question for Steve on the gross margin side you laid out the Excel-Tech drag on margins, and higher material obsolescence specifically; did those together account for the two, roughly 260 basis point decline in that or was there something else in there and could you attribute how much, how many basis points or percent went to each of those two factors?

[Steve Murphy:]

I think it's accurate. It was about 260 basis points and the inventory write-off was about 1%, a little less than 100 basis points and the Excel-Tech gross margin is still running at about 60%.

[Erik Schneider:]

Okay. And that is just something that is going to continue because that is the nature of that product line?

[Jim Hawkins:]

This is Jim, Erik and our goal is to get that to 65%. We did communicate at the time of the acquisition it would take some time. We hope to get it over 60% by the end of this year, but in the following year to make a run at 65%.

[Erik Schneider:]

Okay, and then, Jim, just more generally, you said that you are still looking for that $250 million run rate coming out of '08. To go beyond that, I think you mentioned previously that you would think of adding another leg to the growth story. First, is that still true; and second, do you have a sense of how close or how far a field to the current categories that additional leg would be?

[Jim Hawkins:]

Yes, on your first point, yes, we certainly are focused and are looking to achieve our goal of exiting 2008 at a $250 million run rate. As most of our shareholders know, that is something we have focused on now for a little over four years and we are still driving on that full steam ahead. On your second point, about our next – once – if we are successful in achieving our $250 million goal, to go to the next level, we haven't really communicated either a dollar amount target or a time frame. We would plan to do that after the end of this year, once we are running at that rate. But certainly, it would be in an area that would have, I would say, similar characteristics, where we wouldn't be necessarily butting up against the Medtronics or GEs or Philips. We would be finding a market niche that we could sell our products into the hospitals, that we could differentiate ourselves, and have a product where we could achieve a 65% gross profit. So it would really be the same characteristics as in the three areas that we are in now, but it would move to – perhaps it might be a little bit larger of a market size, but we will talk about that probably at the beginning of next year.

[Erik Schneider:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Eli Kammerman with Cowen and Company. Please proceed.

[Eli Kammerman:]

Thank you, and good morning. My first question is, are we going to have to wait for the 10-Q to come out to hear the exact revenue segment figures as you broke out in your prospectus for the three main segments, or can you give us those dollar amounts today?

[Steve Murphy:]

No, the detail in the 10-Q will be approximately what we gave out today. It will just be the percentages for the three main product categories.

[Eli Kammerman:]

Okay. So does that mean that the growth rate for newborn care was about 5% in the quarter?

[Steve Murphy:]

No, I don't think it means that the growth rate was 5%. I think it means that we developed. The percentages that we talked about earlier this year were based on our original guidance of about $160 million. We are tracking ahead of our guidance, and the increase has come from the hearing screening and diagnostic hearing and neurology product lines, whereas the newborn care was tracking at more our expectations.

[Jim Hawkins:]

Eli, one point maybe that is good to make here, our more internal growth I think we calculated in the quarter to be approaching right around 12.5%. So it was a good – as most of you know, we try to have internal growth. Our targets are 10% to 15%, and it looks like it was about 12.5% this quarter.

[Eli Kammerman:]

Okay. On a related note then, what specifically was the year-over-year growth rate for the hearing segment?

[Steve Murphy:]

Eli, we really don't historically get into that kind of detail, product line by product line. But I would guess they are all – they don't typically stray too far apart from each other.

[Eli Kammerman:]

All right. Can you tell us what the average share count we should be using in the second half of the year should be?

[Jim Hawkins:]

Steve is looking that up right now, Eli, and there is probably a separate number for Q3 and then certainly Q4, or the year.

[Steve Murphy:]

It is about 28.50 [ph] for Q3, 28.9 [ph] for Q4, and for the year I have got 26.565 [ph]. Those are just my estimates.

[Eli Kammerman:]

Okay, fantastic. Thanks very much.

[Operator:]

Your next question comes from the line of Joshua Zable with Natixis. Please proceed.

[Joshua Zable:]

Congrats on another great quarter, and thanks for taking my question here. Not too much to ask, but just on the hearing screening business, I know you made a comment about Fischer-Zoth and Bio-logic doing pretty well. I know Fischer-Zoth, if I understand, probably does better overseas and I know that we go back to old Natus back in 2004 timeframe, we are expecting growth from overseas. Can you just give us a little bit of commentary on anything going on out there with hearing screening or just an update? I know you typically give us something on the quarters.

[Jim Hawkins:]

Yes, Josh. It was another good quarter for hearing screening, and international did very well. As far as any announcements on any new hearing screening programs, there wasn't any country that launched a new program where we had a big one-time equipment order. But business was very solid throughout, and all programs just seemed to continue to grow.

[Joshua Zable:]

Great, great. Then just I know you talked about when you look at the next leg of growth, and I know you don't want to comment too much on it, but just as far as obviously in neurology here, you guys have done a really good job of building up the biggest sales force and getting products, and you have gone up against some of the big boys; can you just talk a little bit about the competitive landscape? Are they starting to pay attention to you guys more, or are you guys still kind of out there kicking butt?

[Jim Hawkins:]

In neurology, we don't have – certainly the big five we are not up against on the neurology side. Our biggest competitors there might be Nihon Kohden, the Japanese company. Viasys was one of the players there that is now part of Cardinal. I don't think – they are in the business, but I don't think it is certainly the main focus of Cardinal. And the rest of the players are pretty much companies smaller than us.

[Joshua Zable:]

Great. Thanks very much, guys. Congrats again.

[Operator:]

Your next question comes from the line of Matt Dolan with Roth Capital. Please proceed.

[Matt Dolan:]

Good morning. A couple of questions on Schwarzer. First, just relative to the profile of that business, Jim, can you give us an idea of the gross and the operating margins that either they have put up or you expect to impact your business relative to Natus' current corporate averages?

[Jim Hawkins:]

Sure, Matt. I would say it is very similar to the profile that Excel-Tech had. When we bought them, they were probably around that 50% gross profit. And we look to get them as fast as we can up to 60%, and then over time get them to 65%, so very similar.

[Matt Dolan:]

Okay, and then secondly, on the guidance and again in the context of Schwarzer, it looks like business across the board is going well. Can you help us either qualitatively or quantitatively break out Schwarzer's impact on the guidance increase versus the base business; would we may have seen a bump here on the rest of the business excluding Schwarzer?

[Jim Hawkins:]

We don't really comment on that, Matt. We give guidance, and we think we do a pretty good job in consistently giving guidance in quarters and year. And to break it down more than that, I think it would be a little much.

[Matt Dolan:]

Fair enough. And then on the G&A side, maybe for Steve, did you break out the costs? Were there costs associated with the restructuring in the quarter? Can you help us quantify that?

[Steve Murphy:]

You know, it is going to be in the 10-Q, so we will just wait. We are going to file that probably Thursday next week.

[Matt Dolan:]

All right. Thanks, guys.

[Operator:]

Your next question comes from the line of Jayson Bedford with Raymond James. Please proceed.

[Jayson Bedford:]

Good morning, thanks for taking the question. A couple quickies -- first, Steve, I think you mentioned 8% diagnostic neuro growth. I am wondering if that is a decent proxy for Excel growth in the quarter, or is Excel growth a little higher due to maybe a negative drag on the Natus neuro growth?

[Jim Hawkins:]

I will take that one, Jason. Excel-Tech certainly was higher than the 8%, and as we have commented what typically happens when we buy a company, we give these products to our sales force and really try to get them excited to really latch onto these new products and technologies, and give them some incentive to go out and really sell the stuff and it happened here at the Excel-Tech too, but there is a little trade-off that maybe they don't quite focus on some of the other products the way they were, but that is okay. That's part of our model and we typically have – when we buy a company or product line, we see their sales jump typically almost 20% in the first year of ownership because of this style of focus.

[Jayson Bedford:]

So, Jim, are you suggesting that Excel-Tech grew 20% in the quarter?

[Jim Hawkins:]

We haven't given that number out, but it is probably not too far off.

[Jayson Bedford:]

Okay, that is helpful. And then just lastly, there has been some scuttlebutt around a lower birthrate, and I am just wondering has that impacted your business at all?

[Jim Hawkins:]

We still scratch our heads over that one, Jason. We have heard those comments and been asked about them, and we just don't see it in our business at all. So, yes, when you think about it, when you do the math, let's say there is a 1% drop in birthrate and if you use the number of 4 million babies, I mean what is that, 40,000 babies? And so for us at – let us say if it is at $8 or $9 a test, it is $300,000 to $400,000 over a whole year's time; it is really sort of noise. And that's if it was really dropping. So we just haven't seen it.

[Jayson Bedford:]

Fair enough. Thanks, guys.

[Operator:]

Your next question comes from the line of Ed Shenkan with Needham & Company. Please proceed.

[Ed Shenkan:]

Thanks, Jim. Can you hear me?

[Jim Hawkins:]

We can, Ed.

[Ed Shenkan:]

You have been Mr. Diligent in making acquisitions, U.S. and abroad routinely through the years since you have been with the company over your tenure. So looking forward, can you qualitatively just give us an idea of what might be coming up; more Europe, more U.S., a couple of big ones, a few more tuck-ins? What is kind of on the back burner here third and fourth quarter?

[Jim Hawkins:]

Yes. As we have communicated, we typically have a pipeline of people and companies that we talk to, and that pipeline I would say right now is fairly active. And it is a combination of opportunities in all of our different product areas, along with domestic and international, and some large and some smaller tuck-ins. So it is really the whole diverse universe right now.

[Ed Shenkan:]

Okay, Jim. As far as the Schwarzer acquisition, what was the trailing 12-month revenue there, and maybe you could tell us what the growth rate was just prior to buying the company?

[Jim Hawkins:]

I think it was around $7 million to $7.5 million, in that range. Then the growth rate, I don't know that off the top of my head. It probably bounced around. It wasn't a real big grower overall.

[Ed Shenkan:]

And is their business pretty steady across quarters and through years? What has the growth rate been over the last couple of years for them?

[Jim Hawkins:]

As I mentioned, I don't really know the growth rate off the top of my head. I think business was overall flat. When we buy a company like that, our big opportunity is to take their products outside of their market. They typically were in Germany for the most part, and now we are looking to take those products all over the world. As far as the lumpiness of the business, there is always a little bit of that when you just concentrate in one market, but their overall results were pretty consistent.

[Ed Shenkan:]

And as far as access to Germany through Schwarzer for your other business lines, can you talk about this? Is this going to really enhance your profile? What has your profile been in Germany to date?

[Jim Hawkins:]

So we look for Germany as it is setting up to be really the head of what we are calling Natus Europe. Based in Munich there, we have Fischer-Zoth based in Munich; Schwarzer is in Munich. DELTAMED has a division in Germany called itMED, and so we are really quite strong there and look for us to really – we sort of planted a flag there, I would say, and look to really do real well there.

[Ed Shenkan:]

Any early feedback on ALGO 5 as you launched? Just remind us when you launched and kind of what has happened to date?

[Jim Hawkins:]

Yes, we launched, I believe, right at the end of March; end of February, beginning of March, somewhere in that timeframe. And no, we are very happy with that. We have introduced it. We have gotten orders in-house, and we are looking – we think there is a lot coming; so we are excited about that product.

[Ed Shenkan:]

Now, Jim, you have got a price increase. Just remind us what the price increase is associated with ALGO 5, and then maybe you could talk about is there really any impact on the overall gross margin of the company from that?

[Jim Hawkins:]

Sure, Ed. I think the ALGO 3, our previous generation, was around an $18,000 list price, and the ALGO 5 is up to about $22,500. And it certainly will help in the gross profit side as well. Price increases, we certainly look to use our position in the marketplace with products to make sure that we get the kind of margins that our products deserve, and we keep striving towards that.

[Ed Shenkan:]

And the buyers; are they looking more for replacement products as what we would expect? Are you getting any new buyers, because it is a different product?

[Jim Hawkins:]

Not to spend too much time on it, but in the U.S. market, it is pretty much replacement business. Most hospitals are doing hearing screenings, so this is a way for them to upgrade to get – really help motivate them to upgrade older products. We think that is going to work. International, we think it is sort of the same way. I don't think a country is going to decide to do hearing screening just because of the ALGO 5, but again, countries that have been having programs on for five years; it is a good reason for them to update their equipment as well in the market to use the ALGO 5.

[Ed Shenkan:]

Thanks, Jim. We will leave room for more questions.

[Operator:]

Your next question comes from the line of James Sidoti with Sidoti and Company. Please proceed.

[James Sidoti:]

Good morning, Jim. Good morning, Steve. Just a quick question on raw material pricing was that an issue at all, the rising cost of some petroleum-based products and if so, is that something you can pretty quickly pass on to your customer?

[Steve Murphy:]

Yes, so there is certainly cost pressures throughout the product – the entire product line; both materials and I would say labor. We do contract manufacturing, so there certainly are pressures that I think everyone sees these days. We think we are in a very good position to be able to push those prices through and maintain margins.

[James Sidoti:]

Generally speaking, how long does it take to push those price increases through? Is that something you can do semiannually, or do you do that once a year?

[Jim Hawkins:]

Yes. The nice thing with a lot of our products is that we typically do a price increase at the beginning of the year, but the way we have different contracts with customers and GPO contracts, those are coming through at different times of the year, so it is almost a built-in rolling price increase that we get on an actual basis.

[James Sidoti:]

Thank you.

[Operator:]

Your next question is from the line of Daniel Owczarski with Avondale Partners. Please proceed.

[Daniel Owczarski:]

Yes, thanks. Good morning, Jim. Good morning, Steve. Just a couple of quick housekeeping items, could you just address that sales and marketing line and why the sequential decline here? And just maybe remind us, was there something big in the first quarter or what is happening right there?

[Jim Hawkins:]

Yes, I think we communicated in the first quarter we do have some costs there; you know, national sales meetings, we are continuing on a reorganization of the sales force. Those kind of things typically hit Q1 pretty hard for us.

[Daniel Owczarski:]

So going forward, we are going to look like – the deadline should look more like the second quarter.

[Jim Hawkins:]

Yes, I would say that is right, and hopefully even maybe a little better.

[Daniel Owczarski:]

Okay, and then just on the FDA warning letter, is there any updates there or any dates for reinspection?

[Jim Hawkins:]

No, not yet. We have not had a reinspection and nothing has been scheduled, so that is where we sit.

[Daniel Owczarski:]

And nothing that is not impacting any kind of shipments out of that facility?

[Jim Hawkins:]

No, absolutely not.

[Daniel Owczarski:]

Thank you.

[Operator:]

That concludes the Q&A session. I would like to turn the call back over to Jim Hawkins for closing remarks.

[Jim Hawkins:]

I would like to thank everyone for participating in our conference call. As mentioned, we are very happy with the quarter and continue to be very excited about how we are positioned for the future here to really continue to build Natus up to be what we hope is one of the very good medical device companies in the world, and having a lot of fun doing it, too. So thanks everyone for your support and for participating in the call. Thanks.

[Operator:]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.