Q2 2021 Masimo Corp Earnings Call
Okay.
Good afternoon, ladies and gentlemen, and welcome to Massimo second quarter 2021 earnings conference call. The company's press release is available at Www Dot Masimo dotcom at this time all lines have been placed on mute.
Any background noise.
After the Speakers' remarks, there will be a question and answer session I am pleased to introduce Eli cameraman Masimo as vice President of business development and Investor Relations.
Hello, everyone. Joining me today are chairman and CEO, Joe Kiani and executive.
Yeah.
Then chief Financial Officer, Micah Young this call will contain forward looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2021 financial performance.
They are subject to risks and uncertainties that could cause actual results to differ materially.
Advice brisk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our period 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 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.
Yours 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 earning.
<unk> net lease 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. Thanks, Eli.
Good afternoon, everyone and thank you for joining us from Massimo second quarter 2021.
Earnings call.
Happy to report strong second quarter results.
While we expect the driver in capital orders in 2021 to be lower than what we achieved in 2020 due to unprecedented high demand during the height of Covid.
And expect our sensor volumes to rebound as electric.
Earnings growth curious recover.
As Covid hospitalizations recede.
Did not anticipate the very strong increase in single patient use sensors that we realized this quarter.
This produced higher than expected revenues.
Leading to an 11% increase.
Our non-GAAP EPS.
Based on our observations and discussions in the field, we believe that not only are elective surgery volume steadily returning to pre COVID-19 levels, but more hospital beds are monitored debt now.
As you will hear soon from.
<unk>.
We realized a substantial increase in monitor installations during the quarter from record New hospital contracts in 2020 and record New hospital contracts the first half of 2021.
These installations strengthen our foundation for long term sustainable.
Enable growth for sales of our sensors and help hospitals take better care of their patients.
I'll discuss more later in the call now I'll ask Micah to review, our second quarter results in more detail and provide you with an update on our 2021 financial.
Actual guidance.
You, Joe and good afternoon, everyone our.
Our second quarter results came in above expectations as we saw a strong rebound in sensor sales.
Further our shipments of technology boards and instruments are on track to exceed our original target for the year with second quarter shipments above expectations.
We are seeing a step function increase in hospital census, and steady expansion of monitoring and hospitals, leading to increased sensor sales.
At the same time, a higher than usual number of monitor installations. During the second quarter has expanded our installed base, which put pressure on our gross margins for the quarter due to.
To the new accounting standard implemented back in 2019.
From a long term perspective, we're glad to see the strength in installations because of its implications for higher sensor volumes and higher margins in the future.
During the quarter, we shipped 72500 technology boards and instruments.
Which exceeded our estimate of 60000 for the quarter.
In turn we have shipped approximately 2.2.
2 million technology boards and instruments over the last 10 years.
As of the end of the second quarter, we estimate that our installed base has grown approximately 11% overall our installed base at the end of the <unk>.
Second quarter of 2020.
For the second quarter 2021, our product revenue has increased to $305 million compared to $301 million in the prior year period.
You may recall from our earnings call last July.
Debt, we delivered 31% product revenue growth in the second quarter of 2020.
'twenty due to higher than usual demand for our technology boards and instruments as hospitals address the potential shortage of monitored beds for COVID-19 patients.
Despite this very tough year over year comparison, we delivered strong revenue performance that exceeded.
For the second quarter 2021, our worldwide.
<unk> sales of technology boards and instruments were higher than in normal years.
But down 41% compared to 2020 due to the tough year over year.
The pandemic related strong demand last year from Massimo set pulse oximeter and related equipment.
Fortunately this decline was more than offset.
By a strong rebound in sensor sales in fact, our worldwide sales of single patient use adhesive sensors were up 35% versus the prior year period.
Encouragingly, our sensor revenues rose by 5% sequentially.
Versus the first quarter of 2021 and.
In contrast to the historic levels.
Average seasonal decline we've experienced for the same sequential periods in normal years. This represents another sign of a step function rebound in surgical volumes.
Moving down the P&L to 64, 7% compared to 63, 9% in the prior year period.
Revenue performance from our high.
Margin higher margin single patient use sensors in combination.
And with the revenue decline for our lower margin technology boards and instruments.
Yeah.
Despite the year over year improvement in our product revenue mix, our gross margins were below monitor installations under current.
If you recall from <unk>.
Combination of the ASC 842, accounting standard we implemented back in 2019.
During the quarter that we install equipment under a contract we recognized an unfavorable margin impact upon installation and returns.
Year and during.
During the first half.
Half of this year combined with increased access to hospitals, we experienced a significant increase in the net.
This quarter we.
We believe that.
Contracts will pay long term dividends in the form of higher sensor volumes and increased margins over time.
<unk> expenses as a percentage of revenue.
Decreased 230 basis points.
Compared to $32.5.
5% in the prior year quarter.
And our non-GAAP.
Yeah.
3.
3% in the same quarter last.
As all of the year over year improvement in gross margin.
Margin and operating expense leverage our non-GAAP operating margin increased 230 basis points to 23, 4% compared to 21.
Great.
Moving further down the P&L, our non-GAAP tax rate was 24, 5%.
And our weighted average shares outstanding for the quarter was $57.4 million.
For the second quarter, our non-GAAP net income was $54 million or <unk> 94 per diluted share.
In comparison second quarter.
2020, non-GAAP net income was $49.3 million or <unk> 85 per diluted share. This reflects non-GAAP EPS growth of 11% over the prior year quarter.
Turning to our GAAP results GAAP.
GAAP net income for the second quarter of 2021 was $50.2 million.
<unk> 88 per diluted share in comparison second quarter of 2020, GAAP net income was $55.8 million or <unk> 96 per diluted share.
Included in our GAAP earnings for the quarter was $1.3 million of excess tax benefits from stock based compensation compared to $7.5 million in the prior year.
<unk> of $3.4 million in the quarter related to assisting our long term.
OEM customer with their medical device correction in the field.
To summarize the second quarter.
Our revenue once again exceeded expectations.
And further our driver shipments were above our pre COVID-19 run rate despite an unprecedented driver shipment year in 2020.
Also we delivered non-GAAP operating margin all record single day.
You shouldn't use sensor volume.
And a sequential improvement in our single patient use sensor volume when compared.
To our first quarter 2020 of the step function improvement.
The hospital patient volumes.
Now I'd like to provide an update on our full year 2021.
2021, we are increasing our product.
Revenue guidance to 1.
$1.216 billion, which reflects year over year growth of 6.6.
<unk>, 3% on a reported basis or 5.4% on a constant currency basis.
This represents an increase of $11 million above our prior guidance.
Furthermore, we are now projecting to ship at least 270000 technology boards and instruments. This year. This represents a notable increase from our prior estimate of 246000 drivers.
Our non-GAAP growth, which represents a 90 basis point increase over our 2000.2020 results.
Our ups.
Great.
Associated with the elevated number of monitor installations under long term contracts.
And our non-GAAP operating margin guidance is 23, 8%, which reflects a 70 basis point improvement over the prior year.
Our non-GAAP non operating income.
<unk> is expected to be negligible and we are projecting a non-GAAP tax rate of 23, 4% and we are now estimating that our weighted average.
Will be 57.7.
$7 million.
Based on all of these assumptions, we are increasing our non-GAAP EPS guidance to 3.
And 85, which represents an increase of 2 cents above our prior guidance.
And from a GAAP perspective, we are projecting a GAAP tax rate of 18, 2% and GAAP earnings per share of $3.83 for the year.
Our GAAP EPS guidance.
<unk> projected legal expenses.
$3 related to our recent complaint filed against Apple with the U S International Trade Commission.
Seeking to exclude importation of infringing series 6 watch.
For additional details on our full year 2021 financial.
Earnings per share please refer to.
<unk> earnings release, and supplemental financial information within the Investor Relations section of our website at <unk> Dot com in conclusion, we are seeing a return towards our traditional revenue mix, which should lead to increasing gross margins in the face of challenging year over year comparisons we are still projecting mid single digit revenue.
2 to growth and double digit operating profit dollar growth this year with that I will turn the call back to Joe. Thank you Michael.
During the first half of 2021, <unk> seen an encouraging recovery in hospital synthesis that gives us optimism that things should be returning to normal in most of the markets. We are direct in.
Revenue growth.
This recovery has translated into a step function increase for a single patient use sensors used in the critical care area, including operating rooms, and ICU settings.
For the second quarter.
Net single patient use sensors.
By year, AGA, <unk> had year over year volume growth of more than 25%.
And our SP HB SaaS.
<unk> line and all 3 single patient use sensors had year over year volume growth of more than 90%.
Our discussions with hospital executives.
Have revealed their intentions to broadening the practice of continuous monitoring to more patients and their institutions.
After being catalyzed by the pandemic the expansion and monitoring as continuing because of rising awareness of its value in improving outcomes and reducing cost per care.
Dartmouth Hitchcock 10 year study of Massimo set pulse oximetry and patient safety net and pulse surgical.
Outside of the intensive care unit saved lives and reduced our costs by millions of dollars annually.
Following a record year of contracts.
In 2020, Massimo has also experienced a record breaking first half of 2021 in terms of winning new customers and renewing contracts with existing customers.
With captured new contracts with sizable institutions, such as the University of Utah Grupo Oculus.
In Mexico, and the volunteers net FERC cause some type in Germany.
As for Massimo safety net for opioids, we still do not have FDA clearance.
<unk> planned to launch this solution in September and some of our larger European markets.
We expect this.
Yes.
Countless slides of prescription and other users of opioids at home.
As I've mentioned on previous calls with you we expect to have exciting innovations to announce over the next 12 months.
We've been working very hard to develop some truly remarkable solutions and we hope.
This is the customers and you will be excited about them too when we introduce them.
In closing we have a positive outlook for the second half of 2021 and remain committed to our mission of improving outcomes and reducing the cost of care and taking non invasive monitoring to new sites and applications.
With that we'll open the call to questions operator.
As a reminder to ask a question you will need to pass star 1 on your telephone to reach all your question by the pound.
Keith Please standby will be from Bob Thank you Andy Ross day.
Your first question comes from the line of Rick Weiss from Stifel. Your line is now open.
Good day.
Thank you Joe.
Great to see the strong quarter.
I'm guessing.
Despite the net.
Yes.
Incredible driver number that people are going to want to understand better the gross margin pressures due to the accounting change.
<unk> standard adoption.
And I don't want to be dumber than usual, but.
Maybe mark you can just help us better understand.
Sure.
Impacted that adoption have.
Gross margins in the quarter with a net 10.
50 to 100 basis point headwind what might have been just to try to understand.
That impact relative to sort of the overall rest of the business and if I heard you correctly.
You are talking about now sensor volume sensor gross margins will be better how do we think about in the <unk>.
You the pace or the magnitude of view Scott.
Scott Great work recapturing some of that.
Gross margin and the timing there.
Sorry for the long question.
Yes, Thanks, Rick Great question, so the way to size that up for the quarter as well.
We believe that the headwinds are coming in about 160 basis over 160 basis points of headwinds higher than we expected in the quarter.
And if you look and kind of going back to your second question.
We placed this equipment under ASC 842, we recognize upon equipment installation, the lower margins associated with that equipment and in return for the higher margins in the future. So as you think about the rest of the year, we will see.
The increasing gross margins based on that's implied in our guidance. However, we're also contemplating some of the headwinds we expect because we are seeing higher installations. This year and we're seeing stronger drivers going out to customers and as we place more of these under contract we will still have some headwinds for the back.
Half of the year so.
We're happy to make this investment because this strengthens our recurring revenue stream in the future in terms of single patient use sensors.
So that's all implied in our guidance, we factored the headwinds based on our best estimate.
What the installations, we expect right now for the back.
Stellar year, and Thats incorporated into our 66% for the full year.
Okay. Thank you if I could just add just to make sure that there's clarity on this.
When we sell a capital equipment like a route or radical 7.
We're an OEM boards to our Oems.
That comes.
With its margin.
We sold 4 minus the cost.
And we don't have this 840 tuition day to ensure happens when we place the equipment free of charge for let's say a 5 year sensor agreement.
And before a 42.
<unk>.
Half, let's take a charge for that capital when we installed now based on the 842 rules. We do so the negative is when you have a strong.
Set of new contracts that we've had recently when you place that equipment.
Get a hit from a margin at the beginning but the benefit is.
Unlike before a 42 now as we ship sensors into the account we get our normal margin, we don't have to.
<unk> margin based on the cost of capital over the 5 year period.
Joe.
Right now what we've projected for you for the rest of the year is based on a.
I think a realistic maybe conservative estimate of how many new contracts and how many new drivers were going to install so the only way.
Really where it could get worse.
We end up doing better and we get more customers that we anticipate to sign up for a 5 year contract to convert from a competitor.
<unk> to Massimo for the next 5 years, so in a way Unfortunately, even though there's a margin hit it's good news.
In closing, we're doing better than we expected and attracting new.
Customers.
Yes, I totally get it.
It does seem like.
A positive.
Optically.
<unk>.
But having said all that Joe and Micah.
How do we think.
I'll invite you to help us think.
Ed.
'twenty 2 'twenty 3.
At the highest level, how do we think.
Factoring all that in about gross margin.
<unk>.
The utility of gross margins to move higher from this new.
Sure.
Most.
Standard adoption.
Level.
Are we talking that gets 1 we should still assume.
They can move cannon will move higher, albeit sequel, but any extra color about what that could look like.
Yes.
Okay, Let's go let's do.
Ah supposedly situation, if we don't sign up any new customers.
And all we're doing is serving the current customers going to have our margins will approach.
70% plus.
If we sign up more customers, but you hope we do.
The conservative rate, it's the margins that we've been talking about.
In what.
We update it if we do better than that then ill be hurting. So the way you have to think about it let's say 3 to 5 years from now the margins are going to look a lot better because of a 42 then they would add due to this new way we have to accounts for the capital installations.
No.
I'm sure there'll be other questions I, just wanted to get that there.
Squeeze in just 2 more if you wouldn't mind just.
<unk>.
Given the strong recovery in Joe you highlighted.
The recovery in procedures are you seeing are you concerned at all about this latest wave of Covid.
And maybe Mike.
And I'll just add this now can you help us think about the third quarter fourth quarter.
Our cadence the flow as we think about the second half in terms of quarterly.
Mix in the numbers.
Sure let me answer the.
First of all Michael will answer the second.
What we're seeing so far with the Delta variant.
It is an hospitalizing.
Vaccinated people.
And in most of the markets we are addressing.
The majority of people have been vaccinated.
While the Delta.
Is increasing you're seeing.
For example, the case in Iceland.
It is thought hospitals I think those people, it's not killing those people. So based on what we're seeing today, we don't think that.
Hospitals will get total of COVID-19 patients and they'll have to cash.
Cancel.
Joe There Alex.
Elective surgeries. So we were anticipating that things are going to continue recovering.
Yes, Rick as part of the second question I think you asked what are we assuming in our guidance.
Very consistent with last.
We're assuming that steady rebound.
Back to pre Covid levels by the end of the year.
That's what's implied in the guidance plus as you know now we increased our driver shipments for the year to 270000. So that's an increase of 24000 above our prior estimate so you'll you'll.
You see an elevated number of installations and steady rebound in sensor volumes.
Thank you very much.
Sure.
Do think Q3 sensor volumes will probably be lower than Q2 because of summer vacations that happens normally but we do think that's just seasonal.
Even though things debt.
Our finally getting normalized.
Yes, Rick just 1 thing to add there historically, if you go back on kind of normal years, our revenue percentage in Q3 is about 24, 3% of our full year revenues. So thats.
And that's pretty consistent.
Outside of last year.
Perfect really helpful. Thank you Micah.
Youre welcome.
Next question comes from the line of Matt Taylor from UBS. Your line is now open.
Hey, guys. Thanks for taking my question.
I just wanted to ask.
As a follow up to try to get more specificity on the gross margin dynamic.
Obviously, it's going to you are standing up all these new customers.
Yes.
It remains at elevated levels because.
For the rest of this year.
When do we start to see that cycle through you mentioned 3 to 5 years is obviously better.
You start to see a pickup next year, the kind of gradual nascent hopes towards.
The 70, how do we think about modeling it.
Days out over the next couple of years.
Yes, Matt I think.
We wouldn't be happy to see continued gains with new customers that.
The right investment to make and we expect to get returns out of this over the long term.
And as Joe mentioned before.
If we did no new customer installations, you would you'd see a significant leverage in our gross margins over time.
If we continue to gain new customers at the pace, we're gaining them.
We will have some pressure and that's already contemplated in our gross margin guidance and then we should get kind of back on that steady increase in gross margins moving forward that we laid out in our long term plan.
Okay.
And you called out some pretty positive trends in the sensor utilization.
With.
On the product and maybe you could just give us a sense for do you have a lot of new product flow coming up here in the second half of the year with Litco ramping opioid safety net.
Hospital automation expanding could you just characterize how much.
Those new things contributed in the quarter and how much are you.
You're making in guidance for some of those other new products that could be material in the future.
Yes, so Matt.
We have.
Negligible revenues from our U S launch of P&I this year and Thats.
We're just now launching that as we announced last.
The new per.
Building, the pipeline and starting to roll that out in the U S.
So we'll see how that contracting goes in.
Over the course of the back half of the year non into next year.
And if we gain some new accounts earlier, there could be upside to our guidance.
Same thing with <unk>.
We're continuing to integrate that technology into our devices.
And then start to really launch that later in the year in the U S.
That could be also a source of upside later this year or even as we move into next year.
Okay and then.
Quarter last 1.
Any color on you mentioned some indicators that you're really seeing the broadening of monitoring throughout the hospital.
Seasonality not getting this year and you talked about group placements seem really strong could you give us any any sense or any other guideposts that youre looking at.
We just want to ask from customers.
Putting some of that being being durable and increasing in the future potentially.
Yes.
I said earlier.
<unk> been talking to our customers.
Seeing that extra.
Monitors that were bought last year being utilized.
Once again interviewed our top 30 customers and they're still utilizing them.
And the or and the ICU only but outside the ICU.
So we are I mean, if you look at our adhesive.
Sensor growth.
We mentioned what it was between this year and last year.
But if you go back to 2019, when it was a normal.
Period, not a COVID-19 period.
Sensor volumes were still up over 20 per cent compared to Q2.2019, and we've been we know sensitive isn't that high.
Compared to 2019, so it must.
Be a combination of additional new customers, we obtained and the <unk>.
Continuous monitoring proliferating through the hospitals non critical care beds.
Yes.
Okay great.
Great. Thanks, Joe Thanks, Michael.
Welcome back.
Next question comes from the line of Jason Bednar from Piper Sandler Your line is now open.
Hey, good afternoon, thanks for taking the questions.
Just to maybe come back with the sorry, another quick follow up on the gross margin side Mike.
Mike is this was a 160 bps of a greater headwind this quarter.
And what you were thinking as the impact here, just a surprise due to the pace of installations being faster than what you anticipated.
And then maybe correct me, if I'm misremembering, but.
I think your new contracting was real strong in the second half of last year.
Is this the first big impact from this contract and equipment being installed or with some of this.
In past periods as well.
No.
Mike just to clarify.
When I've said over 160 basis points of headwinds thats against our expectations for.
For the quarter year over year it was.
It was a larger headwind over 200 basis points.
Of headwinds year over year.
Our more than 200 basis points.
What's what's happening is and what we're seeing is.
Last year was a record year in terms of winning.
Over new customers to Massimo technology, as well as renewing existing contracts and we saw a record first half as well. So we're seeing an elevated number of.
Amount.
Of equipment that were installing under those contracts and that's what's putting the pressure above and beyond what we expected coming into this quarter.
And maybe if this is helpful.
Were not capable of giving you a better guidance that we're giving you right now just because we've been through.
Okay.
This changes.
Last year, the changes were due to COVID-19.
Rising in hospitals, panicking and buying things to turn a lot of debt into monitoring pads and that.
Affected our margins because we sold not by contract we sold a lot of capital.
That have a lower margin compared to sensors, because sensor volumes were down because there weren't as many elective procedures. So you have patients that would normally come in 5 day.
For electric procedures that have patients coming in for maybe a month or 2 for Covid. So you didn't see the same rate of change.
Sensors, so that cash.
As you know I'll start be able to predict margins profit really last year. The good problem of having again. This year is it's hard for us to predict because last year was a really an inflection point for many institutions that had been.
Been sitting with all.
Competitive technology, they realized at the moment of truth.
So that plus our ability to come up with innovative products to help them. I think is 1 a lot of customers over so we ended up with a record not only a record.
Shipment.
Capital and OEM boards that we sold but it was a record.
Set up new hospitals contracting with us which is seeping into this year. So it's really a problem of good fortune.
The margin, but that's also why we it's hard for us to predict.
Predict better than we predicted because we think we are still beneficiaries of that goodwill and other.
That moment of truth, where you know what.
1 when you really come down to where the best per patient care, we proved ourselves in the NICU and the pediatrics in children area, but then.
When it came to adult people used to say well, we're not sure you can make a difference.
Dartmouth Hitchcock came up with that from your study show that made a difference and last year. They saw that we made a difference with COVID-19 patients. So I think.
That's why we're ahead of schedule with things that we haven't we couldn't have predicted.
Fortunately.
But that's also why we can't tell you for sure what's going to happen beyond this year and even debt because they go better than what micra has baked in a new hospitals converting to us which could.
Improve our drivers improve our sensor volume, but because of ASC 842 reduce.
So margins temporarily.
Yes.
Got it that's helpful.
It's a high class problem.
Okay. So just from my follow up here.
I like that.
I wanted to ask on the board number you posted year, which was quite good.
I appreciate all the color you provided here on the installations.
Sexually as we think beyond this year, which I think this year ounces would have been higher if not for some higher board inventories with Oems to start the year, but is the exit rate here in 'twenty, 1 the right way to think about modeling forward board shipments or do we think about maybe a modest level of growth on top of the run.
Run rate here, that's now seem to be taking a little bit higher.
Yes, Jason.
You look at our implied guidance just over 65000, a quarter and I think that thats.
Kind of the weighted that we'd look at it right now.
Until we give.
Further estimates seeing how the rest of the year goes so.
I think thats, probably the way to look at it going forward and we'll update you as we continue to see success.
Success in contracting.
Okay, Alright, thanks, Mike I appreciate it guys.
Next question comes from the line of Mike Pollard from Baird Your line.
Is now open.
Good afternoon, I'm going to ask 1 more on the scintillating gross margin discussion.
Yes, no here so as you assess understanding it's imperfect as you assess the surprise or the drivers of the surprise versus your prior expectation.
What portion of it is.
Replacing competitive boxes with your boxes and what portion of it is putting boxes.
Next day beds that didnt used to have boxes.
Non.
Not year over year, but like what did you Miss what piece of that was better or is trending better.
<unk> than what you thought 3 months to 6 months ago debt.
Russia may imply when we said we had record breaking new customers and renewals that you saw were aggregating it no we havent record non.
Number of new customers and record number of renewals.
And.
Typically with renewals, we don't place as much new equipment, because they already have our equipment. So it's really the vast majority of business from new customers. Okay.
Helpful.
<unk> I heard the comment from Micah on Europe.
The U S launch maybe later this year.
Year, perhaps snacks.
It seems to be a great opportunity for you, but in the meantime, I'd just be curious is that.
The ex Usp's contributing as expected I think we were modeling about a point of revenue contribution in the quarter is that give or take.
Where that goes.
Yes, that's correct.
It's going.
Going great.
In many ways being better than what we expected.
Okay.
I wanted to ask about Apple.
I appreciate the carve out of the new item $5 million in the quarter.
I guess bigger picture. This just seems like the third.
Front.
Real quick just to be clear $5 million for the year. The majority of that in the back half of the year Okay.
Helpful.
Zooming out on this it seems to be the third front in this matter and I am just curious for a little more color.
How do you how do you underwrite this internally the total expense you're willing to.
The total investment you're willing to make the potential payoffs here the timing of visibility I mean, any I get a lot of questions on this and I know there is.
There's a lot of fluidity and not a lot of good info at the moment, but your latest and greatest.
Thinking on this I think would be helpful.
Yeah, well, we wouldn't want the ITC before we're familiar with patent litigation.
You know with Medtronic and with Philips that ended up costing between $15 million to $30 million each.
But ultimately.
Really it was.
We not only were able to and the Medtronic case, enjoined infringing product, but I'd love to with Medtronic.
The $1 billion in royalties and damages.
With Philips $300 million.
<unk> and our new partnership that.
And I think that's been really helpful to our company.
When apple or the trade secret in patent infringement.
That is not going to go to trial, probably till end of 2022.
That will be the normal cost of.
Patent litigation.
GAAP.
Give or take some I mean, apple has not been easy to.
To do things that they do everything they can to take away your rights of discovery and we've been fighting that.
I think we're making some headway.
And the court on debt.
And that could eventually if we well that could be.
Significant cash.
Images.
And who knows what else but.
On the ITC case, we don't gain any damages that is purely.
Seeking an injunction and that will take about 18 months probably.
Annual product costs of $1 million per month.
And but it was seeking injunction of the <unk>.
Watch 6 which has our patented technology in it.
And.
So that's why EBITDA.
Suddenly I can give you of that yeah. No. That's really helpful color and then last on that for Mike or al.
<unk>.
Expenses related to <unk>.
These 3 work streams going to be excluded now or is some of it.
The adjusted numbers and some of it's out.
Yes, Mike.
As far as our traditional.
Defense of our patents and trademark case.
Secret Im sorry trade secret as well as the Pat.
In our case those costs are already included in our non-GAAP numbers. This is a very unique case in terms of the ITC the complaint that we filed.
Which represents a pretty significant spend over a very prudent.
Pre defined period of time, its very short duration of time.
It.
Up to 18 months. So that's why we're excluding that and giving you visibility to the spend related to the ITC.
Excellent. Thank you for taking my questions.
Thank you.
Next question comes from Ravi Misra from Baird Your line.
Ill open.
Okay.
Hey, Joe Micah, Devon here for Ravi Thanks for taking our questions.
I wanted to talk a bit about home.
The automation of a little bit more you discuss that kind of a detail and it was a big Q last year.
Our last quarter for it.
In regards to the kind of expansion.
And as Joe and utilization of.
Hospital automation and monitoring.
How do you see the recovery in kind of the.
Yes, that's an area theyre impacting any adoption.
Versus.
Kind of.
Any change from last quarter, and then have a follow up to that please.
Standard automation is going very well.
People are seeing the value.
You saw the study maybe that we did a press release on that show.
Theres less nursing time.
At the bedside, which of course helps dealing.
Dealing with any disease, especially in infectious disease.
Bob.
Delta variant.
And then as far as the business has gone really well our the way we kind of track. This is the driver shipment and then does.
Annual revenues.
So we had some really.
Good quarters in terms of driver shipments and that has continued.
But I know from <unk>.
Annual revenue increase it's been double digit maybe close to 30% growth this quarter compared to the same quarter a year ago.
Okay. Thanks.
And then I just wanted to shift real quick.
Medco and also non health.
Is that kind of you mentioned that.
That could be meaningful kind of toward the end of the year I'm curious how that plays in with.
Cardiac monitoring and the oximetry.
Any pricing power on the subscription.
With better algorithms and then also kind of rolling out that package together.
Is it already integrated with the Masimo dashboard.
If you could just get some color into that.
Paul.
Book.
Sounds like you've been talking to some of our customers we have not only a better.
Better technology for cardiac output minimally invasive.
Done that's when we're going to be bought with co than the leading company in this space, but we also have a better.
But our cost and cost of ownership proposition for our customers and it's gone.
Pretty well.
Customers are happy to see maximal backing litho.
Because even though in the past look almost on clinically there is such a small company customers we're afraid of.
Taking a chance on them so like I said in many ways that revenue wise than what it is we've said it's about a point, but many ways, it's been better than we expected as far as customer excitement and.
Joe.
In acceptance.
Okay.
Got it anywhere from half a couple more questions.
Yes.
Mike Madsen.
Operator, Mike.
Mike Madsen your line is now open.
Yeah, I think so.
<unk>.
I guess.
<unk> get 1 more on gross margin, but putting aside this mix issue and the board issue.
I wanted to see if you could just comment on any other kind of drivers of gross margin.
Over the next few quarters.
I know the Rd sensor I think in the past that was the <unk>.
Helping your gross margin and I don't know if thats run its course.
The other day products, you've launched in things like inflation et cetera.
The kind of puts and takes there for gross margin Scott from this mix issue.
Yeah, Mike if you if you kind of strip out the headwinds from the higher monitor installations for the balance of the year. We continue as we see rebound in elective procedures and how our S. P. H b both reset line those things are kind of connected more to those rebounding surgeries.
We will give us a nice mix benefit and then if you think about the R&D as we convert more to Rd sensors to.
The higher quality.
Sensor, but we have some better margins on that sensor and that should continue to drive improvements in gross margins.
And that's why we have that long term plan as we try to drive our gross margins of 70% over time.
Those are some of the key drivers to that improvement.
Okay. Thanks, and then as far as the the opioid safety net launching in Europe goes.
What's the initial plan.
It's going to be paying for that as it gets to be an out of pocket purchase do you have any plans to seek reimbursement in our house.
<unk> pay for.
Yes, initially it's going to be out of pocket purchases, but we are working with.
Reimbursement groups outside the U S to seek reimbursement.
<unk> full toward them as well.
Okay. Thank you. Thank you.
Okay I think last question from.
To biomarin.
Your line is now.
Alright. Thank you for squeezing me in this evening.
I wanted to ask any more on gross margins I think we lost everything there is to ask there, but I did want to ask about sales guidance.
You had a great quarter, all indicators looked good shipments sensor volume really a lot of positive commentary and you beat consensus by about $10 million or so.
So why don't take.
Guidance up a bit higher on the sales front.
Joe.
Would love to hear a little bit more of your thinking around that.
Yes.
I'll comment first and Joe can add.
If you look at our guidance for the year, we're raising it by $11 million.
And that's in excess of how we exceeded expectations in.
Quarter and it really reflects.
The additional.
Level of driver shipments for the back half of the year.
And of course, as you know, we're being thoughtful and prudent about our guidance, we're still in the first half of the year and.
Coming out of a pandemic from.
We're just being thoughtful and you could say.
Somewhat conservative in providing high confidence guidance so.
That's how you should think about it Joe.
Sure, Yes, and I agree with that assessment and Joseph Michael very good.
I guess I'll ask 1 on international we used to hear from time to time that there'd be some.
From Big tenders coming in so I would love to just hear kind of your expansion on the international front any new countries, you've been able to get into any new governments who've made relationships with that sort of.
We just haven't talked about international specifically in a while thanks.
Sure.
We have not expanded.
Much directly this year internationally.
But we're making a really good process from the countries that we are direct in from.
The major European countries to.
Asian countries.
<unk>.
We.
We just recently got some really good reimbursement.
Men.
And for a non invasive hemoglobin in Korea, which we think is going to be good.
And.
So yes things are going really well I think this quarter international was about 34% of our.
Our total revenue.
Or is it some.
Around 30% share about 30%, 30% of our revenue. So we expect international to do more and more as well.
Continued growth.
Alright I appreciate so much thank you.
Thank you so much I don't want to have a wonderful afternoon and.
Look forward to our Q3 earnings call, where we can talk about.
Margins.
Yeah.
Thanks.
Sure.
This concludes today's conference call. Thank you all for your participation you may now disconnect.
Yeah.