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Natus Medical Inc. Message Board

  • ralph_sutex ralph_sutex Jan 6, 2013 9:43 AM Flag

    Mad Money on BABY

    If you watch Mad Money regularly, you know that sometimes when a caller asks about a stock Jim Cramer tells them quite honestly he needs to do more work before he can form a thesis.

    And he means it. Following is research and Cramer's resulting conclusion sparked by viewer questions about stocks.

    Natus Medical

    Cramer's take:

    On December 18th, Tom in Minnesota inquired about Natus Medical (TICKER:BABY).

    "This company is a pure play healthcare diagnostics company but its speculative due to its baby sized market cap at just $355 million," explained Cramer.

    "While the company has made smart acquisitions, the company legacy products have shown no organic growth recently. Headwinds include uncertainties over the new medical device tax increase, and weak orders due to tight hospital budgets."

    "I suggest waiting on the sidelines for more clarity on the new tax rates and wait for organic revenues to improve. It's just too risky right now," counseled Cramer.

    My opinion differs:

    Cramer really hasn’t dug into the due diligence on this one and is totally missing the BIG PICTURE.
    Here are my key take aways from BABY’s Q2 and Q3 2012 conf calls ……………

    As healthcare spending began to slow in 2011, we bagan cutting cost structure.
    Took out $4.7 mil in Q4 2011, $4.0 mil in Q1 2012 and probably an additional $1-$2 mil by Q3 2012.
    As rev comps start to pick up again, our lower costs & higher revs should help operating margins.

    We are working towards our goal of 13% - 15% minimum Non-GAAP operating margins.

    Expect a BIG jump in Q4 orders as this is our historically best Quarter for Natus and Embla sleep disorder products.

    Q2 2012

    Embla sleep disorder products did $8mil revs in Q2. This was our first normal Q of Embla sales after the intergration and training of salesmen. Bought in Q3 ‘11

    Closed the Nicolet acq on July 2nd. They sell neurology diagnostic and monitoring devices like ours with EEG, EMG and supplies. Nicolet was our major competitor in the US but had about $52 mil revs international presence vs $48 mil in US while we were 100% US. Nicolet grew Natus by 1/3rd and increased our revs from $250 mil to $350 mil.

    Nicolet had low single digit operating margins under CareFusion

    Our plan is to reduce operating costs at Nicolet by $9.2 mil by the end of Q4 2012. We are dropping Nicolet’s Int’l sales force and turning all international business to distributorships. But we will maintain the entire Nicolet US sales force.

    We have made 65% of the changes at Nicolet and expect to complete the remaining fixes before YE 2012. We are closing multiple R&D locations around the world and already cut headcount by 25% - 30% on day one of the acquisition. We also had a redundant cap ex strategy between the two businesses on new product development plans. So we consolidated and reduced that spend program too.

    But because there were many situations where we were both going after the same orders, we need a couple of quarters to see how our order flow will change now that we added Nicolet to our existing neurology division so it is hard to forecast the next two Qs sales.

    Nicolet will lose money in Q3 with the integration but we expect to make up the entire loss and more in Q4 2012. Nicolet had low single digit operating margins for CareFusion. Our goal is to get Nicolet to 10% OM’s by 2013 and get Nicolet to 13% OM’s by 2014.
    Natus should have operating margins of 13% in 2013 and with Nicolet’s 10% in ’13 should yield companywide 12% OM’s in 2013.

    Natus had lost is 13% operating margins in 2011 after all the acquisition and integrations.

    Our immediate Goal is for company wide 13% operating margins by 2014 and ultimately 15% oper margins by 2015 as we further integrate Nicolet and Embla. We had 15% OMs in 2005 – 2010 before the European economy tanked.

    Q3 2012

    Hurricane Sandy: Oct 30 & 31 had no effect on our business.

    Hearing revenues up Q3 vs Q3 2011 reversing the down trend of last few years.
    Nicolet contributed $24.1 mil in Q3 - Bot July 2nd. Embla $6.6mil in Q3 but the integration of Nicolet caused a $1.9 mil net loss GAAP. But expect a big Rev jump in Q4 from Nicolet and lower operating expenses by 3% - 4% from the cost cutting at Nicolet to reverse the loss to a net profit.

    Still seeing softness in Europe but New Born disposable sales improving. Also the stronger dollar gives us concern over European capital spending. There are a lot of unknowns to allow us to forecast full year and 2013. So to be cautious we are:

    Expect a 3% price increase in 2013 to fully cover the 2.3% medical diagnostic device tax on US sales.
    And even with the device tax we still plan to hit our goal of 13% operating margins.

    This Q3 we Restructured Natus into two reporting divisions. Natus New Born Care and Neurology and splitting our new headcount to be 60% Neurology / 40% Newborn Care after the restructure and the reduction of Nicolet’s European sales force.
    Our goal of a 12% Oper Margin for 2013 takes into consideration the 2.3% Med Device Tax.

    Expect the Saudi order for hearing screening ALGO to start shipping in Q4 with the balance in Q1 2013.
    Also some large orders from Northern Europe that had been delayed haven’t come in yet but has not been cancelled just still waiting for hospital go ahead. Nothing lost.

    Hope this helps,

    Sentiment: Strong Buy

37.95-1.30(-3.31%)Oct 27 4:00 PMEDT