Q4 2020 Masimo Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to basketball was fourth quarter and fiscal year 2020 earnings Conference call.
The company's press release is available at Www Dot Massimo Dot com at this time all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
I am pleased to introduce Eli cameraman, Massimo <unk>, Vice President of business development and Investor Relations.
Thank you Hello, everyone. Joining me today are chairman and CEO, Joe Kiani, and executive Vice President of Finance and Chief Financial Officer Micah Young.
This call will contain forward looking statements, which reflect match most current judgment, including certain of our expectations regarding fiscal year 2021 financial performance. 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 project.
<unk> and forecasts are discussed in detail in our periodic filings with the SEC you will find these in the Investor Relations section of our website. Also this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer 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 and measure the company's performance and sees these results as an indicator of the companies.
Ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business reconciliation of these measures for 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 SEC, including our most recent form 10-K and 10-Q in order to 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 to Joe Kiani.
Thank you for your life.
Good afternoon, and thank you for joining us for Massimo <unk> fourth quarter, and 2020 year end earnings call.
Last year was full of challenges for our customers and for millions of patients around the world who struggled to overcome the burden on the effects of the Covid pandemic.
Throughout 2020, as our customers on the front lines responded to this crisis and try to save as many lives as possible on their life threatening conditions.
We responded to their demands to rapidly secure and instill new monitoring technologies, enabling them to accommodate more critically ill patients than ever before even at home.
Within this tough environment I'm proud to say that our team contributed to the critical solutions that were and are still required to manage this pandemic.
In the midst of dependent make last year was also a milestone year for Massimo as our revenues exceeded $1 billion for the first time since our founding over 30 years ago.
Today, we're even more committed to helping our customers overcome the persistent challenges related to this pandemic with an expanding portfolio of products to improve patient outcomes.
We realized many significant achievements in 2020, such as the introduction of our Massimo safety net system for enabling hospital to home monitoring while also capturing a wider customer base for our patient safety net solution that enables hospitals to streamline workflow.
And improve patient care.
Surely for hospital staff were overwhelmed due to many COVID-19 patient admissions.
Well, then Massimo or dedicated team was nimble and its response to our customers in the face of significant demand for existing products, while at the same time, expanding our portfolio of solutions.
This expansion included several important products beyond safety net for Covid, some organic such as radius T continuous wearable for monitor set.
Central it continuous wearable bedsore and fall detection monitor and Massimo safety net open to help institutions open and stay open safely and other important products through acquisitions, such as soft flow high flow nasal cannula respiratory support system by TNI and litho cardiac <unk>.
I'll put in hemodynamic monitor through the acquisition of litho.
We're excited to bring these clinically relevant technologies to our growing customer base around the world.
On the financial front, we're happy to report fourth quarter and full year results that exceeded expectations and set the stage for another promising year ahead.
For the fourth quarter, our product revenues increased 19% to reach $295 million.
For the full year, our product revenues increased 22% to reach $1.144 billion.
We were able to achieve this level of performance. Despite the unprecedented challenges related to the pandemic facing organization, which required many modifications to our operations and the sheer determination and commitment of our entire team.
We instituted multiple safety measures throughout including at our manufacturing facilities, such as regular health on temperature checks as well as safe transportation protocols for our team members. This.
This internal solution was the basis for Massimo safety net open <unk>.
Our recently launched worldwide for others to use.
Changes to our operations also included the production of greater inventory levels on the products our customers relied upon to provide care to their patients.
We had to prepare for a scenario for Covid would prevent our plants from operating.
Fortunately that never happened and hopefully won't happen.
After we are out of danger from Covid, we will bring our inventory down to normal levels.
Our customer interactions in the field. We're also carefully maintained in the face of heavy restrictions on hospital visitors as our sales and installation teams rose to the occasion to ensure timely deliveries training and product activations as rapidly as possible.
Lastly, while many of our team members work from home most of our exceptional team of engineers continued to activities at Massimo facilities to maintain.
Parallel pace of innovation that has always been our hallmark.
I'll discuss more later in the call now I'll ask Micah to review, our fourth quarter and full year results in more detail and provide you with an overview about 'twenty 'twenty, one financial guidance Micah. Thank you Joe and good afternoon, everyone. As a reminder, the financial measures all covered today will be primarily on it.
Non-GAAP basis, unless noted otherwise.
Our GAAP results and reconciliations for non-GAAP can be found in today's earnings release as well as the Investor Relations section of our website.
At the start of 2020.
No one could have predicted how a virus would drastically change the lives of so many people around the world.
The unwavering commitment of our global workforce was on full display delivering trusted technologies to our customers and their patients at a time when they needed it most.
Although 2020 was a year dominated by many uncertainties Massimo has established an even stronger foundation for improving patient outcomes and reducing the cost of care for many years to come.
During the quarter, we shipped 83000 noninvasive technology boards.
And instruments.
For the full year, we shipped 472000 technology boards and monitors, which is nearly two times our normal run rate and as a result, we have now shipped approximately $2 2 million technology boards on instruments over the last 10 years.
At the end of the fourth quarter, we estimate that our installed base has grown approximately 17% over on installed base at the end of the fourth quarter of 2019.
For the fourth quarter, our product revenues were $295 million, reflecting growth of 19, 2% or 18, 1% growth on a constant currency basis.
This included an extra week of revenue in the fourth quarter, adding approximately three percentage points to our growth for the period.
Our worldwide sales of technology boards and instruments were up 67% due to increased demand for Massimo set pulse oximeter and related equipment also our worldwide sales are single patient use adhesive sensors were up 7% as elective procedures have continued to recover from the low point, we saw on the <unk>.
Second quarter.
Our worldwide direct and distribution business revenues grew 21% to reach 261 million for the quarter and our OEM business revenues grew 7% to reach $34 million.
Moving down the P&L, our non-GAAP gross margin for the fourth quarter decreased 400 basis points to $63 five per cent compared to 67, 5% in the prior year period. The year over year decline was primarily due to a higher than usual proportion of revenue coming from our technology boards and instruments, which have lower.
Margins in our sensors.
Also we continue to experience higher COVID-19 related cost to fulfill the increased demand from our customers and to protect our global workforce during the pandemic.
These costs include increased inventory charges and freight expenses as well as the additional costs related to the safety protocols, we've implemented to reduce the risk of COVID-19 within our manufacturing facilities.
Non-GAAP selling general and administrative expenses as a percentage of revenue decreased 260 basis points to 29, 7% compared to 32, 3% in the prior year quarter.
The year over year improvement was driven by strong operating leverage as well as a reduction in stock based compensation expenses during the quarter.
And our non-GAAP research and development expenses as a percentage of revenue increased to 120 basis points to 10, 7% compared to nine 5% on the same quarter last year.
As a result of the gross margin headwinds, our non-GAAP operating margin decreased 260 basis points to.
To 23, 1% compared to 25, 7% in the prior year period.
Moving further down the P&L, our non-GAAP non operating income, which is primarily comprised of interest income decreased 87% to approximately 400000 for the quarter compared to $3 1 million in the prior year period.
The decrease was driven by lower interest rates or interest yields realized on our invested cash resulting from federal reserve actions to cut interest rates during the pandemic.
And our non-GAAP tax expense in the fourth quarter was $11 3 million, resulting in a non-GAAP tax rate of $16 four per cent compared to the non-GAAP tax rate of 21, 9% in the prior year period, the lower tax rate was primarily driven by an increase in R&D tax credits and a decrease in non deductible compensation expenses.
Our weighted average shares outstanding for the quarter increased one 7% to $58 2 million compared to $57 3 million in the prior year period.
For the fourth quarter, our non-GAAP net income was $57 3 million or <unk> 98 per diluted share in comparison fourth quarter 2019, non-GAAP net income was $52 1 million or <unk> 91 per diluted share. This reflects non-GAAP EPS growth of 8% over the prior year quarter.
Turning to our GAAP results GAAP net income for the fourth quarter of 2020.
Was $70 7 million or $1.21 per diluted share in comparison fourth quarter 2019, net GAAP net income was $52 9 million or <unk> 92 cents per diluted share. This reflects GAAP EPS growth of 32% over the prior year quarter.
Included in our GAAP earnings for the quarter was approximately 10 million of excess tax benefits from stock based compensation compared to $2 6 million of excess tax benefits on the prior year period.
Looking back 2020 was an exceptional year for Massimo as we delivered another record year for Massimo in terms of winning new customers in entering new markets and rapidly expanding our installed base.
On a full year basis, we increased our installed base by 17% achieved product revenue growth of 22% and delivered non-GAAP operating profit dollar growth of 17%.
And despite the many challenges we experienced with gross margin headwinds and lower interest yields on our invested cash we delivered EPS growth of 12% on a non-GAAP basis, and 20% on a GAAP basis.
Now I'd like to go into more detail on our full year 2021 financial guidance that we outlined in our press release last month.
For 2021, we are projecting product revenues of 1.200 billion, which reflects year over year growth of four 9%.
Included in our product revenue guidance is approximately $15 million up year over year currency tailwind and one less week of revenue compared to 2020.
As 2020 was a 53 week year for us.
Our guidance also incorporates a roughly one percentage point contribution towards our full year 2021 revenue from the recently closed acquisition of lip code.
Our non-GAAP gross margin guidance is 67%, which represents a 190 basis point increase over our 2020 results.
While we saw a decline in our gross margin last year related to a substantial shift in our product mix towards more hardware. Our expectations are for this mix shift to gradually reverse course in 2021.
And our non-GAAP operating expense guidance for the year is 42 five per cent of revenue.
Which reflects a 40 basis point increase over the prior year.
Our operating expense guidance includes continued investments in R&D.
Increased legal cost to defend our IP and incremental expenses related to the link co business.
Our guidance for non-GAAP operating profit margin is 24, 5%, which reflects a 140 basis point improvement over the prior year <unk>.
Included in our guidance is approximately 170 basis points of operational improvements and leverage from our existing business, which is partially offset by approximately 30 basis points of headwinds related to the acquisition of <unk>, we expect <unk> to be fully accretive in 2022 and beyond.
Based on the assumptions.
Our non-GAAP operating profit dollars are expected to grow 11, 5% to reach $294 million in 2021, which reflects strong operating leverage leading to more than two times our revenue growth rate.
Moving further down the P&L, our non-GAAP non operating income, which is primarily comprised of interest income is expected to be a very nominal amount in 2021 compared to the $5 $3 million that we generated last year.
This represents over a two percentage point headwind to our EPS growth rate in 2021.
We're also projecting a non-GAAP tax rate of 24, 1% and we are estimating that our weighted average shares outstanding for 2021 will be $58 7 million, which reflects an increase of 1% over the prior year.
During the fourth quarter of last year, we repurchased approximately 450000 shares of Massimo common stock.
The impact of the share repurchase on our weighted average shares outstanding is reflected in our full year 2021 financial guidance.
Based on all of these assumptions, we are projecting non-GAAP EPS of $3 80.
From a GAAP perspective, we are projecting a GAAP tax rate of 27% and GAAP earnings per share of $3 81 for the year.
For additional details on our full year 2021 financial guidance for GAAP and non-GAAP earnings per share. Please refer to today's earnings release and supplemental financial information within the Investor Relations section of our website at Massimo Dot com to.
To conclude we are entering 2021 with a positive outlook for revenue growth and profitability following an exceptionally strong year. Despite.
Despite the tough year over year comparisons, we're projecting mid single digit revenue growth and double digit operating profit dollar growth for 2021. It is also important to note that when you look at it from a two year stacked growth perspective, our 2021 product revenues and operating profit dollars implied compound annual growth rates.
A 13% and 14% respectively, when compared to our fiscal 2019 results.
Our performance of last year has built an incredibly strong foundation for 2021 and beyond we delivered another record year for Massimo in terms of winning new customers.
Entering new markets and rapidly expanding our installed base, which sets the foundation for a strong recurring revenue stream in the years ahead.
And we remain steadfast in our commitment to delivering on our long range growth and profitability goals.
With that I will turn the call back to Joe. Thank you Michael.
When we look back at 2020, we see an unusual mix of adversity on accomplishment.
While we were all dealing with the threats and the catastrophic effects of the global pandemic.
We came together with our customers and suppliers to help patients.
Our brand promise has been accurate monitoring when you need it most.
More than ever.
With the life threatening pandemic the value of our brand came to be fully appreciate it.
Not only did our existing customers turn to us for more support new customers turn to us more than any other year.
We shipped nearly two times the number of technology boards on instruments in 2020 than in any other year and established relationships with more new customers than ever.
Our set pulse oximetry performance.
Innovation and commitment to serve our customers for a greatly appreciated and led to another record year for Massimo in terms of winning new customers and renewing and expanding our partnerships with existing customers.
Some of the significant new customers, we can mention our life point.
Which has 89 hospitals across the United States.
And Appalachian regional hospitals, which has 13 hospitals in Kentucky.
Our sales of technology boards and monitors reusable set pulse.
Pulse oximetry sensors.
My set finger tip pulse oximetry and Wearables were exceptionally strong last year.
While single patient use sensors used for elective procedures were more subdued.
As many surgical procedures were canceled or postponed.
We expect to realize a visible re acceleration in growth for our single use adhesive sensor business. This year as a result of many factors, including elective surgeries coming back.
A 17% increase in sensor drivers from last year's record breaking demand.
And a record year.
We had for new hospitals contracting with us.
I know many of you are wondering about our hospital automation business and the impact of COVID-19 on this new developing opportunity for us you'll be glad to know that we were able to expand our customer base for hospital automation in 2020 and believe that this business has very exciting prospects in 2021.
We're now offering a broad portfolio of hardware and software to automate the capture transmission display and analysis of all of the information coming from all of the devices surrounding a patient regardless of brand.
In addition to our root patient monitoring and connectivity platform. We recently introduced a lower profile a connectivity hub that we call ISO Rona.
This new hub contains an expanded set of device drivers to enable connectivity with more types and brands of devices than we have ever offered.
With adaptive connectivity engine, we always had the best ability to rapidly connect everything in the hospital and now we believe we also have the largest device driver library for connectivity within the Med Tech industry.
As I mentioned earlier, we realized good traction for our patient safety net solution during 2020, and this product will likely help us introduce many other hospital automation modules, such as Uniview, Uniview 60 replica and Halo ion to those customers.
Hospitals have been adopting patient safety net in the Journal award setting to enable them to streamline workflow and contribute to better patient management practices. In fact, the number of beds connected via patient safety net and Iris gateway increased by 28%. This year our rate of increase that was more than two times.
What we have seen in recent years.
The addition of alarm management and two way messaging would replica is another way for hospitals to boost efficiency, while improving patient care as all members of the care team are alerted to patients in distress, while being able to interact with each other to really critical information or intended actions.
In 2020, we introduced the first pulse oximetry product in a hospital to home category Massimo safety net radius PPG.
We followed that launched later in the year with our second product in the category radius T, which continuously measures patients' temperature. Shortly thereafter, we introduced Massimo sleep a product designed to track vital sign during sleep to help evaluate sleep health.
All of these products are based on wearable wireless technologies that work with our connectivity hubs and smartphones, sometimes on an option to transmit data into the cloud for analysis by clinicians.
We're excited to launch Massimo safety net opioid.
Where it is currently under review with the FDA. We're excited about the potential for safety net opioid to help save the lives of people taking opioids at home typically for post surgical pain control or management of chronic pain, representing our current addressable market of over 45 million opioid pre.
<unk> each year in the U S alone.
2017, It was reported that over 20000 people died in the U S from prescription opioid induced respiratory depression at home.
Our technology is designed to detect low oxygen saturation levels that can be indicative of respiratory depression, a common side effect of opioid use <unk>.
This condition can lead to the unexpected death of patients. If it is undetected as their vital organs are slowly start of critical oxygen for you.
We've assembled a team of professionals to help us launch safety net opioid with a running start once the technology is approved in the U S.
Our expectation for the commercial success of our solution have recently been bolstered by the positive results. We are seeing from a related study in Utah that should be submitted for publication soon and approval of Medicare coverage of innovative technologies program by CMS.
Massimo safety net opioid system has received a breakthrough technology designation from the FDA, which means it may qualify for Medicare reimbursement up on FDA clearance under the terms of the M. C. I T program.
In closing throughout 2020 as our customers on the front lines responded to the Covid crisis and rose to the challenge so that our team.
We have invested heavily in innovation and product supply efforts to deliver clinically relevant solutions that improve patient outcomes and reduce the cost of care.
As we enter a new year I'm confident then Massimo will continue its leadership in delivering innovative solutions to clinicians and patients around the world.
With that we'll open the call to questions operator.
Yeah.
As a reminder to ask a question will need to press star one on your telephone.
For your question.
For the pound or cash King please standby, while we compile the Q&A roster.
Our first question comes from Laurence cash with Raymond James Your line is open.
Hi, This is Frank on for Larry Thanks for taking the questions. So I guess, just first off obviously theres going to be some significant comps in 'twenty and 'twenty one given the benefits you guys had from the pandemic.
So what can you do to help investors understand the underlying growth when going up against these challenging comps.
Well I think.
First of all we've done our best to give guidance.
In the midst of <unk>.
Unprecedented time.
Bolt in terms of a pandemic that we're not out of.
Yet, although it looks promising debt, we will be with the vaccination set are available secondly, like you said with a very strong 'twenty 'twenty and what would that mean for 2021.
First of all as I mentioned in our prepared remarks, we saw a 17% increase on our drivers.
Meaning.
It was about two X what normally the increases on a year to year basis.
We contacted our customers that have taken those increased drivers not every one of them, but the top 30, and what we're seeing is the dirty utilizing them.
Which bodes well for increased utilization.
All of our adhesive sensors.
Secondly, while we had a strong year, because we were dealing with COVID-19. Most procedures were not happening at least almost through almost by Q3 Q4, where they began happening at 60% to 80% level.
We expect net.
Net there's pent up demand for elective procedures as well as the normal and given our larger footprint now and are in the world. We expect to that we will see.
Growth significant growth in our adhesive sensor sales and finally.
We weren't sure that in the middle of this pandemic hospitals with one or do anything, but just deal with the crisis.
But instead, we saw a record year.
The hospitals willing to sign up with us to convert their hospitals to Massimo.
<unk>.
And that was no small feat I think it was partially because of our team and what they did but it was more about what massive momentum people in a time when it really mattered to have the best product.
To be able to trust the measurement when you can't even see the patient sometimes because they were at home with National safety net and sometimes because they kept them in the ICU room by themselves.
Watch the measurements from outside the room those numbers mattered like never before and I think our I think it was a great year for us so bottom line.
We've done our best to forecast what the year is going to look like we have a lot to be hopeful about but we also have concerns that we can't control. So.
Let's see what happens.
Alright, great. Thanks, and then just one quick follow up obviously, the opioid safety net it sounds like an exciting opportunity are you guys on assuming any revenues in guidance this year and on the timeline with the FDA. When do you think that might be able to get it cleared.
Much.
Yeah, I'll take the first part we're not including any revenues in our in our guidance for the year.
And I'll turn it back to Joe for for some of the commentary around the status.
We have for the most part.
Our history it had a very collaborative relationship with the F D. A.
Probably the most collaborative.
Time has been on this project Massimo safety net for opioids are not only the F. D. A designated as a breakthrough technology. They chose that as one of eight products that could help. This epidemic. So bottom line is we're in lockstep with the F. D E. F. D. A is guiding us and learn.
US on what they need we are delivering for them what they need in a while we were conservative not forecasting any revenues for the year, we will be disappointed if we don't launch this product this year in the U S. So keep your fingers crossed we'll see what happens.
Yeah.
Our next question comes from Matt Taylor with UBS. Your line is open.
Hi, Thank you for taking the questions. So.
First thing I want to start worldwide.
Joe maybe just following up on your comment on.
The customer can continue.
The board that we're shipping.
Last year.
Talking about whether you think that's going to be a long term.
And any color on.
On.
Starting here early in the year.
For Medtronic talking about pretty strong trends continuing in terms of.
Monitoring ordering is that something that.
Thank you as well.
Okay, well I think what I can tell you is.
We're seeing so far that those products are in use.
What we think we're seeing you set those products there are more monitored beds now on hospitals than ever before.
So one of the things that we had anticipated.
For a long time for every bet to become a monitored debt that was the entire general floor effort with patient safety net.
The Dartmouth Hitchcock study you did a 10 year study showing patients that were monitored with our technology does not die of opioid overdose, but for patient group debt.
Wasn't monitored unfortunately, they had debt several deaths in that group.
They also showed a huge savings annually for.
The use of the product because it would use for rapid response team activations, but over 50% in ICU transfers by over 50%. So bottom line I am telling you. All this is because I believe as they begin using us maybe because of the pandemic and the post surgical wards and the general floors.
I think they're going to keep using it because it works. It makes their work safer for clinicians more effective and saves lives, especially with patients who are for.
Ceding drugs like opioids that could affect their respiration.
As far as the Medtronic comment I'm sure they've seen growth, but at this stage to say that our their shares I think grew over us isn't this statement.
Okay alright, thank you.
Wanted to ask one other one recently in the U S for need for ballpark flow.
Yeah.
Okay.
Okay.
Net which machinations.
Sorry, Matt we can't hear you would you please speak closer to the microphone.
Is it better sorry, Oh, yes, much better thank you.
Sorry about that.
So you recently announced the U S release of the software a high flow nasal cannula therapy, which we've been.
No.
Thinking about for a while after the acquisition that you did do you think that could be something that's material. This year, how should we think about the ramp of that product.
Well, we wouldn't be Mark hit again, if we didn't think it was the best product.
We also think this category is an important category.
To help patients with their breathing.
Yet because we don't have experience in the U S. We did not put any revenues for soft flow in the U S. For 2021, so there's an upside to our numbers.
Obviously soft flow takes off here.
Okay and related.
We saw recently you had some trademarks for <unk>.
Products that looked like they were consumer.
Focus and we've seen some other act.
Activity in the space in the public arena around Baby monitoring I was hoping you could talk about anything that you are doing there outside of the hospital or could do there in the future.
Sure sure.
Starting with basketball I named the project set pulse oximeter the code name with Stork, because we thought it would help deliver babies safely to home.
At the time, there was concern about sudden and some debt syndrome. This is.
Going back to late Eighty's early Ninety's.
Research shows that most unfortunately, most sudden infant death syndrome. The home of babies was really due to parents, killing their babies, so that kind of killed the whole sits monitoring our world.
However, we see an opportunity to help monitor babies at home and we are working towards that.
The company I think you're referring to that has recently gone public through a spec.
Their product was compared to our product for a children's hospital of Philadelphia and was shown that they did not catch any desaturation for patients in their study and.
So unless they make significant improvement for that product that product. Unfortunately, he's not going to do well.
Clinically at least in a relevant way, but bottom line. Yes. We are looking at not just monitoring adults were keen on monitoring babies.
And you'll see more things like that from us in the near future.
Okay. Thank you very much.
Thank you.
Our next question comes from Mike.
Eric Your line is open.
Hey, good evening, Thanks for taking the question Joe I appreciate the.
Comment on hospital automation it seems like the platform is coming together there you mentioned promising.
Curious two part or curious can you comment on how.
Impactful financially hospital automation, maybe in 2021, what is the number expectation built into the <unk>.
Guidance set.
<unk> one and then question two is do you feel like you have a you know.
Nothing's ever complete but.
Do you feel like you have a.
A full solution now or are there other components.
That you might look to them.
Foster organically or Inorganically for hospital automation as you think about the next one two or three years.
Sure sure. Thank you thanks for the question.
We are not disclosing unfortunately revenues from any particular product lines, a disappointing market can go more into that for the ones that we are as far as completed.
No its not complete although it's more complete than any other solution out there, we do intend to bring out more.
Exciting.
Features and products with this hospital automation platform, so and hopefully some of them will come out the first half of this year so stay tune.
On the inventory just as we move through 2021, knowing it's hard to frame.
What's going to happen with the world in.
But is it reasonable to surmise that.
Your days of inventory on the balance sheet will start to work down Ratably as we progress through 2021, obviously the free cash flow number was.
And in 2020 due to that.
Set build that you referenced.
Absolutely Mike.
As we look at inventory. This past year was very very strong operating cash flow year. When you think about it we had over $210 million of operating cash flow. Despite about 90 over $90 million of inventory headwinds so.
Again to Joe's point his prepared remarks, we build inventory to make sure that we didn't run out of out of parts that were needed.
Throughout the pandemic. So we think that that's going to improve now over time as we start to get back down to.
Approaching no more normalized levels and as we sell through that inventory so that should be somewhat of a tailwind as we move forward.
Alright, thank you.
Thank you.
I think we have time for couple more questions.
Our next question comes from.
Ravi Misra with standard capital markets. Your line is open.
Yes.
Hi, guys. Thanks for taking my question. This is iris on for Robbie. So first I have a follow up question on safety net to remote monitoring pulse oximetry.
Can you talk about what the demand for that product what's like in the last few quarter. So how many hospitals have to purchase it so far and then in 2021. It sounds like the next focus is really just expanding into the opioid use case and then beyond these two indications for for Covid.
In opioid well, you'll be looking into maybe expanding the label for other indications.
Certainly.
We saw a mark.
Modest increase maybe about 20, 30% to Massimo safety net usage in Q4 compared to Q3 and two in one when we launched it I think we've got nearly 200 hospitals, who are using it.
Around the world and monitoring many many patients with them.
As far as our opioid safety net solution. We do believe it will have application beyond on opioid drugs the drugs of abuse that could cause.
Most of the free problems, there's a huge opportunity and using it for COPD patients.
On others, we are working with many hospitals in transferring their high risk patients home with our solutions, including.
Massimo safety net radius PPG solution.
And.
Our solution that we call dark teller, which is.
A care pathway.
<unk> debt basically it has a care pathway for over 150.
Types of procedures that get done on the hospitals and helps patients stay on the regimen they need to stay on to not have to we lapsed back to the hospital.
So it's going well.
And we see a great opportunity and going into home with our monitoring technologies.
Okay, Great appreciate that and then I have another follow up on I wanted to talk about the Lake coal acquisition, a little debt can you comment on maybe how big the Mark It is for the hemodynamic monitoring market.
Then also if you can share any thoughts on the competitive dynamics there. Thanks.
Yeah, I think you know we look at this market as you.
Our market opportunity that could be approaching $1 billion market for us when you look at the.
The broad range of applications, we can provide as far as with Litco's.
You're dealing with more of the patient population that debt Havent has existing eight lines or are using arterial lines with P V I a.
That's all that's combining with our PVA technology that can reach.
Those who are on mechanically ventilated patients as well so.
It gives us a broad a much broader solution for things like fluid responsiveness and goal directed therapy as well so.
We look at it as a as a market approaching about $1 billion.
Yeah, and as far as the competitive landscape.
<unk>.
Looked at all the companies that we are in this space.
And.
We believe debt Litco's technology.
Has the best performance at the.
For the clinical evidence.
Plenty that it is the.
The best performing product out there and and I feel that as a small company. They could only accomplished so much hopefully with our with a bigger footprint now that's Massimo can give this product and its integration and our products and how they will all feed.
Into each other to provide.
A clear image of what's going on with the patients.
Oxygen delivery cardiac output for.
Fluid levels.
We will enrich clinicians understanding other patients so we're.
We're anxious to have it all done the team that came with the acquisition is very strong we're happy to have them and we hope to too.
We built something really good together with them.
Great. Thanks, guys.
Thank you.
Our next question comes from Jason Bednar with Piper Sandler Your line is open.
Hey, good afternoon, everyone I wanted to start on gross margins.
Mike I think you said something in your prepared remarks do you expect the mix shift gradually reversed course in 'twenty one.
On an overreach your comments, but are you, suggesting that gross margins will gradually ramp back to a more normalized level and maybe one for the 'twenty and 'twenty one at a rate that's nicely above where we will start the year or is the ramp more modest as we move through the year I'm just really wondering on me on what's the best way to think about type progression here as we update our models again that comment you made.
Yes, I think it's a Jason I think it's a steady ramp with the Q1 being the low point of course in Q4 being the high point, but.
If you think about it it's going to it's all going to be dependent to one.
Underlying procedures underlying volumes in terms of Ah.
Ah patient admissions into the hospital so.
It's going to be very heavily dependent on that mix of sensors versus our instruments on board. So.
We look at it more as a probably more pressure in the first half and some of those mix pressures are going to ease up more on the back half as things open back up and and maybe there's some backlog of surgeries that happened that that drives more sensor volumes on the back half of the year. So I think it's gonna be a steady recovery.
From here through.
Through the end of next year and hopefully get back on track to where we were you know back in 2019 as we exit 2021.
Okay. That's that's very helpful. Thanks, Mike.
And then Joe I wanted to come back to something you said about your top 30 customers because I think it's an important point for investors and I know you said those customers are utilizing the drivers, but just wondering if you can offer any additional color on on what day utilization looks like is it comparable to normalize driver utilization is it ramping towards normal normalized driver utilization.
And if that's the case when do you think you'll get back to more normal utilization any again any extra color there would be great.
Sure sure.
As you know our normal here, which we're very proud of we do about 240000 drivers per year last year, we did about 480000 drivers.
About 10% of those drivers were inside the ventilators other Oems.
When we were wondering just like you are.
Are all of these devices are going to get shelved as COVID-19 drops or they're going to get us, which by the way we still don't know because COVID-19 isn't done yet it has.
Dropped from the credit Crazy high as it was in January and finally below even the highs in June July, but it hasn't gone away. So it's not like I'm, telling you.
This draw a line all I can tell you is that in Q1, when we interviewed our top 30 customers.
They were using them and their growth rate, we were very happy with not just compared to.
Modest.
Suggest that we're having in 2020, but the kind that were having in 2019. So if that trend continues my whole point was.
We should see fit.
15% plus growth in our sensor volumes this year now whether or not we'll see them I don't know because it's just early in the quarter and not done with Covid, but that's all I can share with you, which I thought would be helpful.
Okay and very much super helpful. Thanks, Joe.
Yeah.
Thank you so much everyone for joining us.
So I think there might be one more question. If there is I'd be happy to take it operator.
Your next question comes from Mike Matson with Needham Your line is open.
Hey, guys. Thanks for squeezing me in at the end this is Joseph on for Mike.
Just the first one should be pretty quick, but just curious if there's any risk on.
Do you guys have the ability to produce the boards and monitors given the.
And global chip shortage here and now 2021.
Clearly we get impacted by.
Shortages in.
In the past.
Decade at least the shortages that came and left we were able to.
Managed those.
Channels, they can get what we need at our suppliers are sensitive to us.
<unk> products that are needed for hospitals to do what they need to do for patients. So I know, we typically get priority.
I don't believe we're going to have a problem, but it's possible.
Yeah.
Okay, well that's helpful. Thank you and maybe just moving back to the soft flow high flow therapy is there any.
Details you can give us about the AR on.
The market opportunity the Tam there with that.
Well I, what I can tell you.
While there were fears of using.
High flow nasal cannula.
Due to the fact that did not feel entirely the airway of the patient.
<unk>.
It was shown that it works better for Covid patients and I think a lot of people started seeing how high flow nasal cannula could be helpful to aid respiratory.
Systems of patients.
We believe this could become.
More a prevalence youth product than the other means that are available out there.
And that's why we decided to make the acquisition, even before Covid, but I think COVID-19 accelerated people's understanding of what this technology can do.
So bottom line, we if we were going to give you a number we think this could develop for $1 billion market.
And we believe we have.
The best solution, our solution doesn't require air to be connected to it creates its own error.
Great German engineering, they've done it in a way that it doesn't make noise. The UI is good enough that could be used at home right now under emergency authorization. It can be used at home.
We will eventually we hope to get the clearance for home usage in the U S.
But it has a lot of other benefits.
Giving humid air right to the tip of the Canyon on that knows is a unique.
Thing here with this product and we were really happy to be supporting it and making it available for our customers.
Awesome. Thank you very much.
Thank you so much. Thank you all for joining US today, we look forward to our end of Q1 earnings call and.
Let's hope we'll be done with this pandemic can can restore some normalcy by summertime. Thank you so much other great great day.
This concludes today's conference call you may now disconnect.
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