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Natus Medical (NASDAQ:BABY)

Q3 2012 Earnings Call

November 07, 2012 11:00 am ET

Executives

James B. Hawkins - Chief Executive Officer and Director

Steven J. Murphy - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

John T. Buhler - President and Chief Operating Officer

Analysts

Matthew Dolan - Roth Capital Partners, LLC, Research Division

Brian Weinstein - William Blair & Company L.L.C., Research Division

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

James Sidoti - Sidoti & Company, LLC

Ross Taylor - CL King & Associates, Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Natus Medical 2012 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, November 7, 2012, and contains time-sensitive information that is accurate only as of today.

Earlier today, Natus Medical released financial results for the 2012 third quarter. If you've not received the news release or would like to be added to the company's distribution list, please call Natus Medical in San Carlos, California at (650) 802-0400 or email your request to Investor Relations at natus.com. 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, Chief Executive Officer of Natus, will present the opening comments; and then Steve Murphy, Vice President Finance 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 2012 before opening the call up to questions. John Buhler, President and Chief Operating Officer, 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, trends and events and will include the company's expected results for 2012. Natus reminds you that 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 the 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 Mr. Jim Hawkins, Chief Executive Officer of Natus Medical. Please proceed, Mr. Hawkins. Thank you.

James B. Hawkins

Thank you, operator. Our third quarter results that we released earlier this morning reported revenue of $80.7 million compared to $51.3 million reported last year and non-GAAP earnings per share of $0.15 compared to $0.07 reported in our third quarter last year.

I'm very pleased with these results as they reflect outstanding execution by our operating teams in the third quarter. Our non-GAAP earnings came in above our guidance range, while our revenue was in line with our guidance. This was a considerable achievement given the integration efforts that were going on related to the Nicolet acquisition. Our Newborn Hearing business posted increased revenue in the quarter compared to the 2011 quarter, signaling that birth rates around the world may have stabilized, reversing the downward trend of the last few years.

Nicolet also had excellent results in their first quarter as part of Natus. A significant highlight during the quarter was the acquisition of the Nicolet business from CareFusion. While we have completed a number of acquisitions over the years, the Nicolet acquisition is by far the most significant acquisition in the company's history. With Nicolet, Natus is now the leading provider of products into the worldwide neurodiagnostic market, with market leading positions in EEG, EMG and PSG technologies in both the United States and abroad. Nicolet has consistently been a profitable business inside of CareFusion. While we believe the acquisition will be accretive on a non-GAAP basis in our fourth quarter, we expect it will be substantially accretive throughout 2013.

In the third quarter, we also initiated the reorganization of the company into 2 strategic business units: Natus Newborn Care and Natus Neurology. As we drive Natus towards our goal of $500 million in annual revenue, the SBU structure will give added focus to our business. The introduction of our first newborn incubator into the U.S. market in the second quarter continues to attract a lot of attention. Quote levels and overall interest in activity are ahead of our expectations, and we expect to book noticeable business in the fourth quarter. We remain convinced the incubator market will be an area of solid growth for Natus in the years ahead.

As disclosed in an 8-K filing with the SEC, our plan was to take $9 million of cost on an annual basis out of Nicolet by the end of 2012. I would like to note that we are well on our way to completing this objective. As we have previously communicated, our goal is to see Natus return to our historical financial metrics for our core business in 2013 of a minimum 13% pretax non-GAAP operating profit. For Nicolet in 2013, our goal is 10%. Combined, this equates to a 12% non-GAAP operating profit goal for consolidated results in 2013. Again, this is not guidance but a goal. In out years, we look to continue to drive an improvement in our non-GAAP operating profit from our current 12% goal to 13% and higher, a range Natus had achieved from 2005 to 2010.

Our business model is to combine internal growth with accretive acquisitions. Having recently closed the Nicolet acquisition and now in the middle of what is our most significant integration to date, we do not anticipate any large acquisitions in the first half of 2013 but would consider a simple tuck-in if one became available.

In summary, we are very pleased with the Nicolet acquisition. It is a transformational event as it increases our revenue by 1/3 to a full year run rate of approximately $350 million, along with making Natus the world leader in neurodiagnostic products. We believe we are now in position to report strong earnings growth in our fourth quarter 2012 and in 2013.

With that overview, I would like to turn the call over to Steve Murphy. Steve?

Steven J. Murphy

Thank you, Jim. Today, I will be discussing our third quarter 2012 financial results on a basis consistent with accounting principles generally accepted in the United States or GAAP. I will also present selected results on a non-GAAP basis that exclude amortization expense associated with acquisition-related intangible assets and certain other charges.

We believe that the presentation of these non-GAAP results aids in assessing the performance of our core business. We provided a reconciliation of our earnings on a GAAP versus non-GAAP basis in our financial results press release issued this morning. All per share amounts presented today are on a diluted basis except for our GAAP numbers, which are based on basic shares. I will also discuss the contribution of Embla and Nicolet to our third quarter 2012 results. As a reminder, we acquired Embla on September 15, 2011, and Nicolet on July 2, 2012.

First, I will start with our GAAP results. We recorded third quarter revenue of $80.7 million representing an increase of 57% or $29 million from revenue of $51.3 million for the third quarter of 2011. We reported a net loss of $1.9 million for the 3 months ended September 30, 2012 or a loss of $0.07 per share compared with net income of $154,000 or $0.01 per share for the third quarter of 2011.

For the 9 months ended September 30, 2012, we reported revenue of $201 million compared to revenue of $169 million for the same period in 2011. We reported a net loss of $1.1 million for the 9 months ended September 30, 2012 or a loss of $0.04 per share compared with net income of $5.6 million or $0.19 per share for the third quarter of 2011. On a non-GAAP basis, we reported net income of $4.3 million and earnings per share of $0.15 for the third quarter of 2012 compared to net income of $2.1 million and earnings per share of $0.07 in the same quarter of last year.

Our non-GAAP results for the 2012 quarter exclude amortization expense associated with acquisition-related intangible assets, restructuring charges, direct costs of the Nicolet acquisition and the reversal of fair value adjustments associated with Nicolet purchase price accounting. These non-GAAP adjustments are more fully described in our financial results press release issued this morning.

Revenue from devices and systems contributed to 60% of total revenue in the third quarter of 2012 compared to 61% in the same period in 2011, while revenue from supplies and services contributed to 38% and 37% of revenue in the 2012 and 2011 periods, respectively. Revenue from domestic sales was $47.4 million for the third quarter of 2012 compared with $30.7 million in 2011 or 59% and 60% in the 2012 and 2000 periods, respectively.

Revenue from international sales was $33.3 million in the third quarter of 2012 compared with revenue of $20.6 million reported last year. Nicolet contributed to $24.1 million of revenue in the 2012 period, while Embla contributed $6.6 million in the 2012 period and $1.3 million in the 2011 period.

Looking at revenue in the third quarter from the standpoint of our product families. Our neurology products contributed to 64% of revenue. Our hearing products contributed to 18% of revenue. Our Newborn Care products contributed to 15% of revenue, while 3% of revenue was from other sources. Jim will present our updated revenue guidance in a minute. But for the full year 2012, we expect that the mix of revenue will be approximately 60% from our neurology products, 20% from our hearing products, 17% from our Newborn Care products and again, 3% from other sources.

I will discuss our metrics for gross profit, operating expenses and the tax provision based on our non-GAAP results. Our gross profit margin was 56.4% in the third quarter of 2012 compared to 54.7% reported last year. The non-GAAP gross profit in both periods excludes amortization expense of acquisition-related intangible assets and for the 2012 period, the fair value adjustment to inventory recorded through Nicolet purchase accounting.

The inventory fair value adjustment is a onetime charge. We wrote off about 75% of the fair value adjustment in our third quarter and expect the remaining approximately $135,000 to hit in the fourth quarter. The 2012 gross profit results were slightly below our expectations because of mix and a higher-than-expected charge for inventory obsolescence.

Operating expenses were 48.4% of revenue for the third quarter of 2012 compared to 51.3% of revenue in the third quarter last year. Our non-GAAP operating expenses in 2012 exclude costs associated with amortization expense of acquisition-related intangible assets, severance charges, direct costs associated with the Nicolet acquisition and the write-off of the fair value of backlog recorded through Nicolet purchase accounting and the accelerated write-down of the basis of our existing ERP. As we move into the fourth quarter 2012, we expect that our operating expenses as a percent of revenue on a non-GAAP basis will be down by as much as 3 to 4 percentage points from the third quarter as we benefit from seasonal pickup in revenue and more fully benefit from cost production measures implemented earlier in the year.

Our tax rate for the third quarter of 2012 was 30.7%, which is lower than we had forecasted as we entered the quarter. We benefited from the settlement of U.S. state income tax audit and reduced FIN 48 accruals on uncertain tax positions that were recorded as a component of income tax expense in prior years. We believe that our effective tax rate for the fourth quarter of 2012 will be approximately 37%. However, because of the extent of discrete items and the quarterly provisions, our actual tax rate may differ significantly.

During the 3 months ended September 30, 2012, we recorded approximately $2.8 million of depreciation and amortization expense, including $1.6 million of amortization of intangibles associated with our acquisitions. Those amounts are exclusive of the onetime backlog write-off I mentioned earlier. We also recorded $1.9 million of stock-based compensation expense.

Jim will be updating our 2012 non-GAAP guidance in a moment. At the midpoint of our guidance, for the full year, we expect that as a percentage of revenue, gross profit will be approximately 57% and operating expenses will be approximately 48%. We expect that depreciation and amortization expense will be approximately $11.5 million, excluding approximately $6.6 million including of amortization expense associated with acquired intangibles. We expect stock compensation expense will be approximately $6.2 million.

Our fourth quarter earnings per share guidance is based on an expected diluted share count of approximately 29.9 million shares. At September 30, 2012, we reported cash and cash equivalents of approximately $20 million, stockholders' equity of approximately $260 million and working capital of approximately $64 million. On June 28, 2012, we borrowed $31 million on our line of credit and on July 2, 2012, used those proceeds and approximately $27 million of our existing cash to fund the Nicolet acquisition.

And with that, I'll turn the call back to Jim.

James B. Hawkins

Thanks, Steve. Before opening up the call to questions, I would like to review our financial guidance for our fourth quarter and full year 2012, all on a non-GAAP basis and make a few closing comments.

For the full year 2012, we now expect to report revenue of $293 million to $296 million and non-GAAP earnings per share of $0.58 to $0.61. We had earlier said that we expected to report revenue of $256 million to -- I'm sorry, it was $294.5 million to $297.5% and non-GAAP earnings of $0.58 to $0.63. For the fourth quarter of 2012, we expect to report revenue of $92 million to $95 million and non-GAAP earnings per share of $0.25 to $0.28. This compares to revenue of $64.1 million and non-GAAP earnings per share of $0.14 reported in the fourth quarter of 2011.

In our financial results press release issued this morning, we provided an explanation of items that we excluded from our non-GAAP guidance. The most significant items are amortization expense associated with acquisition-related intangible assets, restructuring charges, purchase accounting, fair value adjustments and direct costs associated with acquisition. We are not at this time providing GAAP earnings per share guidance as we expect we may incur additional restructuring charges associated with the Nicolet acquisition, the amount of timing of which have not yet been determined.

Our 2012 guidance includes the impact of expensing employee equity-based compensation, which we expect to be approximately $5.2 million. Our guidance does not include other potential acquisition or restructuring-related charges that may be incurred in 2012. All earnings per share amounts are on a diluted basis. And finally, I note that our non-GAAP guidance excludes the impact of any future acquisitions that might have on our results of operation.

In summary, we continue to execute on our business model and build a world-class franchise in both Newborn Care and neurology. I believe as we complete the integration of Nicolet into Natus, we will achieve significant earnings growth throughout 2013.

With that, we will turn the call over to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from the line of Matt Dolan of Roth Capital Partners.

Matthew Dolan - Roth Capital Partners, LLC, Research Division

First, I wanted to talk a little bit on what you're seeing out there in the environment. Jim, it looks like the organic growth in Q3 was actually a little over 5% if I'm doing the math right. So specifically, what are you seeing in Europe as we go into the end of the year relative to a lot of the economic headlines we're reading out there? And I guess the second part of the question is, can you comment a little bit on the pricing side of the equation? Are you able to get pricing as we go into 2013?

James B. Hawkins

Matt, yes, I think you're right. We were overall happy with the quarter on a top line basis. As we've mentioned, the Newborn Hearing part of our business had some growth in it, which is something that we really hadn't seen and I'd say almost a couple of years. It had been with the birth rates being down, our disposable business had trended downward and that's reversed. So that was a nice uptick for us. Nicolet also came in and had a very solid quarter, especially when you consider all the integration and disruption that goes on when you have an acquisition of that nature. The people there really jumped in and got the job done and very happy to see that. On top of that, on a little bit of a down note, Europe, we did start to see some softness there as we progress through the quarter and reflected that in our guidance in the fourth quarter that things do not seem to be getting there, certainly not falling off a cliff by any means. But that situation continues just to lag growth where we've seen growth in other parts of the world.

Matthew Dolan - Roth Capital Partners, LLC, Research Division

Yes, and the last part there was on just pricing. How is that fitting into the growth equation that we're seeing in the numbers?

James B. Hawkins

On the growth side, -- I mean, on the pricing side, for this year, we expect a minimal price increase be on a relative basis. But certainly next year, we look to cover or anticipating the effects, especially after last night, of the medical device tax, we look to be able to get a net price increase to cover those costs. And that's what's in our goal-setting models.

Matthew Dolan - Roth Capital Partners, LLC, Research Division

Sure. Okay. And then you mentioned that you're well along to the cost management goals that you had for 2012. And again, considering the medical device tax and as we think about your 12% aggregate target next year, are there more cost savings to come? And maybe factoring into that response, you could tell us how you think about now? What seems to be an inevitable device tax on top of your margin goals?

James B. Hawkins

Sure. As I hinted on the device tax that we look to be able to cover that and incorporate that in our margins to still hit our goals in 2013. Unfortunately, there's only a couple of ways to recoup that cost. One is by price increases, the other is in cost reductions. And we're certainly going to be looking at all of that. But we have a business to run, and we're going to be hitting our goals. That's -- it's unfortunate, but it is what it is. What was the other part of your question, Matt?

Matthew Dolan - Roth Capital Partners, LLC, Research Division

That pretty much covers it. It was cost management and how to deal with the tax. So I think that's very helpful.

Operator

Our next question is from the line of Brian Weinstein of William Blair.

Brian Weinstein - William Blair & Company L.L.C., Research Division

So my question is -- my first question is around any onetime orders in the third quarter that might have helped. I think last quarter, you mentioned the possible Northern European order and potentially a Saudi order, and also hinted that there were some larger neuro orders that could drop into Q3? So was there anything kind of onetime in nature in the quarter?

James B. Hawkins

Brian, I'll pass that on to John Buhler, and John can reply to that. John?

So Brian, nothing significant. The Saudi order has pretty much been split up over the next 2 quarters. We'll see a piece of that come in, in the fourth quarter, probably a few hundred thousand dollars, and the balance has moved into the first quarter. But as it related to the general operating revenues for the period, nothing of major significant hits in the third quarter.

Brian Weinstein - William Blair & Company L.L.C., Research Division

Okay. And then nothing on the Northern European order that you were talking about in hearing that didn't come through?

James B. Hawkins

Has not come through yet. All those orders are still active. It's timing we're seeing where some of them are now being split up. So they've revisited the tender and broke them into pieces. So we expect that, that may actually accelerate the execution of those and give us some opportunity here in the fourth quarter.

Brian Weinstein - William Blair & Company L.L.C., Research Division

Okay. And then on the cost reductions or the profitability improvement, I should say, at Nicolet and what's going on there. You said that you're well on your way to, I think, to $9 million target this year. Can you talk about where those cost reductions within the organization are coming from? And then where the next set of cost reductions are going to come from as you look to get to that pretax target that you guys have talked about for next year?

John T. Buhler

So Brian, it's John. Certainly, on the Nicolet side, the initial activity is centered around balancing out the investment for R&D, in particular, in consolidation of numerous facilities around the world that Nicolet had in place. Those 2 avenues are where we went to get the preponderance of the $9 million. Effectively, we reduced the headcount by, I'd say 25% to 30% on day 1 relative to those spurious operations around the world and balanced out the R&D investment more in line with what we perceive to be the growth model going forward. So most of those activities have either been executed or will be executed and completed by the end of the year. As we go forward, we're clearly looking to combine the businesses in a more harmonious fashion that will lead to some balancing out of investment strategy relative to neurology at large. We've had redundant investment strategy in the 2 businesses, and we're working through that pretty quickly to figure out how to consolidate and reduce that spend and yet achieve the product development goals for the business.

Brian Weinstein - William Blair & Company L.L.C., Research Division

Okay. And I may -- I just want to sneak one more in here. I just want to clarify why you're taking down the high end of the range in the fourth quarter. I think that you're just saying that it's due to come to some more uncertainty in Europe than you're -- that you're seeing. I just want to make sure that I heard that right, and if there's anything else that we should be thinking about.

James B. Hawkins

Yes, Brian, I think that the preponderance of it is the European situation. Also with the fiscal cliff coming on and a little concern about what capital spending might be, the dollar is getting stronger, just all those kinds of things. We just thought it was prudent to hone it in. And since we're in a position where we can, we believe, still hit our earnings target of approximately $0.60 a share that we've had, I believe, since the beginning of the year, we felt it was a prudent thing to do.

Operator

Our next question is from the line of Jayson Bedford of Raymond James.

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

So Nicolet was much bigger than we expected in terms of revenue contribution a quarter. Is this kind of $100 million almost run rate? Is this what you see going forward? Or was there something exceptional here in the third quarter?

James B. Hawkins

Jayson, it was a good quarter forum. No doubt about it. As we've -- certainly, we're not going to comment on next year as far as any breakdowns of how we see the business. And in fact, it does get a little blurred actually because you can imagine putting Nicolet in with our existing businesses. How those revenues really are accounted for going forward is different maybe than how they were in the past. There's certainly situations where we've been both going for the same orders. There's -- it's silly to waste, as we did in Q3, both sales force's time pursuing those same orders. So we might have let Nicolet have some that maybe we would have gotten in the past or vice versa. But -- so when we look at the business in Q3 and really going forward, we really don't look at it so much as Nicolet internally. It's part of the neurology -- Natus Neurology business unit, and that's how we look at the business.

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Okay. You partially answer my next question. But if I factor in Embla and Nicolet, it didn't look like there's much growth in the base business. And so my question is going forward, how do you drive better growth or growth in your base business once these deals anniversary?

James B. Hawkins

Jayson, that is certainly a challenge, I think, for a lot of medical device companies right now. With Europe where it's at, actually shrinking, getting overall growth is difficult. I think we've looked to try to get about a 2% growth goal overall for this year. We came in with modest expectations, and I think it was justified. Next year, we're not actually giving guidance for next year. But those kind of growth rates in base businesses is probably not too far off the mark. It's a lot of unknowns out there and with Europe where it's at, it's probably appropriate.

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

Okay. I'll just ask one last one and then get back in queue. Can you maybe give us a little bit of structure around the SBUs here, neuro and newborn, in terms of salespeople? Are the R&D cost aligned as well? And then will there be kind of a net reduction in headcount associated with this reorganization as well?

James B. Hawkins

Jayson, I'll pass that on to John. John?

John T. Buhler

So essentially, we're running them as P&Ls. So we went right down the line. We have been organizing this, Jayson, for really almost the last 12 months and aligning first and foremost sales and marketing into appropriate groups by SBU. And now we have started to separate and pretty much have completed the alignment of the infrastructure hierarchy or each of the groups. That has resulted in some reduction in headcount and a lack of a few more reduction in headcount before year end as we finalize the infrastructure for both. So we expect to get much more efficient in the day-to-day operation of the business. That has been laid out and kicked off effective October 1. But I would suggest to you that the majority of planning had already been done and a number of the activities had already been completed prior to that date. I'm sorry, what was the second part of your question?

Jayson T. Bedford - Raymond James & Associates, Inc., Research Division

I guess maybe just in terms of the actual numbers in terms of salespeople in each of the 2 SBUs?

John T. Buhler

It's really about a 60-40 split. I don't want to get specific because people will get nervous about the number of each group. But think of it that it was really just around that even of a cut between the 2 groups. So in the United States, we kept the direct sale forces as one might imagine, and we already had at some levels some sharing. We've broken that off now with Nicolet because the amount of product that we handle and the variety of product gets more complicated. So it was a natural move for us to break those groups up. And I'd say if you want to -- hypothetically, if there was 100 salespeople direct, you now have 60 in neuro, 40 in Newborn Care.

Operator

Our next question is from the line of Jim Sidoti of Sidoti and Co.

James Sidoti - Sidoti & Company, LLC

Just a couple of things I just want to clarify. One, the goals you set for operating margin or I guess margin before taxes, that includes the 2.3% medical device tax? Is that correct?

James B. Hawkins

That's correct, Jim.

James Sidoti - Sidoti & Company, LLC

Okay. And then just to follow up on where Jayson was going. If you break out the $24 million or so you did from Nicolet and the $5.3 million or so incremental from the previous acquisition, your core business, looks like, was pretty much flat in the quarter. You said the newborn business was up a little. So was something else down a little? Or was there a currency headwind? Or what happened there?

James B. Hawkins

Yes, there was a little bit of currency headwind. We also had, I believe, some Latin America might have been a little on the soft side. And then as we said, Europe and most of that -- well, it's both hearing and neurology in Europe. But overall, it's somewhere flattish to small growth is I think you're right on your assessment.

James Sidoti - Sidoti & Company, LLC

Okay. And then the last question, I just want to make sure I'm clear on this. The quarter that ended in September, you had both sales forces in place. And the changes are put in place recently, so that this December quarter will be the first quarter where you just have the new structured sales force. Is that correct?

John T. Buhler

That's correct, Jim. It's John. We, on October 1, harmonized, put the 2 groups together, realigned the headcount appropriately. And so we're now not competing with one another, if you will.

James Sidoti - Sidoti & Company, LLC

Okay. So there might be a little bit of fluctuations in Nicolet's numbers for quarter 2 as you get through this transition before you get back on track or...

John T. Buhler

I would say we don't expect -- anticipate any. We really had good cooperation in the third quarter. I think Jim alluded to the fact that we made some decisions around certain larger orders for one group or the other to take the lead and the other group to stand down. So we weren't competing with ourselves. And that was the way we managed it in the third quarter. But on the smaller orders, it was more difficult for us to have visibility around that. So we allowed the natural competitive forces to take place, and that is now been removed. We retrained the groups throughout the period, and we initiated the new sales force effective October 1.

James Sidoti - Sidoti & Company, LLC

All right. And then last question, the past 10 days or so, the northeast has really been, at least in this area, has really been disrupted because of the hurricane. And I know there had been some procedures put off, maybe some sleep studies put off. Have you factored that into your guidance for the fourth quarter?

James B. Hawkins

We think that will just fall in our range, Jim. We're not a big procedure-based company. And so it's really increment purchases for the most part except for the newborn area, and babies were born one way or another somewhere. So we don't really see Sandy costing us a lot of business over the entire quarter.

Operator

And we have one more question. It's from the line of Ross Taylor, CL King.

Ross Taylor - CL King & Associates, Inc., Research Division

I just had 2 questions. First, wondered if you can identify how much of the work have you already accomplished to get to your margin goals for next year? I mean, is everything kind of been Incorporated in restructurings you've already announced? Are there other things you need to do, pricing, purchasing efficiencies, anything like that? Just trying to get a sense as to how far you are along toward getting to that goal?

James B. Hawkins

Yes, Ross, we've certainly identified some of the cost savings and pricing that we've discussed on the call that will take place between now and the end of the year. And so we feel that it's pretty much on track. Hey, there's always work to do, and things can change based upon market conditions. But overall, we're certainly committed to hitting that goal. We look at our business and if you sit back and look where Natus is, we were a, I think, $234 million in revenues in 2011. This year, going to -- approaching $300 million and next year, approaching $350 million and that's even without any acquisitions last year. It's really -- for next year. It's really quite a transformational business right now with a lot of excitement. And as we get in place all of our different strategies and sales group gets up and running, we think there's some real upside in revenues as we go forward as well. It's a real exciting time around here that we're looking to really take advantage of.

Ross Taylor - CL King & Associates, Inc., Research Division

Okay. And my second and last question, just looking at the December quarter. I don't know if you can identify at all how much revenue contribution you expect from Nicolet. I'm just thinking about this in terms of your modeling and trying to estimate the organic growth as a base business in the quarter.

James B. Hawkins

Yes, we really don't and we're not going to give guidance out that way. As we said, by combining the sales force, it's almost irrelevant how the business comes in. One thing, though, we will say is that we'd like to note that Nicolet was around the 47%, 48% gross profit business. And in this first quarter, we saw that get up to approaching Natus levels. So I think it really speaks well of how the team executed and the focus we have on getting profitability to our historical metrics back at Natus.

Operator

I'd like to advise you, we have no further questions at this time. I'd now like to turn the call over to Natus management for closing remarks.

James B. Hawkins

Well, I would like to thank everyone for participating in the call. As you can probably sense, we're very excited about the future of Natus, our Q4 and really going into next year throughout 2013. We look to get back to our historical profitability levels. And with any help of the economy that it's a little hard to say right now. Certainly, we'd be able to get some growth. But barring that, we're laser focused to get the profitability that we've had on a historical basis here at Natus.

Thanks, again, for participating, and we look forward to talking to everyone for our Q4 conference call. Thank you.

Operator

Thank you very much ladies and gentlemen for your participation in today's conference. This concludes the conference call for today. You may now disconnect.

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