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3 Things to Watch As Natus Medical Inc Reports Earnings

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Natus Medical (NASDAQ: BABY) will report second-quarter earnings on Wednesday. Beyond the usual revenue, margins, and earnings numbers, here are three things investors should be watching as the healthcare company gives its mid-year update.

1. Venezuela anytime soon?

Last quarter, Natus Medical adjusted its 2016 guidance to remove revenue from the large contract to sell medical supplies to the government of Venezuela that was announced late last year.

"While the agreement remains in place, the Ministry of Health has not made the required pre-payments. Given the uncertainty resulting from the current political and economic situation in Venezuela, the Company will no longer include revenue or earnings from the agreement in its guidance until there is more clarity as to the expected performance under the agreement."

While the announcement caused a strong decline in the stock price in April, Natus Medical has fully recovered, making it somewhat difficult to gauge investors' expectations on when -- or if -- sales to Venezuela will materialize. It should be noted that the stock still trades off the price before the announcement was made, so the recovery may be due more to a realization that the stock was a good value at the knocked down price than an expectation that sales to Venezuela will eventually occur.

2. Natus' newest addition: RetCam

Earlier this month, Natus Medical announced the acquisition of RetCam from Clarity Medical Systems for $10.6 million. The imaging systems are used to diagnose and monitor eye problems in premature infants, which fits well with Natus' other offerings for newborns.

Hopefully, we'll get more detail about the acquisition during the earnings call (the press release announcing the acquisition was a little terse). Natus Medical did note that it expects annual revenue from RetCam of about $14 million and for the purchase to add to earnings this year.

By comparison, Natus Medical trades at about 3.5 times its revenue over the last four quarters, but it purchased RetCam for less than 1 times expected revenue. Unless gross margin on the system is really horrible, it looks like Natus Medical got a pretty good deal.

3. Buybacks or buy more?

Natus Medical ended the first quarter with $81 million in the bank, so it still has some cash to work with even after the RetCam acquisition. In June, the board approved a $20 million addition to its stock buyback plan, so some of the cash may be spent there.

But investors should equally be interested in what Natus will buy next. The company has historically grown through acquisitions, so it seems likely the pattern will continue. The big question is whether we'll continue to see small tuck-in acquisitions like RetCam, where Natus can use its established sales force to sell the new product, or whether Natus will do a larger bolt-on acquisition that might help it grow faster but without the synergies to add to earnings quickly.

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Brian Orelli has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Natus Medical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.