Masimo (MASI) Q1 2021 Earnings Call Transcript

Masimo (MASI -0.75%)
Q1 2021 Earnings Call
Apr 26, 2021, 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 first-quarter 2021 earnings conference call. The company's press release is available at www.masimo.com. [Operator instructions] I'm pleased to introduce Eli Kammerman, Masimo's vice president of business development and investor relations.

Eli Kammerman -- 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 Masimo's 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 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 -- Chairman and Chief Executive Officer

Thanks, Eli. Good afternoon, everyone and thank you for joining us for Masimo's first-quarter 2021 earnings call. Our first-quarter results illustrate the resiliency of our customers and our business. 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 pandemic, we delivered double-digit revenue growth and driver 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 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 life savers. There are more advancements ahead, which we believe will be well received by our existing and new customers around the world. I'll discuss more later in this call.

Now, I will ask Micah to review our first-quarter results in more detail and provide you with an update on our 2021 financial guidance.

Micah Young -- Executive Vice President and Chief Financial Officer

Thank you, Joe and good afternoon, everyone. We have begun 2021 with a solid start. As adhesive sensor revenues are up sequentially, and 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 monitored bed counts are simultaneously increasing their sensor orders to use with those new monitors. The business is moving back toward our traditional mix for sensors and capital. During the quarter, we shipped 66,000 noninvasive technology boards and instruments, which exceeded our expectations for the quarter. In turn, we have shipped approximately 2.2 million technology boards and 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 our installed base at the end of the first quarter of 2020. For the first quarter of 2021, our product revenues were $299 million, reflecting growth of 10.9% or 9.5% 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. Despite 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 Masimo SET pulse oximeters 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 increase 3% sequentially when compared to our fourth-quarter 2020 results. Despite hospitals using up their higher than normal COVID-related sensor inventory.

This improvement reinforces our belief that we are seeing a steady rebound in surgical volumes. Moving down the P&L. 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 preparedness, with sensors having higher margins than other -- our other products.

Also, we are still incurring COVID-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 within our manufacturing facilities. It's important to note that we saw our first-quarter 2021 gross margins of 66.1% improve 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 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 nonoperating income, which is comprised of interest income decreased 98% to approximately $62,000 for the quarter compared to $2.8 million in the prior-year period. The decrease was driven by lower interest yields realized term 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 $0.90 per diluted share. In comparison, first-quarter 2020 non-GAAP net income was $55.9 million or $0.97 per diluted share. Turning to our GAAP results.

GAAP net income for the first quarter of 2021 was $53.4 million or $0.92 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 5.4% on a reported basis or 4.5% 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 tailwinds 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, nonoperating 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 550,000 shares of Masimo 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 $3.83, which represents an increase of $0.03 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 masimo.com.

To conclude, 2021 is definitely off to a good start for us in terms of revenue growth and profitability following a very strong 2020. Despite the difficult year-over-year comparisons, we are 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 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.

Joe Kiani -- Chairman and Chief Executive Officer

Thanks, Micah. Thank you very much. Optimism for the future is increasing as we're hearing reports from the field that COVID case counts and hospitalizations are on the decline in most places. And obviously, we understand what is happening in India and Brazil, and we are regretful of that.

But in most countries where we do business, hospitalization due to non-COVID 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 to more beds than ever before and many of those beds are no longer being reserved for potential COVID patient admissions.

COVID made clear the value of Masimo Technologies, and what our mission of taking noninvasive monitoring to new sites and applications means. No other company has the accuracy and reliability, as well as the breadth of measurements Masimo offers for noninvasive monitoring of vital signs with technologies like SET and Rainbow. With our innovation history and our continued research and development investments, we are well-positioned to meet the demands of our existing business and expand our business. We expect 2021 to be an eventful year for Masimo 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.

We are significantly broadening our business through internally developed technologies and acquisitions. The operations of the acquired NanHealth 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 Lidco Hemodynamics monitoring business is proceeding well with integration activities under way. Our hospital automation business is accelerating, too.

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 holds considerable potential for improving patient care and generating meaningful revenues. These products include the new Radius PCG, a tetherless end-tidal carbon dioxide monitor that can connect to Root, with all the advantages of Root's larger screen and automation and connectivity capabilities. We also announced an upgraded version of our Rad-G multimodal pulse oximeter, a compact handheld device adapted for use in the field that now includes a noncontact 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, NomoLine, SedLine and O3 product grew strongly, due to the rise in elective surgeries. We are gearing up for launch of SafetyNet for opioids, for use in CE countries in Europe, while we await FDA approval in the United States.

The clinical studies for SafetyNet for prescription opioid 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. In 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 as they gain adoption worldwide. With that, we'll open the call to questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Lawrence Keusch from Raymond James. Your line is open.

Lawrence Keusch -- Raymond James -- Analyst

Great. Thanks, everyone. Wondering, Joe, if you can talk a little bit, you provided some brief commentary in your prepared remarks about sensors and the number of beds that have monitors associated with them. You did give some color also, I think, on the fourth-quarter call about what you're getting from the field relative to the utilization of those new beds with those monitors.

So is there -- I just wonder if there's any update as you could help us think about that utilization question that comes up quite often?

Joe Kiani -- Chairman and Chief Executive Officer

Certainly. Certainly. I think as Micah mentioned, we saw a sequential growth of 3% in 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. But the reason it doesn't tell the full story is because we've seen some of our customers who have bought stocking inventory this time last year or 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're now -- we feel like -- if not all of them, most of them have depleted that inventory. So we think the sequential growth is stronger than the 3% that we've reported.

And one of the great things, as we continue talking to our customers who bought all of that extra set of monitors last year, that they seem to be utilizing them. These beds that were before nonmonitored beds, have turned into monitoring beds. And as we predicted that eventually they would become monitoring beds, they have patient SafetyNet, with that technology, we used to maybe increase the number of general floor bed monitoring by several thousand a year. We think last year, that number went up by maybe 100,000 to 200,000 beds.

So it feels like the general full monitoring market has gotten penetrated. And from surveys we've done with our top 30 customers that receive these new drivers, it seems like they're utilizing them and their growth rates sequentially has been even stronger, like maybe close to order of magnitude more than what we've seen on a worldwide basis.

Lawrence Keusch -- Raymond James -- Analyst

OK. That's really helpful. And then, I guess, just a second one for me. I know it's obviously is difficult when you're engaged with the FDA.

But just again, I want to take your temperature on how you're thinking about opioid SafetyNet clearance here in the U.S.? And I know in the last quarter, you sort of indicate that you'd be disappointed if it wasn't commercialized this year. So again, just want to get your updated thoughts there?

Joe Kiani -- Chairman and Chief Executive Officer

Yes. Well, look the pandemic hopefully, it's once every 100-year event, maybe less, but no more. So we went through, obviously, a once in 100-year event last year. And to our surprise, FDA moved at speed we've never seen before.

You remember how fast they approved Masimo SafetyNet for COVID patients. Unfortunately, that big push of new technologies to help deal with COVID has delayed FDA, and that's what they keep telling us. They've been totally overwhelmed and they've got everybody on staff trying to help clear the decks. But despite the incredible sad story of more people dying of opioid overdose last year than ever before, I still don't, unfortunately, know when we're going to get clearance.

And the FDA knows how good our product is. I don't think it's just -- they're getting to it. I don't know when. But what we're doing is we're basically saying, you know what, we have CE, and let's go to Europe.

The problem of opioids is talked a lot about in the U.S., not talked a lot about outside the U.S., I think, due to the cultural issues. But we think the problem is just as big. In a survey we did with the leading countries in Europe, Germany, France, U.K., 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 we're 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, we'll be in the U.S. as well. But we're going to get going with or without U.S.

clearance.

Lawrence Keusch -- Raymond James -- Analyst

OK. Thanks, Joe. Appreciate it.

Joe Kiani -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Rick Wise from Stifel. Your line is open.

Rick Wise -- Stifel Financial Corp. -- Analyst

Maybe Joe if you could talk about two aspects of incremental innovation. You highlighted a couple of the transactions you've done recently, and it seems like they're going well. But maybe talk about your thoughts or if you think that, that kind of M&A process is likely to continue in '21? Or how urgently you're focused on it? But I've learned to listen to you carefully over the years. And I thought, it sounded like you were hinting in your opening comments about other new products.

Am I over listening? What else could we see in '21 and beyond?

Joe Kiani -- Chairman and Chief Executive Officer

Rick, you're an excellent listener. You were not over listening. So first of all, before this call, we were all reflecting on all the M&A we've done. And the last couple of years, we've done a few, but for the last 10 years, I think we've done about nine.

And every one of them -- and eight out of nine of them have shown dramatic business results and have been successful. The other one is soon going to be showing it's beautiful face. But we've been really happy with our acquisitions. We haven't picked up any bad acquisitions.

I think our due diligence process is really good. And there's been a lot of acquisitions that's gone to the 11th hour and listened to our due diligence and despite being in love with the team and the companies, we pulled out when the data just did not add up to what we thought when we got in. So to answer your questions, two things. One, yes, we're 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 going to pigeonhole ourselves.

Our mission is improved patient outcome, reduced cost of care and taking noninvasive monitor to sites and applications. So we're in business of that. So we're open to all of things that could do that. And then 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.

And hopefully, it will dramatically increase our TAM and our abilities to fulfill our mission.

Rick Wise -- Stifel Financial Corp. -- Analyst

And just to make sure, should we imagine that that could be incremental this year to the forecast -- that forecast projection or no, it's more likely impactful in subsequent years?

Joe Kiani -- Chairman and Chief Executive Officer

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 haven't yet put them in our 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 roll out. We want to protect our brand. We want to make sure it delivers on the promise of our brand and the quality, everything. So because of that and all the history of 32 years, we're not going to get ahead of ourselves.

However, as I said carefully in 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 feel like it's going to be a really good year.

Rick Wise -- Stifel Financial Corp. -- Analyst

No, sounds exciting. And just as a second area, we recently spoke to a number of hospital administrators. And sort of beyond the general award, I left feeling like there were increasing opportunities post-COVID for Masimo in two other ways. One, in sort of specialty areas of the hospital like the cardiology suites or orthopedic areas, and I don't know, I'd be curious to hear about that? But also, one hospital was discharging patients directly from the emergency room, directly from the ER, directly home, monitored by Masimo equipment.

How do we think about these new opportunities or are these niche or they could be meaningful going forward? Thank you.

Joe Kiani -- Chairman and Chief Executive Officer

You're welcome, Rick. We think they're going to be meaningful. We believe while we jumped in to help with COVID, 200-plus hospitals at least got to experience firsthand the power of our Masimo SET in a wearable tetherless product that could be sent anywhere, whether it was a parking lot or with home of the patient, and what we're seeing as COVID is receding in those hospitals, they're taking that technology home now, with helping with the high-risk patients, whether it's heart patients or it's lung patients. So it is pretty exciting.

And I think one of the best things I think that could -- that I can say is that look, a lot of times, you roll out 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, dealing with this terrible problem that was happening, have become really strong believers. And the good news is, some of them are the bellwethers of hospital systems in our country, so -- and other countries.

So I think, while I'm not at liberty to state names or give you more detail, to answer your question again, I think telehealth, telehealth monitoring at home could be a big opportunity for us, and it could be a real thing that could drive our business forward.

Rick Wise -- Stifel Financial Corp. -- Analyst

Thank you very much.

Joe Kiani -- Chairman and Chief Executive Officer

Thank you Rick.

Operator

Your next question comes from the line of Matt Taylor from Masimo. Your line is open.

Matt Taylor -- UBS -- Analyst

Hi. Thank you for taking the question. So I just wanted to clarify some of your comments thereon guidance and from the last call. So I remember, I went through the transcript you talked 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, like T&I, the nasal cannulas and some of these other new products.

So I guess, is that true? Is that upside potentially? And if you do get upside this year, do you think that's the most likely source of some of these new products or would you like to see further improvement in the environment or something else?

Joe Kiani -- Chairman and Chief Executive Officer

Matt, yeah you're absolutely right. We had not put softFlow business in the U.S. in our guidance. We have not put SafetyNet for opioid in our guidance.

And already, we have a really good pipeline for softFlow in the U.S. So hopefully, as it becomes real, it could become a nice way for us to grow out of that number, the percentage points mid-single-digit growth that we are projecting. And of course, SafetyNet for opioids could be big. It just depends how well we execute on the distribution, which is a new area for us.

But then other areas that I think we had not baked in is the growth in things like hemoglobin, SedLine, NomoLine, O3, things that are used in the OR. And that could become, hopefully, a census is improving and people are feeling comfortable going into surgery. The thoughts that by mid-June, the U.S. could be out of the woods by having enough people vaccinated, that will have herd immunity.

So I think all of those could be additive. I -- we have -- in the past several years, have promised 8% to 10% revenue growth and double-digit earnings growth, we're comfortable with that. But like last year, when things went better than that, we took advantage of it, and we ran with it. So we'll have to see how the year turns out.

Matt Taylor -- UBS -- Analyst

OK, great. And I was hoping you could just talk about the fact you bought a lot of shares back in the recent period, and the stock's 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 one-time thing?

Joe Kiani -- Chairman and Chief Executive Officer

Well, look, we buy just, like you guys behind when we think stock is undervalued. Also, you have to remember, we've gone from generating $50 million, $60 million of cash flow to about $200 million of cash flow a year. So the amount we bought while not small, it's within our ability to buy, and we do think, while we actually -- the stock price is like beauty, it's subject to the beholder, we find it beautiful, too. So you're not the only ones out there.

So we thought it a good idea by some shares, and then we did.

Matt Taylor -- UBS -- Analyst

OK. Fantastic. I let others jump in, but thanks a lot for the comments.

Joe Kiani -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Jason Bednar from Piper Sandler. Your line is open.

Jason Bednar -- Piper Sandler -- Analyst

Hi. Good afternoon, everyone. I wanted to come back to the guidance topic here in a different way. I think you made a comment on the call there and this in the prepared remarks that were -- you're on a path to returning to pre-COVID levels for procedure volumes, and that's what you're seeing in your business.

I think you've talked about this before, but maybe update us on what your assumptions are, qualitative or quantitative, to what 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?

Joe Kiani -- Chairman and Chief Executive Officer

Well, we raised guidance by $5 million, even though we thought revenue-wise, our revenues would increase by $10 million, because we have a $5 million headwind on the strengthening of the dollar versus most of the currencies we deal with. As far as the census improvement, we're seeing some hospitals right now, very well-known hospitals, destination hospitals having more than -- reaching 100% capacity, some even over that. So -- and yet we see children's hospital at about half capacity of what it used to be. So what we believe, we believe there is a lack of confidence in being able to get safe care in hospitals.

And that confidence, I think, is going to improve as we get to herd immunity and roaming against delayed procedures and issues that people have that need to be fixed. So logically, we think it's going to get better, but even serving 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're using that to kind of feel good about the future.

I don't know, Micah, if you want to add something there?

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah. Jason, just to add there, as Joe mentioned earlier, we assume basically a stable or steady rebound over the course of the year back to kind of pre-COVID levels. To Joe's point earlier, if we see higher patient confidence to come back into the hospital and the volumes start to pick up, that's where that can be upside to the guidance that we provided. But we've assumed kind of that steady rebound, stable rebound.

Jason Bednar -- Piper Sandler -- Analyst

OK. That makes sense and thanks for all that.

Micah Young -- Executive Vice President and Chief Financial Officer

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 April, we saw stronger sensor volume trends than we did back in January and March.

Jason Bednar -- Piper Sandler -- Analyst

OK. All right, very helpful. Thanks, Micah. And then maybe just to come back to an earlier question on the opioid SafetyNet topic.

What's 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 -- and then the overall go-to-market strategy in those markets, just maybe how that might differ from what you're going to be planning in the U.S.?

Joe Kiani -- Chairman and Chief Executive Officer

Sure. Sure. 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 opioid. And we -- the markets are very different in each country. Some countries, that's a lot of business over-the-counter in pharmacies and the pharmacist makes the call of what to give to people. In some countries, it's by doctor's order, and in some countries, it's really both.

But they still want to make sure doctors 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 this. We are trying to hire people around us that have experience 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.

Jason Bednar -- Piper Sandler -- Analyst

Thank you.

Operator

Your next question comes from the line of Michael Polark from Baird. Your line is open.

Michael Polark -- Baird -- Analyst

Hey. Good afternoon. Maybe a follow-up there as well on opioid SafetyNet 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? What is the reimbursement landscape in pharmacies and physician offices or hospitals get paid for providing this solution today? Or is that something Masimo will be working on to establish with the local authorities?

Joe Kiani -- Chairman and Chief Executive Officer

Yeah. We will be working with local authorities on reimbursement. But one of the 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 it, said they would buy it. So I think it's just a matter of, well obviously proving that to be true, but also getting the message out.

So people know it's there, making sure the medical community trust it and recommends it. But yeah, we think there's going to be a business to be had without reimbursement as well as with.

Michael Polark -- Baird -- Analyst

Is the ASP that you surveyed roughly what we saw for COVID-19 SafetyNet here in the U.S., the $150 mark? Or are you envisioning something different in Europe as you get started?

Joe Kiani -- Chairman and Chief Executive Officer

It's higher. It's higher than that. I don't want to get into it right now, but it's higher than that number.

Michael Polark -- Baird -- Analyst

OK. Maybe the other one on hospital automation. I heard the revenue comment, up 3x in the period. My question is more on the sales pipeline, the selling opportunity there.

Any quantification of that opportunity as you think about the rest of 2021, is the pipeline up, down sequentially year on year, if so, by how much? Just eager to understand what the cadence of that business may be rest of this year and into next?

Joe Kiani -- Chairman and Chief Executive Officer

Well, I'm not going to promise two times growth, I will say that there is strong interest in every corner of the world. Literally, from the Eastern United States, Western, Southern, to all over the world. I believe we have really the most complete and most wealth out of solutions as the pioneers of hospital automation. And when I mean 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, a healthy pipeline, another indication that I believe is out there is we had a very robust patient SafetyNet installation. And typically, once hospitals implement that, they get interested into the other solutions around it, like Halo ION, like UniView: 60 and Uniview and Replica, as I think even those hospitals, which we had a nice healthy uptick, not only in Q1, but the prior quarters, are going to be great customers of ours to expand into our vision of hospital automation.

Operator

Your next question comes from the line of Doug [Inaudible] from Berenberg. Your line is open.

Unknown speaker -- Berenberg -- Analyst

Hey, it's actually Ravi on. How you guys doing?

Joe Kiani -- Chairman and Chief Executive Officer

Good. How are you doing?

Micah Young -- Executive Vice President and Chief Financial Officer

Hi, Ravi.

Unknown speaker -- Berenberg -- Analyst

Good. Thanks for taking the question. So just got a question on the commentary on sensor volumes and kind of the margin profile of the business. If I take out 1Q '20 because of the obvious sensor pull-through that you guys got there and compare you more to 2019, a similar quarter, it looks like your gross margin has definitely stepped up since that period.

So just curious, you had this larger installed base, you have more opportunities, more shots on goal sale sensors. Would it be fair to say that your kind of mix is moving more toward kind of the rainbow and O3 capnography sensors, how do we think about that when it comes to all these new beds, so to speak, you've onboarded in the last year or so? And then, kind of related to that, what are the parameters that are being used now in the general floor? I mean, kind of what's the opportunity here that we should be thinking of when it comes to the longer-term mix benefit perhaps that could come from this?

Joe Kiani -- Chairman and Chief Executive Officer

Sure. Let me hit that and then maybe, Micah, you can add some detail to it. So high level, what's happened is that we have a bigger installed base to sells sensors into. And one of the things we were worried about is that 250,000 plus drivers that came last year on top of our normal volume, we were afraid they might not be utilized.

And not to say that maybe a year from now, they'll stop being utilized. But so far, they're being utilized for the most part, if not all of it. So what that should mean, we should see, especially in a year that we don't think our drivers will be abnormally high, the capital and drivers should be the same levels before the kind of 2019 numbers, we think that should bode well as a 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 if they're being used now more with the elective surgery, coming back with drivers that weren't being used before in the OR. There's a lot of activity in the hospital, but it wasn't in the OR. It was in the ICUs and beds that turn into ICU beds to take care of COVID patients, but now that the ORs are using sedation monitoring, brain oxygen saturation monitoring and capnography for airway gas exchange analysis and monitoring. We're going to see, again, high utilization.

We expect to see that. And I think the last part of your question was related to kind of how we see the general floor and what's going to happen, what's effective? Look, a lot of maybe one day general flows will become like the ICU, where every parameter in the ICU will follow patients on 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 from COVID is the pulse oximetry. And not just any pulse oximetry, if I may say, but the SET pulse oximetry, where it works to motion locution.

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 into that environment, including other pulse oximeters, they boomerang. They 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 love the product. They -- some of the comments were great in the early publications. You can only get it out of my cold, dead cold fingers, where before, the nurses were the first to say, get this crap out of here, because it was driving them insane. Once they at mass general, with our competitor's pulse oximeter, this is years ago, but they had a false alarm every four minutes.

So anyway, I hope I answered your question. Micah, anything else you want to add to that?

Micah Young -- Executive Vice President and Chief Financial Officer

Ravi, you mentioned -- I did hear you mention comparing back to gross margins about two years ago. So looking at Q1 '19, and you mentioned we're up from there. We are about 65.4% gross margins in 2019 in the first quarter, and we're now up to 66.1% and continue to rebound as mix improves. Some of the things that we are seeing is, we're continuing to get more revenue per drivers.

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 costs 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 guiding this year to 67%. So if you look at that, that assumes or implies about a 50 to 60-basis-point sequential stepped-up improvement each quarter to get into those numbers. So we're expecting to kind of get back to those pre-COVID gross margins of 68% as we exit the year.

Unknown speaker -- Berenberg -- Analyst

Great. Thanks. And then just one more on the automation business. You kind of 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 revenue stream? And just kind of relatedly, what kind of margin profile should we think -- be thinking of for that business? Thanks a lot guys.

Joe Kiani -- Chairman and Chief Executive Officer

Yeah. Well, 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, is a question we're still wrestling with. But as far as the level of revenue is concerned, I think really, it's more about do we think they 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 we're going to get into that we think should, and you'll see in the future when we do them. But I think these are part of our whole hospital business.

Operator

Your next question comes from the line of Marie Thibault from BTIG. Your line is open.

Marie Thibault -- BTIG -- Analyst

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 66,000 shipped boards in the quarter, and I know that puts you well on track for the year-end result. But do you believe anything was 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 destocking a year ago for first quarter and would love a reminder on second-quarter comps?

Joe Kiani -- Chairman and Chief Executive Officer

Well, I'm going to let Micah answer, but I want to make sure I heard right. It's actually 66,000 boards, not 56,000. But go ahead.

Marie Thibault -- BTIG -- Analyst

Yeah. I know 66. Yeah.

Joe Kiani -- Chairman and Chief Executive Officer

No, 66,000.

Micah Young -- Executive Vice President and Chief Financial Officer

Yes, 66,000 for the first quarter.

Marie Thibault -- BTIG -- Analyst

I am saying 66, yeah.

Micah Young -- Executive Vice President and Chief Financial Officer

Yes. It's hard to hear through the -- so Marie, just to answer your question there. Yes, we still expect to ship at least 60,000 boards per quarter or drivers per quarter for the rest this year. If you look at -- we're continuing to gain more confidence, especially as we look at the utilization we've seen on the excess drivers last year, we don't see a replacement or any pull forward into the prior year or into the first quarter at all.

We believe looking, at the information, too, 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's going to be installed this year. So it gives us confidence in that forecast that we're providing of at least 60,000 drivers per quarter.

Marie Thibault -- BTIG -- Analyst

That's great to hear. And the follow-up then on the sensors in the Q2 comp a year ago?

Micah Young -- Executive Vice President and Chief Financial Officer

Yeah. 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 start to steadily recover back through the end of the year.

Marie Thibault -- BTIG -- Analyst

OK. I picked up my handset, so hopefully, I'm coming in more clearly. I wanted to ask my follow-up. Great.

I wanted to ask my follow-up then on opioid SafetyNet. 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're not asking for any extra data or anything like that. It really is just sort of COVID-related delays from your read of it?

Joe Kiani -- Chairman and Chief Executive Officer

That's correct. Since the last couple of quarters, even from the beginning, it definitely unchanged. They're very engaged with us. They're very interested in helping us.

Remember, this is a product that they chose, as not only breakthrough technology but one of eight products out of over 250 that could potentially impact the opioid epidemic. So this has -- I think it has still the attention of the management at FDA as well. So no, nothing's changed. It's just they've been incredibly busy with COVID-related things, and I think that's just spread them very thin.

Marie Thibault -- BTIG -- Analyst

OK. Understood. Well, we look forward to seeing what you can do in Europe. Thanks for taking the questions.

Joe Kiani -- Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Mike Matson from Needham & Company. Your line is open.

Mike Matson -- Needham & Company -- Analyst

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 you things stand with NomoLine, SedLine, O3 on their platform?

Joe Kiani -- Chairman and Chief Executive Officer

Well, our relationship with Philips is strong. They're one of those resilient customers besides the end-users. I discussed at the beginning, they're doing really well. And obviously, no one is in the capital business for patient monitoring, it's 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 we're seeing, they're kind of going along their 2019 kind of level.

We are becoming increasingly a bigger part of their business, both in pulse oximetry shipments as well as new parameters like SedLine, NomoLine and O3, and we're still partners and believe together in the power of rainbow, and we're -- we believe that is a game-changer for predictive algorithms, which not only Masimo is interested in, but so is Philips. So yes, things are going great. We continue to increase our footprint within Philips.

Mike Matson -- Needham & Company -- Analyst

OK. Thanks. And then I wanted -- I was looking back at your slides from your investor day in 2019. It was about two years ago, I guess.

So there were two kind of pipeline projects that you disclosed there. I think one was involving malaria detection and one was a new measurement of partial pressure of oxygen. So I was just wondering if you could give us any updates on those? And are those things -- some of the things that you were kind of hinting out earlier in the call?

Joe Kiani -- Chairman and Chief Executive Officer

Certainly. Malaria project progressed very well since we discussed the project and we're planning to do large-scale clinical trials in affected countries at the 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 malaria front, that there might be a very effective vaccine dealing with malaria, apparently had about 75% 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 of malaria around the world, and we picked up this project as a means to help, more than anything. On the partial pressure of oxygen, we're -- unfortunately, the clinical trials for that technology got suspended or paused because of COVID. But now that COVID is receding in the countries that do the trials, we'll be picking that up again.

And hopefully, we'll have some information about its efficacy and whether we're going to be able to successfully launch it or not, probably toward the end of this year.

Mike Matson -- Needham & Company -- Analyst

OK, great. Thank you.

Joe Kiani -- Chairman and Chief Executive Officer

Well, thank you all so much for joining us. Thanks for the last-minute change from Tuesday to Monday for our earnings call. I'm gaining confidence with procedures in hospitals. I'm going to get a small procedure tomorrow, myself.

So I appreciate you guys getting with us and I look forward to our next earnings call. Thank you.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Eli Kammerman -- Vice President of Business Development and Investor Relations

Joe Kiani -- Chairman and Chief Executive Officer

Micah Young -- Executive Vice President and Chief Financial Officer

Lawrence Keusch -- Raymond James -- Analyst

Rick Wise -- Stifel Financial Corp. -- Analyst

Matt Taylor -- UBS -- Analyst

Jason Bednar -- Piper Sandler -- Analyst

Michael Polark -- Baird -- Analyst

Unknown speaker -- Berenberg -- Analyst

Marie Thibault -- BTIG -- Analyst

Mike Matson -- Needham & Company -- Analyst

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