This is another business where Natus would sell equipment to the hospitals and then the hospital would conduct a three or four-day study. This is a service that allows patients a more convenient way to complete routine EEG testing in the home, hospital or within a physician office. The other new product line which we think will also be incremental is its Global Neuro-Diagnostics (epilepsy monitoring), a new business segment as of January. We believe hospitals will be enthusiastic about the product as it does two things: 1) It keeps parents informed about what's going on continuously as the product also allows data input a nurse can input a note saying that the baby just ate or woke from nap, etc., and 2) Given that babies can be in the NICU for weeks or months, the product can keep parents from occupying nurses' valuable time. Since January, it has been ramping up the sales quickly, already reaching 80 "floats" and at over 50 hospitals. The hospital places a camera on the incubator and parents and friends can access the viewer anytime. Called NicView, it allows parents of newborns who are in a neonatal intensive care units to view their child from anywhere via the Internet. New Products Should Diversify Revenue StreamsĮarlier this year, the company launched another new product that we think can be highly incremental to growth. This is a high-margin business that can scale fairly quickly in a region and should push up EBITDA margins. We see the business growing at nearly 100% per year for the next two years off of 2015 and contributing possibly as much as an annual run-rate of $35 million by 2017. We think the company is going to ramp this business extremely fast with an expectation of it generating nearly $8 million in revenue this year on the service.
This is simply compared to the initial equipment outlay and ignores the labor and support staff expenses required to perform the services. Instead of investing $20K for a piece of equipment that they may use only a few times (births) to maybe 50 per year, they can pay just $100 per birth operators can save thousands of dollars per year. The return on investment for most hospitals can be extremely compelling. Since then, the company has signed up 70 hospitals for the service. The Peloton service was launched in January, and we think this is the future of the company. Instead of the hospital conducting the test, Natus goes in and actually performs the hearing screening of the baby. While that business has been strong in the past, management has been shifting to a new "outsourcing" service strategy called Peloton.
The old business model would generate $20K every time it sold a box and then it would generate approximately $10 of revenue per disposable for each baby. The traditional business of where its sales reps go in and sell equipment to the hospital to test babies' hearing before they leave is being supplanted. Natus now has about 70% of the worldwide newborn hearing screening market. Newborn Screening Continues To Power Growth Meanwhile, the firm has eliminated all balance sheet debt and increased its cash generation to the point where it has begun returning cash to shareholders. Over the last nine months, BABY has increased its services-based portfolio expanding into two new product offerings that we think could add over $300 million in annual revenue generation over the next five years. As we surmised, management has been conservative in its growth efforts, and the market has missed the pure cash machine economics of the business as it shifts towards a services-based model. Natus Medical (BABY) continues to fly a bit under the radar, but is now up 36% since our call last November.
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