Q1 2020 Earnings Call
Hi, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, maybe a question answer session.
I'm pleased to introduce Eli Kammerman, My thoughts Vice President business development and Investor Relations.
Thank you and Hello, everyone. Joining me today, our chairman and CEO, Joe Kiani, and Executive Vice President Finance and Chief Financial Officer, Mike a young this call will contain forward looking statements, which reflect mass most current judgment, including certain of our expectations regarding trends interest for fiscal 2020, non-GAAP non op.
Operating income however, they are subject to risks and uncertainties that could cause actual results to differ materially risk factors that could cause our actual results to differ materially from our projections and forecast are discussed in detail in our periodic filings with the FCC you will find these an investor relations section of our web site.
Also this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles or gap. We generally referred to these as non-GAAP financial measures. In addition to GAAP results. These non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating.
Results in the same way management assesses such results.
Management uses non-GAAP measures to budget evaluate a measure of the company's performance and seize these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increased transparency and better reflect the underlying financial performance of the business reconciliation of these measures to the most directly comparable.
GAAP financial measures are included within the earnings release and supplementary financial information on our website.
Investors should consider all of our statements today together with our reports filed with the FCC, including our most recent form 10-K in 10-Q in order to make informed investment decisions. In addition to the earnings release issued today, we have posted a quarterly earnings presentation within the Investor Relations section of our website to supplement the content we will be.
Covering this afternoon I'll now pass the call the Joe County, Thank you like it.
Good afternoon, and thank you for joining us for a massive most first quarter 2020 earnings call.
During the past few months, we've witnessed extremely challenging situations for patients and health care providers around the world related to the cold 19 pandemic [laughter]. We've also witnessed incredible leadership resilience encourage by many people in many walks of life, but no group more than the front.
Mine health care providers.
Doctors nurses respiratory therapist, yeah, most professionals and others.
They are the real heroes on behalf of the entire Massimo team I'd like to take a moment and thank them.
[noise] Cobas Nike is extremely contagious and damages the lungs.
No time has to value our first invention.
Pulse oximetry, and our continued innovation and more apparent.
Well, we felt the Massimo 31 years ago, our objective was to address a major challenge with pulse oximetry.
To make it not just a fair with a friend as it had been but also filed with their friends.
And I hope this will be the follows whether we will no longer lifetimes.
And we delivered Massimo said has been to fall with a friend for millions of clinicians and patients not just today, but for many years.
Before we intend to signal extraction technology.
Yes look so much was false alarm rates were 70% to 90%.
Outside of the operating room.
But on the sickest patients too often pulse oximeters didn't work at all.
It was Dr. Swan, who first cold conventional pulse oximetry, there's a fair weather friends.
Outside the areas were clinicians will continuously watching to patients and the pulse oximetry is by the way. The most were not button on pulse oximeter is where the silence alarm button due to all of the false alarms clinicians couldn't use pulse oximeter is in other areas affair.
Actively due to excessive false alarms how's the alarms resulted in clinicians abandoning.
They use a pulse like senators and these low clinical clinician to.
It's a patient racial settings.
Since the introduction of set pulse oximeter false alarms or occurring less than 5% of the time.
Which has enabled monitoring of patients and the low clinician to patient ratio settings, such as genital warts and today anywhere the patient maybe including remote places like our homes.
And the post surgical ward, where patients were dying from opioid induced respiratory depression patience monitored continuously with national said, Oh, I'm dying because it allows reliable monitoring of active patients without excessive false alarms. In fact, the third study of a series of studies.
Our mid Hitchcock since 2010 published this March and it showed that over a 10 year period.
No post surgical patients on opioids monitored would set pulse oximeters and patient Safetynet died from opioid overdose, whereas some patients without set pulse oximeter monitoring. Unfortunately did died from opioid overdose.
In the two prior studies dormant showed that you subset and patient Safetynet has also reduced their costs by $7 million a year since I see you transfers from the wards and rapid response team activations dropped by over 50%.
Knowing what we had been able to do for Dartmouth and many other hospitals.
We set our sights on saving patient slide on opioids at home.
And then cobot 19 happened.
31 years of inventing and improving set pulse oximetry, and making systems for remote monitoring affordable and easily deployable.
Prepares us for at this moment in history, where disease that affects arterial blood oxygen saturation required an accurate reliable pulse oximeter that could be deployed cost effectively anywhere.
Not just in the usual hospital settings, but new settings, such as hotels gymnasium stadiums and the most comfortable place for patients Oh.
I'll have additional commentary later in the call about or activities to address the Kobin 19 pandemic, but let's move on for now and report our first quarter results.
For the first quarter.
Oh product revenues increased 17% to $270 million and we shipped 72100 technology boards and monitors.
We've been seeing increased demand for products from both the rack and OEM customers, which has continued into the month of April.
In fact as of yesterday.
Our worldwide sales orders, including backlog for the second quarter are up approximately 87% versus last year.
And we have orders for over 150000 technology boards, and monitors, which is two and a half times above our normal run rate for the quarter.
The reason, we're sharing what is happening so far in April.
Is that we wanted you to know what we know today.
Since we decided to withdraw our guidance since covert 19 has thrown out or normal pattern of business and we don't know how long this phenomenal will last and what will happen.
Nearly everything would track is positive.
Except for things such as new contracts for either conversion of hospitals to set or renewals of existing agreements.
As well as hospital automation agreements and sensors for elective surgeries, which have slowed as hospitals hunkered down for coal that 19 patients and their own staffs protection.
As you can imagine from a technology board and monitor orders.
That I just mentioned the majority of our increase in sales orders is coming from capital purchases.
For the first four weeks of the second quarter, our worldwide capital orders, including backlogs are up approximately 360% versus last year.
On a worldwide disposable sensor orders, including backlog are up approximately 13% versus last year with U.S. disposable sensor orders down approximately 12% and Oh, U.S., Oh, approximately 95% versus last year in April.
With that background.
Mike to now review or first quarter results in more detail and provide more context for our decision to no longer offered guidance for fiscal year Twentytwenty.
Thank you Joe and good afternoon, everyone I hope that you're staying safe and healthy during this challenging time.
As a reminder, the financial measures I'll I'll be covering today will be primarily on non-GAAP basis unless noted otherwise.
GAAP results and reconciliations to GAAP can be found in today's earnings release as well as the Investor Relations section of our web site.
For the first quarter, our product revenues were 269.6 million, reflecting growth of 16.9% were 17.5% growth on a constant currency basis.
During the quarter, we shipped 72100, noninvasive technology boards, and monitors which reflects growth of 13% over the prior year period.
Our non-GAAP gross margin for the first quarter increased 360 basis points to 69% per cent compared to 65.4% in the prior year period.
The year over year improvement was due to stronger mixes sensor revenues, which have substantially higher margins in our technology boards and monitoring equipment.
Also we continue to see positive results from the cost reduction activities, we've implemented to improve margins.
Our non-GAAP selling general and administrative expenses as a percentage of product revenue increased 50 basis points to 32.6% compared to 32.1% in the prior year quarter. The higher SGN, a spin was primarily driven by sales force expansion stock based compensation expense charitable contributions and then.
Criminal investment related to the I Sirona connected care acquisition.
And our non-GAAP research and development expenses as a percentage of product revenue increased 80 basis points.
To reached 10.1% compared to 9.3% in the same quarter last year.
The higher R&D spend was primarily due to increased staffing and project related costs and incremental investment related to the I sirona connected care acquisition.
As a result, our non-GAAP operating margin increased 230 basis points.
The reached 26.3% compared to 24% in the prior year period.
Moving moving further down the piano, our non-GAAP non operating income, which is comprised primarily comprised of interest income decreased 18% to 2.8 million for the quarter compared to 3.4 million in the prior year period. The decrease was primarily driven by lower interest yields realized on our invested cash and short term and.
Cements.
And our non-GAAP tax expense in the first quarter was 17.8 million, resulting in a non-GAAP effective tax rate of 24.2%.
Compared to a non-GAAP effective tax rate of 23.3% in the prior year period.
The higher tax rate was primarily driven by stronger mix of profits in the U.S., which are subject to a higher overall effective tax rate than our owe us business when combining federal state and local taxes.
Our weighted average shares outstanding for the quarter increased 1.4%.
To 57.6 million shares compared to 56.8 million in the prior year period.
For the first quarter, our non-GAAP net income was 55.9 million or 97 cents per diluted share in comparison first quarter 2019, non-GAAP net income was 45 million or 79 cents per diluted share. This reflects non-GAAP EPS growth of 22.8% over the prior prior year core.
Yeah.
Turning to our GAAP results GAAP GAAP net income for the first quarter of 2020 was 64.5 million or one dollar and 12 cents per diluted share and comparison first quarter 2019, GAAP net income was 49.3 million or 87 cents per diluted share.
Overall, our global organization executed very well during the first quarter as we achieve constant currency product revenue growth of 17.5%.
Expanded our non-GAAP operating margin by 230 basis points and delivered non-GAAP EPS growth of 23%.
Now I'd like to provide an update on the current trends we're seeing in the business. So that you can better understand what ultimately drove our decision to withdraw our full year 2020 financial guidance.
Given the uncertainties around the cobot 19 pandemic and its potential impacts on our business. We can no longer provide guidance with a high degree of accuracy and confidence which is very important to us.
The potential positive impacts include increased demand for our products from both direct and OEM customers. The potential negative impacts include potential interruptions in our manufacturing operations and our suppliers manufacturing operations and potential reductions and future demand. If there has been over buying of our products due to the pandemic.
The uncertainty around the duration timing and magnitude of these potential impacts make it challenging to forecast the impact of cobot 19 on our financial and operating results.
During the first quarter, we see it we saw a stronger than usual mix of revenue coming from our adhesive sensor sensors.
Which resulted in higher than expected gross margins.
Now we are seeing a much stronger mix of orders for our technology boards and monitoring equipment, which carries substantially lower gross margins in our adhesive sensors.
Because of this we're expecting to see lower gross margin than the second quarter compared to both our first quarter and prior year results.
It's also important to note that we are continuing to invest in the business. During these uncertain times with a longer term view that will make us and even stronger organization over the next several years.
During the first quarter, we increased our investment in R&D expanded our salesforce and enhanced our hospital automation business.
For the second quarter, we're planning to invest more into our business to drive increased awareness and adoption of our wireless sensors and remote monitoring technologies.
These products are being embraced by hospitals during this global pandemic as they see the value of keeping some patients at home in order to reduce disease transmission risk limp manage limited supplies, a protective equipment and keep beds available for the more severe cases of cobot 19.
Another important item to note is that the actions taken by the federal reserve to provide relief and stability. During the pandemic have resulted in cutting interest rates by 1.5 percentage points.
Due to the lower interest yields we're earning on our invested cash and short term investments, we're now expecting to generate approximately $6 million and non-GAAP non operating income in fiscal year 2020.
This represents a 50% reduction from the original guidance of 12 million that we provided back in January.
Given the uncertainties around a number of potential cross currents, including increased demand from cobot 19, stocking orders and lower hospital admissions.
Please do not extrapolate our first quarter and April performance into your estimates for the remainder of the of 2020.
While uncertainty remains around the duration and severity of Kobin 19 outbreak.
Massimo is uniquely positioned to be a part of the frontline solutions for combating this global pandemic.
Our global organization is stronger than ever and we remain steadfast in our commitment to achieving our long term plan and delivering increased value to all stakeholders with that I will turn the call back to Joe. Thank you Mike.
Important to shift our customers and our greater community, we've focused our entire organization.
On addressing the covert 19 pandemic sort of caregivers and patients have access to the best solutions available to improve care and outcomes.
Our strengths and patient safety technologies signal processing blood management technology sense sort of software and hardware development and high volume manufacturing are being combined and leverage with our ability to rapidly develop new solutions for just pandemic.
We've been partnering with our customers to assist them in any way, we can to relieve the stress on the healthcare system, while enhancing their ability to ensure quality care.
We've undertaken many actions recently to help our customers and patients during this pandemic, including creating Massimo safetynet.
A wearable set pulse oximetry and respiration rate an effort monitoring and patient care management solution to eight cobot 19 series response efforts.
Locations such as the home.
Offering cobot 19 product kits, which include route right 97 radius, PPG and patient safetynet, enabling our monetarism wireless sensors to better support commissions in managing the surge of covered 19 patients in the hospital settings.
Offering licenses at no additional charge for Rainbow noninvasive blood constituent monitoring to help manage hemoglobin given the limited blood supply its during this pandemic.
One very helpful use model given the contagious nature of cold 19, and insufficient availability of PE using our radius PPG told us wireless sensor many hospitals move the patient monitoring equipment outside of the patients room and into the hallway.
Avoiding the need for caregivers to enter a patient's room to read the values on the monitor.
This change reduce clinicians exposure to infectious patients and reduces risks for healthcare staff.
While also extending supplies.
Of protective masks and gallons.
Together with the new capital equipment, we have sold during the pandemic, we have experienced increased demand for enlarging existing installations of our patient Safetynet system and the post surgical awards.
Using our new Massimo safety nets system designed for home and other remote settings, which is different from our patient Safetynet system design for hospitals. Massimo is also now providing a new ability for hospitals to monitor patients at home, which allows physicians to direct pace.
And with mild to moderate Covance 19 to return home, while still being monitored for espial to pulse rate and respiration rate.
The Massimo Safetynet kit includes two radius PPG devices, our wearable wireless sensors with a four day battery life, along with a smartphone app and the data tracking protocol for clinicians to be able to view their patients vital signs data.
Replacement sensors are available for patients who require more than eight days of monitoring.
By implementing Massimo Safetynet hospitals can save their scares beds for the more severe cases of cobot preserving capacity.
I'll safety watching over the patients they have said home or elsewhere.
University hospitals, which was the first to pilot Massimo Safetynet has had tremendous success, including site in cases, where patients lives with say due to the technology.
Under Dr. Pronovost leadership, you age has been an excellent partner and helping us bring this product to the masses, including doing a joint webinars to teach clinicians about their experience and how to use Massimo safetynet.
Just a full market release, two weeks ago 76 hospitals have deployed Massimo Safetynet and over 650 hospitals are in the pipeline to do so.
We've never had a more successful product rollout.
Another Massimo technology, that's being perceived as valuable during this pandemic is our rainbow ESP continuous hemoglobin monitoring for surgical patients who might need intra operative blood transfusions.
Many hospitals are not trying to consider their blood supply because of a developing blood shortage related to a large decrease and blood donation as people remain at home.
Every outcome study to date has shown that SBH be reduces unnecessary blood transfusion.
During the time of this pandemic Massimo is providing software licenses for SBH be monitoring at no additional charge to our customers who have rainbow ready monitors.
While also providing them with SBH be sensors at a discounted price to ease the strain on hospital budgets during this disruptive period.
I.
We will further extend our reach into care for respiratory patients through the acquisition of Teatime Medical a company in Germany, producing high flow nasal cannula oxygen therapy.
Hi flow therapy may help covert 19 patients avoid the need for full blown mechanical ventilator therapy.
Which carries a significantly higher risks.
Hi flow therapy.
Hey, guys high flow product is cleared for both hospitals and home use.
We acquired Tonight earlier than we had expected to to help them increase their production capacity.
We expect to soon have increased our production by order of magnitude.
Despite the unexpected demands we have realized for products, we've been able to keep up and fulfill our customers' needs.
When we saw factories in China shutdown due to Corona virus, we began to prepare for worst case scenarios and among other initiatives expanded our manufacturing facilities in both numbers and capacity.
We've undertaken concrete measures to reduce the risk of possible interruption in production of critical products.
We also invested over $10 million to expand or production capacity to build new distribution centers in Mexico, and Amsterdam, providing us with redundancy for our Irvine facility.
We've also taken measures to reduce the health risk from cobot 19 for workforce around the world.
In closing.
An acute need for reliable an innovative patient monitors has made our technologies more relevant than ever.
Massimo has been able to respond to the call for help from our customers and their patients. We believe the work we are doing no springboard us into a brighter future beyond cobot, 19, which will come after availability of vaccines to the whole population or.
Testing and quarantining systematically.
We again wish to thank the frontline healthcare workers to serve and I want to thank my team for their relentless pursuit of helping clinicians improve patient outcomes.
With that we'll open the call to questions operator.
Thank you to ask a question you on these are press star one on your telephone to withdraw your question press the pound or have.
Please standby, we compile acuity roster.
Yeah.
Your first question comes from the line of Larry Keusch from Raymond James Your line is open.
Hi, good afternoon, everyone.
So I guess the first question that I want to ask wise I recognize the.
The challenges and trying to ascertain.
What is preparedness orders are stocking.
So I guess.
The.
First part of the question really is.
Been able to wrap your arms around what you what you potentially think the impact of.
Of order activity that could be related to stocking either in the one Q2 Q yet.
Well Unfortunately, not that's why it's hard for us to give you projections on the future.
As I mentioned today, we have about 220000.
Technology boards and monitors either already shipped or sold to be ship.
And we think for the year the number that we have so far that is basically.
Demand forecast, mainly by our Oems were not even putting our own expected sales of our monitors the numbers could hit over 550000 for the year.
The only thing we know of those numbers.
With some certainty is that hundred thousand of them are for ventilators with our technology for monitoring and those have been ordered by the military those are most likely going to be used for the surge and then Stuart.
So the 550000, let's say for the year, we know a 100000 is unlikely to be used.
[noise] continuously in the future.
The 450000.
Assuming into materializes too.
Well no we don't know if they're going to be used.
In less clinical settings as you know.
Small fraction of the post surgical awards have monetarism right now for continuous monitoring so what may occur as some of this excess monitors are buying might end up leading to finally closing the gap for continuous monitoring and awards or they may get.
Storage, we don't know and that's why it's so hard for us Larry to give you a forecast because we don't know.
Okay that I totally understand in that that that that colors really really helpful.
Hi, Thank you you said, if I caught this correctly that and in the Twoq to date.
Seeing us.
Sensors down about 12% I know you Oh, U.S. I think if I caught it correctly up 95.
So a first are those those numbers accurate, which I jotted down and secondly, how do we think about again the dynamics of what's going on the U.S. versus only U.S.
Those numbers are accurate and I think what's happening is.
That given that elective surgeries for the most parts around the world have been put on hold.
We're seeing a reduction in natural sensor volume that you're seeing in the U.S., which has been predominantly buying single patient you sensors to minimize the infection upfront.
Clinicians.
The reason there is a growth outside the U.S. is outside the meeting at all I see you most in a world you guys reusable sensors, but the cobot 19 has made a lot of hospital switched to disposable sensors, whether they'll continue using disposables. After the call with 19 pandemic is over we do.
No, but for now there's been a large migration to single patient you sensors outside the U.S.
Okay, Perfect and then last one from me just.
You know again on the program too.
Hospitals with managing there.
Blood.
Tories for transfusion and and the ability to utilize SBH b.
Maybe just remind us again, how how many of the of the installed base is.
Enabled or I should say ready for Rainbow usage, how much is actually being used currently and are there any observations, albeit I recognize the time on a short.
In terms of interest from from customers and in getting going on SBH B. I know that you had a really strong fourth quarter contracting parents. So just curious how that's all playing out thank you sure sure.
The majority of our installed base is rainbow ready, we've been shipping Rainbow ready product since 2006.
And.
Except for customers that required very low power, our very small size they have all transition to rainbow.
For the most mark so that's your first the first answer so the majority is rainbow ready.
Secondly, as far as.
The whole.
Business of improving our Rainbow sensor volume and Rainbow revenues.
Part of the answer to your first question those hospital contracts at the end of last year. Some of that we've not been able to implement due to the locked down the hospitals. That's the bad news. The good news is places that were already using or had rainbow ready equipment, how quickly switched to it I know using.
And in fact, our Rainbow sensor volume is up 12%.
And.
We're seeing a continuous.
Increasing that adoption rate.
[noise], Okay very good thank you very much appreciated.
Thank you.
Your next question comes from line of Rick Weiss from Stifel. Your line is open.
Hi.
Good afternoon, Joe Hi, everybody.
Hi, Eric.
All right.
Yes.
Start off with Oh.
Sure.
Massive comments on mass most safety nets.
Your wearable device I mean clearly.
This story has evolved rapidly from a technology point of view.
Opportunity point of view, you're highlighting the number of hospitals.
And the number of hospitals in the process the deploying.
Can you help us think through in a little more detail.
How that's going to evolve from here.
And how we think about the incremental.
Revenue, either I guess the opportunity both the opportunity.
And the potential let's say 12 months run rate from from this you know from taking that.
Acceleration I'm not sure exactly how to play that but it just seems like a this is a big incremental negative it's coming sooner or more pervasively. So to your benefit yes, but for the benefit of hospitals and patients obviously as well.
Well, Rick if we could have it all way.
I've had this pandemic no matter, how it's has positively impacted our trajectory.
Overall, it's a net.
Big negative.
However, this pandemic living change the definition of tele health from the cardiac based or diabetes based.
Thinking to respiratory base thinking and our customers tell us theres nobody out there that has what we have we're the only product that can trust for the only.
Real product everything all vaporware and that is.
Reflective of how fast people are taking up this technology and frankly, how fast we are able to get even FDA to allow us to begin market. We were sitting staff meeting, where we started thinking you know what this product we've made for opioid safety.
Could really help with the search let's contact the FDIC and see if they have appetite to work with us to release the before we get the clearance for opioid safety net.
And.
Within two hours from the time.
Our team contacted the FDA.
Even though the person actually was on vacation from what I understand you responded.
And literally a week after that also with the help from Dr., Peter Pronovost Deaf day decided to allow us to market it and we at that time began to pilot.
Hi, Thanks, Luke and as I say the rest is history.
But what's going to come after cobot 19 is hopefully opioid safety that was intentional the product we see a continued demand for monitoring the long regardless of cobot 19. So obviously, we were going to go and pursue that but I.
The biggest opportunity still remain a safety of people taking opioids at home and we're still working with the FDA clearance for that indication.
But what's been incredibly useful while we've been helping people they've been helping us because they have helped us now.
Under the supervision of nurses and doctors.
Right now all of the Winkle Oh this technology for later when people are just using it on their own without someone 24 seven monitoring done.
Yeah.
Let me come up that's another way I mean, obviously.
As a complicated your.
It's complicated give guidance.
I understand why you pulled that but I wanted to think about two things with you if I could.
One.
We think about <unk>.
Just a big picture question, if we think about.
Massimo as long established.
<unk>.
Revenue growth trajectory with potential upside from hospital automation.
Given the environment given these new opportunity.
Hi, again ex the noise of the extraordinary period.
And maybe a period that will follow we don't know that could be softer.
<unk>.
Do you think or are you thinking about your basketball's long term growth rate.
Differently or more should we think about it Oh my God more often optimistic we now because of some of these new opportunities.
Well, it's interesting you said that Rick and.
I wish I could get into.
[laughter], let me qualify for people Catholic school to get a [laughter].
Yeah. So forgive me, if we call that quite special.
Yes, confessional, yeah, I feel like I mean, there, but I know, we're not speaking just one on one and we cat M. The could but.
In the middle trying to deal with Covance 19, we started to quickly realize we got to think about our long term plans and what are they will mean.
And kudos to the team we spent.
Evenings to lay dollars thinking through that and without giving you numbers we came away.
Very optimistic about our future.
Taking away any onetime.
Revenues, if we can never figure out what those are.
Full color than team yeah, we see a brighter future than we did before cobot 19 now that doesn't include what we don't know today, we don't know.
What will cobot 19, do on holiday and we're looking at 19 a team that's our best yardstick. So we're hoping by this time next year it'll be over with.
Im hoping 100 years of science and progress we don't have to follow the same trajectory, but it doesn't seem to be any better yet so assuming it's no worse than that yes, I think we're gonna come out of this stronger would have put a better future than we had going into it.
Okay, and one last and [noise].
Picture each of these questions or sort of big picture question for but Joe apologize, but.
You know I wanted to make sure understood I mean.
Matt mobile.
It is impacted on one side in one aspect bags slow down in elective procedures hospitals across the United States.
Our doing fewer non cobot not emerging procedures clearly.
Less anesthesia being administered can you quantify can you.
Help us think through.
Hi.
That impact on the business in the first quarter for that possible impact that drag that's likely we'd be in place in April May June you know, but as we start to think about the potential.
Reversal I suppose at some point as a as we go the other way with.
Procedures and we can recover.
Yeah from what I hear from many of my peers, who.
Products that are.
More correlated to the number of elective procedures.
Elective procedures, maybe down between 50% to 75% right now.
And the irony is that because of that.
Hardworking clinicians that are putting their lives in danger are getting paid less and some are being furloughed, which drives me insane, because we expect them to run towards the problem. Yet we're letting them go when we think we don't need them, which is a different topic, but up but I've got to say.
Dose and people are thinking that.
Elective procedures are going to come back in June July timeframe, maybe by 50% to normal capacity.
Then maybe by August September 75% to 100%.
I would to happen then again, we will probably benefit from that because there's a pent up demand for elective procedures. What we don't know is.
What are the hospitals have purchased for inventory in case, they needed given what they saw in shortages from masks and gowns and I guess toilet papers.
We don't know hospital for awhile are going to hold onto that inventory, because they're going to always feel like.
But they might come.
Started using up that inventory and depending how they move you will see either an immediate response to our revenue increase from elective surgeries or there will be a period of.
Digestion of what they bought a but most people when I talk to them. They think that hospitals are going to hold onto their inventory for quite a while especially because everybody assumes we're going to get a second wave and the fall time.
So to answer your question, we expect that will be increased sensor volume demand on us as soon as elective procedures turned back on again.
Got it thank you Jeff.
Thank you.
Your next question comes from line of Matt Taylor from you BS Your line is open.
Yes.
Hi, Thank you for taking the question.
So I wanted to ask a couple on just what you're hearing from your customers about their utilization.
During this time leads to better assess how much of this is.
Here to stay you are you seeing patterns of monitoring whether it's with.
The disposable sensors are the remote solutions more broadly across the hospital with koby patients and without.
Oh would you. Please repeat your question I'm not sure I got it.
Yeah, I'm trying to understand if you're seeing.
Utilization.
That you can confirms the three anecdotes or through your your data.
That would help you understand better weather monitoring patterns post coded could actually change would be be more abroad.
I see yeah, I from what I'm, saying I think it'll be more broad.
I believe.
There was a trend already for hospitals to be.
Become critical care, but it's only and I think cobot 19, if anything has.
[noise] made that more concrete more short term. So yes, I think there will be bigger remote fraud monitoring outside the hospitals and hospitals will more focused on the patients who need critical care type of care.
Okay. Okay.
And then I guess, you mentioned that Theres this 100000 boards.
Ordered by the government when you look at the other ports that you mentioned I think he said 550, what's your current forecasts for the year.
And you had 150.
In the.
Current backlog.
So.
Can you talk a little bit about what you're assuming to get from orders you have to date to the 550.
Sure sure possible, we shipped 72000 boards in Q1 and by this call. We had 150, a 1000 boards I believe.
Our orders that are not cancelable that we will be shipping and some have already shipped. So that's 220000 roughly of the 550. The other 230000 or demand forecasts that we have received from our Oems, which they have the right today to cancel them 90 days before shift.
So some of that Delta is more than 90 days out so they could cancel them.
But I also mentioned I have not included that 550000 any of our direct shipments of roads Rad 90 Sevens radical seven and so forth. Some only giving you. What is currently we have demand forecast.
I see okay. All right. That's really helpful. And then well you know in terms of understanding whether things are being over ordered.
Have you seen any cancellations to date.
No.
None if any very minor stuff not not anything major that I know.
Okay.
Cool nicely after the feedback I'll stop there.
Thank you.
Your next question comes from line I'm, Mike Matson from Needham and company. Your line is open.
Hi, Thanks for taking my question.
Yes, I just wanted to ask about the.
Rainbow discount that you're offering so can you maybe comment on on how that's being received and how many incremental case of adoption you've seen as a result of that.
Yes, we're offering the Rainbow software license, which.
The upwards of about $8000 of value during cold with 19.
Without charge and we're selling the sensors or add.
Just kind of price to our lowest prices we've sold.
I'm, sorry, I don't have the numbers in front of me otherwise I'd give it to you but it.
It's significantly less than most hospitals are paying for rainbow today.
Now after the call. The 19 is over we intend to [noise].
Take away the licenses unless the customers want to pay for them and keep them.
And can you quantify it all the.
A number of hospitals are customers you've seen you know opt to turn those on.
Given the discount.
Well I mentioned earlier, our sensor volumes up 12%, but our revenue has been up 16% and I think from.
A number of hospitals I believe about 15 hospitals have already taken advantage of this offer.
Okay. Thanks, and then just stuff.
Your free cash flow Oh, it was <unk> looked a little low relative to where you were last year. It looks like your Capex was was pretty high at 37 million. So is that related to the connected care acquisition or something.
No.
It's really this is Mike it's related to some of the expansion we've made into our facilities. So were.
During the quarter, you know as Joe mentioned, we've been making some investments we're expanding facilities in Mexico.
Also our footprint.
Switzerland in Irvine, So just as a business is growing there's opportunity for us to to expand our footprint there.
Okay makes sense, thank you well thought out.
Thank you.
Your next question comes from line of wrapping Mr. from Berenberg capital markets. Your line is open.
Hi, This is Irish onto Robbie Thanks for taking my question. So we have a few questions on the patient Safetynet intends off the reimbursement environment for coal that 19, you should we expect those would be cash ti or is it idols under reimbursement for now.
Have you got any discussion with the FTC, perhaps but are you will be getting a breakthrough technology status that what gives you a softer reimbursement just any color on that would be helpful. Thank you.
Okay well currently.
Hospitals buying from us.
As far as what they're doing for reimbursement we've heard various things. Some are seeking gets some are just michigan, but they're DRG. So we don't have a concrete answer for you on reimbursement yet.
Okay, and then when we think about launch do you plan to launch it in your existing customers first and then Outers. What's the plan. There can you tell us what kind of demand that you're seeing in turns off in the U.S. versus on a region and then you also mentioned that you're all about there are over.
600 hospitals in the pipeline just can you tell us a little bit about how much of those so what that means when your safety hospitals are in the pipeline, what's the process of enrolling the hospital and May perhaps how long list of prospects.
Well.
On the interest a when we held our Webinars, we had to over 2000 clinicians join us for the Webinars Massimo Safetynet with humorous the hospitals clinical team representing.
70 countries, roughly and over 1200 institutions.
As for.
The <unk> earlier question of is it only being offered to our existing customers no. We're offering it to anyone who can use it or some of our competitors customers have already begun using it some of them. Unfortunately are under restricted contract which may.
Hey prohibit them.
But we are trying to offer to anyone who can use it.
Okay, and how long it's the process for you to onboard these hospital.
It is fairly quick isn't really easy to employ them.
With less literally less than one hour, we can load the software for them for the central monitoring dashboard.
Wherever they want it whether they want it in the hospital in a remote setting and we can set them up what to customize window for their patients to then give their patients to app and the kids two to go home with.
Okay. That's helpful.
In terms of pricing and the revenue model can you provide a little bit more color on that how should we think telstra pricing is it perhaps how are you, giving our you charging any counts for that just any color would be helpful.
Sure the the kids I mentioned on the phone, which for Pat to sensors in Oh that would last eight days would or usable part that we hope gets return because that part can be used for a long time, but even with that in there.
And the App and everything is $150 per kit.
And we're not discounting is that's the price and so for over 10000 kits have been purchased.
Okay. That's helpful. Thank you.
Well.
Your last question comes from line up a marine <unk> from BP I T. Your line is open.
Hi National team, Thanks for taking the questions and thanks for the good working memory care. This crisis I [noise].
Hello, one.
A quick one on some of the shipments a you know you 72000, a in next quarter and over 150000 already and demand right now and do you have any ceiling on the lumber shipments you can do per quarter in terms of capacity and would you remind us historically, what's the breakdown of usually between your direct.
An OEM business money aboard.
Sure sure first of all our overall quarterly shipments or about 60000 boards and monitor is a year and thats typically 80% is OEM, 20% is direct as you can see in April already not the full quarter were over $150.
And boards and monitors.
And I believe right now, though that is skewed heavily towards Oems or Doug hundred 50000 number is probably more like 90 10 I can get you maybe before the end the call more precise data we have it but that's that's my understanding.
As far as.
What we what we.
What we forecast we can't that's why I gave you the numbers that's in the demand forecasts from our Oems right now or minus even our own normal monitor shipments quarterly.
Absolutely understood and no capacity in terms of how much you could ship order at this point.
Not so I don't want to jinx ourselves, but no [laughter], we've been able to meet the demands we really just some incredibly creative things, but more importantly, the team executed flawlessly.
And no so far so good.
Okay. Great last question for you is on the Kenai Medical acquisition, you mentioned that its cleared for both home and hospital use I'm curious, whether you plan to deploy that into the home during the pandemic or if it's too soon to a <unk> logistically to get that down.
But by the way I just got some more granular data I just want to answer your question.
I gave a 155000 boards as though I think last week ended last week.
If I want to answer your question about direct I've got to let you know the total as of today. The number is 166500 more than monitors of which 27500 is direct our own products.
So by the way I don't get used to give you just kind of granularity youre getting yet so long as you can give you a forecast [laughter] great Hot off the presses. Thank you for lot of would you. Please.
Your last question.
Yes, Yes of course it was on Cnine medical he mentioned clearances for both hospital and years I'm curious, if it's something you'd be able to deploy into the home during canaccord majestically, that's too soon.
Yes, we are planning to deployed into home during this pandemic worldwide and I want you to know that.
We know very little about this world. This is a new world for us so unlike our everything else, we talk about where I can give you information, but a lot of.
I guess 30 years of experience. This one I have very little what we know about this product is that it seems to be really good for the patient.
And it doesn't cause the same amount of damage to the long. So if you can avoid a full invasive mechanical ventilator, you're much better off. We also know that does worries of aerosol leasing out with a noninvasive ventilator, which may raise the risk to help.
Our providers core in the setting with the patient so for that reason.
Trust me, we're getting a buy from a lot of course, I guess no no. That's not the case, it's going to be fine, but anyway. We want to go cautiously for that reason, we're not promoting this product aggressively to anybody we're taking orders as it comes and until we get a scientific evidence that tells us one way or another what.
Does it do for clinicians as well as patients.
Perfect. Thank you.
Well. Thank you well. Thank you so much all for joining as Michael said, we hope you all well, we hope you stay well and we look forward to a time, where we can predict the future little bit better. Thank you have a wonderful wonderful summer.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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