Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Masimo Corp (NASDAQ:MASI)
Q4 2019 Earnings Call
Feb 19, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to Masimo's Fourth Quarter and Year-End 2019 Earnings Conference Call. The Company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations.

Eli Kammerman -- Investor Relations

Thank you and 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 Masimo's current judgment, including certain of our expectations regarding fiscal 2020 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 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 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 will be covering this afternoon.

I'll now pass the call to Joe Kiani.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you, Eli. Good afternoon and thank you for joining us for Masimo's fourth quarter and 2019 year-end earnings call. We achieved many important objectives in 2019, including another year of double-digit revenue and earnings growth. 2019 was a record-breaking year in nearly every category. And to our delight, we saw promising acceleration in the adoption of Patient SafetyNet in post-surgical wards together with hospitalwide adoption of SpHb in prestigious leading hospitals.

Our ability to help our customers improve outcomes and significantly reduce overall cost of care has enabled us to achieve these records. Clinical studies have shown that only SET reduces ROP in neonatal intensive care units, reliably detects CCHD in newborns in maternal wards and in combination with Patient SafetyNet saves lives from opioid overdose while dramatically reducing ICU transfers and rapid response team activation in post-surgical wards.

In addition, studies have shown that rainbow, SpHb and PVi help clinicians reduce blood transfusions and a recent landmark study in France showed SpHb and PVi decrease mortality by 30%. We are seeing hospitals' actual experience with our SET and rainbow technology reinforce these objective and independent clinical study findings. At the same time, our worldwide team continues to succeed in improving our operational efficiencies while expanding our portfolio of life-saving products.

We are happy to report fourth quarter and full year results that exceeded expectations and set the stage for a promising year ahead. For the fourth quarter, our product revenues increased 12% to $247 million and our non-GAAP EPS grew 12% to reach $0.91 per share. And for the full year, we delivered nearly 14% constant currency product revenue growth and 22% non-GAAP EPS growth.

I'll discuss more in the call today. Now, I'll ask Micah to review our Q4 and full year results in more detail and provide you with an overview of our 2020 financial guidance.

Micah Young -- Executive Vice President and Chief Financial Officer

Thank you, Joe, and good afternoon everyone. Before we get started, let me remind you that the financial measures I will be covering today will be primarily on a non-GAAP basis, unless noted otherwise. Please refer to our website for today's earnings release, supplemental financial information and the quarterly earnings presentation as well as the Form 8-K we filed with the SEC for further information regarding our non-GAAP financial measures and reconciliations.

Throughout 2019 we saw steady growth in our business across multiple product segments and multiple geographies. In addition to another quarter of double-digit revenue growth, our fourth quarter results also included significant margin -- operating margin expansion and double-digit growth in our non-GAAP earnings per share. During the quarter, we shipped 61,400 noninvasive technology boards and monitors, which is consistent with our expectations of 60,000-plus drivers per quarter.

For the fourth quarter, our product revenues were $247.4 million, reflecting growth of 11.8% or 12% growth on a constant currency basis. Please note that our product revenues for the quarter included approximately $3 million of monitoring equipment revenue recognized under ASC 842 which contributed roughly 1 percentage point to our revenue growth this quarter.

Moving down the P&L, our non-GAAP product gross margin for the fourth quarter increased 110 basis points to 67.5% compared to 66.4% in the prior-year period. This improvement was primarily driven by favorable customer and product mix, increased manufacturing efficiencies and other cost reduction activities we've implemented to improve margins.

Our non-GAAP selling, general and administrative expenses as a percentage of product revenue decreased 90 basis points to 32.3% compared to 33.2% in the prior-year quarter and our non-GAAP research and development expenses as a percentage of product revenue increased 10 basis points to 9.5% compared to 9.4% in the same quarter last year. As a result, our non-GAAP operating margin increased 190 basis points to 25.7% compared to 23.8% in the prior-year period. We are very pleased with the operating leverage that we are achieving. Our global organization continues to demonstrate the operational discipline required to deliver increased productivity across the Company, which enables us to reinvest in further innovation that fuels the growth we are seeing in the business.

Moving further down the P&L, nonoperating income on a non-GAAP basis was approximately $3.1 million for the quarter compared to $2.9 million in the prior-year period. And our non-GAAP tax expense in the fourth quarter is $14.6 million resulting in a non-GAAP effective tax rate of 21.9% compared to a non-GAAP effective tax rate of 18.2% in the prior-year period. The low rate in the prior year led to a difficult year-over-year comparison.

If you recall from our earnings call last year, the US government had issued regulations in November 2018, which provided clarification on the methodology for determining foreign tax credits. This resulted in a $1.6 million reduction to our tax provision for the fiscal year 2018, which we recorded in the fourth quarter of 2018.

Our weighted average shares outstanding for the quarter increased 1.4% to 57.3 million compared to 56.4 million in the prior-year period. For the fourth quarter, our non-GAAP net income was $52.1 million or $0.91 per diluted share. In comparison, fourth quarter 2018 non-GAAP net income was $45.5 million or $0.81 per diluted share. This reflects non-GAAP EPS growth of 12.3% over the prior-year quarter.

Turning to our GAAP results, GAAP net income for the fourth quarter of 2019 was $52.9 million or $0.92 per diluted share. In comparison, fourth quarter 2019 GAAP net income was $46.9 million or $0.83 per diluted share.

Overall, 2019 was a great year for Masimo as we achieved constant currency product revenue growth of 13.6%, expanded our non-GAAP operating profit margin by 200 basis points to reach our goal of 24% and delivered non-GAAP EPS growth of 21.5%. The results we delivered for 2019 clearly illustrate the gains we have made in increasing our operational efficiencies to drive progress toward our long-term goal of 30% operating profit margin. We are proud to achieve these gains in profitability while at the same time increasing our R&D investment and recording double-digit revenue growth in the overall business.

Now I'd like to go into more detail on our full-year 2020 financial guidance that we outlined in our press release last month. For 2020 we are projecting product revenues of $1.035 billion, which reflects a year-over-year growth of 10.5% on a reported basis or 11% growth on a constant currency basis. Included in our product revenue guidance is approximately $4 million of year-over-year currency headwinds offset by roughly $7 million of additional revenue related to an extra holiday shortened selling week at the end of the fourth quarter and we are expecting that the Connected Care transaction will contribute roughly 1 percentage point toward our full-year 2020 revenue guidance growth rate of 11% on a constant currency basis.

Our non-GAAP product gross margin guidance is 68% which represents a 90 basis point increase over our 2019 results. And our non-GAAP operating expense guidance is approximately 43.2% of product revenue, which reflects a 10 basis point increase over the prior year. Our operating expense guidance includes continued investments in R&D, as well as sales force expansion, increased legal costs and incremental expenses related to the connected care business, which are largely being offset by our ongoing efforts to deliver increased operational efficiencies.

Our guidance for non-GAAP operating profit margin is 24.7%, which reflects a 70 basis point improvement over the prior year. Included in our guidance is approximately 120 basis points of operational improvements and leverage from our existing business, which is offset by roughly 50 basis points of headwinds related to the Connected Care transaction.

Moving further down the P&L, we expect to generate approximately $12 million in non-GAAP non-operating income in 2020 which is primarily comprised of interest income. This would represent -- this represents a $1.5 million reduction from the prior year as a result of the lower interest rate environment heading into 2020. We are also projecting a non-GAAP tax rate of roughly 23.3% and we are estimating that our weighted average shares outstanding for the year will be approximately $58 million, which reflects an increase of roughly 1% over the prior year.

Based on all of these assumptions, we are projecting non-GAAP EPS of $3.56, which reflects a year-over-year growth of approximately 11%. It is important to note that our projected earnings growth reflects continued leverage with operating profit dollar growth of 14%. This is partially offset by roughly 3 percentage points of headwinds to our EPS growth rate, mostly due to lower interest income and a higher share count. And from a GAAP perspective, we are projecting a GAAP tax rate of approximately 19% and GAAP earnings per share of $3.64 for the year.

For additional details on our full-year 2020 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 masimo.com.

In summary, we are very excited about our 2020 outlook of 11% product revenue growth and 14% operating profit dollar growth and most importantly, we remain steadfast in our commitment to delivering on our long-term plan for both revenue growth and operating margin expansion as we drive toward our long-term goal of 30% operating margin.

With that I will turn the call back to Joe.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you, Micah. At the beginning of this call, I mentioned the great record-breaking year we had and discussed some of the highlights. Further in 2019, we contracted the most incremental new business in our history. Thanks in part to SpHb. Some of the significant new customers we can discuss from the fourth quarter of 2019 include Baptist Health in the US and Hospital Virgen de las Nieves in Spain. In addition, we won new business in Turkey and in Saudi Arabia from three new hospitals under construction. We also captured a significant renewal with MHH, Hannover Hospital in Germany and renewed and expanded our contract with Seattle Children's Hospital.

Our proprietary rainbow platform achieved full-year revenue growth above our long-term growth goal of 10%. Also 2019 was a record year for our US business in terms of winning new customers for SpHb technology, which measures total hemoglobin continuously and non-invasively. This technology is being more broadly adopted by hospitals that see the clinical benefit and expense reduction from continuous hemoglobin monitoring.

For 2019 our SedLine Brain Function Monitoring, NomoLine capnography and gas monitoring and O3 organ oximetry monitoring grew well above our long-term growth goal of 20%. We're seeing strong adoption of these three technologies.

In the fourth quarter we also installed five more customers for our hospital automation systems, bringing our total customer installed to 13 since we launched this category of products in 2019. Our suite of innovative software applications for hospital automation such as UniView and Replica are being well received by potential users because they streamline workflow and contribute to better patient management. One of our strategic priorities is through hospital automation to reduce cognitive overload for physicians and reduce errors of emission. Through the high veracity SET pulse oximetry and our unique non-invasive measurements, connectivity, predictive algorithms and decision support, we hope to improve the continuum of great care.

As we announced in January, we acquired the connectivity assets from NantHealth, the iSirona portfolio. iSirona is an established leader in providing connectivity solutions to hospitals, enabling streamlined collection and storage of medical device data through a vendor agnostic platform connecting to electronic health records or other clinical information systems. The iSirona acquisition not only provides us with products that complement our current portfolio, but also increases our customer footprint and expands our commercial presence by adding a successful team of sales, marketing, field implementation and technical service professionals. We believe the combination of Masimo's hospital automation technology with the iSirona products will accelerate our growth in this area.

We are also happy to report that we have submitted our opioid SafetyNet monitoring system called Masimo SafetyNet to the FDA for clearance. We have high hopes for what this product may do for people taking opioids at home.

In 2017 it was reported that over 20,000 people died from prescription opioid overdose at home. We believe even more people die from illicit opioid use, perhaps up to 50,000 people in the same year. While it is believed that fewer people died from opioid use in 2019, thanks to increased awareness of the dangers of opioid use. The number of people that die from opioid use is still too large.

Based on the near-perfect sensitivity and specificity of SET pulse oximetry, the data from the Dartmouth-Hitchcock clinical studies on SET and Patient SafetyNet on patients in post-surgical wards on opioids the experience of SET with Patient SafetyNet in approximately 500 hospitals' post-surgical wards and the use of SET on patients with prescription opioids at home in Utah, since their groundbreaking law recommending pulse oximetry for patients on prescription opioids, we are confident we will make a difference in many people's life.

In closing, as we enter 2020 we can't help but be optimistic in our outlook and proud of our abilities to fulfill our mission to improve patient outcomes and reduce the cost of care.

With that, we'll open the call to questions. Operator?

Questions and Answers:

Operator

[Operator Comments] Your first question comes from Rick Wise from Stifel.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Hi, Rick.

Andrew Ranieri -- Stifel -- Analyst

Hi guys. It's actually Drew on for Rick tonight. Hi, Joe and Micah. Just wanted to start on the long-range plan first. Just Masimo has consistently delivered toward the upper end of your LRP. And you have another year of high -- and LRP growth on TAF excluding the acquisition. Just putting aside maybe some of the initiatives you have like hospital automation, opioid safety for a moment, just as you look at the business today why shouldn't 10% plus be the new kind of a growth baseline for Masimo going forward?

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah. Hi, Drew. Yeah, as we think about our core business with -- without even layering in our initiatives for hospital automation or Masimo SafetyNet, we've been -- we have been delivering at the upper end of that range or better. As we think about, you've got a couple of years of how -- understanding how our guidance philosophy is, and we also don't -- it's a long-range plan. So we don't want to get ahead of ourselves. We want to provide guidance that we're -- we have a high confidence in,both going into the year but also over a multi-year plan. And we drive the business to a much higher growth rate number internally and -- but as far as how we prepare guidance and provide guidance, we want to be thoughtful and prudent about it and give guidance that we have a high confidence in achieving.

Andrew Ranieri -- Stifel -- Analyst

Got it. And then just touching on capital allocation for a moment, you just closed the recent acquisition. The balance sheet still remains very solid. How are you thinking about approaching capital allocation priorities in 2020? Could we see additional M&A? And just on M&A for a moment, should we think potential deals could mirror the recent transaction that you just did, or maybe even something -- something larger?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

I think thinking about 2020, we see more things in our pipeline similar to the size and type of a deal you just saw with the NantHealth acquisition. We have a few things in the pipeline. I think they will be complementary and digestible, but we're also looking at things slightly bigger. I don't think it's a 2020 thing. It could be 2021, but it's early stages. So it's hard to tell what's going to happen to something like that. But, yeah, we are -- we think the best way to use our capital is currently toward M&A.

Andrew Ranieri -- Stifel -- Analyst

Got it. And then just with hospital automation, you mentioned the new -- the recent transactions should accelerate initiatives there. You have 13 -- it sounded like you have 13 in your pilot program now. So does that double in 2020? Just kind of what are your expectations for your hospital automation program in 2020?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

One of the fun things preparing for this call was that I wasn't given account. We have so much in our product pipeline. There wasn't an easy number to just quickly grab and give to me, but it's really strong, both the new deals we've signed up that haven't been installed as well as the pipeline of business that our team is working on closing. We are really excited about the success we had in the first year and the reaction we get every day from people that come through and see the discovery lab where we showcase what hospital automation can do for hospitals.

Andrew Ranieri -- Stifel -- Analyst

Thanks for taking the questions.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you, Drew.

Micah Young -- Executive Vice President and Chief Financial Officer

Thank you, Drew.

Operator

Your next question comes from the line of Matt Taylor from UBS.

Matt Taylor -- UBS -- Analyst

Hi guys. Thanks for taking the question. I just wanted to ask you, now that you've submitted the opioid product, any difference in your thoughts about how that could develop this year? Do you still think it could be cash pay or is it possible to get a reimbursement for it?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Hi, Matt. We think the same way. We think, number one, we're excited about what we submitted. We hope that FDA finds it adequate. We are, through our data collection for the FDA, more confident about what this technology can do for people on opioids at home.

As far as reimbursement, there is some discussion that breakthrough technologies may get reimbursement immediately and then relooked at in three years but we haven't seen that yet become concrete. So therefore, our first line of revenue expectation is from cash patients. And then second line from some reimbursement for telepresence, telemonitoring reimbursement codes that were developed last year that we hope we can use. But the more specific reimbursement for our product until something gets concrete, we have to assume it's going to take two to three years.

Matt Taylor -- UBS -- Analyst

Gotcha. And I was hoping you can just talk about how material these hospital [Phonetic] automation contracts are and could they grow?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Well, I believe they are material and that they are happening all around the world from North America to Europe, Middle East, even Africa and they are significant in that hospitals are not just -- I mean obviously they are piloting in a way because they haven't done the entire system at most of these locations, but they are investing in it and they expect to invest more heavily into it. And just about every other customer we've met with about it wants to do it. So we think this is going to become significant.

Now we've not taken the approach of a capital-based model. We've taken more of a SaaS model which means you're not going to see bolus revenue, but hopefully you're going to see a stable growing revenue base like we've built with our pulse oximetry technology.

Matt Taylor -- UBS -- Analyst

Thank you.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you.

Operator

Your next question comes from the line of Bill Quirk from Piper Sandler.

Bill Quirk -- Piper Sandler -- Analyst

Great. Thanks and good afternoon everybody.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Hi, Bill.

Micah Young -- Executive Vice President and Chief Financial Officer

Hi, Bill.

Bill Quirk -- Piper Sandler -- Analyst

Hi, Joe. Hi, Micah. So I guess the first question is anything -- I appreciate that the situation in China may be -- at least there is some news that suggest that we may be settling down a little bit, but is there anything to worry about with respect to supply chain over there? And then conversely, given the products that you're providing, are you seeing any potential lift from that situation?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

On the supply chain side, we do worry about it. However, we've not seen any problems yet. Just in case there might become problems in the future, we're planning to build up more inventory from things we get from China. Fortunately, what we get from China is very limited. And it really is just our cables and enclosure for some of our monitors, the plastic, so -- which we've already made plans to do the plastic internally anyway here. But nonetheless, just to be safe, we are getting additional inventory.

As far as revenue enhancements from what's happening there, we've not seen any. We know of some of our OEMs who have seen that, but we have not seen any yet. Our business is just the normal business we see in the flue season.

Bill Quirk -- Piper Sandler -- Analyst

Okay, got it. Thank you, Joe. And then secondly a question for Micah. Appreciate the comments around the Connected Care and the slight dilution to '20 earnings. I appreciate you don't want to get too far ahead of ourselves here. But is there any way to think about the magnitude of the accretion in '21? Is this breakeven, Micah? Is this something that can help move the needle for the Company? Just trying to get a rough idea of how we should think about that in our models.

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah, Bill, so as we think about it we look at -- we mentioned the 50 basis points of headwinds on operating margin, slightly dilutive on earnings per share and that's in this year, year one. But we believe that it's going to be neutral to positive as we move into 2021. So we will have an opportunity to drive some additional leverage there as we grow that business.

Bill Quirk -- Piper Sandler -- Analyst

Okay, got it. Perfect. Thanks guys.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you, Bill.

Operator

Your next question comes from Larry Keusch from Raymond James.

Larry Keusch -- Raymond James -- Analyst

Thanks. Good afternoon, everyone. Joe, you mentioned SpHb multiple times in the prepared script. And so it certainly stood out that that's gaining traction. Can you talk a little bit about what do you think is driving that? And can you give us some sense of growth because it -- again, it did, from your comment, sound like things are starting to pick up there?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Yes, yes, they are. We are -- it's been 10 years I think, maybe more since we launched hemoglobin and it's great to see hospitals commit to it, especially those who have studied that nearly for 10 years, as well as new ones that are looking at it. I think what's nice that we're seeing is hospitals are signing up for their operating rooms, recovery rooms and then ICUs to be fully equipped with SpHb and be used on practically every patient versus at the early days where they're buying a handful of devices and using it on patients they thought they might need it for.

To why this phenomena is occurring now, I think part of it is the industry we're in. It takes about 10 to 15 years for adoption of a technology that's been proven earlier to make a clinical difference. And I think secondly, it has to do with our -- some of the additional maybe body of evidence has come about. I mentioned earlier, the study in France where it was a pleasant surprise. We've seen -- we've heard reports of people using SpHb and saving lives because they caught bleeding that was hidden. But La Loche [Phonetic] who use it for one year on practically every patient saw a 30% reduction in mortality 30 and 90 days after surgery. And then when they disinstalled for de-installed the technology because they didn't have budget to use it clinically for the future, the following year mortality and morbidity -- mortality shut up back to where it was. And so I think that data that was published last year probably has had an impact. We're repeating that study at several additional hospitals to hopefully confirm its magnitude of results. But -- but yeah, I think it's just the -- finally time is catching up and people are beginning to see this is real and they need to use it.

Larry Keusch -- Raymond James -- Analyst

Okay, perfect. Thanks for that, Joe. I guess two other ones. First off, just coming back to hospital automation, again I caught from your comments that the installations have been a variety of the feature sets that you guys offer. But if you come back to the one I think in your local neck of the woods that was the first installation. I think that was more comprehensive. Maybe you could talk about sort of the experience to date. It's probably approaching six months now, if not longer. So just add question.

And then I guess for Micah again, you indicated your confidence in the 30% operating margin over -- over the long term. But again, I just wanted to sort of get a sense of is that five years out or just any brackets around how we should be thinking about when you might achieve that 30% margin? Thanks very much.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Sure. Let me deal with the first question and then let Micah deal with your second question. The experience on the initial customers that have installed hospital automation has been excellent. In fact, they have agreed to be reference accounts and customers -- we just had customers yesterday that are visiting some of these installations. So all in all -- so it's been so far so good.

Now we're obviously all over this, because this is an important initiative for us to make sure it stays good and as we expand to more and more hospitals the experience improves. And from the products that continue coming out of that group it continues enhancing the product, making it more useful for the clinicians and more useful for the patients. So I have no doubt about that it will continue delighting our customers.

Larry Keusch -- Raymond James -- Analyst

Okay, great.

Micah Young -- Executive Vice President and Chief Financial Officer

Larry, the second question in terms of getting to 30% operating margins of our long-term plan, we still look at that as committing to 100 basis points per year. Of course, we had originally the existing business build up to about 120 basis points for 2020 and that was offset by the acquisition of the Connected Care businesses by about 30 basis points. So that puts us at 70 basis point improvement this year.

But as we think about marching toward that 30%, we still are committed to that 100 basis points of improvement per year and we may see some tailwinds coming from the Connected Care business as we go into 2021. As I mentioned earlier on Bill's question that what was headwind this year should start to flip and become more of a tailwind as we move into 2021.

Larry Keusch -- Raymond James -- Analyst

Okay, terrific. Thanks very much, guys. Appreciate it.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you. Your next question comes from the line of Mike Matson from Needham & Company. Hi Mike. [Phonetic].

Mike Matson -- Needham & Company -- Analyst

Yeah, thanks for taking -- hey, how is it going? Thanks for taking my questions. I guess just back to hospital automation with these deals. Can you maybe just walk us through how the revenue sort of works with that? Is there an upfront capital purchase and then subsequent servicer subscription fees on an annual basis or is it all just kind of on the back end in terms of these fees?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Well, we give options to our customers so they can do a capital acquisition of it or we provide them the SaaS model. So generally, obviously, the capital is in upfront more to the customer. But over time the SaaS model ends up being more to us, more revenues for us. But we take an initial investment in getting that ruling. And what we charge for it, I don't want to say because we have competitors, although no one yet has told us there is a direct competitor do what we're doing.

I can tell you it seems like we're charging a very reasonable price because from low resource countries to high resource countries, no one has bought what we are asking for.

Mike Matson -- Needham & Company -- Analyst

Okay, that's helpful. And then just the Connected Care acquisition, can you maybe just talk a little bit more about how that sort of fits with the hospital automation business? Is it giving you some products that you didn't have or is it getting you into some new accounts or both?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Well the -- first of all iSirona was the second largest Connected Care device out there. So in that sense, it's nice to have that business. Secondly, they have a device that's a stand-alone small device for connecting things where we do our connecting through Root, which of course has other features from monitoring to being a hub for UniView and so forth. So that in itself for certain installations that might make sense to have in the OR and the ICU the Root device and in other areas, maybe just the small hub device.

But really the biggest reason we found ourselves wanting to buy that business was the team that was there. We are scaling very rapidly with hospital automation and frankly we could have more customers if we could have more people to help us support those customers. So what we got from the iSirona, NantHealth acquisition is a fantastic team of installation experts, sales and marketing people that can help us not only with their previous products, but our total product portfolio with hospital automation.

Mike Matson -- Needham & Company -- Analyst

Okay. Thanks. And then finally, Joe, I saw -- you were on CNBC kind of supporting these proposed HHS rules about giving patients increased access to their health data. Just from a business perspective to Masimo, what does that really mean and does that create some kind of additional opportunities for new products and revenue for Masimo?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Well first of all for us all to benefit and ultimately the patients to benefit. We all have to do a little bit of data philanthropy. If we don't share data, then none of us can really create the type of decision support that could help patients.

So, yes and no. Yes, we think it will ultimately help us in -- especially with our hospital automation business and yes we may have been able to sell our data before and now we can't. But I think it's the right price to pay given that we are in the business of healthcare.

Mike Matson -- Needham & Company -- Analyst

Okay. Thanks a lot.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you.

Operator

Your next question comes from the line of Ravi Misra from Berenberg Capital.

Ravi Misra -- Berenberg Capital -- Analyst

Hi, good evening. Thanks for taking my questions. Can you hear me?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Yes, we can. Hi.

Micah Young -- Executive Vice President and Chief Financial Officer

Hi, Ravi.

Ravi Misra -- Berenberg Capital -- Analyst

Great. Hi, Joe. Hi, Micah. So just one on rainbow and then another, maybe a couple on automation. Joe also color me and other in the line of someone who heard you speaking a little bit more confidently about the SpHb opportunity. I'm just curious, full year above your long-term growth prospects of about 10%, yet there is still kind of a level of guidance conservatism, I think embedded in the questions we're all asking here about 2020. So help us maybe think about the pushes and pulls with rainbow, if that keeps going over 10% kind of the rest of the business stays within those historical targets? What kind of upside are we looking at in the model on the top line? And then kind of related to that, are we looking at kind of the gross margin uptick as there is some mix shift over to that? And then I have one on the automation one after that. Thanks.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Sure. Well I have always wished for Christmas for a conservative CFO and God gave you one. So you can back him or blame him for the conservatism. I think it's appropriate because obviously we do our best to forecast and by nature we're optimists. So -- but we want to make sure we deliver.

As far as our confidence in the business and the upside, I think the same kind of upside you've seen before is probable. I think our confidence in SpHb -- these revenues we gained in 2019 did not even reflect the contracts we signed up for SpHb that I'm so happy about. You're going to start seeing them in 2020 and there is an acceleration of that. Now we just have to keep making sure our customers get what they expected because word of mouth is the most important factor in our business.

So I'm -- as I said, I think in my prepared comments I can't help but be optimistic about the future and we hope to continue delivering beyond what we promised.

So I think that's the last question or second [Phonetic].

Eli Kammerman -- Investor Relations

Yeah, there is one more.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

There is one more. Sorry. Go ahead.

Ravi Misra -- Berenberg Capital -- Analyst

Just one follow-up, you don't mind.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

[Indecipherable]

Ravi Misra -- Berenberg Capital -- Analyst

[Speech Overlap] kind of the customer installed base up to 13, now you said three in the fourth quarter. Can you just walk us through how long that process takes to on board -- not only onboard maybe sign up a hospital and then onboard them? And if I could just sneak one last one, that $3 million of monitoring that Micah that you mentioned is that related to the [Indecipherable] automation contracts if you could just kind of define what's in that bucket that would be great. Thanks a lot.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Well, I can tell you that the installations were ahead of what we had expected for the year. And I said earlier, the pipeline of contracts that we signed for it is deep and the number of customers that want to go with hospital automation is deeper. As far as your question about $3 million Micah do you want to?

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah, so Ravi on the $3 million that's really tied to anytime that we provide equipment to customers on contracts that are long-term sensor-based contracts, under ASC 842 itself, we have revenue that matches that equipment in terms of the cost. So that's really all that's changed this year and it's caused us to recognize some revenue -- accelerate some revenue within the quarters and that's why we kind of lay that out every quarter to you -- to investors so they can understand that you really strip that out to look at the core growth rate in the business. So for example, this year -- this past year growing 13.6% on a constant currency basis in 2019, you had about 1 percentage point of contribution from ASC 842 and that's really what that is. It's not necessarily tied directly to hospital automation, hopefully that answers your question.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

[Speech Overlap] the accounting rules were not to take the capitalized version -- portion of the revenue and now you have to. Now given in 2020 it's going to continue being that way or we're going to still...

Micah Young -- Executive Vice President and Chief Financial Officer

We will have similar -- now we will have similar comps, so year-over-year comps the ASC 842 revenues will be in both 2019, as well as we report going forward. And right now, just so you know we're expecting that revenue to be relatively flat year-over-year or slight growth out of that revenue, but it should be consistent.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Given that the comps are now the same going forward, we may or may not even call them out, but we call them out in 2019 because there was a new standard in 2019 compared to the prior years.

Micah Young -- Executive Vice President and Chief Financial Officer

Yes.

Ravi Misra -- Berenberg Capital -- Analyst

Yeah, understood. Thanks guys.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you. I think we have time for one more question.

Operator

And your next question comes from the line of Marie Thibault from BTIG.

Marie Thibault -- BTIG -- Analyst

Great. Thanks for sneaking me in here. I appreciate it.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Hi, Marie.

Marie Thibault -- BTIG -- Analyst

In the fourth quarter you shipped -- Hi -- you shipped 61,400 boards and monitors and I know that last year, you set out the goal of at least 60,000 or more shipments each quarter. Do you have a goal that you'd like to set out for 2020 and along the same lines, should we continue to see that trend of higher ASPs with those shipments due to the popularity of your advanced parameters?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Yes, yes and yes. So, yes, thank you for that question. We believe any quarter for 2020 that we do 60,000 more -- boards or more is a good quarter. That's what we're forecasting. And yes, we expect ASPs still to continue increasing per socket because of the rainbow parameters from the four LED [Phonetic] sensor that does ORI and RPVi to the [Indecipherable] and SedLine,

NomoLine and O3 that are higher ASP products.

Micah Young -- Executive Vice President and Chief Financial Officer

Joe, can I just add one thing?

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Sure.

Micah Young -- Executive Vice President and Chief Financial Officer

Marie one thing to add there, when we think about our installed base as well, our installed base has been growing this past entire '19 roughly 8% and that's up about 2% from a few years ago. And then our revenue per driver is contributing growth that we're seeing in the business in 2019 of about 4% to 5% which gets you into that 12% to 13% growth we saw last year. So that used to be around 3% to 4% before. So we're continuing to see more and more revenue per driver as we move toward advanced premium based sensors and that's why we're seeing that step-up in the growth rates. We're continuing to drive growth through the -- through those advanced parameters and rainbow sensors.

Marie Thibault -- BTIG -- Analyst

That's great to see. That's great to see. And if I could, I'm surprised it wasn't asked yet, on the flu season we're seeing kind of a second peak, a double hump to the season. I'd love to hear any color you have so far on how that's looking this year.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Yeah, I've often said, we should be the ones disclosing the -- how the flue is going because we get one for one almost with the sensor volume. Yes, it has been a bad flu season and yes, the sensor volumes are tracking higher than normal. So we'll see that impact in Q1 which we'll be announcing by April -- April time frame.

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah.

Marie Thibault -- BTIG -- Analyst

Thanks so much.

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Thank you so much. Thank you all for joining us. We look forward to our next call.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Eli Kammerman -- Investor Relations

Joe Kiani -- Chief Executive Officer and Chairman of the Board

Micah Young -- Executive Vice President and Chief Financial Officer

Andrew Ranieri -- Stifel -- Analyst

Matt Taylor -- UBS -- Analyst

Bill Quirk -- Piper Sandler -- Analyst

Larry Keusch -- Raymond James -- Analyst

Mike Matson -- Needham & Company -- Analyst

Ravi Misra -- Berenberg Capital -- Analyst

Marie Thibault -- BTIG -- Analyst

More MASI analysis

All earnings call transcripts

AlphaStreet Logo