Q1 2021 Masimo Corp Earnings Call
Ladies and gentlemen, and welcome to <unk> first quarter 2021 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'm pleased to introduce Eli Kantor, then Massimo 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 and Chief Financial Officer Micah Young this call will contain forward looking statements, which reflect mass 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 projections and forecasts are discussed in detail on our periodic filings with the SEC you will find these in the Investor Relations section of our website also this call will <unk>.
<unk> 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.
These 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 company's 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 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 SEC, including our most recent form 10-K and 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 have.
I'll be covering this afternoon I'll now pass the call to Joe Kiani. Thanks for your line.
Good afternoon, everyone and thank you for joining us for Massimo the first quarter of 2021 earnings call.
But first quarter results illustrate the resiliency of our customers and our business for.
Following a year in 2020, where we achieved over 20% revenue growth and shipped over two times. The usual number of drivers due to the rise of the COVID-19 pandemic.
We delivered double digit revenue growth and drive of shipments that exceeded expectations in the first quarter.
We're happy to see the signs of the pandemic receding in most states in the United States and in many countries with the successful development and deployment of vaccines and expect hospital census to eventually improve to pre COVID-19 levels.
We met the moment in 2020 by not only fulfilling unprecedented demand for our products, but also by delivering new innovative products that are lifesavers.
Yeah.
There are more advanced for US ahead, which we believe will be well received by our existing and new customers around the world.
I'll discuss more later on in this call now I'll ask Micah to review, our first quarter results in more detail and provide you with an update on our 2021 financial guidance.
You, Joe and good afternoon, everyone. We have begun 2021 with a solid start.
As adhesive sensor revenues are up sequentially in our gross margins have improved at the same time.
In addition to our shipments of technology boards and monitors.
Are very much on track to reach our target for the year.
Our customers, who have meaningfully expanded their monitor bed counts are simultaneously increasing their sensor orders to us with those new monitors.
The business is moving back towards our traditional mix for sensors and capital.
During the quarter, we shipped 66000, noninvasive technology boards, and instruments, which exceeded our expectations for the quarter.
In turn we have shipped approximately $2 2 million technology boards on the instruments over the last 10 years.
As of the end of the first quarter, we expect that our installed base has grown approximately 16% over on installed base at the end of the first quarter of 2020.
For the first quarter 2021, our product revenues were 299 million, reflecting growth of 10, 9% or nine 5% growth on a constant currency basis.
If you recall from our earnings call last April we delivered 17% product revenue growth in the first quarter of 2020 due to higher than usual demand for our sensors as hospitals began preparing for COVID-19.
Fight the tough year over year comparisons, we delivered double digit revenue growth this quarter that exceeded expectations.
Our worldwide sales of technology boards and instruments were up 36% due to strong demand for Massimo set pulse oximeter and related equipment.
Also our worldwide sales of single patient use adhesive sensors were down 1% due to the tough year over year comparison I just mentioned.
What's most encouraging is that we saw our first quarter 2021 adhesive sensor revenues increased 3% sequentially.
When compared to our fourth quarter 2020 results, despite hospitals using up their higher than normal COVID-19 related sensor inventory.
This improvement reinforces our belief that we are seeing a steady rebound in surgical volumes.
Moving down the P&L or.
Our non-GAAP gross margin for the first quarter decreased 290 basis points to 66, 1% compared to 69% in the prior year period.
The year over year decline was primarily due to a higher than usual proportion of revenue last year coming from our adhesive sensors related to stocking for COVID-19 preparedness with sensors, having higher margins than other our other products.
Also we are still incurring COVID-19 related expenses that weren't fully present a year ago.
These extra costs include increased inventory charges and freight expenses. In addition to the expenses related to the safety protocols, we've implemented to reduce the risk of COVID-19 within our manufacturing facilities.
It is important to note that we saw our first quarter 2021 gross margins of 66, 1% improved 260 basis points sequentially when compared to our fourth quarter 2020 gross margins of 63, 5%.
These results confirm our original guidance assumptions that gross margins will continue to recover as our product mix returns to normal throughout 2021.
Our non-GAAP selling general and administrative expenses as a percentage of revenue decreased 90 basis points to 31, 7% compared to 32, 6% in the prior year quarter.
We continue to demonstrate a clear improvement in operating leverage as our SG&A expenses grew at a much slower rate than our product revenue growth.
And our non-GAAP research and development expenses as a percentage of revenue increased 140 basis points to 11, 5% compared to 10, 1% in the same quarter last year. This.
This was primarily due to increased staffing levels and higher project related costs as we continue to invest in delivering innovative technologies to the marketplace.
As a result of our of the year over year gross margin headwinds and increased R&D investment our non-GAAP operating margin decreased 340 basis points to 22, 9% compared to 26, 3% in the prior year period.
Moving further down the P&L, our non-GAAP non operating income, which is comprised of interest income decreased 98% to approximately 62000 for the quarter compared to $2 8 million in the prior year period.
The decrease was driven by lower interest yields realized arm on our invested cash due to the impact of fed rate cuts.
Our non-GAAP tax expense in the first quarter was $16 4 million, resulting in a non-GAAP tax rate of 24% and our weighted average shares outstanding for the quarter was $57 9 million compared to $57 6 million in the prior year period.
For the first quarter, our non-GAAP net income was $52 1 million or <unk> 90 cents per diluted share in comparison first quarter 2020, and non-GAAP net income was $55 9 million or <unk> 97 per diluted share.
Turning to our GAAP results GAAP net income for the first quarter of 2021 was $53 4 million or <unk> 92 per diluted share.
In comparison first quarter 2020, GAAP net income was $64 5 million or $1 12 per diluted share.
Included in our GAAP earnings for the quarter was approximately $4 3 million of excess tax benefits from stock based compensation compared to $9 6 million in the prior year period.
To summarize the first quarter, we exceeded expectations for driver shipments and delivered double digit revenue growth against a very difficult year over year comparison. Most importantly, we saw sequential improvements in our adhesive sensor revenues and gross margins when compared to our fourth quarter 2020 results.
Now I'd like to provide an update on our full year 2021 financial guidance.
For 2021, we are now increasing our product revenue guidance to $1.205 billion.
Which reflects year over year growth of five 4% on a reported basis or for 5% on a constant currency basis.
This represents a net increase of $5 million above our prior guidance, which is comprised of a $10 million increase due to stronger sales volume, partially offset by a $5 million reduction in foreign currency benefits due to the strengthening of the U S dollar against most major currencies since year end.
As a result, our guidance now includes $10 million of year over year currency tailwind compared to our prior guidance of $15 million.
Our non-GAAP gross margin guidance remains unchanged at 67%, which represents a 190 basis point increase over our 2020 results.
And our non-GAAP operating margin guidance remains unchanged at 24, 5%, which reflects a 140 basis point improvement over the prior year.
Moving further down the P&L, our non-GAAP non operating income is expected to be negligible and we are projecting a non-GAAP tax rate of 24, 3%.
And we are now estimating that our weighted average shares outstanding for 2021 will be $58 3 million.
During the first quarter, we repurchased approximately 550000 shares of Massimo common stock the impact of these share repurchases on our weighted average shares outstanding is reflected in our updated financial guidance.
Based on all of these assumptions, we are increasing our non-GAAP EPS guidance to $3 <unk>.
83.
Which represents an increase of <unk> <unk> above our prior guidance.
And from a GAAP perspective, we are now projecting a GAAP tax rate of 20% and GAAP earnings per share of $3 83 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 2021 is definitely off to a good start for us in terms of revenue growth and profitability. Following a very strong 2020 <unk>.
Despite the difficult year over year comparisons, we're projecting mid single digit revenue growth and double digit operating profit dollar growth this year.
It is also important to highlight that when you look at it from a two year stacked growth perspective, our updated 2021 product revenue and operating profit dollar guidance imply a compound annual growth rates of 13% and 15%, respectively, when compared to our fiscal year 2019 results.
With that I will turn the call back to Joe. Thanks, Mike. Thank you very much on.
Optimism for the future is increasing as we're hearing reports from the field that COVID-19 case, count and hospital hospitalizations are on the decline in most places.
And obviously, we understand what is happening in India, and Brazil, and we are.
Request full of that but in most countries, where we do business.
Hospitalization due to non COVID-19 is increasing and we're seeing higher sensor utilization as more hospitals open up for elective surgeries and implement continuous monitoring for patients in lower acuity settings.
There are now monitors next two more beds than ever before and many of those beds are no longer being reserved for potential COVID-19 patient admissions.
COVID-19 made clear the value of Massimo technologies, and what our mission of taking noninvasive monitoring to new sites and applications meats.
No other company has the accuracy and reliability as well as the breadth of measurements Massimo offers for noninvasive monitoring of vital signs with technologies like set and Rainbow.
With our innovation history.
On a continued research and development investments were well positioned to meet the demands of our existing business and expand our business.
We expect 2021 to be an eventful year for Massimo based on the many new products, we have recently launched or will be launching.
As well as the multiple new markets that we are entering.
For a significantly broadening our business through internally developed technologies and acquisitions.
The operations of the acquired net health connected care business and TNI medical are fully integrated and this integration has already led to next generation products emerging from both businesses.
The recently closed acquisition of Litho hemodynamic monitoring business is proceeding well with integration activities underway.
Our hospital automation business is accelerating to on a year over year basis Hospital automation revenues increased more than three times.
Our investment in innovation is bearing fruit as we introduced many other new products during the first quarter, which hold considerable potential for improving patient care and generating.
Meaningful revenues.
These products include the new radius P C G.
Tether it less entitled carbon dioxide monitor that can connect to route with all the advantages of Ruth's larger screen and automation and connectivity capabilities.
We also announced an upgraded version of our rat G multimodal pulse oximetry.
Compaq handheld device adapted for use in the field that now includes a non contact thermometer function.
During the first quarter, we also announced the initial U S launch of soft flow high flow nasal cannula therapy for treating patients with respiratory distress.
Within our core parameters business, our Rainbow normal line set line and poultry products grew strongly due to the rise in elective surgeries.
We are gearing up for launch of safety net for opioids for use in CE countries in Europe, while we await FDA approval in the United States. The clinical studies for safety net for prescription opioids and illicit opioid use are continuing with very.
Promising early results.
We expect this product will further deliver on our mission to improve patient outcomes reduce the cost of care and take noninvasive monitoring to new sites and applications.
At closing, we see great potential for 2021 to be a year that includes a growing contribution from the many new products, we have developed and acquired.
They gain adoption worldwide.
With that we'll open the call for questions operator.
Thank you we ask you please limit yourself to two questions per person.
Ask the question do you want me for questions Star one on your telephone to withdraw your question press the pound or hash key please standby, we compile the Q&A roster.
Your first question comes from the line of Lawrence <unk> from Raymond James Your line is open.
Oh, great. Thanks, everyone.
I'm wondering Joe if you can talk a little bit on you will provide some brief commentary in your prepared remarks about.
On sensors and the number of.
Bad debt now monitors associated with them.
You did give some color also I think on the fourth quarter call about.
What youre getting from the field relative to the utilization of those those new beds with those monitors. So is there I was just wondering if theres any update as you could help us think about that utilization question that comes up quite often.
Certainly certainly I think as Michael mentioned, we saw a sequential growth of 3% and sensor volume.
But that doesn't really tell the story and this is after a few quarters, where sensor volumes were either flat or declining because.
Elective surgeries were being delayed due to COVID-19, but there isn't it doesn't tell the full story because we've seen some of our customers who have bought a <unk>.
Stocking inventory.
At this time last for Q1 last year, where we saw a huge sensor volume increase which made our gross margins look really incredibly good because of the percentage of sensor business to capital.
They are now we feel like that if not all of them most of them have depleted that inventory. So we think the sequential growth is stronger than the 3% debt that we've reported on.
And you know one of the great things as we continue talking to our customers who bought all of that extra set of monitor as last year that they seem to be utilizing him. There. These beds that were for non monitored beds have turned into monitored beds.
And as we predicted that eventually they would become monitoring beds they have.
Patient safety net.
That technology, we used to maybe increase the number of general floor beds monitoring by several thousand a year, we think last year.
That number went up by maybe 100000 to 200000 beds.
So it feels like the general for monitoring market gotten penetrated and from surveys we've done would on top.
<unk> 30 customers that received these new drivers it seems like they're utilizing them and their growth rates.
Sequentially has been even stronger, but maybe close to order of magnitude more than what we've seen on a worldwide basis.
Okay.
It's really helpful. And then I guess just for a second one for me.
It's obviously, it's difficult when you're engaged with the FDA, but just again want to take your temperature on how youre thinking about opioid safety net.
It's here in the U S and I know in the last quarter yet.
Sort of indicate that you'd be disappointed if it wasn't commercialize this year. So again just wanted to get your updated thoughts there. Thanks.
Yes.
Look the pandemic hopefully for 170 100 year event, maybe maybe less but no more so we went through obviously a once in 100 year event last year and two hour.
Surprised FTA moved.
We've never seen before.
You remember how fast they approved.
Massimo safety net for COVID-19 patients.
Unfortunately that big.
Big push of new technologies to help deal with COVID-19 has delayed the FTA and that's what they keep telling us they've been totally overwhelmed and.
They've got everybody on staff trying to help cleared the decks, but.
Despite the incredible sad story of more people dying opioid overdose last year than ever before I still don't Unfortunately, no when we're going to get clearance and an FDA knows how good our product is so I don't think it's just a.
They're getting to it I don't know when.
But what we're doing we're basically saying you know what we have see.
And let's go to Europe. The problem of opioid has talked a lot about in the U S. Not talked a lot about outside the U S. I think to the cultural issues, but we think the problem is just as big.
A survey we did with the.
On the leading countries in Europe.
Germany, France, UK, Italy, Spain.
Switzerland, I mean, the list goes on the opioid problem is just as big there as it is here and they seem to be eager to receive our products. So were gearing up our distribution channel for Europe, and Canada, and we hope by middle of the year to be cranking and if we're lucky by then will be in there.
U S as well, but we're going to get going with or without the use of clearance.
Okay terrific. Thanks, Joe appreciate it thank you.
Your next question comes from the line of Rick Wise from Stifel. Your line is open.
Maybe Joe.
You could talk about cash.
Two aspects of.
Incremental innovation.
You you highlighted a couple of the transactions you've done recently and it seems like Youre going Wow.
But maybe talk about your thoughts on if you think parent debt and that kind of <unk>.
The process is likely to continue in 'twenty, one or how urgently you're focused on it.
I've learned you carefully over the years.
It sounded like you were hinting.
In your opening comments about other new products or am I over listening.
<unk>.
What's what else could we see in 'twenty, one and beyond.
Rick you are an excellent listener.
We're not over listening.
So first of all before this call we were all reflecting on all the M&A. We've done in the last couple of years have done a few but for.
For the last 10 years I think we've done about nine <unk>.
Every one of them.
On eight out of nine of them have shown dramatic business results and have been successful. The other one so I'm gonna be showing it beautiful face, but we've been really happy with our acquisition we haven't.
Picked up any bad acquisitions, I think our due diligence process is really good and theres been a lot of acquisitions have gone to the 11th hour and listened to our due diligence and despite being in love with the team on the companies we pulled out when the data just did not.
Add up to what we thought when we got in so.
Joe to answer your questions two things one yes, we are still active in M&A, although I don't have anything on the near Horizon that we're thinking of closing we are open to any business that will help us continue expanding our businesses that we're in and we're also open to new ideas.
We're not.
We're not gonna pigeonhole ourselves.
Our mission is to improve patient outcomes and reduce cost of care and take noninvasive monitoring new sites for an application so that when a business of that so we're open to all things that could do that.
And on the second part of your question as far as.
Things I may have said, yes, we think we've got some really cool stuff that are going to finally see the light of day this year.
And.
We're pretty excited about it then.
And hopefully it will dramatically increase our.
Our Tam.
And our abilities to.
Fulfill our mission.
And just to make sure should we imagine that that could be incremental this year to the forecast.
But for cash projection on or no it's more likely impactful in subsequent years.
We believe it will be incremental revenue wise.
There might be costs associated with the rollout on the expense side. So it may not be incremental earnings wise, but we think there are great opportunities into the future years.
And we we havent yet put them in on numbers, because we don't want to count on anything including our own R&D pipeline until the products are out we're very.
Meticulous about what we rollout we want to protect our brand we want to make sure. It delivers on the promise of our brand and the quality of everything so because of that and all the history of 32 years.
I Gotta get ahead of ourselves however.
As I said carefully on my prepared statement, we have a lot of things that have already been launched that we're very excited about and even new things. So I think.
Together we for.
Feel like it's going to be a really good year.
And kind of exciting.
A second area.
We recently spoke to.
A number of hospital administrators and sort of beyond young you beyond the general Ward.
I left feeling like.
There were increasing opportunities post COVID-19.
For Massimo.
Okay.
Two other ways one yes.
Sort of.
Specialty areas of a hospital like the cardiology suites or or orthopedic areas debt.
I'd be curious to hear about that but also one hospital.
<unk> patients.
Correct Lee.
From the emergency room directly from the ER directly home monitored by Massimo equipment.
Alright.
How do we think about these new opportunities.
Nicky or no there could be.
Going forward. Thank you.
You're welcome Rick.
We think theyre going to be meaningful we believe while we jumped in to help with COVID-19.
200, plus hospitals at least got to experience firsthand the power of <unk>.
Our Massimo set in a wearable catalyst product that could be sent.
Anywhere.
Whether it was a parking lot.
Or was home of the patient.
And what we're seeing.
COVID-19 is receding in those hospitals.
Theyre, taking that technology home now.
Helping with their high risk patients, whether it's heart patients or lung patients. So it is pretty exciting and I think on one of the best things I think that could cause that I can say is that look a lot of times you rollout a new product it sounds cool, but it doesn't deliver this product truly delivered.
And people, who got to see it firsthand dealing with COVID-19 dealing with this terrible problem that was happening have become really strong believers and the good news is some of them on the bellwethers of.
Hospital systems in our country.
In other countries, so I think.
While I'm not at Liberty to state names or give you more detail.
Ask your question again, I think telehealth tela monitoring.
At home it could be a big opportunity for us and it could be a real thing that could drive our business forward.
Thank you very much.
Thank you Ed.
Your next question comes from line of Matt Taylor from Massimo Your line is open.
Yeah.
Hi, Thank you for taking the question.
So I just wanted to clarify on your call.
Comment there on on guidance and from the last call I remember we went through the transcript can talk about.
A number of things that are just kind of starting to get off the ground.
Not really contemplated in guidance that could be sources of upside like opioid.
TNI the nasal cannula is on some of these other new products. So I guess is that true.
Does that upside potentially if you do get upside. This year do you think that's the most likely source. Some of these new products or would it just be further improvement in the environment or something else.
Matt Yeah, you're absolutely right.
<unk> not put soft flow business in the U S in our guidance.
<unk> not put.
Safety net for opioid on our guidance.
And.
Already we have a really good pipeline for <unk>.
Soft flow in the U S. So hopefully as it as it becomes real it could become.
A way for us to grow out of the number the percentage points mid digit.
Mid single digit growth that we are projecting and of course safely for opioids could be big it just depends on how well we execute on the distribution, which is a new area for us.
But that other areas that I think we had mob.
Baked in is the growth in things like hemoglobin said line normal line, all three things for us in the or.
And that could become hopefully as census is improving and people are feeling comfortable going into surgery. There's talks debt by mid June the U S could be.
Out of the woods by having enough people vaccinated that will have the herd immunity. So I think all of those could be additive I.
We have in the past several years have promise, 8% to 10% revenue growth and double digit earnings growth, where we're comfortable with that but you know for like last year, when things went better than debt.
We took advantage of it and we ran with it so we'll have to see how the year turns out.
Okay great.
I was hoping you could just talk about the fact, you bought a lot of shares back.
Period end.
On the stock.
<unk> done really well over the last couple of years. So how did you think about that.
Purchase and maybe you can talk about plans for ongoing repurchase or was this kind of a onetime thing.
Well.
Look we buy just like you guys be on when we think the stock is under value.
Also you have to remember we've gone from generating $50 million to $60 million of cash flow for about $200 million of cash flow a year. So the amount we bought wild.
Not small.
Within our ability to buy and we do think.
While we actually stock price is.
Beauty subject to the beholder, we find that beautiful too so you're not the only ones out there. So we thought it was a good idea to buy some shares and we did.
Okay, fantastic and let others jump in but thanks, a lot for the comments.
Thank you.
Your next question comes from the line of Jason Bednar from Piper Sandler Your line is open.
Hey, good afternoon, everyone and thanks for taking the questions I wanted to come back to the guidance topic here on a different way I think he made a comment on the call their interest in the prepared remarks that were you're on a path to returning to pre COVID-19 levels for procedure volumes and Thats, what youre seeing in your business.
And I think you've talked about this before but maybe update us on what your assumptions are qualitative or quantitative thoughts with those procedure volumes look like here over the balance of the year and is that what's influencing the slight raise to guidance here today.
Well, we raised guidance by 5 million, even though we thought revenue wise, our revenues would have increased by $10 million, because we have a $5 million headwind on the strengthening of the dollar vs.
Most other currencies we deal with.
As far as the census improvement.
We're seeing some hospitals right now.
Very well known hospital destination hospitals.
Having more than other.
Reaching 100% capacity some even over that.
And yet we see children's hospital at about half capacity on what it used to be.
So what we believe we believe there is a lack of confidence in.
Being able to get safe care and hospitals.
And that confidence I think is going to improve.
We get to herd immunity and rubbing against delayed procedures and issues.
Issues that people have that need to be fixed so.
Logically, we think it's going to get better, but even surveying our customers. It looks like it's getting better the 3% improvement in sensor volume utilization from prior quarter.
Which even included a reduction of inventory of some of our major customers tells us it is getting better. So I don't know if I answered your question.
But we were using that to kind of feel good about the future.
Michael you want to add something yet Jason just to add there.
As Joe mentioned earlier.
We assume basically a stable or a steady rebound over the course of the year back to kind of pre COVID-19 levels.
To Joe's point earlier, if we see higher patient confidence to come back into the hospital and the volume start to pick up that's where that could be upside to the guidance we provided.
We've assumed kind of a steady rebound stable rebound.
Okay that makes sense. Thanks for thanks for all that.
And Jason just one more thing to add is we also saw.
A stronger trend in volumes as we exited the quarter. So in March and in April we saw stronger sensor volume trends than we did.
Back in January and March.
Okay, Alright very helpful. Thanks Micah.
And then maybe just to come back to an earlier question on the opioid safety net topic.
Whats the right way to think about that opportunity in Europe, and Canada and is it fair to assume this is going to be a hospital first offering in your international markets or is this going to be an opportunity to take that into the home just what's the right way to think about that and just the and then the overall go to market strategy in those markets just maybe how that might differ from what you are going to be planning in the U S.
Thanks, guys.
Sure. So we think the international market is roughly the same size as the U S market and we think of the market in two segments the prescription opioids.
Post surgery and also illicit use of opioids.
And we.
Mark it's a very different in each country some countries.
For a lot of business over the counter and pharmacies and the pharmacist make the call on what to give to people in some countries. It's by doctors order.
In some countries.
It's really both.
But they still wanted to make sure doctors.
I think it's a good idea, even though if they can get it themselves without a prescription. So we I think the second part of your question about execution in those markets, we are new to the Si.
We are trying to hire people around us that have experienced around.
Consumer marketing and distribution of products like this.
In pharmacies and other channels.
So it's something that we're gearing up.
And we hope we can execute as well as we've done in the hospital business.
Yeah.
Thank you for your next question comes from the line of Michael Pollock from Baird. Your line is open.
Hey, good afternoon, maybe a follow up there as well on the opioid safety net in Europe I'm just curious what is the.
And acknowledging that it sounds like it's quite different from country to country.
The channels, where patients may access the kit for what is what does the reimbursement landscape can pharmacies in physician offices or hospitals to get paid for it.
Providing a solution today or is that something.
Massimo will be working on to establish with the with the local authorities.
Yeah, we will be working with local authorities on reimbursement.
Pleasant surprises is that when we surveyed customers in these countries a lot of them.
Vast majority of them at the price points, we're thinking of selling good said they would buy it.
So I think it's just a matter of it well, obviously proving that to be true, but also getting the message out so people know, it's there and making sure the medical community.
Trust and recommends Ed, but yet we think there's going to be a business to be had.
Without reimbursement as well as what.
Does the ASP that you surveyed roughly what we saw for COVID-19 safety net here in the U S for $150 Mark are you envisioning something different in Europe as you get started.
It's higher it's higher than that I don't want to get into it right now, but it is it's higher than that number.
Hey.
Maybe the other one on hospital automation I heard the revenue comment three times in the period.
My question is more on the sales pipeline selling opportunity there any any quantification of.
For that opportunity as you think about the rest of 2021 and the pipeline up down sequentially year on year, if so by how much.
Eager to.
I understand what the cadence of.
Of that business may be.
Of this year and into next.
While I'm not going to promise three times growth I will say that there is strong interest.
In every corner of the world literally from eastern United States Western Southern to all over the world.
I believe we.
Really the most complete and most.
Well thought out solution as the pioneers of hospital automation.
Hospital automation I'm not talking about connecting things.
So that data can go to the EMR I'm, saying you connect those things and then you make that data actionable you make that data useful wherever the clinician might be including the room or outside the room, the clinicians about to enter into.
Another I think besides that demand the healthy pipeline another indication that I believe.
It's out there as we had a very robust patient safety net.
Installation and typically once hospitals implement that they get interested in the other solutions around it like Halo ion like Uniview 60 on Uniview and replica. So I think even those hospitals, which we had a nice healthy uptick not only in Q1, but the prior quarters.
Are going to be.
Right.
Are customers of ours to expand into our vision of hospital automation.
Your next question comes from the line of Dev Wherewith share from Baird. Your line is open.
Thank you.
Hey, its actually Robbie on.
How are you guys doing.
Hi, Ravi.
Okay. Thanks, Thanks for taking my questions. So just got a question on the commentary on sensor volumes and kind of the margin profile of the business.
If I take out <unk> 20, because of the obvious sensor pull through that you guys got there and compare you more to 2019 similar quarter. It looks like you know.
Your gross margin has definitely stepped up since that period. So just curious you know you've had this larger install base you have more opportunities more shots on goals sales sensors would it be fair to say that your kind of mix is moving more towards kind of the rainbow and.
Oh, three kept geography sensors, how do we think about that when it comes to all.
All of these new <unk>.
Bad so to speak you've on boarded in the last year or so and then you know kind of related to that what are the parameters that are being used now on the general floor.
Kind of what's the opportunity here that we should be thinking about when it comes to the <unk>.
Longer term mix benefit perhaps that could come from this.
Sure Let me, let me hit the other maybe Mark you can add some.
Detailed to it so high level, what's happened is that.
We have a bigger installed base to sell sensors into.
One of the things we were worried about us.
250000, plus drivers that came last year on top of our normal volume. If we were afraid they might not be utilized and not to say debt.
Maybe a year from now they'll start being utilized but so far they are being utilized for the most part if not all of it.
So what that should mean, we should see especially on a year that we don't think our drivers will be abnormally high cash.
Capital on drivers should be the same level as before the kind of 2019 numbers.
I think that should bode well other higher sensor to capital ratio and given that our sensors are a higher margin it should lead to a higher gross margin for our company.
As far as the other parameters those other parameters have similar margin sensors, so theyre being used now more with the elective surgeries coming back with drivers there one other thing used to for them to or there is a lot of activity in the hospital, but it wasn't in the ore it was in the ICU.
And beds that turn into ICU beds to take care of COVID-19 patients.
Patients, but now that the ores are using sedation monitoring brain oxygen saturation monitoring and cap Naga free for airway gas exchange analysis on monitoring.
We're going to see again high utilization, we expect to see that.
And then I think the last part of your question was related to China.
Kind of how we see the general floor on what's going to happen what the effective.
Look a lot of maybe one day general flows will become like the ICU, where every parameter in the ICU will follow patients for the general floor, but.
So far it looks like the common denominator that they need to protect them just like they needed to be protected at home for COVID-19 is the pulse oximetry and <unk>.
Not just any pulse oximetry was if I may say, but the set pulse oximeter with works through motion.
It doesn't give the false alarms and it does what it's supposed to.
No other technology has been proven in that environment in fact, when other technologies were taken.
In today's environment, including other pulse oximetry.
Boomerang debt came right back out because of the excessive false alarms.
Dartmouth Hitchcock completed a 10 year study that not only showed no more dead in bed with patients being monitored with our technology.
But.
They reduced their cost by $7 million, a year because of ICU and rapid response team activation reduction in the neighborhood of 50%.
And the nurses loved the product.
Yes, some of the comments were great in the early publications you know you can only get on that on my call debt cold fingers, where before the nurses were the first to say get this crop out of here because it was driving them insane.
Once they adopt general with a competitive as pulse oximeter listen years ago, but they had.
They had a pause for one every four minutes.
So anyway I hope I asked for your question, Mike on anything else you want to add to that.
Ravi you mentioned I didn't hear you mentioning.
Comparing back to gross margins about two years ago. So looking at Q1 19, and you've mentioned.
We're up from there. We are we are about 65, 4% gross margins in 2019 in the first quarter and we're now up to 66, 1% and contained to rebound.
As mix improves.
Some of the things that we are seeing is we're continuing to get more revenue per driver as we're leveraging that installed base I think Joe hit on that there.
We've also done a lot of great things in terms of our engineering and our manufacturing teams to improve and reduce cost of our products over time.
So that's some of the things that are really.
Showing that improvement when you look back a couple of years to some of those normalized gross margins keep in mind that we are we're guiding this year to 67% so.
You look at that.
That assumes or implies about a 50 to 60 basis points sequentially stepped up improvement each quarter to get into those numbers. So we're expecting to kind of get back to.
Those pre COVID-19 gross margins of 68%.
As we exit the year.
Great. Thanks, and then just one more on the automation business.
Put it in relative terms, but just curious.
What level of revenue do we need to kind of get as a benchmark.
To start getting some more public disclosure around that that revenue stream and just kind of relatedly, what kind of margin profile should we thinking be thinking of for that business. Thanks, a lot guys.
Yeah, well you know we were.
We're not sure it makes sense to break the revenues from the products that are related into the same space with customers and nurses and doctors and our sales force. So that I think it's a question we're still from wrestling with.
Sure.
But as far as.
The level of revenue is concerned I think really it's more about do we think there should be separated and as we're thinking of new businesses and we actually start seeing our businesses in a different way.
I'm not sure that should be separated.
There'll be new segments, and things were going to get into that we think should and youll see in the future. When we do them, but I think these are part of a whole hospital business.
Yeah.
Yeah.
Your next question comes from the line of Marie Thibault from <unk>. Your line is open.
Hi, good evening. Thank you for taking the questions I'm going to start here I think with kind of a basic high level question I just wanted to gauge your feeling about sort of the 66000 shipped.
Boards in the quarter and I know that puts you well on track for the year and resolved, but do you believe anything with sort of pulled forward into the quarter or how should we be thinking about that cadence going forward and on a related note. There can you remind us of the Q2 2020 sensor comp.
I recall, the stocking a year ago for first quarter and would love a reminder, on second corner comps.
Yes.
Well I'm going to let Michael answer, but I want to just make sure I heard right. It's actually 66000 boards not 56, but going back on.
66 <unk>.
66, 66000 for the first quarter I am saying 66 young all again.
It's hard to hear through the.
So Maria just to answer your question there yeah, we still expect to ship at least 60000 boards per quarter, our drivers per quarter for the rest of this year.
If you look at you know where.
We're continuing to gain more confidence, especially as we look at.
You know the utilization we've seen on the excess drivers last year, we don't see a replacement or any pull forward in the end of the prior year.
We're into the first quarter at all.
We believe looking at the information to last year. If you remember from the call at the end of the year, we had a record breaking year in terms of winning new customers and if you think about that that gives us more confidence as those.
That equipment that capital equipment is going to be installed this year. So it gives us confidence in that forecast that we're providing of at least 60000 drivers per quarter.
Yeah.
That's great to hear and the follow up then on that on the sensors on the Q2 comp a year ago.
Yes so.
Our sensors last year were down 8% a year ago.
In the second quarter, so we have an easier comp in Q2.
And that's when we saw the sensors kind of fall off and then they started to steadily recover back through the end of the year.
Okay. Thank you for reminding us of listen I've picked up my handset, so hopefully I'm coming in more clearly.
I wanted to ask my follow up great Great I wanted to ask my follow up then on on opioid safety net.
Just wanted to kind of go back to the FDA. So if I'm understanding correctly, there hasn't been any sort of change in tone from the agency. They are not asking for any extra data or anything like that it really is just sort of COVID-19 related delays from here from your read of it.
That's correct since.
Since the last cut.
Quarters, even from the beginning there's definitely no tone change they are very engaged with us they're very interested in.
Helping us remember this was a product that they chose not only breakthrough technology, but one of eight products out of over 250 that could potentially impact the opioid epidemic. So this has this has I think it has still the attention of the management.
F D a as well so no nothing's changed it's just had been incredibly busy with.
With COVID-19 related things and I think that's just spread them very thin.
Okay understood well, we look forward to seeing what you can do on Europe. Thanks for taking the questions. Thank you.
Your next question comes from the line of Mike Matson from Needham <unk> Company. Your line is open.
Hi, Thanks for taking my questions just wanted to ask for an update on the Philips agreement.
Can you maybe give us some sense of the portion of their installed base that's turned over since the deal started.
And then where do things stand with no my line sidelines number three on their platform.
Platform.
Well on.
Our relationship with Philips is strong.
There they are one of those resilient customers. Besides the end users I discussed at the beginning they're doing really well.
And.
Obviously no on this in the capital business for patient monitoring is probably going to do as well as last year that was.
A great year for demand for patient monitors around the world as well as ventilators, but I believe from everything were seeing there kind of going along there 2019 kind of levels.
We are becoming increasingly a bigger part of their business.
Both and pulse oximetry shipments as well as new parameters like said line normal lineup on three.
We were still partners on billings, together and the power of Rainbow and where.
We believe that is a game changer for.
Predictive algorithms, which not only massive most interested in but so its philips.
So yes things are going great.
We continue to.
Increase our footprint within Phillips.
Okay. Thanks.
And then I wanted to I was looking back at your slides from your Investor Day in 2019 for about two years ago I guess so there.
There were two kind of pipeline projects that you disclosed there I think one was involving malaria detection and one was a new measurement on partial pressure of oxygen.
So I was just wondering if you could give us any updates on those and are those the things some of the things that you were kind of hinting at earlier in the call.
Certainly a military project.
Progress very well since we discussed.
The project and we're planning to do large scale clinical trials.
In affected countries at peak times, when they get affected by malaria this year and if everything goes well there we will be commercializing that product.
However, there was some really good news on the military front that there might be a very effective vaccine dealing with malaria apparently had about 75% of efficacy so that could really change the demand potentially for this product, which we wouldn't be upset about that would be great. So many.
Children and adults die on malaria around the world and we picked up this project as a means to help more than anything on the partial pressure of oxygen worse on a portion of the clinical trials for that technology.
Suspended or paused because of COVID-19, but now that COVID-19.
Is receiving in the countries that do the trials will be picking that up again and hopefully.
We'll have some information about its efficacy and.
Whether whether we're going to be able to successfully launch it or not probably towards the end of this year.
Okay, great. Thank you.
Well. Thank you all so much for joining us for the last minute change from Tuesday for Monday for our earnings call.
I'm, gaining confidence with procedures in hospitals I'm going to get a small procedure tomorrow on myself. So I. Appreciate you guys getting with us and I look forward to.
Our next earnings call. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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