Earnings Call: Q3 2020

Oct 27, 2020

Good afternoon, ladies and gentlemen, and welcome to Massimo 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 speakers' remarks, there will be a question and answer session. I am pleased to introduce Eli Kahneman, Massimo's 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, Mike 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 sections 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 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 ks 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 Q3 2020 earnings call. As we progress through the Q3 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 have 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 Q3, our product revenues increased by 21 percent to $278,000,000 and we shipped 1,700 technology boards and instruments. Similar to the Q2, we once again realized over 2 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 Q3 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 Q3, our product revenues were 2 $78,000,000 reflecting growth of 21.5 percent 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 adhesive sensors rebounded and were up 6% as elective procedures further recovered compared to the decline of 8% in the 2nd quarter. Our worldwide direct and distribution business revenues grew 11% to reach $219,000,000 for the quarter. And our OEM business revenues grew 91 1000000, which represented 21% of our total product revenues in the quarter compared to 13% in the prior year quarter. For the Q3, 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 2,100,000 technology boards and instruments over the last 10 years. At the end of the Q3 2020, we estimate that our installed base has grown approximately 17% over our installed base at the end of the Q3 2019. Moving on through the rest of the P and L. Our non GAAP gross margin for the 3rd 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 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 work force 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. And our non GAAP operating margin decreased 110 basis points to 21.9% compared to 23 percent in the prior year period. Despite the gross margin headwinds, our operating profit dollars grew 16% in the 3rd quarter. Moving further down the P and 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 $3,600,000 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 3rd quarter was $14,900,000 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 58,300,000 compared to 57,300,000 in the prior year period. For the Q3, our non GAAP net income was $46,800,000 or $0.80 per diluted share. In comparison, Q3 2019 non GAAP net income was 43,700,000 dollars 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 Q3 of 2020 was $49,400,000 or $0.85 per diluted share. In comparison, Q3 2019 GAAP net income was $49,100,000 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 3rd 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 percent 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-nineteen, it is important to note that we are projecting a sequential improvement for the Q4 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 percent of product revenue, which reflects a 40 basis point improvement over the prior year. And our full year 2020 guidance for operating profit is approximately $260,000,000 or 23 percent 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 and L, we expect to generate approximately $5,000,000 in non GAAP non operating income in 2020, which is primarily comprised of interest income. This represents a $9,000,000 reduction from the prior year resulting from the lower interest rate environment. We are also projecting a non GAAP tax rate of 23.8 percent, and we estimate that our weighted average shares outstanding for the year will be 58,200,000. Based on all these assumptions, we are projecting non GAAP EPS of 3 point $6 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 3rd 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 PBI, data for fluid responsiveness is typically acquired using expensive and invasive arterial line catheters. Now with PBI, clinicians can obtain this essential data using Masimo pulse oximeter or pulse co oximeter 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 PBI 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 technologies 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 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 health care 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. Operator? Your first question comes from the line of Lawrence Kook 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? Yes, thank you. Larry, as Micah stated in the prepared comments, we expect in Q4 to have a more normal mix of instruments, boards and sensors, which means well, it means a little bit better than that. Usually, that would be 60,000 boards and instruments. We're expecting now about 80,000 boards and instruments in Q4, which will bring us up to about 470,000 boards and instruments. Some of the as you remember last time you mentioned, 500 down from 550 and that's been mostly on the back of cancellation of ventilators as clinicians are seeing that putting people on high flow ventilation is not what's best for them. So the good news is, as Micah mentioned, as of Q3 2019, we're 17% higher from an installed base perspective than we were at the end of Q3 last year, which really helps put us in a great position for next year assuming more normal volume of procedures, which is what we're seeing now. So I hope that helps. And by the way, the good news is again that reduction from 550 to now what I would say probably 470 is vastly on the backs of ventilators, which we had stated at the very beginning are most likely to be shelved after COVID, but we don't expect the rest of these drivers to be shelved. And again, at 4.70, that puts us nearly twofold better than our normal volume of instruments and boards. Okay, great. That was super helpful. Just a couple other ones dovetailing off of this. So one thing that I've been thinking about as we start to consider 2021 is some of the comps that the company will face and granted again, I know that lots of those products are very beneficial in treating COVID. And so those tough comps are in place for a good reason. But how are you planning maybe for Joe and Micah, how are you planning as we get into 2021, helping investors understand some of those comps, particularly you're going to hit in the 2Q and 3Q? And do you have any, I guess, at this point, any initial observations that we should start to be thinking about 2021? Yes, Larry, great question. Well, obviously, it's earlier too early to be providing 2021 guidance as we just reestablished our guidance for this year. We're still working through that planning process, but we hope to provide that outlook consistent with how we normally do on our year end call. But at a high level, I think what we're expecting to see is an improving growth rates from our single patient use sensors. As Joe mentioned, elective procedures continue to recover. And with our large and growing installed base of newly installed monitors generating incremental sensor revenues. And as you mentioned, it's that's going to be offset to some extent by tougher comparisons due to our stronger demand this year from technology boards and instruments. But we're expecting to see things, as Joe mentioned, trending back to more traditional levels next year. And that's kind of how we're thinking about it. We'll have more information on the Q4 call. But I think the other question you had was, how will we inform investors of kind of the dynamics next year with those comps? And I think what we could say there is that we our goal is to continue to provide you with information that's helpful. And this year, we've really broken out the sensor growth separate from the instruments and boards. And we believe that will still be helpful as we move into next year, so you can understand some of those comparisons. Okay. So there's 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, Switzerland. So if that trend continues, we're going back to how can we help you all think ahead. We intend to give guidance for 2021 at the 4th quarter results earnings call in February. So I think that will be helpful. Now we need to see 2, 3 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 the U. S. Number for growth, but if you could just give us the worldwide U. S. And OUS number that would be helpful. Yes. 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 sensor revenue. Yes, you're talking about Larry, sensor growth? Sensor, yes, growth. Yes, sensor growth worldwide 6% and the U. S. Was very close to that same growth, similar 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. Hi, Joe, Hettenbach. Maybe just back to the Q3 briefly, This might be helpful to us to better understand the trend as the quarter unfolded. Basically, the question is what went so well or right? If I remember correctly on the Q2 call sort of basically mid July, you said don't extrapolate 2nd quarter results to the 3rd quarter. I always appreciate your caution and careful thinking and we're in a volatile environment. Just trying to understand, 1, what surprised you both? Did it continue to accelerate through the quarter? And how are we stepping into the 4th quarter? Is that now are certain trends slowing or accelerating? Just if you could frame that so you just understand the trajectory a little better, that'd be great. Yes, absolutely. Thank you, Rick. One of the things that we saw that was better than expected was our U. S. And our worldwide sensor volumes were up 6%, which compared to being down 8% in the second quarter. And I think we whenever we were looking at it back in May, June and then coming off the last call, we saw our early orders indicated sensor volumes were down and they improved and started to improve over the rest of the quarter. And we're seeing trends to where now we're starting to see, as Joe mentioned, those drivers, what we're shipping in the Q4, we think that that's going to be more closer to traditional levels that we've seen in the past. And then of course, sensor volumes, we're expecting and implied in our guidance is those will steadily improve as we move throughout the rest of the year. So I think the mix, we're starting to see that getting back to the levels we saw pre COVID in terms of our product mix. Got you. What's helped our customers, customers, Rick, is they're noticing when they wear the masks, when they wash their hands, it's really helping to keep physicians safe. So I think that learning has allowed them to open up to 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. Just thinking about the excellent Board numbers, again, it's just a high level. Maybe help me understand better. Is this the boards you sold was it pulling forward, boards you would have sold in 2022 and 2023? And so what's the message here that there's going to be a steeper than you? I'm not talking about the tough comp now, but are we going to face more challenging foreign outlook in 2022 and 2023 as a result? And I have a couple other follow ups, if I could. Thank you. Well, as Michael said, obviously, we'll feel much better about our numbers and projections for 2021 at the end of Q4. However, currently, our best estimate that it's going to go to our normal volumes, which have 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 despite 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 net accounts. I think in the Q2 you mentioned that you have 120 accounts now with over 1,000 interested. Any updates there that you can give us and are accounts interested? Give me just any color on the safety net front. Sure, sure. We now have 140 customers utilizing Masimo Safety Net. So the number has increased. We expect as the surge unfortunately unfolds, once again, there'll be a lot of interest with new customers for the Masimo Safety Net 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. Got you. And just last quick one for me on the cap not ratio front. Maybe just update us on your initiatives there. Has it been performing during COVID as you've expected? What's next? And just in the launch of capnography consumables, have you offered is this being sold now to your entire installed base? What's next in capnography? Thanks so much. 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. The next question comes from the line of Matt Taylor from UBS. Your line is open. Hi, good afternoon guys. Thank you for taking the question. So I'll pivot off of the last one there. I guess I'm just wondering, in addition to Massimo Safety Net, 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 maybe 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, maximum safety net 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, normal line in 3. Okay. 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 that 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 points 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 the 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. Hi, good afternoon. Hi there. Hi, David. Maybe a bit thanks. Sorry, maybe just a bit of a real time question here to get started. We've seen kind of this latest COVID wave unfold. Have you seen a pickup in activity or pull on your business from your OEM partners? And I guess the same goes for whether you've seen any change on the margin in procedure trends or sensor utilization as a result of this latest wave really picking up either here in the U. S. Or over 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 yes, unfortunately, it seems to be picking up again. Okay. All right. That's helpful, Joe. Thank you. And then just a couple more for me. You've been running some DTC ads here promoting and establishing the Masimo brand. Presumably as a precursor to a bigger move into the home based medical care market over time. Would love to just get your assessment, Joe or Mike, 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 Mirage. Well, we're beginning to see that it's becoming an Oasis. And so we have already a few products in the market. We started off with ISV02, then MidiSat and now Maximo Sleep and our latest product Radius T, which is a continuous thermometer that lasts for 8 days and allows for trending as well as picking up signs of 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, I can't get into right now for competitive reasons. But you're right, the national ad campaign that's 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. Thanks, Joe. That's really helpful. And then just last one for me, Mike. I'm just wondering if I maybe try to peel back any acquisition contribution you had in the quarter, just maybe a more of an organic growth number that if you'd be willing to provide that? Yes. I think coming into the year, Jason, we communicated roughly 1% contribution from acquisitions. So it's right in that ballpark in terms of contribution in the quarter. 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 2 questions both upfront. The first was just 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, if cases start picking up and 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 Safety Net, which is a radically different way of dealing with the problem by putting a wearable on 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 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 1,000 hospitals are looking at it and I think a surge for COVID worldwide will probably be met with the more demand of national safety net. As for your manufacturing question, I'll let Mike answer that. Yes, great question. So if you look at our margins for the quarter and I think the question you asked was, what was the contribution from the COVID related costs? And if you think about those costs, we put a lot of measures in place with our manufacturing distribution, social distancing measures as well as just overall safety measures to protect the workforce. And then there's other COVID related costs due to shipping costs and things that are really indirectly related to our manufacturing. So if you look at those costs, I would estimate roughly maybe 1% of those costs are hitting right now through our margins, our gross margins and the rest is primarily due to mix, the mix impact. And to think about the mix impact as being somewhere between call it 200 to 250 basis points. Your next question comes from the line of Mike Matson from Needham and Company. Your line is open. Hi, thanks for taking my questions. I guess I 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 I thought I would try. Certainly. We sued Apple for trade secret and patent infringement. On the trade secret side, we moved on a preliminary injunction to stop further issuance of patents from our ex engineers who are there that we believe have taken our trade secrets. The judge did not grant us that Premier Injunction because he felt we would not be irreparably harmed, but the judge did find that it's likely we will prove that our trade secrets were taken. The second thing is that trade secret cases moving forward. Normally, on the patent side, Apple moved to stay our patent case while they filed inter party reexamination on our patents, which was probably going to delay the patent case by about 18 months. The court granted the stay while we worked through that process. Apple has currently filed 17 IPRs against our patents and we're going to be dealing with that. So I think these cases, as we said from the beginning, takes a long time because we're not looking for we're not looking for just a little thing. We're looking to stop Apple from what they've done like we did previously with Philips and Electronic. So stay tuned and we'll continue. Thanks. That was helpful. And then just a quick 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 maybe 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, even senses where historically they use 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 be using that VISA. But as far as what will they do in the future, I'll get back you. Your next question comes from the line of Michael Pulak 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, FDA chose our opioid safety net product as not only a breakthrough technology, but one of 8 products that could deal with the opioid epidemic potentially out of over 250. We've been working with the FDA for nearly 2 years on this project and we're it's a great working relationship. We're as 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 there are examiners and people literally will send us responses at 10, 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. So but we're hopeful soon. And then maybe a brief follow-up. The balance sheet is still fortress like. We're seeing some M and A events return to the market as we all learn to live in this new normal. Massimo did a series of smaller deals earlier this year and has hinted that maybe interest in continuing the M and 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 and 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, 2 great examples are the Connected Care acquisition from Net Net Health as well as the T and I Medical acquisition. Those 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. Thank you. I do have time for one more question, operator. Thank you. Your next question comes from the line of Marie Thibault from BTIG. Appreciate it. One question here. I wanted to ask a little bit about sensor ASPs and the recent trends there. I know that you've been paying 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 us. I wanted to see if there's been any impact from ASP on overall revenue? ASPs have been steady. If you're seeing a rise in them, it's because of increased demand for our Radius PPG wearable sensor for our 4 LED and 8 LED rainbow sensors. So but no, there is no decline. We have a very compelling case to make with hospitals. We can show a 250 bed hospital saving $3,000,000 $4,000,000 a year by using our technology. So because of that, when you would be disciplined, I think when we entered the market, even though we had technology that was an order of magnitude better than what was out there, we priced it 30% lower. And when the competition began trying to compete with us on price, we did not go there. We thought it was a fair price, especially given what our technology can do, not just to help save patients' lives and help reduce blindness in babies, but what it can do for them for cost reduction. Great to hear. Last one then on Safety Net, 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, how it 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 with that product line with new apps as well as new sensors that we think will serve our customers and Massimo well. Thank you. Thank you so much. I appreciate everyone getting on 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 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.