Masimo Corp Q3 FY2020 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Masimo Third Quarter 2020 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 speaker’s remarks, there’ll be a question-and-answer session. I am pleased to introduce Eli Kammerman, Masimo Vice President of Business Development and 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 trends in 2020. 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.

Thank you. Good afternoon and thank you for joining us for Masimo's third quarter 2020 earnings call. As we progress through the third quarter and into October, we've been encouraged by the increased ability of caregivers to treat COVID patients more effectively than when the pandemic first emerged. In many cases, Masimo team members and products have contributed to these achievements as our breakthrough technology has been more broadly deployed in hospitals and in the home setting. It's gratifying to have our products such as Root and SafetyNet being used to increase the effectiveness of practitioners and streamline their workloads to improve patient care at much lower cost than historically possible. As for the numbers, for the third quarter, our product revenues increased by 21% to $278 million and we shipped 151,700 technology boards and instruments. Similar to the second quarter, we once again realized over two times the typical demand for our technology boards and monitoring equipment, accompanied by a rebound in our single patient use sensor volume in lockstep with the rebound in surgical procedure volumes. Now I'll ask Micah to review our third quarter results in more detail.

Thank you, Joe, and good afternoon, everyone. As a reminder, the financial measures I will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Our GAAP results and reconciliations to non-GAAP can be found in today's earnings release as well as the Investor Relations section of our website. For the third quarter, our product revenues were $278 million, reflecting growth of 21.5% or 21.1% growth on a constant currency basis. Worldwide sales of technology boards and instruments were up 76% due to increased demand from both our direct and OEM customers. Also, our worldwide sales of single patient use adhesives have rebounded and were up 6% as elective procedures further recovered compared to the decline of 8% in the second quarter. Our worldwide direct and distribution business revenues grew 11% to reach $219 million for the quarter, and our OEM business revenues grew 91% to reach $59 million, which represented 21% of our total product revenues in the quarter compared to 13% in the prior year quarter. For the third quarter, we shipped 151,700 technology boards and instruments, which is roughly 2.5 times our normal run rate. And as a result, we have now shipped over 2.1 million technology boards and instruments over the last 10 years. At the end of the third quarter 2020, we estimate that our installed base has grown approximately 17% over our installed base at the end of the third quarter 2019. Moving on to the rest of the P&L, our non-GAAP gross margin for the third quarter decreased 380 basis points to 64.5% compared to 68.3% in the prior year period. The year-over-year decline was primarily due to a higher-than-usual proportion of revenue coming from our technology boards and instruments, which have lower margins than our adhesive sensors. Also we have experienced higher COVID-related costs to fill the increased demand from our customers and to protect our global workforce manufacturing and distribution during the pandemic. Our non-GAAP selling, general and administrative expenses as a percentage of product revenue decreased 250 basis points to 32.2% compared to 34.7% in the prior year quarter. The year-over-year improvement was driven by our strong sales growth, which enabled us to leverage our operating expenses while at the same time increasing our investments in marketing and advertising. Our non-GAAP research and development expenses as a percentage of product revenue decreased 20 basis points to 10.4% compared to 10.6% in the same period last year. Our non-GAAP operating margin decreased 110 basis points to 21.9% compared to 23% in the prior year period. Despite the gross margin headwinds, our operating profit dollars grew 16% in the third quarter. Moving further down the P&L, our non-GAAP non-operating income, which is comprised primarily of interest income, decreased 80% to approximately $700,000 for the quarter, compared to $3.6 million in the prior year period. The decrease was driven by lower interest yields realized on our invested cash resulting from Federal Reserve actions to cut interest rates during the pandemic. Our non-GAAP tax expense in the third quarter was $14.9 million resulting in a non-GAAP effective tax rate of 24.2% compared to a non-GAAP effective tax rate of 22.4% in the prior year period. Our weighted average shares outstanding for the quarter increased 2% to $58.3 million compared to $57.3 million in the prior year period. For the third quarter, our non-GAAP net income was $46.8 million or $0.80 per diluted share. In comparison, third quarter 2019 non-GAAP net income was $43.7 million or $0.76 per diluted share. This reflects non-GAAP EPS growth of 5% over the prior year quarter. Turning to our GAAP results, GAAP net income for the third quarter of 2020 was $49.4 million or $0.85 per diluted share. In comparison, third quarter 2019 GAAP net income was $49.1 million or $0.86 per diluted share. Now I'd like to provide you with an update on our full year 2020 financial guidance. As a result of achieving the high-end of the third quarter revenue range that we provided in our pre-announcement, we are now projecting product revenues of $1,128,000,000 for fiscal year 2020, which reflects growth of 20.5% over the prior year. Our non-GAAP product gross margin guidance is 65.7%, which represents a 140 basis point decrease over our 2019 results. While our full-year guidance reflects the impact of unfavorable product mix and increased costs related to COVID-19, it is important to note that we are projecting a sequential improvement for the fourth quarter as we expect to see our product mix returning towards traditional levels over time. Our non-GAAP operating expense guidance for fiscal year 2020 is 42.7% of product revenue, which reflects a 40 basis point improvement over the prior year. Our full-year 2020 guidance for operating profit is approximately $260 million or 23% operating margin. Despite the gross margin headwinds, our guidance reflects operating profit dollar growth of 16% over our full-year 2019 results. Moving further down the P&L, we expect to generate approximately $5 million in non-GAAP non-operating income in 2020, which is primarily comprised of interest income. This represents a $9 million reduction from the prior year resulting from the lower interest rate environment. We are also projecting a non-GAAP tax rate of 23.8% and we estimate that our weighted average shares outstanding for the year will be $58.2 million. Based on all these assumptions, we are projecting non-GAAP EPS of $3.46, which reflects EPS growth of 7%. This is driven by operating profit dollar growth of 16%, partially offset by the significant reduction in interest income. To conclude, our third quarter results reflect the recognition by our customers of our ability to rapidly address their needs in today's challenging healthcare environment. We remain steadfast in our commitment to achieving our long-term objectives and creating shareholder value. With that, I will turn the call back to Joe.

Thank you, Micah. While the pandemic is by no means over, it's clear that things have been steadily improving as medical knowledge increases and infection control practices are instituted. Masimo has been consistently assisting clinicians on the front lines with a highly dedicated team of professionals who have been exceptionally responsive to our customers' immediate needs. We have repeatedly proven that our technologies deliver great value for improving patient outcomes and reducing the cost of care. One of those technologies that has lived up to our mission of improving patient outcomes and reducing cost of care is PVi. In Q3, we received FDA clearance for the labeling and promotion of our proprietary PVi measurement as a continuous non-invasive dynamic indicator of fluid responsiveness in mechanically ventilated adult patients. Before the availability of PVi, data for fluid responsiveness was typically acquired using expensive and invasive arterial line catheters. Now, with PVi, clinicians can obtain this essential data using Masimo pulse oximeter or Pulse CO-Oximetry sensors. Hospital protocols such as Enhanced Recovery After Surgery and Goal-directed Therapy recommend fluid management as part of larger initiatives designed to improve patient care and safety. Fluid management protocols look to balance fluids by identifying when patients may be fluid-responsive. The utility of PVi as a fluid responsiveness indicator has been demonstrated in more than 100 independent published studies. As a valuable indicator of fluid responsiveness, Masimo PVi can increase patient safety and physician confidence in managing fluid infusions for patients in surgery. In closing, we're determined to continue providing our essential technology to our customers despite today's challenges. We have a large and growing installed base and an expanding portfolio of technologies and solutions. We are making great progress on many fronts from our SET pulse oximetry business to rainbow Pulse CO-Oximetry and our hospital automation businesses. We are working with the FDA to obtain clearance of Masimo SafetyNet to help save tens of thousands of lives from opioid-induced respiratory depression at home. Masimo products have been proven many times over to improve patient care and streamline the workload for healthcare professionals. Our global organization is committed to effectively serving our customers and patients during this difficult time. We will continue to dedicate ourselves to our mission of improving patient outcomes and reducing the cost of care. With that, we'll open the call to questions.

Thank you. Your first question comes from the line of Lawrence Keusch from Raymond James. Your line is open.

Thanks. Good afternoon, everyone. Joe, just a couple of questions. Maybe to start, I may have missed it, but just was hoping to get an update on how you're thinking about technology boards and monitors for 2020. I know that you had been thinking that it might get towards $500,000 at the time of the 2Q? And just want to see how you're thinking about that now?

Thank you, Larry. As Micah mentioned earlier, we anticipate a more typical mix of instruments, boards, and sensors in Q4. Initially, we expected around 60,000, but now we project about 80,000 boards and instruments, bringing the total to approximately 470,000. Previously, we reported figures of 500,000, down from 550,000, mainly due to the cancellation of ventilators, as clinicians have determined that high flow ventilation is not the most beneficial approach. The positive news is that, as Michael noted, we are 17% above last year's installed base at the end of Q3 2019, which positions us well for next year, given a return to normal procedure volumes, which we are currently observing. This reduction from 552,000 to an estimated 470,000 is primarily due to ventilators, which we anticipated would be sidelined following COVID. However, we do not foresee the same fate for other product categories. With 470,000, we are nearly double our usual volume of instruments and boards.

That was very helpful. I have a couple more questions related to this. As we look ahead to 2021, I've been considering the comparisons the company will face. I understand that Masimo’s products are important in treating COVID, which makes these comparisons significant. How are you planning to help investors understand these comparisons, especially as we enter the second and third quarters? Do you have any initial insights we should consider for 2021?

Yes, Larry, that's a great question. It’s too early to provide guidance for 2021 since we have just reestablished our guidance for this year. We are still in the planning phase, but we aim to share our outlook as we typically do during our year-end call. At a high level, we are anticipating improved growth rates from our single patient use sensors. As Joe noted, elective procedures are continuing to recover, and our expanding installed base of new monitors is generating additional sensor revenues. However, this will be somewhat countered by more challenging comparisons due to the increased demand we experienced this year from the technology boards and instruments. We expect things to trend back to more typical levels next year, and that's how we are approaching it. We will provide more details during the fourth-quarter call. Regarding your other question about how we will communicate the dynamics for next year with those comparisons, our goal is to keep you well-informed. This year, we have made a point to separate the sensor growth from the instruments and boards, and we believe this approach will continue to be valuable as we move into next year to help you understand those comparisons.

Okay. Perfect.

So, Larry, so far this year what we're seeing now if it holds up is that the elective procedures are not stopping in places where they're seeing a surge like France, Germany, and Switzerland. So if that trend continues and going back to how can we help you all think ahead, we intend to give guidance for 2021 at the fourth quarter results earnings call in February. So I think that will be helpful. Now we need to see two to three more months of this to think it's a pattern, but if that continues we should be able to give you guidance for the year.

Okay. Perfect. And then last super fast one for me just on sensors. I think you mentioned a U.S. number for growth, but if you could just give us the worldwide U.S. and OUS number that would be helpful.

Yeah. Larry, the worldwide number was 6% growth overall compared to the 8% decline in Q2. And our U.S., I believe, is right near that number.

You're talking about sensors only or…

Yeah. You're talking about, Larry, sensor growth?

Sensor, yes, growth.

Yeah. Sensor growth worldwide is 6% and the U.S. was very close to that same growth.

Okay. Got it. Okay. Thanks, guys. Appreciate it.

Thank you.

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

Hi, good afternoon. I wanted to revisit the third quarter briefly to gain a better understanding of the trends as they developed. Based on previous questions, what went well, and if I recall correctly, you mentioned in the mid-July second quarter call not to project that performance into the third quarter. While I value your cautious and thoughtful approach given the volatile environment, I would like to understand what surprised you the most. Did the performance continue to improve throughout the quarter? And how are we entering the fourth quarter? Are any trends showing signs of slowing or picking up speed? It would be helpful if you could outline this for a clearer understanding of our trajectory.

Thank you, Rick. One of the things that exceeded our expectations was that our U.S. and global sensor volumes increased by 6%, compared to a decline of 8% in the second quarter. When we looked at it back in May and June, we initially saw that early orders indicated a decrease in sensor volumes, but those improved throughout the quarter. As Joe mentioned, we believe the shipments in the fourth quarter will be closer to traditional levels than what we have experienced in the past. Additionally, our guidance implies that sensor volumes will steadily improve as the year progresses. We're beginning to see our product mix return to the levels we saw before COVID.

Thank you.

What's helped our customers, Rick, is they're noticing when they wear the masks, when they wash their hands, it's really helping keep physicians safe. So I think that learning has allowed them to open up the hospitals and have more elective procedures, which when we gave our guidance last time, we weren't certain if it's going to happen or not.

Thanks, Joe. I want to revisit the strong board numbers from a high level to understand better. Were the boards you sold pulled forward from what you would have sold in 2022 and 2023? What's the takeaway here regarding potential cost reductions? I’m not focusing on the tough comparison right now, but will we be facing a more challenging board outlook in 2022 and 2023 as a consequence? I have a few other follow-up questions as well. Thank you.

Well as Micah said, obviously, we'll feel much better about our numbers and projections for 2021 at the end of Q4. However, currently, our best estimate is that it is going to go toward normal volumes which has been roughly 60,000 boards and instruments a quarter, maybe slightly better than that. So I think that's kind of what we're expecting. So despite a very healthy 2020 being like what we normally do, we think next year will be normal. It won't decline from our normal.

Got you. That's very helpful. Last quarter and recent quarters you've talked Joe about national safety accounts. I think in the second quarter, you mentioned that you have 120 accounts. Now it's over 4,000 interested. Any updates there that you can give us? And are accounts interested? Maybe just any color on the SafetyNet front?

Sure, sure. We now have 140 customers utilizing Masimo SafetyNet. So the number has increased. We expect as the surge unfortunately unfolds. Once again, there will be a lot of interest with new customers for the Masimo SafetyNet system. We have nearly 2,000 customers that have been evaluating it. So I don't know what to hope for, but that's all I can tell you.

Can you provide an update on your capnography initiatives? Has its performance during COVID met your expectations? What are the next steps? Additionally, have you started selling capnography consumables to your entire installed base? What are the future plans for capnography? Thank you.

Well, our capnography business grew very strong in Q3 again. And I believe we have a lot of room for growth there given that we came into it late. We have the best technology and we expect to continue increasing our footprint with capnography. But it was very strong for the whole year, especially in Q3.

Thank you.

Thank you.

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

Hi. Good afternoon, guys. Thanks for taking the question. So I'll pivot off of the last one there. I guess I'm just wondering in addition to Masimo SafetyNet, can you talk about the materiality of that? And some of the other new product offerings that you have like hospital automation especially things that weren't in the plan, how much are those contributing to your growth now? And next year could they be material? If you could offer any thoughts on that.

We have not chosen to break it out yet. So I apologize that I'm not going to get more granular on those. What I can tell you Masimo SafetyNet consists of Radius PPG, which is a wearable pulse oximeter sensor with our SET technology. And that's been pretty strong. If you look at Masimo's business, probably the bulk of it is from SET then it's rainbow and hospital automation and then capnography, NomoLine, and O3.

Okay. Got you. I guess the other key question I had was, you talked about this a little bit in the past. The installed base growth you're seeing as more additive with those boards potentially being productive with broader hospital monitoring. I wonder if you're still seeing that trend? And if you think that the excess board that you're placing this year will be as productive, similarly productive to ones that you've had in the past in ICU and OR settings?

Time will tell obviously. The ones that we were particularly concerned about were the ventilators. And that fortunately, the drop in the Board that we expected in the midst of COVID and the drop has come from that business, which we were suspicious of them being regular consuming sockets. So to the best of our prediction right now, we think these drivers that we're shipping are going to go into normal use even after COVID.

Okay. Great. Thanks a lot, Joe.

Thank you.

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

Thank you. Good afternoon. To start, have you noticed any increase in activity or demand from your OEM partners as this latest COVID wave unfolds? Additionally, have you observed any changes in margin procedure trends or sensor utilization due to this recent surge, either in the U.S. or in Europe?

Yes. We have seen in Europe a demand, but more from a direct business perspective. So Switzerland, France, Germany, Italy, we've seen strong pickup in demand. The U.S. is just picking up. We're seeing East Coast hospitals once again getting bombarded with patients and requiring more attention and products and also wanting to limit sales force interactions because they want to focus on the patients and minimize cross-contamination. So unfortunately it seems to be picking up again.

Okay. All right. That's helpful, Joe. And then I guess a couple more for me. You've been running some DTC ads here promoting and establishing the Masimo brand. And presumably the precursor to a bigger move into the kind of home-based medical care market over time. Would love to just get your assessment Joe or Micah on how these early efforts have landed and how you plan to measure success as you build out this channel over time?

Yes. I think for years we were working on the consumer market. We used to say we're not sure if it's an oasis or a mirage. Well we're beginning to see this becoming an oasis. And so we have already a few products in the market. We started off with iSpO2 then MightySat and now Masimo Sleep and our latest product Radius T, which is a continuous thermometer that lasts for eight days and allows for trending, as well as picking up signs of the fever spikes for all patients. Especially I think parents who have kids probably worry about that a lot and I think it could be very useful. We do have other products on our roadmap for the consumer market which I can't get into right now for competitive reasons. But you're right the national ad campaign from: Together in hospital, together at home. It's a campaign to get consumers to become aware of our performance in the hospital and our brand as we continue bringing more products into that marketplace.

All right. Joe that's really helpful. And just one last question for me. Micah, I was wondering if you could share any details about the acquisition contributions for the quarter, perhaps focusing more on the organic growth numbers if you're able to provide that?

Yes. I think coming into the year, Jason, we had communicated roughly 1% contribution from acquisitions. So it's right in that ballpark in terms of contribution in the quarter. Maybe just slightly above that.

Okay, perfect. Thanks so much.

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

Hi, good afternoon. I guess I'll put my two questions both upfront. The first was just I wanted to build on that real-time commentary. How should we think about potential impact to your guidance and your board numbers that you've given, Joe, that 470,000. If cases start picking up I mean have hospitals kind of adjusted for that capacity? Or do you think there might be upside to that? And then secondly, Micah, if you could just help us break out the impact of the kind of manufacturing complexity you mentioned on the gross margin versus the sensor demand to help us understand what might go away as COVID normalizes? Thanks.

Sure. Let me touch on the first one. Yes, while there could be some additional drivers that will come out as the surge continues, I think the bulk of that demand will be met by Masimo SafetyNet which is a radically different way of dealing with the problem by putting a wearable in the patient. Whether they want to keep them in the general floor or they want to move them into a hotel or back to their home, it really cuts down on the need of new sockets and new drivers by just allowing the sensor to communicate directly to the cloud to a central monitoring system. So therefore, as I mentioned about a couple of thousand hospitals are looking at it. And I think a surge for COVID worldwide will probably be met with the more demand of Masimo SafetyNet. As for your manufacturing question, I'll let Micah answer that.

Yes, that's a great question. Looking at our margins for the quarter, you inquired about the contribution from COVID-related costs. We've implemented numerous measures in our manufacturing, distribution, and safety protocols to protect our workforce. Additionally, there are other COVID-related costs stemming from shipping and other indirect factors related to manufacturing. I would estimate that approximately 1% of these costs are currently affecting our gross margins, while the remainder is mainly due to mix impacts, which I would approximate to be between 200 to 250 basis points.

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

Hi, thanks for taking my question. I guess I would start with the Apple patent litigation. Can you provide any sort of update there? I understand if you're reluctant to comment on it in this forum, but thought I would try.

Certainly. We filed a lawsuit against Apple for trade secret and patent infringement. Regarding the trade secret claim, we sought a preliminary injunction to prevent our former engineers from issuing further patents, as we believe they have taken our trade secrets. The judge did not grant the injunction, stating that we would not suffer irreparable harm; however, the judge acknowledged that we are likely to prove our trade secrets were taken. The trade secret case is proceeding. On the patent side, Apple requested a delay in our patent case and initiated inter partes reexamination of our patents, which is expected to postpone the patent case by about 18 months. The court approved this delay as we navigate through that process. Apple has filed 17 IPRs against our patents, and we will address those. As we mentioned from the outset, these cases are lengthy because we are not seeking a minor resolution; we aim to halt Apple's actions, similar to what we accomplished with Philips and Medtronic. Therefore, stay tuned for further updates as we continue.

Thanks. That was helpful. And then just a question about Europe. So I think during the height of the pandemic, previously they had switched more to your disposable sensors from the reusable sensors? And I was curious if you had seen them continue to use the disposable sensors over the summer when the pandemic kind of eased? And going forward, obviously, the infection rates are going up again, but do you think that they're going to continue to use disposable sensors even once we get a vaccine and kind of move on past the pandemic?

Great question. I wish, I had an answer for you. But at this point I don't. I will try to do some more homework on that. And next time, I think, I can address that question for you. I do believe because of the wearable Tetherless Sensor Radius PPG, we're going to see more people using the single patient adhesive probe worldwide in places where historically they used reusable probes. Given the growth we've had in Q3 of our sensor volume and business, at least for now we believe they're continuing to using the adhesive. But as far as what will they use in the future, I'll get back with you.

Okay. Fair enough. Thank you.

Thank you.

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

Hi. Good evening. I heard in the prepared remarks a comment on continuing to work with the FDA on the opioid product. Hoping perhaps you could just unpack that a little more for us. Any updated expectations on your timeline? Any better sense about FDA bandwidth, I know they've had a lot on their plate this year. Any color there would be helpful.

Yes, sure. I think you know the history. The FDA chose our opioid SafetyNet product as not only a breakthrough technology, but one of eight products that could deal with the opioid epidemic potentially out of over 250. We've been working with the FDA for nearly two years on this project and it's a great working relationship. We know they know about our capabilities and how uniquely we can help deal with this issue. But the FDA has some additional data they wish to get from us which we're working on. And we're working with them. I think as you said the COVID situation has delayed things slightly. I don't know how much, but it definitely has. I know their examiners and people literally will send us responses at 10 O’clock, 11 O’clock at night. So I don't think it's from lack of effort, just a lot on their plate. But we feel pretty good that the path is eventually going to succeed. When? I can't tell you.

Yeah.

So, we're hopeful that it will happen soon.

And then maybe a brief follow-up. The balance sheet is still fortress-like. We're seeing some M&A events return to the market as we all learn to live in this new normal. Masimo did a series of smaller deals earlier this year and has hinted that maybe interest in continuing the M&A program perhaps looking at some things a little bit bigger than what we saw earlier this year. I'd be curious for your updated thoughts there or just generally how you're thinking about capital deployment here approaching the end of the year and then looking at 2021.

Yes. Thank you, Mike. So in terms of capital deployment, one of our priorities is of course M&A. We believe that that's where we'll get some of the greatest returns back. And if you look at how we're thinking about it, two great examples are the connected care acquisition from NantHealth as well as the TNI medical acquisition. These are two great examples that you saw of our strategy. And if you think about it, where we're looking to grow the business more strategically is in the areas of hospital automation and hospital to home. And I think that those are going to be some similar type companies that we'll be interested in moving forward as far as technologies that can really augment those two areas of our business moving forward.

Okay. We have time for one more question, operator.

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

Hi. Thanks for squeezing me in this evening. I really appreciate it.

Hi, Marie.

A few questions here. I wanted to ask a little bit about sensor ASPs and any recent trends there. I know that you've been seeing higher ASPs with some of these newer monitoring parameters. So wondering how that played into the 6%. I believe that was a volume number that you've given. I wanted to see if there's been any impact from ASP on overall revenue.

ASPs have remained stable. If there is an increase, it is due to heightened demand for our Radius PPG wearable sensor used in our four LED and eight LED rainbow sensors. However, there has been no decline. We present a strong case to hospitals, showing that a 250-bed hospital can save $3 million to $4 million annually by using our technology. Because of this, we maintain our pricing discipline. When we entered the market, despite having a technology significantly superior to existing options, we priced our product at 30% lower. When competitors attempted to match our prices, we chose not to lower ours further. We believe our pricing is fair, particularly considering the benefits our technology provides, not only in terms of saving lives and reducing blindness in infants but also in cost savings for healthcare providers.

Great to hear. Last one then on SafetyNet. I know you've spoken in the past about using this in new markets perhaps to keep frequent flyers at home instead of being readmitted to the hospital. Anything you can tell us there about kind of your work in developing those markets?

Yes, yes. I think you've seen our national ad campaigns. I think COVID put a spotlight on demand for not just the heart but the lung, and pulse oximetry hub can help keep track of both for really severely ill patients. Obviously, that problem is real for patients with COPD, patients that get the flu and turns into a pneumonia. So, we are using the opportunity that was given to us and how both clinicians and tech companies, and consumers said, you're the only real thing out there and we need you and let's get it out, and all that good karma around the product to further drive our consumer business home. And we're going to keep augmenting that product line with new apps as well as new sensors that we think will serve our customers and Masimo well.

Thank you.

Thank you so much. I appreciate everyone getting on the call. I know busy schedules and crazy times out here. Happy election day next week, happy Halloween this weekend, and look forward to seeing you guys or at least talking to you in February. Thank you so much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.