Natus Medical Incorporated
Q4 2014 Earnings Call Transcript

Published: 28 Jan 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Natus Medical Fourth Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded today, January 28, 2015, and contains time-sensitive information that is accurate only as of today. Earlier today, Natus Medical released financial results for the fourth quarter 2014. If you have not received the news release, or if you would like to be added to the company’s distribution list, please email your request to [e-mail]. This call is being broadcast live over the Internet on the company’s website at natus.com and a replay of the call will be available on the website for the next 90 days. The agenda for today’s call will be as follows; Jim Hawkins, President and Chief Executive Officer of Natus will present opening comments. Then, Jonathan Kennedy, Senior Vice President and Chief Financial Officer of Natus will summarize the company’s financial results, and then Jim Hawkins will conclude the prepared remarks with comments about the company’s financial guidance for 2015 before opening the call up to 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 2015. Natus reminds you that future results may differ materially from those 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, see its periodic reports on Forms 10-K and 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. Mr. Hawkins?

[James Hawkins:]

Thank you, operator. Our fourth quarter results that we released earlier this morning reported revenue of $94 million, compared to $90.6 million last year. We also reported non-GAAP earnings of $0.40, compared to $0.38 in our first quarter last year. I am very satisfied with these results, as we posted record revenues and earnings that exceeded our guidance, and equally important, we outperformed on all of our stated goals. In the quarter, I’m pleased to report we achieved a non-GAAP gross profit of 62.9%. This is an increase of 3.3% over the 59.6% we reported in the third fourth quarter last year. Also, our non-GAAP operating profit of 18% in the fourth quarter allowed us to achieve our 2014 non-GAAP operating profit goal of 16% combined with our 4% organic revenue growth made for a great quarter. We established a long-term non-GAAP operating margin goal of 20%, replacing the 13% to 17% annual goal we had communicated in the past. Our 2015 goal is to achieve 18% operating profit for the full year. We are driving to achieve our 20% operating profit goal in 2016. Our improved operating margin has been driven by solid organic revenue growth, achieved through new products and new markets and by leveraging our market-leading products in both newborn care and neurology. Our increased operating leverage and efficiencies are a result of integrating our past acquisitions, along with excellent execution of our operating plan by all at Natus. As we have communicated, reestablishing consistent organic revenue was a major goal for Natus this year. I’m extremely pleased to report that we achieved this goal. For the last many years, our focus has been to build a leadership position in both newborn care and neurodiagnostic products. We have successfully achieved this through an accretive acquisition strategy. As the market leader, we are now positioned to lead our industry segments by developing, innovating new products that will drive organic growth. We have now established a new product pipeline that we are very excited about. Last quarter, we introduced our first in a series of new products in neurology when we announced our new Vista EMG Ultrasound product. Vista Ultrasound is the first product in the market that enables the use of ultrasound with an EMG workstation. This allows physicians, on a real-time basis using ultrasound, to locate nerves that will assist in the placement of needle electrodes to better perform nerve conduction studies. There is a reimbursement available for physicians using Ultrasound in this matter and Natus now has the first product that enables ultrasound with EMG. Early feedback from leading neurologists has been positive. We plan to continue to introduce new innovative products over the next 18 months in both newborn care and neurology. In our fourth quarter, both newborn care and neurodiagnostic business segments performed well. Business was strong in the United States and Asia. Our domestic neurology business was exceptionally strong and the domestic sales force performed well as they continue to have record quarter after record quarter. Our recently launched newborn Hearing Screening Service business, called Peloton, grew rapidly, as we added 19 hospitals in the quarter and we ended the fourth quarter with 58 hospitals under contract. We remain very excited about this opportunity. Peloton offers newborn hearing screening test to hospitals as an alternative to purchasing equipment and disposables. We look to convert our existing ALGO customers to this new service model as well as attracting new customers to Natus. As a worldwide leader in hearing screening devices, we believe we are ideally positioned to develop this market. Our opportunity is to increase the approximately $10 per baby we receive for our disposable hearing supplies to $100 or more for actually performing the hearing screening test. We expect Peloton revenue to ramp throughout 2015 as we continue to market this service and develop this market. In the fourth quarter, our cash increased by $9 million and we paid off the remaining $8 million of bank debt achieving another goal that we set at the beginning of 2014. We also bought back $1.2 million of Natus stock. We look to continue to generate significant cash in future quarters. In the last month, Natus acquired two early stage market leading companies with exciting growth opportunities NicView and Global Neuro-Diagnostics, GND. NicView provides streaming videos for families with babies in the neonatal intensive care unit, NICU that enables family members and approved friends to see the new baby 24x7 from anywhere in the world from any device. NicView solves a long standing need in the NICU and hospital nurseries. We hope to make NicView a standard practice for NICUs and nurseries worldwide. GND provides a service that allows patients a more convenient way to complete routine eeg testing in the home, hospital or physician’s office. The service also provides comprehensive reporting and support to the physician. These new offerings are the beginning of the expanding service business and positions Natus for accelerating revenue growth and record earnings in 2015. We did not have any large acquisitions in 2014 as we believe it was important to integrate our existing acquisitions and to show ourselves shareholders in the medical community the strong leadership position Natus has become consistent organic growing an increasingly profitable business. With that said, acquisitions are an important part of our business model and we look to pursue a meaningful acquisition in the latter part of 2015. In summary, we are very pleased with our fourth quarter and 2014 performance and operating results. We look forward to 2015 as we continue our strong earnings momentum and cash generation, combined with consistent organic revenue growth. We remain committed to driving towards our long-term goal of 20% non-GAAP operating margin. Jonathan?

[Jonathan Kennedy:]

Thank you, Jim. Today, I will be discussing our financial results on a GAAP basis, as well as non-GAAP basis. Our non-GAAP results exclude amortization expense, restructuring and certain other charges, and the related tax effects. We believe 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 our earnings on a GAAP versus non-GAAP basis on page seven of today’s press release. As Jim stated, we reported third fourth quarter revenue of $94 million, a 4% increase from the same period last year. Revenue from our neurology market increased to $61.7 million, or 66% of total revenue, during the fourth quarter of 2014, compared to $59.8 million and 66% of revenue during the same quarter last year. Revenue from our newborn care market increased to $32.3 million, or 34% of total revenue, during the fourth quarter of 2014, compared to $30.8 million, or 34% of total revenue, during the same quarter last year. On a consolidated basis, revenue from devices and systems contributed approximately 64% of total revenue in the fourth quarter of 2014, compared to 61% in the 2013 period, while revenue from supplies and services was approximately 36% of total revenue in the fourth quarter of 2014, compared to 39% in the 2013 period. Revenue from domestic sales was approximately 62% for the third quarter of 2014, compared to only 57% in the same period in 2013. Revenue from international sales was approximately 38% for the fourth quarter of 2014, compared to 43% for the same period in 2013. On a non-GAAP basis, our gross margin increased by 330 basis points in the fourth quarter to 62.9%, compared to only 59.6% in the fourth quarter of 2013. The year-over-year non-GAAP gross margin improvement was primarily driven by higher relative U.S. revenue, where we sell direct and have higher gross margins, combined with a more favorable mix in product sales. Non-GAAP operating expenses increased $5.6 million, compared to the same quarter last year. Our non-GAAP operating margin decreased to 18.1% compared to 19.4% for the same quarter last year. The increase in operating expense was driven by higher incentive compensation, commissions and labor costs associated with our new Peloton business. GAAP operating income included a one-time tradename impairment of $0.5 million and impairment resulted from reduction of the expected life of certain acquired trade names. Our fourth quarter non-GAAP effective tax rate was approximately 25%. The rate was lower than guidance due to retroactive reinstatement of the R&D tax credit which helped reduce the rate by about three percentage points. Other income was an expense of $0.5 million and this expense was a result of foreign exchange rate fluctuations, primarily with the euro and Canadian dollar. On a GAAP basis, net income increased to $9.9 million, or $0.30 per diluted share, a $0.5 million from the same quarter last year. Non-GAAP net income increased $1.2 million compared to the same quarter last year to $13.1 million and non-GAAP earnings per share increased 4.8% to $0.40. We recorded approximately $3.8 million of depreciation and amortization expense in the fourth quarter. Equity-based compensation was approximately $1.2 million for the fourth quarter. Now let’s take a look at the balance sheet and cash flow. Net cash increased by $8.9 million during the quarter and we repurchased approximately $1.2 million of stock during the quarter. Cash flow from operations was about $8.5 million. Our days of sales outstanding improved by three days to 80 days compared to the same period last year. Our diluted shares outstanding increased to 32.9 million shares compared to 31.5 million in the fourth quarter of last year, as all of our outstanding options are now in the money. With that, I’ll turn the call back to Jim.

[James Hawkins:]

Thanks, Jonathan. Before opening up the call to questions, I would like to review our financial guidance for our first quarter and full year 2015, all on a non-GAAP basis and make a few closing comments. For the fourth quarter of 2015, the company increased its revenue guidance to $88 million to $90 million, an increase from the previous guidance of $87 million to $89 million. While non-GAAP earnings per share guidance remain unchanged at $0.28 to $0.30. the company updated its non-GAAP earnings guidance for the full year 2015 and now expects to report non-GAAP earnings per share of $1.42 to $1.46, an increase from the previous guidance of $1.40 to $1.44. Full year 2015 revenue guidance was increased to $373 million to $375 million compared previous guidance of $367 million to $369 million. As I reflect on what we have built in neurology at Natus, it is most satisfying. Through a combination of acquisitions, organic growth, and new product development, we have created the number one neurodiagnostic company in the world. Considering we were not in this business eight years ago, it is quite an accomplishment. Through our world-class sales organization, we continue to grow and gain market share in the United States and markets around the world. Now, with an exciting new product pipeline, our opportunities are better than ever to grow our business and expand the entire neurodiagnostic market. Neurodiagnostics has become a great franchise in medical devices. Combining this with our new born care business, our NicView and GND initiatives along with our rapidly growing Peloton Hearing Screening Service business, Natus is uniquely positioned for an exciting 2015. With that, we will turn the call over to questions. Operator?

[Operator:]

[Operator Instructions]. Your first question comes from the line of Jayson Bedford with Raymond James. Please proceed

[Jayson Bedford:]

Good morning guys. Thanks for taking the questions, just a couple. I guess first may be Jonathan on the 4Q spending levels, it is fair to assume you kind of pulled in some costs here? It’s a little bit above where we expected. So I guess that’s the first question.

[Jonathan Kennedy:]

Hey, Jayson. Yeah, like I said we had additional compensation expense the one thing as we build out the Peloton organization that’s hitting the OpEx line and there isn’t as much GP that goes along with that right now. As we get to the back half of the year, you’ll see the GP dollars actually start to go up and carry that expense but right now we’re not seeing much profitability on that basis from the Peloton business because it’s ramped so much faster than we thought it would. That’s part of it. On the commissions through we’ve had higher revenues than what we had expected earlier in the year and so our commission plans have an accelerator in there that causes them to be a little bit higher than the normal rates so you’ll see less leverage on that. And then we also took some clean up in AR and things like that at the end of the year that you would look at to make sure that the balance sheet is going right at the end of the year. So to answer your question, yes, it is year-end and we do try to get everything covered so that we can start 2015 clean, from balance sheet perspective.

[Jayson Bedford:]

Okay, okay. And then on Peloton, can you give us an idea of the initiative there? The numbers of folks you have working on Peloton as well as visibility into the pipeline and the reimbursement consistency you’re seeing?

[James Hawkins:]

Yeah, Jayson, this is Jim. Yeah, it’s certainly has ramped up faster than we thought. I don’t have the exact number but I think Jonathan we have about 100 people.

[Jonathan Kennedy:]

It’s a little over 100 people in the Peloton organization right now, yeah.

[James Hawkins:]

And so we’ve had to ramp up as we’ve gotten into different states, hire people getting it ready for all these contracts before we see revenues. So it is an investment that we’re making but, we’re feeling very good about where it’s going. As we get into these new states, it does take time because we’ve got to get the insurance companies lined up and all and we believe reimbursements are certainly going to follow us as we get into these new states. So we’re quite content with where Peloton’s going.

[Jayson Bedford:]

And the pipeline do you see as growing?

[James Hawkins:]

Certainly. I would say, that we would have a goal to get to let’s call it 100 hospitals by the end of 2015, 58 where we are now. There is certain inside discussion that’s probably enough we almost wouldn’t want to do more than that because just the growth is growing so fast. It is putting a strain to be able to hire people, get the processes in place and expand. So I think 100 is a good controlled growth number, but we expect and want to do more than that.

[Jayson Bedford:]

Okay. And then, may be lastly for me and then I’ll jump back in the queue. Can you talk a little bit about the GND acquisition and I guess the strategy from here to nationalize this business, which to my understanding is focused largely in Texas right now. And then, may be can you allude to the economic model and payback for Natus? Thanks.

[James Hawkins:]

We are very excited and pleased with the GND acquisition. There have been a customer and we would watch them grow and become successful. We believe that the opportunity is really very promising. What they do is are able to and we think it really fits in what the new healthcare model take patience from long term studies typically a 72-hour study for epilepsy or other type diseases that take tests from going from the hospital to the patient’s home. And we have a team of people in Texas is where it mainly is now as you mentioned, we would go in, set it up very quickly, the cameras, the EEG equipment and then after 72 hours we’ll take it out. During that time, we have real time video where a physician can be monitoring if something would have happened and then it goes back to the private physicians to do the final analysis of the whole study. You can imagine this is much better situation for a patient than having to be in the hospital for three or four days. They can do it in the comfort of their own home, less cost and I think it’s a win-win in a model that can with the Natus relationships of private neurology groups around the country that we’re by far number one at, we think we can really ramp this up. And just overall, we really like this service business expanding as we’re doing with NicView, GND, Peloton in these spaces and looking at them a little differently than I think would other medical devices company are looking at their business. We think we’re really uniquely positioned to really leverage this and keep going. So we’re excited.

[Jayson Bedford:]

And just to follow on to that, the margin profile of this GND business, can we assume that it’s higher than corporate average?

[Jonathan Kennedy:]

It’s approximately where the corporate average is. We certainly see it folding into an operating margins of 20% and potentially could be higher than that without a doubt.

[Jayson Bedford:]

Thank you.

[Operator:]

Your next question comes from the line of Chris Lewis of Roth Capital Partners.

[Chris Lewis:]

Good morning, guys. Thanks for taking the questions. First just on the Peloton services business, can you give us sense of the revenue and earnings contribution in the fourth quarter? And then 2015 what’s the guidance assumed for that business in terms of revenue and earnings contribution?

[Jonathan Kennedy:]

Christ, it’s Jonathan. Like I was answering Jayson earlier the near term here Q4 and Q1 Peloton is really about a breakeven business. But we see as we get over the ramp of installation and start up for the hospitals that we accumulated at the end of the year, we would see it becoming meaningfully contributed to operating margin at the second half of the year. So for Q2 which will come up, by Q3, Q4 really hit stride as there’s all those hospitals come online and generate revenue. So right now, we’ve got 58 hospitals probably 30 or so were actually contributing revenue, the other 28 are in some state of setup. The people have been hired, the infrastructure’s setup so we’re bearing those costs right now. Keep in mind this has grown lot faster than we thought it would. So in order to do a good job, we’ve added staff and added infrastructure faster than we would have otherwise done so. But having all those hospitals with contracts we’re obligated to get moving. So we spent a little on the advance and we’ll see that pay off on the back half of the year.

[Chris Lewis:]

Understood. And do you have a goal for the number of hospitals under contract by the end of 2015?

[Jonathan Kennedy:]

We have an internal goal. We’ve talked about 100 hospitals by the end of the year so that would imply adding about 42 for the year. We added 58 in 2014. One of you might say so why less instead of more? Of course we would love to do more, but we really have to focus on the stakes that we have and making sure that we don’t grow too fast, that would be key to this business is making sure we do a good job providing the service.

[Chris Lewis:]

Understood. On your operating margin goals you obviously had your guidance for this year and then you have your goal. Can you walk us through the key kind of upside leverage there and drivers to achieve your long-term operating margin goal this year, and then that 20% in 2016 how you feel you’re positioned at this point?

[James Hawkins:]

Chris I’ll start and then I’ll pass out on to Jonathan. Certainly what’s driving a lot of it of course is top line growth. Having organic growth, I think we’ve guided now 2% and 4% upwards of 5% growth and that really leverages the business. And if we’re successful in growing these initiatives, our goal would be to even grow revenues faster than that which gives us more leverage. But so on the top-line, you got to start there and that’s what we’re seeing certainly a good part of that growth. And on the expense side, Jonathan?

[Jonathan Kennedy:]

Yeah we still have a long term plan of cross-directionalization of the company. We make medical devices, those things don’t happen overnight, but as I’ve outlined before in this call and others the company continues to rationalize its businesses and making sure that we’re operating efficiently on the cog side and the operating expenses side. I think we’re in fairly good shape. We have a few more things left to go, we’re completing the installation of a single ERP system at the company and that will be completed by the middle of this year. That will be the springboard doing other initiatives to save cost. And then really I think the big piece is this Peloton business getting it to a profitable level which if you annualize the hospitals that we have today and the staff we have today, it’s an extremely profitable business. But we just don’t see that in Q1, what you see in Q1 is the added expense without the additional gross profit that comes with it. As we exit Q2 and into Q3, that should accelerate quite quickly I mean if you look at our annual guidance you can see Q1 earnings doesn’t quite get you to the guidance for the year $1.46. What it does get you through a back half that’s growing and we think Peloton is going to drive that. So again, as Jim said, the key is really revenue growth from Peloton, rationalize expenses on the back side so that we exit the year at the proper margins we’re looking at.

[James Hawkins:]

I think also Chris we continue the tax initiatives and we expect to see some real benefit not on the operating profit line but certainly on the bottom line. We put a lot of time and energy and investment into our tax strategy and I think 2015 will be the year, it will be obvious that we’re getting some benefit there.

[Chris Lewis:]

Okay. Thanks for the time.

[Operator:]

Your next question comes from the line of Brian Weinstein with William Blair.

[Brian Weinstein:]

Hi, good morning guys. So my first question geographic one, you mentioned U.S. and Asia is being strong. Can you comment on what you’re seeing in Latin America and also in Europe, those are areas that you’ve had some headwinds in the past, just what’s the update on those territories?

[James Hawkins:]

Certainly U.S. was our strongest followed by Asia both we’re very happy with. Latin America was actually okay. We had a pretty solid quarter there especially on the newborn side, so that was certainly adequate. In Europe and the Middle East, we did see a little slow down there in some Northern African countries, Middle East and Europe, but it was basically flattish, really wasn’t anything negative. We’re certainly holding our own, but I would call those regions more flat with the U.S. and Asia growing and Latin America perhaps up slightly.

[Brian Weinstein:]

Okay. And then, as we look at your guidance, historically large orders were things that had moved you guys around a little bit, but can you talk about - do you have large orders that are kind of built into guidance that you have to win the certain period to hit their that we’re more just sort of business as usual that’s built into your numbers?

[Jonathan Kennedy:]

Yeah, I think looking back in 2014, we might have had one fairly good Middle East order in the newborn side in Q1, but other than that really nothing of any $1 million kind of number of better came in. And we do not expect or in our guidance on the newborn side where typically it can get lumpy like that as country would adopted hearing screening program. We don’t have any of those baked into our guidance. On the neurology side, as we’ve grown this business and have become such a strong player with a great product platform, we do see, I would say on a consistent basis now that we just see as part of our business, every quarter getting $1 million plus orders as hospitals upgrade their neurology departments. And so we don’t look at those as really abnormal, we see those as just regular business now and those come in I’d say very consistently.

[Brian Weinstein:]

Okay, thanks. And then on your backlog it’s something that is continuing to build, can you either qualitatively or quantitatively discuss what that backlog looks like at the end of ‘14?

[Jonathan Kennedy:]

Yeah so at the end of ‘14 I don’t have that in front of me, it will be in our K, but I think we’re approaching around $13 million in backlog and that’s what’s really counting no backlog for Peloton. Even though we certainly know there are hospitals coming in online there we don’t count that as backlog. But it’s around $13 million and very solid backlog.

[Brian Weinstein:]

And last question, you’ve talked about the large deal towards the end of the year, but should we expect additional small deals like the last few that you’ve done throughout the year or are you really just going to be focusing solely on running the business and focusing on this far direct opportunity towards the end of the year?

[Jonathan Kennedy:]

Yeah, for the most part Brian, we will be focusing on the larger opportunity, although we will continue to be opportunistic and if they like GND or NicView, good companies with great upside potential come available so that we can tuck in, I’m sure we would move forward on those. But we really would move forward on those, but we really would like to - since we have this business we believe we’re really under control now as we go through 2015 and our balance sheet is cleaned up, generating a lot of cash. We think we can certainly get our hands on a lot of money out there, with a low interest rate, for the right acquisition that could be really accretive, could really be a big boost to the company, earnings, revenue and all. So, that’s really is going to be a focus for the year.

[Brian Weinstein:]

Okay. Great. We’ll talk offline about some other stuff. Thanks.

[Jonathan Kennedy:]

Great.

[Operator:]

Your next question comes from the line of Larry Haimovitch of HMTC. Please proceed.

[Larry Haimovitch:]

Jonathan or Jim - Hi, good morning, Jim. What’s the status of the stock buyback? I know you said you bought some stock back in Q4. Is the buyback still in place? How much is authorized etcetera?

[Jonathan Kennedy:]

We bought $1.2 million worth of shares in the fourth quarter. We’ve bought about $6.6 million out of a $10 million authorization and the plan was to buy this over the year, we started in June and we’re on track to finish the $10 million by the end of this June. Two ways we have 10b5-1 plan at place and then we do buy it opportunistically but right now we’re doing quiet periods of 10b5-1 is what’s driving the share buyback.

[Larry Haimovitch:]

Okay, great. And then the second question Jim, when you look at the new opportunity with what you just got involved in, do you view the growth opportunity as more internal and organic or do you think the acquisitions along the way that could drive that growth as well? So is it going to be both, internal and external growth or one versus the other?

[James Hawkins:]

Yeah, Larry we see it mostly as an organic opportunity. As we’ve done with Peloton we bought the smaller company to get into the business, to have processes procedures have established billings and things of that nature. And now, with our sales organization and service organization we think we can just wrap them up organically. NicView we’re very excited about the opportunity for making NicView a standard of care not only in the United States but around the world, we think it can really happen. We just finished our Worldwide Sales meetings last week where we were altogether for five days and teams couldn’t wait to get out of there to start selling this. They just feel that hospitals are really going to want this and it’s one of those things once your hospital down the street has it, every other hospital better because you’re at a competitive disadvantage. Why would you want to be able to make your patients happier to be able to view their babies 24x7, not only whether or traveling and then with the hope of getting it in the newborn nursery just really expands the market. So we’re very excited about that. GND, what an opportunity there, they’re doing $7 million a year, pretty much in Texas. So you can do the math on that, that GND certainly can be $75 million to $100 million opportunity for Natus as well. We’re just excited. We have solid leadership positions in our markets. We have new products and new market opportunities that are driving the business. We’re having fun.

[Larry Haimovitch:]

It’s great to hear. With regard to growing more internally or all internally, is it because there are no other nice little acquisitions out there or do you think they might be too competitive or it feels better more logical now that you’ve established a foothold in the market to just row it internally.

[James Hawkins:]

Yeah, we are looking to do a significant acquisition at the end of this year. So we think we can grow both ways the internal team that are driving the business, we’re going to be doing that. At the corporate level, we’ll be driving the acquisition opportunity we’re going to be disciplined as always. We won’t overpay, we typically buy things that half of our revenues that we’re trading. So as you could see with GND, although may be we didn’t publicly say it we paid about $11 million for GND and which was about that same formula. One half of what we’re trading at on a revenue basis, and we think that’s key. You got to buy things right, you got to integrate them, you got operate them, grow them and get them into Natus’ operating margins, it’s just win-win and we’re ready to do that again and in a big way .

[Larry Haimovitch:]

One more follow up question on GND, so the flex is about 1.5 times revenue, was it a competitive bidding situation or was it just you negotiating directly with them and as far as you know they weren’t looking at any other potential acquirers?

[James Hawkins:]

Larry, as usual, we don’t typically get in competitive bidding situations, both NicView and GND were pretty much I will say home grown opportunities that we knew the companies and over time, we were able to convince that we are the best partners and the best way to grow their business with our sales force and operations and it worked and it’s going to work. We are going to grow these businesses.

[Larry Haimovitch:]

Great, Jim. Thanks. Congrats.

[James Hawkins:]

Sure, Larry.

[Operator:]

Your next question comes from the line of Larry Solow with CJS Securities.

[Larry Solow:]

Good morning, guys. Congratulations on a good year and good initiatives progressed. Just a couple of questions, the international sales actually declined 8% which seems to be little bit more than the area. In your answer you didn’t really to pass out what was driving that decline? Was there any currency in there?

[James Hawkins:]

Certainly, it’s a good question about currency and there is a little bit of currency there. But backlog does play a part of that as well. And it always can be a little misleading as to where that backlog, how that affects your shipment revenue numbers which is where we do the analysis of. But I think backlog in the quarter grew by I want to say $4 million or $5 million. So that is a factor there. And the currency is a factor, although as we’ve stated before for those that have followed the business, we have somewhat of a little bit of a natural edge. Most things we bill is in dollars but we certainly have our European businesses do bill in euros, but it’s roughly 10% of our businesses it’s not a huge amount of bills in euros. We do get the benefit from the euro when it comes to the cost of the business because in Ireland for example, where we have production and engineering groups and in Canada the same way, the revenues aren’t great, but on the cost side we get that benefit. It’s a little natural edged and usually a strong dollar at the end of the day that benefits Natus.

[Larry Solow:]

Okay, great. In terms of your guidance, just looking ahead, I guess the adjustment today sounds like it’s mostly for the acquisition of GND. So sounds like you’re targeting 3% 4% top-line growth which is obviously a pretty solid number especially considering you did the last this year, but what couple of years - what sort of corporate in that I know you have a bunch of multiple initiatives Peloton wrapping up, you have some new products, just trying to get a framework your into that and what’s going to what would may be not reach that number or to higher level issues that would cause that and what can may be lead you to exceeding that number?

[James Hawkins:]

Sure, Larry. Certainly on the neurology side of the business, we see growth in all areas as we leverage our platform and come out with new products. On the newborn side, we still are, the birth rate are still flat, so that although is not a headwind it isn’t really –it’s hard to growth that business with existing products, 4% 5% when the birth rates are flat, because disposables new birth is a significant part of that business. But we certainly all of these new initiatives growing nicely, combined with we do have guidance and goals. Guidance, when we try to set guidance at Natus, guidance is something that boy we better hit. We’re planning on doing that even though 3% to 4% is not a layup these days but we have such confidence in our initiatives that we think we’re going to do that. And really hope to exceed those as we go through the year.

[Larry Solow:]

Okay. And just last question, on the acquisition front, I’m expecting you to tell me what exactly you’re targeting, but it sounds like you’re more confident than at least would really look at something larger in the back half of this year. Is there any area in particular, sounds like it won’t be necessarily services or anything in particular that you guys are looking and already focused in on couple of ideas may be? Thanks.

[James Hawkins:]

We have not Larry and that process is really just starting. To do something by the end of the year, it’s always sort of timing, you can’t be dating somebody a year before you want to close an acquisition because it just doesn’t work that way. So we are now just starting to look, communicate and hey there is no guarantee on acquisitions as you know, especially with the kind of discipline we have with what we’ll pay. But we have pretty much always been able to find the right company at the right price over the last 8 or 10 years. So, we’re hopeful and confident that we’ll be able to do it again.

[Larry Solow:]

Great. Thanks. Appreciate it.

[Operator:]

At this time, there are no additional questions in the queue and I would like to turn the call back to over Natus for closing remarks. Please proceed.

[James Hawkins:]

I would like to thank everyone for participating. Certainly a very exciting time at Natus, as we look to our upcoming prospects in 2015 and look forward to our next call as we report our first quarter results. Thank you very much.

[Operator:]

Thank you for your participation. This concludes today’s conference. You may now disconnect. Have a wonderful day.