Earnings Call: Q2 2020

Jul 28, 2020

Afternoon, ladies and gentlemen, and welcome to Masimo's Second 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 Kammerman, Masimo's 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 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 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. Thanks, Eli. Good afternoon and thank you for joining us for Masimo's Q2 2020 earnings call. I'm incredibly proud of our team and how we continue to advance our mission to improve patient outcomes, while reducing the cost of care, especially during this pandemic. From the beginning of the COVID-nineteen pandemic, we've done our best to support our customers as they have bravely been on the front lines of the worldwide response. Our unique ability to meet the needs of clinicians was in full view again this quarter as we reliably monitored versatility and launched multiple new products including centroid, bed sore and respiratory monitor, Rayus T, a wearable non invasive continuous thermometer and UniView 60, which offers patient snapshots to help with handoff communication. For the Q2, our product revenues increased by over 30% to $301,000,000 and we shipped 165,600 technology boards and instruments, excluding handheld and finger oximeters. I'll discuss more on the call today, but now I'll ask Micah to review our 2nd quarter results in more detail. Thank you, Joe, and good afternoon, everyone. I hope everyone is healthy and continues to remain safe during these challenging times. 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 GAAP can be found in today's earnings release as well as the Investor Relations section of our website. For the Q2, our product revenues were 301,000,000 dollars reflecting growth of 31.1 percent or 32% growth on a constant currency basis. Excluding handheld and finger oximeters, worldwide sales of technology boards and instruments were up 175 percent due to increased demand from both our direct and OEM customers. In contrast, our worldwide sales of single patient use sensors were down 8 related to COVID. Our worldwide direct and distribution business revenues grew 21% to reach $242,000,000 for the quarter and our OEM business revenues grew 104 percent to reach $59,000,000 which represented 19% of our total product revenues in the quarter compared to 13% in the prior year quarter. For the 2nd quarter, we shipped 165,600 technology boards and instruments. And as a result, we have now shipped over 2,000,000 technology boards and instruments over the last 10 years. Moving on to the rest of the P and L. Our non GAAP gross margin for the 2nd quarter decreased 3 30 basis points to 63.9% compared to 67.2% in the prior year period. The year over year decline was primarily due to higher than usual proportion of revenue coming from our technology boards and instruments, which have lower margins than our sensors. Our non GAAP selling, general and administrative expenses as a percentage of product revenue decreased 110 basis points to 32.5% compared to 33.6% in the prior year quarter. The year over year improvement was driven by our strong sales growth during the quarter, 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 10.3% compared to 10.5% in the same quarter last year. As a result of the unfavorable mix impact on our gross margins, our non GAAP operating margin decreased 200 basis points to 21.1% compared to 23.1% in the prior year period. Despite the gross margin headwinds, our global organization delivered operating profit dollar growth of 20 percent in the Q2. Moving further down the P and L, our non GAAP non operating income, which is primarily comprised of interest income, decreased 60% to $1,400,000 for the quarter compared to $3,500,000 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 2nd quarter was $15,700,000 resulting in a non GAAP effective tax rate of 24.2% compared to a non GAAP effective tax rate of 23.8 percent in the prior year period. Our weighted average shares outstanding for the quarter increased 2% to 58,200,000 compared to 57,100,000 in the prior year period. For the Q2, our non GAAP net income was $49,300,000 or $0.85 per diluted share. In comparison, Q2 2019 non GAAP net income was $43,100,000 or $0.76 per diluted share. This reflects non GAAP EPS growth of 12% over the prior year quarter. Turning to our GAAP net income for the Q2 of 2020 was $55,800,000 or $0.96 per diluted share. In comparison, Q2 2019 GAAP net income was $44,900,000 or $0.79 per diluted share. Now I'd like to provide you with an update on our business as we move into the second half of the year. Consistent with last quarter, we are not providing financial guidance due to many due to many uncertainties surrounding COVID-nineteen and its impact on our normal business patterns. Because of this, I want to share with you some details on what we are seeing so far in the 1st 4 weeks of Q3. As of yesterday, our quarter to date worldwide sales orders including backlog are up 40% versus the same period last year driven by strong demand for our technology boards and instruments which are up 150%. In fact, we already have orders for over 140,000 technology boards and instruments for the 3rd quarter, which is more than 2 times our normal run rate. Our worldwide adhesive sensor orders are up 1% versus the same period last year, despite U. S. Adhesive sensor orders being down 11%. Based on the ordering patterns in July, we are continuing to see a higher than usual proportion of revenue coming from our technology boards and instruments, which have lower margins than our sensors. Unless things change in the next 2 months, we're expecting our gross margins to be in line with what we just reported for the Q2. Also, it is important to note that we are continuing to invest in our business to develop new technologies and products with a long term view towards expanding our product portfolio and our addressable markets. During the first half of the year, we increased our investment in R and D, expanded our hospital automation business and invested in advertising and marketing programs. In the second half of this year, we will continue to invest more into the business to drive increased awareness and adoption of our technologies. Given the continued uncertainties around COVID, please do not extrapolate our Q2 and July performance into your estimates for Q3, the second half of twenty twenty and fiscal year 2021. To conclude, Masimo is a valuable solutions provider for healthcare institutions that are facing considerable challenges and need to optimize and expand their operations. Our 2nd quarter results reflect the success we are realizing by working hand in hand with our customers to rapidly address their needs under difficult conditions. We remain steadfast in our commitment to achieving our long term objectives and creating shareholder value. With that, I'll turn the call back to Joe. Thank you, Micah. The COVID pandemic has put the spotlight on Masimo. Taking care of patients the most effective way the first time is no longer only on top of leading institutions' minds, but it's an imperative for every hospital. Masimo's technologies are the best available and have been proven to make a positive difference in the care of patients from neonates to adults, while saving costs and maximizing hospitals' precious resources. The strong demand for our technology was evident in our OEM business doubling and direct sales growing rapidly as well. For example, our route connectivity platform unit sales increased more than 5 folds over the prior year quarter. We also experienced increased demand for our patient safety net in hospital monitoring system. Patient safety net together with bedside devices like Root allow more patients to be continuously monitored on the postsurgical floor and improve patient outcomes. In fact, multiple studies conducted at Dartmouth Hitchcock Medical Center showed that patient safety net helped eliminate preventable death or brain damage due to opioid induced respiratory depression in maximum monitored patients over a 10 year period and help them maintain a 50% reduction in unplanned ICU transfers and a 60% reduction in rescue events, resulting in about a $7,000,000 savings annually. We're also seeing strong demand for hospitals deploying route with variable untethered radius PPG sensors to monitor COVID and other patients' arterial oxygen saturation, pulse rate and respiration rate remotely. Using our Radius PPG wireless sensors, hospitals are able to move patient monitoring equipment outside of a patient's room to ensure continuous monitoring from a distance, thereby reducing transmission risks and increasing both clinician and patient safety. The reception to date from Masimo SafetyNet, our cloud based remote patient management solution, which includes Radius PPG, a smartphone app and a central command console has been overwhelmingly positive as many hospitals strive to expand their capacity by taking patients outside of the hospital and into the home. Using our Masimo SafetyNet system for remote settings, hospitals are now able to monitor patients not just at home, but many other places, keeping hospital beds open for more severely ill patients. Our technology monitors blood oxygen saturation, pulse rate and restoration rate to provide caregivers with insight into patient status and recovery progress. Since the full market release in April, 120 customers have deployed Masimo SafetyNet to deal with the COVID-nineteen patient surge, many of them remotely monitoring their patients in the patient's home, long term care facilities, nursing homes and even convention centers. Yesterday, we announced a significant expansion to the Masimo SafetyNet platform with the introduction of Radius T, a wearable wireless sensor that provides continuous body temperature measurements. By augmenting the already powerful Masimo Safety Net, which features Radius PPG featherless pulse oximetry with Radius T, the remote patient management solution becomes capable of tracking 4 vital signs, oxygen saturation, respiration rate, pulse rate and now temperature, making it an ideal solution for assessing the status of patients with suspected or low acuity COVID-nineteen. Among other remote patient management uses, which we hope will continue expanding. Unlike spot check thermometer solutions, Radius T measures body temperature continuously, providing a remote notification when a patient's temperature is outside a clinician specified range, giving peace of mind to caregiver and patients alike. Applied to the skin, Radius T uses proprietary algorithms to measure the patient's body temperature, not just external skin temperature, with laboratory accuracy within plus or minus 0.1 degrees Celsius, whereas other thermometer solutions typically have laboratory accuracy within plus or minus 0.2 degrees Celsius. Each shower proof single patient use sensor lasts up to 8 days and can be worn throughout the day and night, allowing patients to continue normal daily activities while still being monitored. We also recently received FDA clearance for Centroid, which is a wearable wireless sensor that monitors patient position to help clinicians reduce pressure ulcers or bed sores and to alert clinicians to sudden movements such as fall events. In addition, Centroid detects chest movement to continuously measure respiration rate. Centroid pairs with the Root platform using Bluetooth. The data transmitted by Centroid can be displayed in various formats on route, giving clinicians multiple ways to assess adherence to protocols regarding tissue stress and tailored care to the specific need of each patient. Pressure sores affect nearly 2,500,000 patients per year in the U. S. Hospitals alone. And approximately 60,000 of those patients die as a direct result. With bed sores being defined as a never event by CMS, which can lead to penalties for Medicare reimbursements, we believe Centroid provides substantial value to hospitals by providing information to help them minimize these events. We also recently announced our latest automation and connectivity solution, Uniview 60, which uses the Masimo Hospital Automation Platform to aggregate and display patient information on a digital display just outside each patient's room, allowing clinicians to familiarize themselves with the most relevant details of each patient's case at the door in 60 seconds or less before they see the patient. UniVIEW 60 is intended to improve clinical workflows by helping increase clinicians' awareness of important patient information and advisories, which can be optimally displayed based on hospital preferences. Unlike paper records and notes, UniView 60 utilizes its connection to various hospital information systems to display the most appropriate up to date information directly outside the patient's room in an effort to help increase clinical efficiency and improve handoff communication between staff. Studies have shown that inadequate communication related to patient handoff are often where patient safety fails first. In fact, poor handoffs were a contributing factor in nearly 80% of adverse events reviewed in a 10 year study conducted by Doctor. Peter Pronovost and published in 2016. In addition, inadequate handoffs were shown to contribute to $1,700,000,000 in malpractice costs over a 5 year period in a study published by the Joint Commission in 2017. UniView 60 is one of the many innovations we have developed to take advantage of the powerful connectivity and data handling architecture of the Massimo Hospital Automation Platform, which connects systems across the continuum of care from bedside monitors and connected third party devices to electronic medical records. Uniview 60 takes advantage of this flow of data by optimizing the presentation of pertinent information about each patient's case on an easy to interpret customizable display. In closing, we are proud of our pace of innovation and ability to respond to crisis and partner with our clinical stakeholders to better care for their patients. Our global organization remains focused on delivering on our commitments and responsibilities to our customers and ultimately the patients during this difficult time. We have so many clinically significant products based on our pioneering inventions that are helping clinicians care for over 200,000,000 patients a year, and we have many more exciting solutions to come. Our future looks bright as we 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 Larry Keusch from Raymond James. Your line is open. Good afternoon, everyone. Joe, I'm wondering if you can talk a little bit about any sort of stocking or destocking dynamics that may have occurred during the 2Q or how we should be thinking about the Q3 or second half of the year? Just trying to wrap my arms around kind of what hospitals are doing as it relates to sensors. The best information I have, Larry, is that the stocking that happened in Q1 stopped in Q1. And in Q2, it seems to be more of a FIFO. So what we saw with 1 major customer, for example, that created a 3 month inventory, they continue to maintain that inventory while still buying sensors for their normal pace. So I'm not aware of stocking in Q2. One thing that did happen in Q2, some of the orders that we had for boards, technology boards for ventilators did get reduced. I think you remember in Q1, we reported that we had about 100 1,000 boards associated with ventilators and that number dropped by about 50,000. So we are not seeing the demands of ventilators increase and in fact go down. And on the sensors, as I mentioned, we're no longer seeing stocking. Okay. And just a clarification on that and then one other quick question. So last quarter on the call, you had been pointing towards Now you're talking about 50,000 less I suspect. Now you're talking about $50,000 less I suspect. So does that mean that you're now thinking more towards $500,000 Is that the right way to think about it? That is right, Larry. We're looking at $500,000 And also I think last quarter we were implying or saying the best we could that we think the ventilators may not end up being utilized on a regular basis. So we thought of the 550,000 or 100,000 of them may end up eventually getting stock for future need. Now we think while we're down to 500,000 for the year, which is still over 2x our normal rate, only 50,000 of them may get stock. The rest might find themselves used day in and day out even post COVID-nineteen. Okay, great. And then the second question was, just again wanted to understand how you're thinking about your supply chain. You've seen tremendous demand over the last couple of quarters. In the 2Q, were you able to ship all your orders as sort of a normal course of business would have it? And again, are you having any issues just meeting your demand given the rapid buildup in sales? Well, I have to state that in a couple of different ways. So to be to answer your question precisely, we did have a backlog going into Q3, historically big backlog. However, we've not disappointed any of our customers in not meeting the timeframe that they wanted for the products. So we're meeting the demand of our customers. I'm just blown away by what our team has been able to do and making sure even when people are sent home because of COVID, we're protecting the rest of the cells and not seeing a disruption in our production, but instead an increase in production, dramatic increase in production in certain areas. So yes, so we did not ship everything that was in our ability to ship in Q2, but we also did not disappoint any customers either. Okay. And Joe, I'll get off now, but just any way you can quantify that backlog so we can think about it? Larry, I think just to give you some context, the numbers that I mentioned, all included backlog. So when I spoke about earlier, where our worldwide sales orders are up by 40% in the quarter, driven by 150% increase in boards and monitors and then adhesives are up 1%. Those numbers are including our backlog. So that'll give you some perspective on the 1st 4 weeks of the Q3 as we're looking at the month of July what we've seen so far. Okay, terrific. Thanks guys. Appreciate it. Thank you, Larry. Thank you. Your next question comes from the line of Rick Wise from Stifel. Your line is open. Good afternoon, Joe. Hi, Micah. Maybe you could help us understand the sensor help us think through the sensor numbers as well, and maybe break it down geographically. Clearly, OUS was stronger than U. S. U. S. Declined 11%. I guess a couple of questions. Help us understand maybe the different trends. Are you seeing any recovery, particularly in the U. S? What's driving the OUS sensor volumes? Just how do we think about current trends on that side of the business? Well, it's probably too early to draw any trend lines. But since you asked, we're seeing more demand for adhesive sensors than we did in last quarter in the 1st 4 weeks of this quarter, where in the past quarter, we were helped a lot by OUS sensor volume to make up a very low demand for U. S. Sensor volume. We are seeing an uptick in U. S. Sensor sales demand as well as a downtick in the over demand from OUS. So in general, it's looking a bit more normal than it did in the past. Good. That's exactly what I was getting at. So when we think I mean in very rough normal tons, 80% of your revenues are sensors and that business was up 1%, I think you said Mike in the 1st 4 weeks. I mean, I assume we're thinking about worldwide total sensor numbers in positive territory in the second half. And I think you're saying, Joe, that you're seeing a recovery in the U. S. Maybe return to normal or U. S. Again, I'm just trying to get to I think you're not projecting, but trying to make sure I'm understanding the trends. That's correct. In Q1, we saw hospitals go to standstill on elective surgeries focused only on COVID-nineteen. What we're seeing so far in Q2 is that hospitals are opened up again for elective surgeries, but still capable of handling the COVID-nineteen surge. So we're kind of seeing both things happen at once now. And I think the only reason there might be still lower levels of elective surgeries isn't no longer because of the supply, but because of the demand. I think people might be reluctant to go in for elective surgeries, but hospitals can certainly handle them now. Yes. Maybe you can help us understand. I suspect that one of the questions I'm going to get asked a lot after the call after the report is, but what about the Board numbers? I think you all did a good job of breaking down and explaining it, but it might be better if you all help people understand. I mean, I'm not may freely confess my numbers were too high this quarter. What do you think the Street didn't understand about their Board projections? And should we be concerned, I don't think the answer I think is no, that where the Board numbers for the full year might be more in the 500 range. I don't think that says anything about the health of the business or the growth of the business. But if you think I'm wrong, here's a good moment to correct my thinking. Well, I think there can't be anything seen negative from the growth in the Board business. It's phenomenal. What I believe is happening and we won't know till the dust settles post COVID-nineteen is that low acuity beds are turning into critical care beds. The way hospitals are handling COVID-nineteen patients as well as elective is that pretty much every bed in the hospital now is becoming a monitored bed. So there is nothing negative that I can see about what is happening to our business. The only thing potentially in the out years, there might be a reduction in capital sales by our OEMs. So there might be less demand for our boards after the dust settles. But I don't know. I can't really predict that. All I can tell you right now, it all is very positive. Yes. No, it seems clear. And just 2 more. If we and again, you aren't giving guidance of the second half. But as we contemplate maybe this is a question from Micah. As we contemplate Micah trying to think about normal growth and what we are going to have to think about growth for 2021. How do we normalize for all this? And are you still going to be a do you think the potential is there even with the difficult comps to be a double digit low double digit grower in 'twenty one beyond or no, given everything that's happening this year, it's just not going to be possible. How would you frame it for us? Yes. Rick, I think the best way to look at it is you always whenever you've got so many swings in the business patterns we're seeing right now, the best way to look at it is on a 2 year growth basis. So I would look at it as kind of 2019 growing kind of our historical growth rate with our and what we've guided to in our long term plans, which we've been guiding more recently to the upper end of that growth range of 10%. So growing it for 2020 2021, but look at it more on 2 year growth, 2 year average growth rate. That way you can normalize the quarters and kind of understand the full year because there's a lot of still a lot of crosscurrents that are happening and it's still a lot of uncertainty around what hospitals will do moving forward, especially as Joe mentioned with capital. So I think it's just way too early to get ahead of ourselves on 2021 and just really look at it as a 2 year growth comp. Yes. I think the only thing I'd like to add to that, Greg, is that and I'll start off by saying something I think you all know, I'm optimistic by nature, otherwise I wouldn't have started the company. So what I want to tell you is that I still see a lot of people not getting elective surgeries because they're afraid of getting COVID-nineteen from the process of visiting their doctor, getting to know they have problems and then ultimately going to hospitals. So I think when COVID-nineteen is over, I think you're going to see a huge surge in hospital procedures. And given that we've had historically high number of drivers now getting out there where people are choosing our technology over others in times when they wouldn't have. But as I mentioned in my prepared remarks, we've come to a world where it all matters now and some of the terrible excuses why people didn't use our technology kind of are gone away now. So I think we're going to be in a world that we are doing better when the world opens up again. So if you think about 2021, depending when you think we'll either would be normalized for COVID-nineteen through whatever means, I see a strong demand for our sensor volumes. Yes. And just last from me, you can as you emphasized just the steady expansion in the technology portfolio is incredibly impressive. When you think about these next few years, Joe, and you think that the products now, now that we understand the environment we're in, is it Masimo safety net adoption that you highlighted? Is that going to be the biggest incremental driver or polar through Masimo technology in the post COVID hopefully world we're going to enter? Thanks so much. Yes, Yes, but there's a lot more coming. We're going to be executing on a really cool plan because of competitive reasons I cannot talk about it. But yes, we have things in the pipeline that I think will be very exciting. Thank you very much. Thank you. Your next question comes from the line of Matt Taylor from UBS. Your line is open. Hi, thanks for taking the question. So the first one I wanted to ask about was, Joe, you mentioned there are some signs that you're seeing hospitals use monitoring more broadly. And that's something that you've talked about for a long time, it's been a big opportunity general floor. I guess, can you just talk about some of the signs or the feedback that you're hearing to prove out that thesis? And how durable do you think it will be? Do you think it will last post COVID? Yes, I do think it is going to be durable because the studies, not just at Dartmouth Hitchcock, but every hospital who has put monitoring in their post surgical wards has seen dramatic improvement in patient care and safety and dramatic reduction in their costs. So now that they're forced to do it because of the surge, they're going to see the difference it makes. And I think it will be sticky because the product really works. Okay. And we've talked about a lot of the interesting products that Masimo has come out with over the last few months and quarters. Could you give us any color? I mean, last quarter, I think you gave some numbers around Massimo's SafetyNet. Are you seeing continued momentum around that? And anything you can quantify with that or some of the others? Yes. I think last quarter, I mentioned we had about 70 installations of Masimo SafetyNet with about 600 in the queue. Right now, we have about 120 installations with 1500 in the queue. So the demand is continuing to grow and it's allowing hospitals to scale and within a hospital, let alone taking patients outside the hospital in a manner that they never expected. They always thought they had to go by capital and now they just get the sensors and wirelessly sends information to wherever they want the information sent to. And then last one for me. Are you still seeing momentum around non invasive hemoglobin? Yes, we are. Yes, we are. We saw basically, I think in Q1, I mentioned about 15 hospitals had taken advantage of the hemoglobin offer we've given because of shortage of blood donations. Now I think by the end of Q2 we had over 130 hospitals who had taken advantage of that. Great. Thanks a lot for the color. Thank you. Your next question comes from the line of Mike Matson from Needham and Company. Your line is open. Thanks for taking my questions. I guess I wanted to start with the gross margin. I mean, I understand it was mainly an issue of mix just with the high volume of the boards that you were placing or selling in the quarter. But were there any kind of inefficiencies in the plants just due to the aggressive volume ramp you had to go through? In other words, like shipping things overnight or anything like that? Or is it really just an issue of mix? Yes, that's a great question there, Mike. Just to answer your question, we did see some other things. If you look overall, it's primarily almost entirely driven by the unfavorable revenue mix. If you were to adjust that back out, we'd be closer to our original guidance for the year and kind of where we've been tracking of about 68% gross margins. But we did see some higher costs as we had to expedite some shipments of products and that drove some higher freight costs, but nothing material to the quarter. Okay. Thanks. And just to be clear, I think on the last call, you talked about that the kind of guidance you gave around the forward number. And I know it's gone from $550,000 out of $500,000 because of decreased ventilator orders. But I think there was a potential for some portion of those to be canceled. So I guess based on what you're saying, there really weren't any meaningful cancellations or if they were, they were kind of canceled out by new orders. And so can you just remind us out of that 500, how many of those at this point could be or aren't kind of locked in? Well, what I can say, I think last time we kind of gave you the numbers that we thought we had for the quarter and then mentioned roughly where we thought things might go. And we said everything past 90 days is cancelable. So right now, we've got today, what 370,000 that's already happened either we've shifted already or it's non cancelable. So really about 130,000 to go over the next 5 months. Okay. So some portion of that $130,000 though would be within the next 90 days. So that would be so maybe rough numbers half that or some portion of that wouldn't really be effectively able to be canceled at this point? Yes. I want to caution you. We're not promising $500,000 We're only saying what we know the orders are, but they're cancelable. The only portion that we are telling you we have right now, I think in 1st month of Q3, we have 140,000 boards that are in, that are not cancelable, which with what we've shipped so far gives us the 370,000. And that excludes the finger pulse oximeters and the handheld pulse oximeters. So we're only talking about things that we think will be out there consuming our consumables. Okay. Sorry. Yes, I got that now. I was confused. All right. Thanks. Thank you. Your next question comes from the line of Marie Savold from BTIG. Your line is open. Hi. Thanks for taking the questions tonight. I wanted to ask one on revenue associated with the hardware that's being shipped. My understanding was that there's an ASP linked to sort of these real time orders that are going out the door. And I wondered if you could break that down for us a little bit as we think of these boluses near term. Yes. Marie, I think what you're referring to is a lot of our drivers that we our technology boards we ship out for OEM business and relative to what we have in terms of our direct instruments. As far as the mix, I don't think we're going to get into those type of details on the call. But overall, that margin percentage, if you look at on a margin basis, margins are about 50% on our technology boards and monitors and much significantly higher on our sensors. So that just I want to give you some perspective on the mix that we're seeing that's going through gross margins. Okay, got it. And then thank you for those metrics on SafetyNet. I'm glad to see that it's taking off so quickly. Would you mind breaking out for us any detail on how much of a revenue contribution that was in Q2? I recall some numbers given where there were 10,000 kits shipped at 150 apiece, which would be $1,500,000 But I don't know if there's much more material beyond that that you can tell us about. Yes. I mean, all I can give you at this time Marie is it was north of the $1,500,000 for the quarter. And as Joe mentioned earlier, what we're seeing in terms of customers that are deploying Maximo Safety Net, we've got about 120 customers that are deploying now versus last quarter's about 76 customers. Great. Thank you for that. Thank you. Your next question comes from the line of Ravi Misra from Berenberg Capital. Your line is open. Hi, good afternoon. This is Iris on for Ravi. Thanks for taking the questions. So on safety net, a couple of questions here. You mentioned that you're a 120 customer that have deployed a solution. I'm just curious, have you seen any uptick more recently given that we are seeing a second surge of COVID cases? And then now that you have added a temperature measurement function, has there been any change in pricing and reimbursement for the product? Yes. To answer your first question, we've seen a steady level of ordering. We're seeing customers even reordering in terms of Masimo Safety Net. So making good progress there. In terms of your second question regarding to temperature, please keep in mind that we just released that within the last actually it was yesterday, in terms of when we announced the release of that. And it's still in a limited release. So we're still navigating through some of the pricing and preparing it for broader market release. But we'll be able to update more on the next call. Okay. Thanks for that. And then just one more question on Univil 60. So since you're launching mid June, can you speak about the demand that you're seeing with the solution? And do most of the demand come from your existing customers? Yes. So that's another technology that we recently released as far as our digital charting solution that's outside the room and it really optimizes the display for customers or clinicians and as we enter into a patient's room. That's a new product. Again, still limited release, but we've had it deployed with some large customers here recently that are starting to pilot that software and we're getting good feedback so far. Okay. Thank you. Thank you. And I think that's our last question. I'll turn it back over to the operator. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.