Masimo Corp (MASI) 2019 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Masimo's First Quarter 2019 Earnings Conference Call. The company's press release is available at www.masimo.com. (Operator Instructions)

I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations.

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 fiscal 2019 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC. You will find these in the Investor Relations section of our website.

Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted principles or GAAP. We generally refer to these as non-GAAP financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Management uses non-GAAP measures to budget, evaluate and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website.

Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q in order to make informed investment decisions.

In addition to the earnings release issued today, we have posted a quarterly 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, Eli. Good afternoon, and thank you for joining us for Masimo's First Quarter 2019 Earnings Call. This month, we are celebrating the 30th anniversary of Masimo's incorporation. And it's great to be able to report that first quarter results once again exceeded expectation.

Our first quarter results illustrate the strength of our breakthrough technologies and their ability to improve patient care and reduce the cost of care. Our product revenue increased 14% on a constant currency basis to reach $230.5 million. And just as important, as a foreteller of future patient benefit and future revenue is the technology shipments. In Q1, we shipped a record 63,700 noninvasive technology boards and monitors. And better yet, we expect to ship over 60,000 technology boards and monitors quarterly for the rest of 2019.

Due to the strength we saw in the first quarter, we are once again raising our revenue and earnings guidance in 2019 as we expect that the strong momentum of our business will continue.

I'll discuss more in the call later. Now I will ask Micah to review our first quarter results in more detail and provide you with an update on our 2019 financial guidance. Micah?

Thank you, Joe, and good afternoon, everyone. Before I get started with the financial update, I want to take a moment to discuss the new lease accounting standard ASC 842 which we had to adopt during the first quarter of 2019 using the current period adjustment method of adoption. At a high level, the most significant impact of the new accounting standard is that ASC 842 changes the accounting for 2 primary types of transactions here at Masimo. Number one, for long-term customer contracts with fixed sensor purchase commitments, we will now recognize revenue and costs related to the monitoring equipment at the time that the equipment is made available to the customer as compared to being recognized over the term of the contract. While this may impact the timing of our monitoring equipment revenue and costs, it should not impact the overall economics and related cash flows of our customer contracts.

Number two, for operating leases where we are the lessee, we will now recognize a right-of-use asset and related lease liability on the balance sheet for our obligation to make payments under the operating leases. The implementation of the new accounting standard resulted in adjustments for the current quarter that increased our product revenues by approximately $2.5 million but decreased our product margins as a result of the lower profit margins associated with the monitoring equipment revenue. We expect that the new accounting standard may impact the timing of our equipment revenue and costs but should not impact our full year results for 2019. I will discuss the impact of ASC 842 in more detail in just a moment.

Moving on to our financial results for the quarter. Let me remind you that the financial measures that I will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Furthermore, we have now updated our non-GAAP financial measures to exclude the impact of royalty and other nonrecurring revenues in historical periods to provide the most comparable view of our operational performance on a year-over-year basis. Please refer to today's earnings release, supplemental financial information and the quarterly investor presentation on www.masimo.com as well as the Form 8-K we filed with the SEC for further information regarding our non-GAAP measures and reconciliations.

As Joe mentioned, we've had a great start to 2019 with another strong quarter of product revenue growth, operating margin expansion and earnings performance that once again exceeded expectations. During the quarter, we shipped 63,700 technology boards and monitors which reflects growth of 18.8% over the prior year quarter. The growth in our driver shipments was due to strong customer demand in both our direct and our OEM business. Also beginning this quarter, we are now including capnography boards and monitors related to our new disposable cannula line that we launched this year in this metric. Up until 2019, Masimo did not provide disposable cannulas. We expect disposable cannulas to provide recurring revenue for our capnography installed base.

For the first quarter 2019, we reported total revenue including royalty and other revenue of $231.7 million. Our product revenues were $230.5 million for the quarter which reflects growth of 12.8% or 14.3% growth on a constant currency basis. As I mentioned previously, our product revenues for the quarter included $2.5 million of monitoring equipment revenue recognized under ASC 842 which contributed roughly 1.2% to our growth rate this quarter. Royalty and other revenue was $1.1 million for the quarter compared to $8.6 million for the first quarter of 2018 and included a final true-up of approximately $700,000 to our previously accrued royalty revenue from Medtronic that expired on October 6 of last year. During the first quarter, we also had $400,000 of nonrecurring engineering revenue related to the integration of Masimo technologies into our OEM monitors.

Now let's return to the rest of the P&L. For the first quarter, our non-GAAP product gross margin decreased 80 basis points to 65.4% compared to 66.2% in the prior year period. As I mentioned previously, the lower equipment margins recognized under ASC 842 decreased our product gross margin by approximately 120 basis points for the quarter. This was offset by operational improvements related to lower inventory charges, increased manufacturing efficiencies, favorable product mix benefits and the additional cost-reduction activities we've implemented to improve margins.

Non-GAAP selling, general and administrative expenses decreased 210 basis points to 32.1% of product revenue compared to 34.2% in the prior year period. Non-GAAP research and development expenses decreased 30 basis points to 9.3% of product revenue compared to 9.6% in the prior year period.

For the first quarter, our non-GAAP operating profit margins increased 160 basis points to 24% compared to 22.4% in the prior year period. Our operating margin expansion of 160 basis points was primarily driven by controlled spending as our operating expenses increased at half the rate of our product revenue growth which was partially offset by the lower margins recognized on our lease monitoring equipment under ASC 842.

Moving further down the P&L. Nonoperating income on a non-GAAP basis was approximately $3.4 million for the quarter compared to $500,000 in the prior year period. The increase was primarily driven by an increase in net interest income due to our stronger cash position and higher interest yields realized on our invested cash.

Turning to taxes. Our non-GAAP tax expense in the first quarter was $13.7 million, resulting in a non-GAAP effective tax rate of 23.3% compared to a non-GAAP effective tax rate of 23.6% in the prior year period. Our weighted average shares outstanding for the quarter was 56.8 million compared to 55.5 million in the prior year period.

For the first quarter, our non-GAAP net income was $45 million or $0.79 per diluted share. In comparison, first quarter 2018 non-GAAP net income was $35.5 million or $0.64 per diluted share. This reflects non-GAAP EPS growth of 23% over the prior year quarter.

Turning to our GAAP results. GAAP net income for the first quarter of 2019 was $49.3 million or $0.87 per diluted share. In comparison, first quarter 2018 GAAP net income was $45.6 million or $0.82 per diluted share.

Overall, we are extremely happy with our financial performance in the first quarter as our global organization delivered constant currency product revenue growth of 14%, non-GAAP operating margin expansion of 160 basis points and non-GAAP EPS growth of 23%.

Now I'd like to update you on our full year 2019 financial guidance. As a result of our strong performance in the first quarter, we are now increasing our 2019 product revenue guidance to $918 million, which reflects year-over-year growth of 10.6% on a reported basis or 11.4% on a constant currency basis. This represents an increase of $6 million above our prior guidance of $912 million.

Our non-GAAP product gross margin guidance remains unchanged at 66.8% and our non-GAAP operating expense guidance remains unchanged at 42.8% of product revenue. Based on these assumptions, we are continuing to project non-GAAP operating profit margins of 24%. This represents a 200 basis point improvement in operating margin in 2019 compared to the prior year period.

Moving further down the P&L. We expect to generate approximately $13 million in non-GAAP nonoperating income in 2019 which is primarily comprised of interest income.

Our non-GAAP tax rate remains unchanged at approximately 23%. And we are estimating that our weighted average shares outstanding for the year will be 57.6 million, which does not reflect any additional share repurchases in 2019.

Based on all of these assumptions, we are now increasing our non-GAAP EPS guidance to $3.12, which represents an increase of $0.04 above our prior guidance of $3.08. As a result, our non-GAAP EPS is projected to grow approximately 18% over the prior year.

And from a GAAP perspective, we are now projecting a GAAP tax rate of 19.9% and GAAP earnings per share of $3.25 for the year, which represents an increase of $0.06 from our prior guidance of $3.19.

For additional details on our full year 2019 financial guidance for GAAP and non-GAAP earnings per share, please refer to today's earnings release and supplemental financial information within the Investor Relations section of our website at masimo.com.

With that, I'll turn the call back to Joe.

Thank you, Micah. We had a very productive first quarter with key customers as well as introductions of innovative new products and services.

To start, we are seeing more customers embrace our system solutions for improving patient care which are unmatched in terms of delivering positive patient outcomes and reduced cost of care. Our noninvasive monitoring solutions provide unprecedented veracity and breadth of patient information, which is critical in either way a hospital looks at it: one, the need to get patient care right the first time because more and more they are not paid for secondary issues arising out of substandard care; or two, the need for reliable data for data analytics. That is, if a hospital looks at it from the perspective that we are in an age of data harnessing, analytics, predictive algorithms and decision support, they will need good data. If you have garbage going in to these data analytics systems, you get garbage out.

And now with Root-based solutions, such as Iris, UniView, Replica, MyView and Patient SafetyNet, we're not only optimizing clinicians' ability to have better situational awareness and mindfulness from our patient monitor, but from everything in the room and potentially outside the room, such as the data available from their electronic medical record.

As an example, in March, St. Luke's Hospital University Health Network in Pennsylvania announced that its regional network of 10 hospitals and 320 affiliated sites is expanding their use of a variety of Masimo hospital automation technologies following impressive outcome results at a pilot site. Starting with a 34-bed orthopedic trauma ward in Bethlehem in 2015 and implementing changes in clinical practice and alarm management, St. Luke's installed Masimo Patient SafetyNet together with Root and our Radius-7 tetherless wearable Pulse CO-Oximeters. Then in 2016, a year after implementation of the program, clinicians achieved impressive outcomes and financial results compared to their 2015 performance, including a 62% reduction in mortality, a 36% reduction in naloxone administration, a 23% reduction in the utilization of telemetry, a 26% reduction in critical care transfers and an estimated savings of $900,000 in cost avoidance.

Following the successful pilot program in the orthopedic ward, St. Luke's expanded its use of Patient SafetyNet to an additional 48 beds across 2 additional units on their Bethlehem campus. Now 3 years later, the network is once again expanding its use of Patient SafetyNet and other Masimo hospital automation solutions to almost 500 beds in total so that all 8 existing hospitals will have our technology and solutions.

Monitoring data is now automatically transferred from bedside devices and Patient SafetyNet to St. Luke's Epic electronic medical record system, helping improve productivity and reducing the likelihood of transcription errors. Also being implemented is Vital Signs Check, an application for Root designed to streamline vital signs measurement workflows and optimize patient data management so that unstable conditions are no longer missed until they become critical threats that sometimes result in poor outcomes.

Dr. Aldo Carmona, Chairman of the Department of Anesthesia and Critical Care and Senior Vice President of Clinical Integration at St. Luke's, who led the initiative stated that, "Constant monitoring of changes in patient conditions will alert doctors and nurses when gradual deterioration is sensed, enabling a quicker therapeutic response and avoiding emergent situations." In a statement to the value of our systems for St. Luke's, he further commented that, "This patient safety initiative will be the most important patient safety project I will work on in my whole career."

In our R&D pipeline, we have many enrichments to our hospital automation solutions. Recently, we announced the U.S. launch of our Iris Device Management System, an automation and connectivity solution designed to streamline the management of Masimo devices used throughout a hospital. The Iris Device Management System facilitates the maintenance of multiple patient monitors in hospitals by remotely connecting to all connected Masimo devices to provide an easy-to-use dashboard for status checks and software upgrades. This feature allows a hospital's biomedical engineer or IT professional to review and view detailed diagnostic information about connected Masimo devices at a glance without the need to physically interact with each device.

In February, we announced the launch of Doctella, a cloud-based patient engagement and remote care automation platform that will enable safe, secure and high throughput communications for home-based patients with their caregivers. The Doctella provider portal allows clinicians to keep track of physiological measures such as oxygen saturation and health behaviors such as medication consumption, identifying when intervention may be needed and how to prioritize the needs of multiple patients. Through such automation, health care institutions can know better handle discharges to minimize patients needing to return to the hospital and more easily deploy home care monitoring all while helping clinicians remain abreast of important developments in patient condition. The provider portal can also collect population-level health data to help clinicians and other stakeholders gauge the efficacy of various treatment protocols and develop new plans using data-driven decisions.

As it is our 30th anniversary, we plan to do many things to celebrate our 30th. One of those things is our intention to launch a new product every month of 2019. In keeping with this goal, in March, we announced the receipt of the CE mark for the pediatric indication for our Next Generation SedLine brain function. With this clearance, the benefits of Next Generation SedLine are now available for all patients 1 year old and above in CE marked countries. Our Next Generation SedLine uses a pediatric-specific signal processing engine to boost performance of Masimo's processed EEG parameters, the Patient State Index for pediatric patients. Because the use of anesthesia on pediatric patients can differ from its use on adults, SedLine can be useful for maintaining an appropriate level of anesthesia in order to prevent anesthesia-related events and enable faster recovery for these young patients.

Another new product release of note during the quarter was the FDA clearance of the Rad-67 Pulse CO-Oximeter with next generation SpHb spot-check monitoring and the rainbow DCI-mini reusable sensor. The next generation SpHb technology used in this device allows for enhanced field performance across all hemoglobin ranges through faster measurement results and improved repeatability. We will continue to work on improving our SpHb technology until it has SET-level performance, enabling the value of continuous noninvasive hemoglobin monitoring to help all patients when it's needed the most.

In closing, as we celebrate the 30th anniversary of the founding of Masimo this year, we see great potential ahead for many more years of fulfilling our mission to improve vision outcome and reduce the cost of care by solving unsolvable problems. And we're not giving up until every patient, every clinician and every hospital has the opportunity to benefit from our solutions. We're going to share our plans for achieving that vision next week, on May 16, when we host our third Investor Day since we went public in 2007, here at our headquarters in Irvine. We're also going to provide an opportunity for attendees to see a demonstration of our hospital automation system and even a couple of surprises to treat you to. We hope to see you all on May 16 in Irvine for a great, interactive day with our management team.

With that, we'll open the call to questions. Operator?

(Operator Instructions) And our first question comes from the line of Matt Taylor with UBS.

Nice result. I just wanted to ask one question about the boards number with the inclusion of capnography. Can you talk about how much of a difference that made? I just want to try to get an apples-to-apples comparison with the prior year.

Yes, Matt. This is Micah by the way. If you were to strip out the capnography or normalize year-over-year, instead of 18.8% growth, it would have been about 15% growth year-over-year. So still very strong but it definitely helped, contributed to that number. But as I mentioned in the prepared remarks, we do expect that, that's going to generate a recurring revenue stream with that new disposable cannula line.

It's about 2,000 units.

Yes, about 2,000 units.

And just to be clear, that 2,000 was just in this year but not in last year or that was because of outsized growth?

It's in this year. We included in the metric because we're now launching that product line.

Got you. Okay. And then you mentioned you're seeing more trends of people adopting your total solutions. Can you talk a little bit about that in more detail? Any anecdotes or evidence that you're seeing more of the high-value parameters or rainbow metrics being adopted?

Yes. We have a rich pipeline of customers who are looking at implementing hospital automation. We also have many pilots going on. We've had already customers that have used pieces of hospital automation like St. Luke's, which I mentioned, or other customers here in California. But it is expanding and we're expecting a large amount of revenue on the first year we're launching the full suite. As far as the other parameters like rainbow, SedLine, NomoLine, O3, we're seeing over 20% growth in those product lines, which is obviously with rainbow we're the only company. But with the other ones, we think it's at least twice the rate of market expansion.

And your next question comes from the line of Rick Wise with Stifel.

A great 30th anniversary start to the year. Micah, I just want to make sure I understand a lot of moving pieces here. Your comments went by quickly. You talked about the product gross margins down 120 bps if I understood you correctly because of the accounting change. But if I understood you correctly, again, you offset all that with cost cutting. So a couple of things. Is this the new steady state of affairs and this will optically look just like the first quarter roughly as we go through the year? Can you keep offsetting it as you dial in the accounting change for the year? And I know you have larger, longer-term manufacturing product COGS efficiencies. Is there more beyond what you've just offset? Just put it in some more perspective if you could.

Yes. So Rick, just to address ASC 842. So as we mentioned, it resulted in $2.5 million of additional revenue this quarter. Our forecast tells us because historically we have higher placements of our equipment in Q1 if you go back historically. That tells us that this is more of a timing on the full year, timing issue. So on the full year, we're not changing our revenue guidance as a result of 842. And we're also not changing our gross margin or our margin guidance as a result of 842. And that's just because we do believe it's the timing. If you were to exclude ASC 842, we're tracking in line with our expectations and even maybe slightly better than expectations in terms of the cost-reduction initiatives. We had lower inventory charges year-over-year but we're tracking where we expected this quarter. So I think that's how you need to look at it, more of a timing issue this year.

Okay. And obviously the driver shipments were still very impressive numbers. Should we assume this is largely Philips? Does that sustain -- excited to hear that, Joe, you said more than 60,000 drivers per quarter. But where are we in the whole Philips thing? Is this only Philips or is it more broadly based from all your OEMs?

More broadly based from all of our OEMs. In fact, soon we're going to announce an expansion with an existing OEM that will continue to add to our installed base drivers. But yes, it's really across the board and not related to Philips.

And can you update us on how things are going with Philips and just any color would be great.

Yes. Things are going well with Philips. We expect not only a continued rise in adoption with Philips in terms of integration of Masimo SET and rainbow SET into their product line, but we expect the SedLine and NomoLine and O3 will be made available through Philips. We've had some delays. It looks like SedLine and NomoLine will be released before the end of this year and O3 by middle of next year. I may have one of those messed up. SedLine next year. So NomoLine and O3 before end of this year and SedLine next year. And overall, we're doing well with that.

Yes. Great. And just last for me. I mean just stepping back, and obviously a lot of moving pieces in the Masimo story. But when you talk about -- we know about the NomoLine, SedLine and all the products you've been talking about in recent months and quarters. Now you're saying you hope to announce a new product every month in honor of your 30th year. How do we think about all that? Does this accelerate growth? Is this incremental to the plan? Is this going to have an impact in '19? Obviously, it will have an impact longer term, but just help us understand that.

Thank you. Thank you. Well, I think it will help certainly our plan going forward in 2020 and on, but they will have positive impact no doubt in 2019. That's one reason despite broader markets feeling soft, we feel bullish about the year, and we increased our guidance based on our beat instead of being conservative and just keeping that extra cushion.

Some of the products we're about to launch, I think, will have the potential of having really large impact in our business. I mentioned the opioid SafetyNet project is one of them. We're waiting and working with the FDA to release that product. We hope that will be a product we'll release in second half of the year. And that will be truly our first health care consumer product. And given the problem that's in epidemic proportions and how we see the solution already help in one state, Utah, where they've used a more expensive solution to deal with the problem, that could have really big, profound impact to our business. Now we're not putting that into our guidance because we've never been in the consumer health care business, but we have seen for other companies how digital that business can be. It could be either nothing or it could be really big. And we're putting a lot of effort hoping they will be big, but it's not projected in our numbers in this year.

And your next question comes from the line of Bill Quirk with Piper Jaffray.

So Micah, sorry to go back to ASC 842 again. But was this something that was contemplated in the original guidance? I didn't see a reference to it in the fourth quarter transcript. I'm just trying to, I guess, get my...

No. I mean, we knew of the change, of course, because we've been working through it over this past year. But it took a very lengthy process of working through a lot of contracts. So we drove more clarity with that early in the first quarter. And we continue to work through it and now we feel like we have a much better understanding of the timing of when that will impact us based on the timing of when we make equipment available to customers. So that's why we want to make sure that we're clear on the amount that impact us in the quarter so you could understand the impact on the growth rate. But again, when you strip that out, we still had an extremely strong quarter on product revenue. It would have grown 13.1% without that $2.5 million, so very strong first quarter. And as I mentioned before, it's more based on the timing of shipments throughout the year and going forward. It does not impact the overall economics of a contract or the related cash flows of our contracts.

So for the year, we don't think it'll make an impact. So while in this quarter we saw an increase, in the future quarters we'll see a decrease. And then for the year, it will be flat. So we have projected it. I think ASC 842 is impacting every company. It's not just Masimo. So we had predicted it a couple of years ago when they announced that we had to go effective with ASC in 2019. And again, we thought it will be flat and it looks like it's going to be flat.

Okay. That's very helpful. Joe, going back to an earlier comment that you had regarding interest from hospitals in terms of the systems-based approach. Can you expand upon that and maybe help us think a little bit about the revenue capture and if we should be thinking about this meaningfully contributing in '19 or if this is something that should be building over a period of several years?

Sure, Bill. I can tell you the excitement is high both from our customers and our own team. We've had customers from just a few miles away to thousands of miles away tell us they want to implement. We're working with them to implement. I think of all the new products that we've launched, we've associated the highest amount of revenue in the year of launch than we've ever done before for hospital automation this year. So we are expecting pretty big sized revenue this year. And from what we can see, the pipeline still tells us we can accomplish that and it's going well. So I'm hopeful this will become a sizable business. We will, at the Analyst Day, share with you what we think the size of hospital automation business could be for us and as well as opioid SafetyNet, 2 new things that we've been talking about. So hopefully, you'll have a better sense for what we're projecting.

Very good. And then just last one for me. ORi, anything to update us on that product?

ORi, we launched it in 2014 and had been working since then with the FDA to get it cleared. Obviously outside the U.S. it's being used. Every data that's come out from any studies have been extremely positive. And people are using it to a great extent. Keep your fingers crossed, we're hoping to get clearance soon so that we can start marketing it in the U.S.

And your next question comes from the line of Mike Matson with Needham & Company.

Can you guys hear me?

Yes. We can now.

All right. Sorry about that. So I know that you guys are kind of breaking out the business between SET, rainbow and then the other kind of 3 measurements and you've talked about kind of 6% to 8%, 10%, 20% growth, respectively, for each of those categories, but your overall revenue growth has been kind of far exceeding that combined growth that, that implies. So I'm just wondering if you could maybe break it out in terms of those 3 categories what's really driving the upside. Is it just across the board or is rainbow doing really well, for example?

Yes, Mike. This is Micah. We're standing across the board. As I mentioned, I think, I mentioned back on the prior call, our last quarter call. And assumed in our long-term growth rate of that 8% to 10% is about 6% to 8% of SET growth, 10% of rainbow growth and about 20% of those other advanced parameters: capnography, SedLine and O3. And we're seeing strong performance across all 3 of those that are exceeding our plan. So it's not just one product platform area. It's broader-based strength that we're seeing.

Okay. And then just kind of a similar question on U.S. versus international. I hear a ton of comments about kind of the OUS business on the call. So just curious how that's performing. Is it kind of growing in line with the U.S., faster or slower? And just any kind of comment on various regions where you're doing better or worse, I guess.

OUS is growing faster, almost at a 2x rate of U.S. Yes. And a lot of that is just in our established markets there's additional demand for the product. But we are also in certain smaller countries that we weren't direct before as we've gone direct we're getting more traction.

And your next question comes from the line of Ravi Misra with Berenberg Capital Markets.

So I guess I just have 2 quick ones. Just on the guidance accounting update. When we kind of neutralize for that, are the kind of 3 segments of the business, were those still growing as you've kind of communicated to us in the past between rainbow, SET and the SedLine capnography and the O3 franchisees? And then second, what kind of reimbursement needs to come into place for this exciting opioid opportunity to really move the needle for you guys?

Ravi, this is Micah. I'll take that first one then Joe will follow up on the second, on the reimbursement. So implied in our guidance, if you look at the $2.5 million of timing on the equipment revenue in Q1, that implies that we will be lower by $2.5 million the last 3 quarters. So effectively, we've raised our product revenue guidance outside of the accounting change in the last 3 quarters. And the strength that we're seeing as we mentioned before is broad-based across our product platform and technologies. And it's also broad across our geographies and distribution channel. So we are expecting to continue to see that outperforming our long-term plan that we laid out. So hopefully, that helps answer your question there.

And as far as reimbursement, we're studying it right now. There might be already recent reimbursement rules like the ones that were passed by the 21st Century Cures Act that customers could take advantage of. But we recently did a survey and not only did the clinicians, majority of them say they would prescribe it, but majority of patients said they would pay for it out of pocket at the prices that we were considering marketing it for. So we're going to look at what reimbursement does. We may or may not take advantage of it once we fully understand its implications. But we think for the cost that we're considering for the value it brings, we think there will be success with it even without reimbursement. And Ravi, welcome aboard.

Thanks. It's nice to be on the call. Appreciate the response.

It's great to have you, Ravi.

And your final question comes from the line of Lawrence Keusch with Raymond James.

It's John Hsu on for Larry. Just a few for me. I guess, Joe, to be clear, the 60,000-plus drivers now, you're obviously including some new shipments for capnography with cannula. But I guess the 2,000 in the quarter, is the right way to think about it that the net change from what you had been talking about prior is really just due to this change or is there kind of broader-based strength that you're seeing outside of capno?

I'm not 100% about this but from my memory, even if we take capno out, we had record quota shipments of our normal drivers, SET and rainbow. So we are seeing increased adoption of SET and rainbow. We chose to include capnography this year because we now have the consumable. So for the past number of years all of our revenue from capnography has come from just installing the hardware and we've not been in the consumable business. So for the first time ever, we are. And not only there's 2,000-plus new capnography technology that we sold this quarter in Q1, but there's a very large installed base of capnography products that we have shipped in the past that now we can provide our own cannulas for.

Okay. Great. And then just a couple more. On the advanced parameters, it sounds like with Philips that will really start to kick in later in 2019 and in the early 2020. But presumably that should have an accelerating impact on that 20% growth rate, unless I'm missing something. Is that fair?

I think so. I think Philips obviously with such a large footprint, 50% to 60% of patient monitors in the world are with Philips. With them launching SedLine, NomoLine and O3, that should put strong wind in our sails for those parameters.

Okay. Great. And then the last one, something that you've talked about a little bit less so this year with all the great news. But the NACHO study is a long-term study looking at SpHb measurement, the ability to influence blood transfusion over time. So it looks like the study completion date was kind of mid-2019. Is that in fact still on track and when might we be able to see some of that data?

You're absolutely right and thank you for reminding us to update you on that. That trial has completed in terms of enrollment. And our understanding is that the investigators are now doing their data analysis and will be submitting it for publication soon.

Well, thank you all for joining us today. I hope we'll see all of you next week. It's coming up fast. We're looking forward to it. Thank you so much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.