Great. Good afternoon. Thanks for joining us for a fireside chat session here in the MedTech track with management from Masimo.
I'm Matt Taylor, UBS's U.S. Medical Supplies and Devices Analyst, and I am joined by Micah Young, the Chief Financial Officer of Masimo, and also Eli Kammerman, who runs the Investor Relations function and works in the business development group as well. So guys, thanks a lot for joining us today for this fireside chat discussion here virtually.
All right. Thank you, Matt.
Great. All right. So just so everyone knows, I think at this point they should, but if you have questions during the session, email me or you can submit questions through the webcast. Otherwise, I'm going to run through my Q&A here with the team. And Micah, maybe just to get started, you're one of the companies that we cover that actually saw a pretty significant increase in demand from COVID-19, and it's creating some new opportunities for the company. So I guess I was wondering if we could just start by reviewing that and talk about what you saw in calendar Q1 and into calendar Q2 with some of your main areas that are seeing those higher demands because of COVID.
Yeah. So in the first quarter, Matt, we saw very strong demand for our adhesive sensors, some of that coming from hospitals trying to prepare for COVID-19 patients coming into the hospital. But overall, just very strong results. We saw 17.5% growth on a constant currency basis, primarily driven by our adhesive sensors and primarily driven by SET, was where we saw really good strength in the first quarter. In the second quarter, we started to see more of a shift towards hospitals preparing for the peak in April. There was a lot of demand for our technology boards and our monitoring equipment and still solid demand overall for our sensors as well. But we did see some changes there in mix. In the first quarter, we talked about it on the earnings call.
Early part of the first quarter, the first four weeks, our worldwide sales orders were up around 87% when you include the backlog. So very strong results we were seeing early in the quarter. And a lot of that was driven by a shift more towards capital purchases. We're seeing a lot of purchase orders for our monitoring equipment, our direct monitoring equipment. Overall, our capital sales were up 360%, and our sensors were up about 13% with a lot of strength coming from the OUS business where there's been some migration to disposable sensors. It was up about 95%. And our U.S. business, which was starting to get some headwinds from the loss of elective procedures, was down about 12% on sensors. But overall, very strong results heading into the second quarter.
Gotcha. Yeah. I think a lot of people were surprised by the magnitude of the board shipments in the second quarter. Could you maybe talk about that demand forecast that you laid out? And I think the big debate is really around how much of these are going to be used on an ongoing basis. Maybe offer some initial thoughts on that question.
Yeah. Yeah. So broadly, I mean, our broad shipment demand, it's coming from just overall demand for more monitoring equipment by hospitals who want to have additional ICU-type higher acuity beds available for potential surge of COVID patients. Those beds are created with a placement of monitors next to the lower acuity beds, and that's how they convert those into higher acuity. And as we stated on the earnings call, our driver demand forecast for the year, if it continues to materialize, is obviously much higher than we expected, about over two times what we expected for the year. But it's been very difficult to determine future demand for a few reasons. And first is hospitals have experienced significant losses from the deferral of elective procedures, which has resulted in tighter management of cash flow and capital budgets for this year.
Second, it's very difficult to determine where hospitals are at in preparing for COVID-19 and what their behavior will be going forward. What's difficult to predict is if customers are going to be more optimistic as they see the curve flattening versus more pessimistic if they're anticipating a second wave of infections, which could lead to more buying and preparation. But like I said, it's too early to know what percentage of our demand forecast for the year will be available on an ongoing basis. But what we can provide is the one thing we do know is that roughly 25%-30% of the boards that are integrated are going to be integrated into mechanical ventilators.
When you strip that out and look at the other 70%-75%, we're hopeful that those monitors, once we get post-COVID environment, will end up in the lower acuity settings for continuous monitoring on the general floor, and we're hearing from some of our customers that they do plan to continuously monitor, and we think that that's going to drive some adoption there on the general floor, which is three times the size of the beds we monitor today on the critical care floor.
Yeah. Masimo has been talking for a long time about general floor opportunity, and it seems like there may be some catalysts here for that to materialize. I guess I was wondering if you could expand on that thought a little bit and just talk about the motivations that customers will have, that hospitals will have over the next couple of years or in perpetuity to do more of that monitoring on the general floor.
Yeah. Beyond kind of the use model for COVID patients, I mean, as we think about the general floor in the future and moving those monitors there, there's great opportunity. If you look at years ago, before SET and our technology for SET pulse oximetry, there were over 70%-90% of alarms were false alarms. And what we've seen through studies like Dartmouth-Hitchcock, where over a 10-year study, they've been able to continuously monitor patients on the general floor with Patient SafetyNet and our SET platform technology and SET the enabler. It's the accuracy of SET to be able to measure through motion and low perfusion. And what they found is that over a 10-year period, there were no more patients that were dead in bed due to opioid-induced respiratory depression. They had a 50% reduction in rapid response team activations and ICU transfers.
So we think that that has been a major reason why hospitals should be moving more to the general floor. And we think that through this kind of pandemic, I think this has kind of really been a catalyst for converting more higher acuity beds. And we know that there's evidence out there, clinical evidence that shows the benefits of continuous monitoring on the general floor for those who are using opioids for pain control.
And when you look at the ones that are going to be used in ventilators, do you think those are just going to be stored basically, or how are you thinking about the ongoing use of those?
Yeah. For ventilators, I think the ones that are going to go in the mechanical vents, I mean, we look at that right now. Just we have a conservative view that those will get stored. They'll be used for the surge and then stored. But even if you strip out what we think as far as boards going into mechanical vents, we're seeing an acceleration of 2x of what we would have experienced on a normal year in terms of our driver shipments. And keep in mind, I mean, Q1 was we shipped 72,000 drivers. Q2, or in April, we have orders for 150,000. And we have a demand forecast from our OEM partners that could get us up over 500,000 for the year, of which a little over 100,000 will probably go into vents. But the remainder is still significantly higher than what our run rate was.
It's two times higher, so we're encouraged that that could help lead to an increased install base that's going to consume more and more sensors in the future as those monitors get utilized.
Right. Right, so two more follow-up questions on this. The first is just, can you remind folks how we'll see that show up in the sensor line as you do ship those boards that go into the OEM boxes and then eventually they get into the hospitals? How long does that typically take, and what's sort of the min/max on that curve?
Yeah. I mean, so you kind of have to bifurcate the two. And OEM boards are going into inventory. It's driven by demand forecast for the OEMs. And that typically is about 70% of our drivers. And the other 30% is our direct equipment. And typically, when we enter into a contract, we do an installation, and it takes several months to install, and those start to consume sensors. The OEM is where we don't have full visibility to, but I guess it depends on the utility of those monitors they're going into, if they're going to be used for increased capacity for COVID patients. And if that doesn't materialize, maybe those end up on the general floor, and that could take a little bit of time over the course of the year. And hopefully, those start consuming sensors later this year and moving into next year.
What does that mean for the board shipments in the next couple of years? I mean, you probably won't do 550,000 every year, but I guess the question is, maybe you will. But the question is, will you still have a "normal year" next year because you're seeing this excess demand and demand for the installations in new places, or does that make it tough comp and you'll see a drop in 2021?
It's really hard to determine this early. I mean, we know that there's been COVID buying, of course. It's obvious in how much we're seeing in the demand forecast and what we saw in April. And we think that some hospitals are accelerating some of those programs where they're trying to bring on more equipment and convert beds. But I think that hospitals right now, with the elective procedures being deferred for the last couple of months, I've reached out to some hospitals, talked to some CFOs at those hospitals, and trying to understand where elective procedures are going, when they'll resume, but also understand capital budgets. And a lot of them are going to be very tightly managing cash flow for the rest of this year and possibly into next year. And they're also going to be managing their capital budgets.
But then there's going to be other hospitals that haven't done enough to prepare for a potential second wave of the surge or those that we think that they can convert more higher acuity beds that could happen throughout the year. That's where it's difficult to determine what that demand will be going forward.
Gotcha. Okay. Well, maybe we can take a step back from this topic and talk about some of the other areas of your business. One of the newer developments has been the establishment of the Masimo Safety Net, which is different than Patient Safety Net. So you have this remote home monitoring device that can now be used to provide to help monitor patients with COVID. So maybe talk about the importance of that as a platform for monitoring COVID and then the early traction that you've gotten with that product.
Yeah. So we've had a couple hospitals that are early adopters that are piloting the program, a couple of larger institutions that we've seen very good early results with. There's definitely some good use cases both in the hospital as well as in the home. If you think about, I'll talk about the hospital first, but if you use our Radius PPG wireless sensor, hospitals are able to move patient monitoring equipment outside of a patient's room and into the hallway and avoid the need for caregivers to enter a patient's room to read the values on the monitor, and that just reduces risk for the healthcare staff as well as extending supplies of PPE, so that's one use case that they found. The other use case is for our Masimo Safety Net system that you mentioned, which brings together the Radius PPG devices of sensors.
That comes with basically a kit where you have two disposable sensors, and those are fingertip sensors, and they connect via Bluetooth to the smartphones. There's an app application called Doctella, and that's a portal that feeds the information back into the clinician's office or the hospital so they can remotely monitor the patients. By using Masimo Safety Net system, hospitals are able to monitor patients at home, and that allows clinicians to direct patients with mild to moderate COVID to return home while still being monitored for SpO2, pulse rate, and respiration rate. By implementing that, they can preserve the capacity of beds in the hospital while safely monitoring those patients in the home.
So as far as our product launch so far, I believe what we've communicated more recently is since we began the full launch in early April, we've accumulated more than 80 customers for the product with sales of over 10,000 units. We've also received a lot of serious indications of purchasing the product from over 800 hospitals. So there's been a lot of demand there. It's been one of the strongest launches we've ever had in the history of the company in terms of just that early adoption. And again, unfortunately, it took a pandemic to do that, but it demonstrates the value of the accuracy of our technology to be able to monitor patients in the home while not having to respond to false alarms, and that's where the clinical need is.
Right. Right. And obviously, this was the product they initially had designed for opioid safety. Can you talk about post-COVID, I guess? How do you envision hospitals using this product? Will they continue to monitor patients that are persons of interest, and what do you think happens to the opioid opportunity?
Yeah. I think, of course, right now, a lot of the FDA processes have been delayed in terms of existing products that were in the pipeline just because there's been focus, and we benefited from that by getting emergency use authorization of our Masimo Safety Net system. But the opioid system is going to, it's being delayed right now just because of the pandemic. But once we get into kind of that post-COVID world, we believe it's still a very large market opportunity for monitoring patients in the home who have undergone surgery, who are on opioids, and those long-term chronic pain patients who are on opioids to be monitored closely. And it's a very similar, you have the same form factor. You're using the Radius PPG wireless sensors.
The only difference is with the opioid system is we're trying to get approved with a hub that would continuously make sure that you have ongoing connectivity to send that information back into the clinician's office. So if your smartphone shut off or lost power, that it can continue on. But there's going to be a lot of utility for that, and we believe it's a big market for just opioids alone. And we've estimated that market to be about over $4.5 billion a year type market opportunity. If you look at other opportunities, we can get into other disease states, whether it be COPD, monitor patients who have congestive heart failure. There's going to be some other opportunities down the road to continue to advance the platform. And all that is really centered around our SET platform technology.
Gotcha. Gotcha. And then tying all this together, what does this mean for you as a platform sale? Are you seeing pull-through as customers are interested in one of these products? We actually heard from a hospital last week that I think was trialing Masimo SafetyNet, and they said, "Okay, we like that. We'll buy Patient SafetyNet." So I'm curious if you're seeing some cross-pollination.
Yeah. I think there are some hospitals right now that have even looked at both use case models, which would be Patient SafetyNet in the hospital where you're remotely monitoring all. You can remotely monitor up to 200 patients, and those can be now with wearable devices on the general floor, like Radius PPG. And some of those same hospitals are looking at being able to triage patients or possibly utilize Masimo SafetyNet in the home for telehealth, telemedicine. So there's got to be. There's a lot of use cases being tested that would have never been accelerated. This kind of testing would have never been accelerated this quickly if it hadn't been for the pandemic.
So what about just speaking to the opportunity for the traditional Patient SafetyNet itself? I mean, that includes a lot of the elements that we're talking about here. And how do you delineate that from just doing more monitoring on the general floor?
Yeah. Go ahead. For Patient SafetyNet, which is a hospital-based software product, we have about 500 installations of that software today, mostly in the U.S. And that software was originally built to act as a facilitator for us to get more monitor sales of Masimo brand monitors into the general floor. It increases the value of the monitors by tying them all together so the nurse at the central station can see the display of all the patient's vital signs all on one single screen, so it really streamlines the workflow and makes them more efficient. It also increases the probability that when a patient goes into distress, there'll be a more timely response to that, so with 500 hospitals, you can see we've covered about 10% of the hospitals in the U.S. It's not a big revenue generator for us.
The product is priced in the $50,000-$100,000 range, and really, it is a tool that acts to increase our foot in the door for other types of monitor and sensor sales. We do see great potential, of course, to expand to the other 90% of hospitals that don't have it.
Right. Right. Okay. And maybe final product that you're seeing some increased demand in hemoglobin. Can you talk about your efforts there? I know you're actually giving some of that away to help with the blood shortage crisis. How much of that do you think will stick afterwards, assuming that things do start to go back to normal?
Yeah. It's still very early to determine. I mean, there's definitely been increased demand. We saw, despite the loss of elective surgeries, which has softened some of the demand because this total hemoglobin monitoring is used through surgery to manage blood. So there's been definitely an impact there with less surgeries, but overall, we've been able to. We saw very strong results in Q1 that were above our long-range plan of 10%. And we're seeing some adoption. We've already saw even last year as we were coming into the year is one of our strongest contracting years for hemoglobin. And those contracts were done through a different business model that has gained momentum for the Rainbow product line for us in the U.S. by doing more of a risk-share approach to be able to manage blood supply for the hospital in a more cost-effective manner.
So we believe that hospitals, there's a lot of momentum there that's going to help drive adoption in the future, especially as we move into 2021. We think that once hospital contracting gets back up and running, we'll be able to continue to implement those programs even further and drive adoption. But we had tremendous momentum coming into the year, and we're trying to get some of those programs going so that we can continue to maintain that momentum because we're excited about where it could head in the future.
Understood. Understood. The other area of the business I wanted to get an update on was NantHealth and just understanding how that's augmenting your offering with Connected Care. Maybe talk about how the integration's going and what additional offerings you may potentially see increased demand for because of all the trends that we're talking about.
Yeah. Yeah. So the integration's gone very well so far. Even though we've been disrupted a little bit by the lack of contracting in hospitals, there's not a lot of new contracts that are happening today just because they're so focused on what's going on in the environment. But we've seen strong results so far. Everything so far in terms of revenue performance has been in line with our expectations so far this year that we communicated back in January. So the business is going well. We think it's going to give us even greater opportunity to leverage their sales force that we acquired as well as their implementation teams. As you know, we talked a lot about the success that we've had over this past year of just gaining new hospital automation contracts and customers and expanding that base.
When we acquired the Connected Care business, the iSirona business from NantHealth, that helped us increase our customer base pretty substantially. A lot of those customers, there's going to be a lot of revenue synergies there from where we're able to pull through more of our sensor business that may not exist in some of those larger accounts today. There's a lot of synergies. If we think about what's going on right now with the pandemic, it's accelerated the need for all this monitoring equipment. There's also been an increased demand for Patient SafetyNet in the hospitals as well as Root with vital signs. When you bring that all together, we'll have an opportunity to come in on the back end and bring these into hospital automation contracts and hopefully connect all those devices and drive further adoption.
So we think that there's going to be a lot of things that could accelerate once we get through this pandemic and things get to whatever the new normal is.
Gotcha. Gotcha. What about, I guess, when you're thinking about the trends and trying to predict what's going to happen longer term, how much additional capacity do you think hospitals will need to carry in terms of their ICU capabilities to make sure that they're not caught off guard for the next spike or outbreak?
Yeah. I mean, what we've seen and heard is hospitals are increasing. They could be increasing up to 30% greater capacity by converting to higher acuity beds. I think they're going to need some of that, especially as elective procedures come back online and there's going to be pent-up demand. And then, like we said before, is hopefully they'll be able to move those to the general floor and provide continuous monitoring on the general floor. In case there's ever another surge, they can always move those back to the ICU type areas of the hospital.
Gotcha. And on the trends you're seeing outside the U.S., of course, it makes sense that we would not want to use reusable sensors at this time where there's an infection risk. Are you seeing any signs that that could be a durable trend? I mean, certainly it could be for a couple of years, one would think. But what about in the long run? What do you think would tilt the scales there?
Yeah. I mean, one thing we found through this, and we saw that in our April numbers, is just the significant increase we've seen in disposable sensors orders outside the U.S. and in Europe. We think that there's a lot of focus. This is driven around infection risk and managing disease transmission. And I think that that's going to rest in the minds for a while. To your point, next few years, it's going to become more important for hospitals to manage that. And it's substantially different from it's a very small base of sensor revenues that are coming from disposables outside the U.S. today. We do believe that things are migrating that direction from what we're seeing right now in the last month and a half. So it's hard to tell. It's still too early. Is this going to stick?
But there's definitely a lot more awareness today than there's ever been around managing that infection risk in the hospital system. So we think that it'll definitely have some acceleration impact on adoption of disposable sensors in the future.
And then I'll just round this out by asking about hospital automation. So that's another offering that you have that kind of pulls a lot of these areas together. Maybe talk about the momentum and interest that you're seeing in that product line.
Yeah, so I mean, right now, the most valuable thing that customers, early customers, are finding in hospital automation are the improvements in clinician workflow and the simplicity of passing information from all devices into the electronic medical records. Also, being able to reduce cognitive overload in the OR and the ICU through use of our UniView software, which serves as a cockpit for being able to look at all the different parameters and measurements on one screen when you're in surgery or you're providing care across your care team. There's also our Replica alarm management software that's been very useful and valuable for optimizing communication between care teams, being able to escalate and respond to alarms and events throughout a hospital, and we're very excited about the early results we've seen there.
Like I said before, some of the things that have slowed down right now have been new contracts as well as hospital automation agreements. But we've been able to continue to, through virtual installations, kind of keep that momentum going. And we think that that momentum will continue once we get through kind of this environment we're in right now.
Yeah. Can you talk about how there's a lot of companies that throw that buzzword around hospital automation? Can you talk a little bit about how your offering is different and how you "have the right to win" in that space?
Yeah. Absolutely. So I think what differentiates us is we can take our Root platform, which is a high-connectivity platform. We can connect all the different devices that are in a hospital system, whether it's a multi-parameter monitor, anesthesia machine, infusion pump, get all those devices or monitoring equipment that would have been completely disconnected, bring those together, and then shuttle that information through what we call our Iris Gateway platform and Patient SafetyNet. We can shuttle that into the electronic medical records. The other thing we can do with it is distribute that data and patient information to any endpoint throughout the hospital, even before it gets into the electronic medical record. So you're seeing real-time continuous monitoring of patients throughout the hospital.
We can shuttle the information back into the hospital room, and we can take it to the OR room where you can see it on UniView and be able to customize displays for the surgeons. We can remotely monitor up to 200 patients from a central nursing station where you can quickly detect alarms and events and respond to those. We have our mobile platform where we can have better communication, as I mentioned before, with Replica to be able to communicate and respond to alarms and events from a handheld device. But I think what really differentiates us is that to do all those things, whether it's central station monitoring, connectivity, it's alarm management and reporting, all those things, if you were to use other companies besides Masimo, you would be looking at adding a box or a server for each one of those areas.
And you could get up to four or five different types of servers to accomplish what we can do through our Root connecting into our Iris Gateway server. So it's a lot more cost-effective way of doing it. And we also can get everything connected and up and running a lot more quickly than most competitors with our ACE software.
Gotcha. And one of the things you talked about in the past with that is in the future, you might be able to have some predictive algorithms to help improve care, prevent sepsis or other problems. Is there any traction that you've made in that area?
Yeah, so we've been working with patient data for a long time. Eli mentioned earlier where we've got 500 Patient SafetyNets out there. We've got information that we've been working on to work on advanced algorithms for decision support. We think that there's going to be some great opportunities for us in the area of decision support coming up in the future. Will it ever get to closed loop? That's hard to say where you can actually administer fluids and close the whole system loop, administer drugs. It's hard to say when it'll get there. There's going to be a lot of probably regulatory hurdles there. But we think that by our advanced algorithms that we can deploy, it's going to further differentiate us as a company to provide that support for the clinicians in the hospital.
Gotcha. Gotcha. And maybe you could just speak more broadly to your financial position. You have a strong balance sheet. In the past, your capital uses have been really internal investment. You've done some M&A, some buybacks. How are you thinking about capital allocation at this point in time?
Yeah. I mean, our first priority is, of course, continuing to invest back in the business. We've set a very high bar in terms of innovation as a company. But one thing that has become increasingly important for us is executing acquisitions that align very well with our long-term strategy. And we've already completed two transactions just this year by acquiring, as you know, iSirona Connected Care business back in February, TNI Medical business in April. And we're continuing to evaluate more opportunities this year. Our goal is just to continue to be disciplined by executing transactions that leverage our core competencies as a company and support our long-term financial targets. And M&A is definitely a priority for us in terms of capital allocation.
Right. Right. I'm glad you reminded me about TNI. That's a good one to ask about too. You mentioned on the call that you're not promoting it that actively. There was some concern about aerosolizing the virus with non-invasive ventilation. I mean, it's interesting you actually see more articles now talking about the damage that's done by invasive ventilation. So maybe the pendulum's kind of swinging the other way. So I guess I was just wondering what kind of demand you're seeing for the product and if you have any updated thoughts on invasive versus non-invasive?
Yeah. I mean, we believe the COVID pandemic could drive increased demand because we believe that high-flow therapy may help COVID patients avoid the need for full-blown mechanical ventilation, which we do believe carries a higher risk of damage in the lungs. One of the concerns that was out there with high-flow was just that it could aerosolize more of the virus into the room air and put caregivers at risk. And we just wanted to make sure that we understood it. But overall, we believe it's definitely something that can be therapy that could avoid the risks of damage to the lungs from full-blown mechanical ventilation. Right now, the high-flow product's cleared for both hospital and home use, and it's primarily sold in Germany. The reason we acquired it earlier than we had anticipated is because we had an option to acquire the company that was out there.
I think we talked a little bit about that just about a year ago, putting that investment out there. We acquired them earlier than expected just because we wanted to help them increase capacity for worldwide distribution, which we believe could happen. We'll start expanding into other countries this year, later this year, and then hopefully have broad distribution in 2021.
Yeah. And then I think the only ones we didn't talk about were the advanced parameters. And I was just hoping you could spend a minute on capnography because that also can play a role in COVID patients. But maybe you could also speak to some of the uptake that you're seeing with the other ones as well.
Yeah. In the advanced parameter group, the standout has really been our capnography technology sold under the brand name NomoLine as a way to measure exhaled carbon dioxide, also known as end-tidal CO2, the carbon dioxide at the end of each breath, as well as respiration rate continuously. Capnography is very, very valuable for deploying on patients with respiratory illness such as COVID, especially if they're at risk of developing pneumonia or if you're trying to see if their pneumonia is starting to resolve. So capnography is something that we've seen a nice increase in demand for. The flip side of that, of course, is the postponements in elective surgeries, which have decreased demand for the other two technologies in the advanced parameters group. Brain function monitoring sold as SedLine, and cerebral oximetry sold as our O3 product.
But as the elective surgeries come back, we expect to see demand resume for those two. In the meantime, though, it's been a significant boost for capnography, especially for hospitals to become familiar with our new offering in the capnography category, which is our disposable cannula, which we just launched late last summer. We're now selling both the capnography hardware and software in combination. And one very nice twist to our disposables offering there is our disposables will plug into anybody's capnography device, not just a Masimo brand product. So we can tap into the entire install base of all capnography hardware that's out there, which gives us quite substantial upside in sales of that particular product.
Gotcha. So thanks, Eli. We have just two minutes left. So I think the last thing I wanted to ask about was maybe you could weigh in on margins. And I was just hoping you might, A, touch on all the different puts and takes in the current year and what that does to margins. But just thinking longer term with all these opportunities, how does that play into your longer-term margin strategy?
Yeah. Yeah. Let me just hit on kind of this year before we talk about the long term.
But one thing that COVID has done as far as disrupting some of our normal business patterns was during the first quarter, we saw a stronger mix of adhesive sensors, and that resulted in higher-than-expected gross margins. In the second quarter, as I mentioned earlier, we're seeing a lot stronger mix of orders for our technology boards and monitoring equipment, which carry substantially lower margins than our adhesive sensors. So that's kind of thrown off some patterns because we're seeing lower gross margins in the second quarter compared to both our first-quarter results and last year's results. It's very difficult to determine with those cross currents of COVID buying offset by lower elective procedures how that's going to impact the quarters this year in terms of Q3 and Q4.
But as we think going forward and we look out into 2021 when things normalize, we expect to get back on our normal cadence of 50 basis points of gross margin improvement at least per year. We've executed very well on that over the past years and delivered well above that. And overall, in terms of operating margins, we plan to get back on the cadence of 100 basis points per year. But this year is going to be a little bit challenged in terms of operating margin just because of the high revenue growth we've seen, but a lot of that coming from capital orders and sales. So that will put pressure because those margins are typically in the 40%-50% range relative to our sensors, which are in the high 70s%.
Gotcha. Well, I think, guys, that we've covered a lot of ground here. So I think we should wrap up. But I do want to thank you for spending all this time with us at such a busy time for your business. I know investors really appreciate getting these touchpoints and all the feedback you've provided. So thanks a lot. Good luck with executing on all these opportunities in a challenging environment. And we wish you the best of luck, and we'll catch up with you soon.
All right. Thanks, Matt. Stay safe and healthy.
Thanks, Matt.
Thanks. Thanks, guys. You too. Take care.
All right. Take care. Bye.