© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, ladies and gentlemen, and welcome to the Masimo's Fourth Quarter and Full Year 2017 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'm 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 fiscal 2018 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 SEC filings, including our most recent Form 10-K and Form 10-Q. You will find these in the Investors section of our website.
Also, the company has chosen to implement certain non-GAAP financial measures that will be incorporated into our financial guidance for 2018. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operations in the same way management assesses operations. 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. In addition to the earnings release issued this afternoon, we have posted a quarterly presentation within the Investors' Section of our website to supplement the content we will be covering today.
I'll now pass the call to Joe Kiani.
Thank you, Eli. Good afternoon, and thank you for joining us for Masimo's 2017 fourth quarter and year-end review. 2017 was a rewarding year for us, as we achieved significant new milestones in our business, while introducing a variety of groundbreaking new products. In addition, we ended the year on a high note, the financial results that once again exceeded expectations and point to another exciting year ahead for us in 2018. Now that we've completed our 10-year plan, we are embarking on a new journey to realize a set of larger objectives over the next seven years.
In our Q4 results, we saw product revenues rise by 13% to $199 million, reflecting another strong quarter of double-digit growth. During Q4, we captured some significant renewals from incredible hospitals and hospital systems, while also winning important new hospitals and other significant care providing institutions due to the proven ability of our products to improve outcomes and reduce the cost of care, and not to mention excellent customer service. U.S. revenue growth re-accelerated compared to Q3 into double-digits and was complemented by similarly strong growth overseas.
We were gratified to realize another sizable increase in worldwide SET and rainbow oximetry shipments in the fourth quarter which rose by 12% versus last year to reach 54,100 units producing an estimated installed base of 1,591,000 oximetries, excluding our handheld and finger pulse oximetries. For the third quarter in a row, our oximetry shipments were over 50,000 units, which we believe is a strong indication of our momentum. Our rainbow business performance was strong too in the fourth quarter as sales grew by over 40%, driven by strong growth across all geographic regions.
We also realized solid growth for our new products, including NomoLine capnography, SedLine Brain Function Monitoring and O3 organ oximetry, with these three products generating also over 40% increase in revenues, year-over-year in the fourth quarter. For the full year, our product revenues increased by 12% to $741 million, which includes rainbow growth of 15%. We are proud and grateful for our performance in 2017 and the many new customers that adopted our SET and other technologies for patients and hospitals and alternate care settings. I'll discuss some additional business updates later in the call today.
Now, I will ask Micah to view our Q4 results in more detail and provide you with our 2018 financial guidance. Micah?
Thank you, Joe, and good afternoon, everyone. For the fourth quarter of 2017, we reported total revenue, including royalty and other revenue, of $225.2 million, which reflects growth of 22.9% over the prior year period or 22.1% on a constant currency basis. Our product revenues were $199.2 million for the quarter, an increase of 13.4% over the prior year period or 12.5% on a constant currency basis. We saw solid growth in both our U.S. and international regions with broad-based strength across our product portfolio.
For the full year of 2017, product revenues increased by 11.7% on both a reported and a constant currency basis to $741.3 million, which was even above our most recent guidance of $736 million. As Joe mentioned, our newer products such as NomoLine capnography, O3 organ oximetry, and SedLine Brain Function Monitoring delivered aggregate growth of 48% over the prior year period, 44% on a constant currency basis, which represents yet another quarter of strong growth for these product lines.
rainbow product revenues grew 43% to reach $24 million in Q4 or 42% on a constant currency basis, which was driven by strong growth across the majority of our geographies and distribution channels. SpHb revenue grew 47% or 44% on a constant currency basis as we continue to see strong adoption of this breakthrough measurement with increasing amounts of positive clinical data to support usage.
For the full year 2017, rainbow revenue increased by 15% to $76.6 million which is above our expectations of $74 million for the year. Our worldwide end user or direct business, which includes sales through just-in-time distributors, grew 14% to $173.4 million or 13% on a constant currency basis. Our direct business represented approximately 87% of total product revenue in the quarter which is in line with the prior year period.
OEM sales rebounded with a 13% increase to $25.8 million for the quarter or 12% on a constant currency basis, representing 13% of total product revenue in the quarter. By geography, our U.S. product revenue grew 13% to $136.4 million compared to $120.5 million for the fourth quarter of 2016.
Our international product revenue grew 14% to $62.7 million or 11% on a constant currency basis, driven by strong growth in Japan, EMEA and Canada. Based on these strong results, international revenue represented approximately 31% of total product revenues in the quarter which was essentially in line with the prior year period.
Royalty and other revenue was $26 million for the quarter compared to $7.5 million for the fourth quarter of 2016. The current quarter results included $19 million of NRE revenue as we completed significant project milestones ahead of schedule relating to the integration of various Masimo technologies into Philips monitors. Royalty revenue from Medtronic declined by $0.5 million to $7 million for the quarter.
Now let's turn to the rest of the P&L. For the fourth quarter of 2017, total gross margin including royalty and NRE revenue was 68.3% versus 67.9% in the prior year period bolstered by the additional $19 million of NRE revenue. Also note that total cost of goods sold include an expense of $2.2 million for project expenses related to the NRE revenue from Philips. Our product gross margin for the fourth quarter was 65.3% compared to 66.5% in the prior year period. Product gross margin was in line with our expectations as we have noted on our previous call that a higher level of placements of monitors with customers due to a robust year of new contracts would result in higher amortization costs in the fourth quarter.
Over the long term, these additional monitor placements are expected to result in high sensor and other related product revenues. In addition to the higher equipment amortization, we also incurred some inventory charges related to new product introductions, which are replacing prior generation products. For the full year, product gross margin was 64.9% which was in line with our most recent guidance of 65% product margin for the year. As I will describe momentarily we are optimistic about our potential to increase gross product margin annually based on increased scale of manufacturing and our customers' continued conversion to the newer RD sensor line.
Selling, general and administrative expenses increased 13% to $78.4 million in the fourth quarter, which included an asset write-down of approximately $10.5 million related to an unpaid balance due from a former agent in connection with a foreign government tender. In comparison, fourth quarter 2016 SG&A expenses were $69.4 million which included a $5 million charitable donation. If you exclude these items in both periods, SG&A expenses would have increased approximately 5% over the prior year period.
Research and development expenses increased 11% to $16.1 million in the fourth quarter compared to $14.5 million in the prior year period. The increase in R&D spending was attributable to the timing of clinical trial expenses and higher staffing levels as we continued to invest in delivering innovative technologies to the marketplace.
For the fourth quarter of 2017, total operating expenses were $94.5 million which included the $10.5 million asset write-down that I previously mentioned. In comparison, fourth quarter 2016 operating expenses were a credit of $186.1 million which included a $270 million benefit from the Philips Agreement offset by the $5 million charitable donation. If you exclude these items in both periods, total operating expenses would have increased approximately 6% over the prior year period.
We are happy to report fourth quarter operating profit margin increased to 26.3% largely driven by – due to the benefits of scale from our 13% product revenue growth and the higher – and the achievement of higher margin NRE revenues, which was largely offset by the asset write-down in the period.
Moving further down the P&L, non-operating income for the quarter was approximately $700,000 compared to non-operating expense of approximately $2.9 million in the prior year period. During the fourth quarter of 2017, we realized net interest income of approximately $700,000, this compares to prior year interest expense of over $300,000, and an FX re-measurement loss of approximately $2.5 million.
Now turning to tax, our tax expense in the fourth quarter was $59.7 million, which included a onetime charge of $43.5 million related to the Tax Cuts and Jobs Act offset by a $4.1 million tax benefit from stock option exercise. Our average shares outstanding for the quarter was approximately 55.6 million, up from 54.2 million in the year ago period. We repurchased 271,000 shares during the quarter for approximately $23 million mostly towards the end of the period so the benefit of the reduction in shares is not entirely visible in our results this quarter.
The 2.6% increase in our weighted average share count over the prior year period is due primarily to the impact of stock option exercises and the dilutive impact that a higher stock price has under the treasury stock method.
For the fourth quarter of 2017, GAAP net income was $0.4 million or $0.01 per diluted share which included a onetime charge of $0.78 related to U.S. tax reform offset by a $0.07 tax benefit related to stock option exercises. In comparison, fourth quarter 2016 GAAP net income was $215.3 million or $3.97 per diluted share which included a onetime benefit of $3.43 related to the Phillips Agreement and a $0.10 tax benefit related to stock option exercises.
On a non-GAAP basis, our fourth quarter 2017 net income was $40 million or $0.72 per diluted share. In comparison, fourth quarter 2016 net income was $24.6 million or $0.45 per diluted share, after adjusting for the benefit of the Philips agreement and tax benefit related to stock option exercised. Our strong earnings performance in the fourth quarter of 2017 was primarily driven by our 13% product revenue growth and a lower growth rate for operating expenses.
As I mentioned earlier, our higher margin NRE revenues, which contributed approximately $0.22 per share were largely offset by the asset write-down of approximately $0.18 per share for a total net impact of $0.04 per diluted share in the quarter.
Our days sales outstanding was 55 for the quarter, down from 55 days at the end of the third quarter of 2017. Our inventory turns were 2.9 for the quarter, compared to 2.6 at the end of the third quarter of 2017. Inventory fell by approximately $3 million from the Q3 level as we sold more product during the traditionally strong winter season and we also incurred some inventory charges related to new product introductions.
Now, I'd like to discuss our full year 2018 financial guidance. As Eli mentioned in our opening remarks, the company has chosen to implement certain non-GAAP financial measures that will be incorporated into our guidance for 2018. A 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.
For 2018, we are projecting total revenue, including royalty and other revenue, to be approximately $836 million. This projection includes $808 million in product revenue, which reflects growth of approximately 9% over the prior year period. We are also anticipating $28 million in royalty and other revenues compared to $57 million in the prior year period. We expect approximately $3 million in NRE revenues from our Philips partnership in 2018. Separately, with our Medtronic royalty agreement expiring in October this year, we are projecting $25 million in royalty revenue for 2018.
We expect total non-GAAP gross margins, including royalty and other revenue, to be approximately 66.8% or 30 basis points lower than prior year, which is primarily driven by $29 million reduction in royalty and NRE revenues that carry a higher margin in our core product lines. Also note that our total cost of goods sold projection, which will include an expense of approximately $1 million for project expenses related to the $3 million of projected NRE revenues from Philips. We anticipate full year non-GAAP product gross margins to be approximately 65.8% or 80 basis points higher than prior year. This is consistent with our goal of delivering at least 50 basis points of product gross margin improvement each year, as we drive towards our long-term goal of 70% product gross margins.
We are estimating total non-GAAP operating expenses to be approximately $354 million or 42.4% of total revenue. Based on these assumptions, we are projecting total non-GAAP operating profit margins to be approximately 24.4% of total revenue or 50 basis points lower than prior year, which is primarily driven by 260 basis point headwind from the reduction in royalty and NRE revenues. This is being offset by a strong margin contribution from our core business in addition to the year-over-year impact of the asset write-down.
Moving further down the P&L, we expect to generate approximately $4 million in net interest income in 2018. And based on our expected mix of U.S. and OUS profits, we are estimating that our non-GAAP tax rate will improve to approximately 25% as a result of the recently enacted tax legislation.
We're also estimating that our weighted average shares outstanding for the year will be approximately 56 million. Based on all of these assumptions, we're projecting 2018 non-GAAP earnings per share of $2.80. And from a GAAP perspective, we are projecting 2018 GAAP earnings per share of $2.90, which includes an estimated $6.5 million of excess tax benefits from stock option exercises offset by acquisition related depreciation and amortization expense of approximately $1.3 million net of tax.
Based on our new non-GAAP financial definitions, both of these items are excluded from our GAAP earnings to arrive at our non-GAAP earnings per share. You can find further details of both our GAAP and non-GAAP financial estimates and a reconciliation of those estimates within today's earnings release and the investor presentation, which are both posted on our website.
With that, I'll turn the call back to Joe.
Thank you, Micah. For Masimo, 2017 was a milestone year, as we reached the 10 year anniversary of our IPO. We have completed our first long-term plan as a public company. And we're embarking on a slightly shorter long-term seven year plan with a goal of delivering annual revenue growth of 8% to 10% and a long-term goal of 30% operating profit margins. As you just heard from Micah, we expect to realize product revenue growth of 9% in 2018 in combination with product revenue earnings growth that is higher than that.
We feel good about the great potential ahead for Masimo as our breakthrough technology are increasingly adopted by care providers who recognize the value of our technology for improving their patient care and outcomes. We're happy about our performance in 2017 as we started the year projecting our product sales of $717 million based upon growth of approximately 8%. And we achieved product sales growth that was more than 3 percentage points higher than that with sales reaching $741 million.
Similarly, we're determined to exceed our forecast again this year, if possible by winning more new hospital and alternate care customers, and consistently securing renewals with our existing customers. Our presence in global markets is rising as we realized growth of 12% to 28% in various regions around the world last year facilitated by increased investment overseas. Our total OUS sales for 2017 rose by 18% with especially solid growth in Europe, the Middle East and Latin America.
Our global sales efforts will strengthen further as we invest in staffing and various regions to educate clinicians about the benefit to patients of our unique products. We intend to expand our global infrastructure in a thoughtful process that should reduce the risk of any particular geographic weakness by having an increasingly larger and more diversified customer base.
In 2017, we were gratified to see many major hospitals convert to Masimo SET pulse oximetry and rainbow SET pulse CO-Oximetry. We were fortunate to welcome new customers in Q4, including Prospect Medical, a hospital system with hospitals in six states, including California, New Jersey and Texas, along with UT, Southwestern Medical Center, and Kindred Healthcare.
Other major wins for us last year were NYU and St. Luke's Hospital in Pennsylvania. Internationally, we secured new agreements with Nagoya University in Japan, clinic under Philipps-Universität Marburg, Artemis – that was in Germany, Artemis Hospital in India, Nicosia Children Hospital in Cyprus, and CHRU Lille Hospital in France.
In addition to gaining those important new customers in 2017, we signed very significant renewals including those with Kaiser, Northwestern Hospital, Henry Ford Hospital, Cincinnati Children's Hospital, and Novant Health hospitals in the Southeast, SEHA Hospital in United Arab Emirates, Hospital for Sick Children and HSSBC in Canada, Great Ormond Street in UK, and Grupo Quirónsalud in Spain.
Our newer products, including O3 organ oximetry, second generation SedLine Brain Function Monitoring, and NomoLine capnography are becoming an important source of growth for us. We're encouraged by the rapidly rising sales of these products, which had aggregate growth of 40% for the full year. These three technologies all work with Root so they can be deployed all at once or in a step like fashion over time, providing streamlined and low cost path to adoption by customers who don't need to install yet another monitoring system at bedside for each new parameter they add.
In 2017, we received multiple new product clearances around the world including in the U.S., Japan, and the EU. Our recently cleared Rad-97 with video and audio capabilities has great potential for broad adoption in the home healthcare environment – excuse me, as well as traditional hospital and alternate care environments. We're currently in discussions with two large healthcare systems that are actively considering the deployment of Rad-97 for many of their patients at home after being discharged from the hospital.
Our Oxygen Reserve Index or ORi is a measurement that we're optimistic about based on accumulating data showing real clinical value for anesthesiologists. ORi is a relative index that correlates with changes to PaO2 for patients on supplemental oxygen and can provide an early warning of an imminent desaturation. A recent study of ORi by Dr. Kazuki Yoshida of Fukushima Medical University in Japan investigated the usefulness of ORi for rapid sequence induction of general anesthesia. Dr. Yoshida and his fellow investigators found that ORi trends enabled a prediction of oxygenation reduction, approximately 30 seconds before SpO2 starts to decline, and concluded that by monitoring ORi, the incidence of hypoxemia during rapid sequence induction could be reduced.
In January, we received FDA clearance for our next generation SedLine Brain Function Monitor. This new version of SedLine helps clinicians monitor [Technical Difficulty] (28:04) under anesthesia and provides an enhanced patient state index based on the use of our ground-breaking signal processing technologies similar to the approach we invented with SET pulse oximetry.
In addition, the new SedLine has an enhanced display for viewing the spectral features of EEG developed with researchers at Massachusetts General Hospital. SedLine is used with our Root patient monitoring and connectivity platform, and can be deployed in combination with our O3 organ oximetry monitor to help provide clinicians with a more complete picture of the brain.
We are also making SedLine available to our OEM partners. Moving into 2018, we have substantial potential to increase our earnings to rising margins and benefits from investments we made in the past, enabling us to realize the potential leverage of our business model.
New products and services we are introducing can produce more opportunities to help patients as well as more opportunity to increase busy clinician productivity as well as our own sales productivity.
In addition, we are seeing the steady adoption of our new RD Sensor Line which is a win, win, win for patients, our customers, and us. We currently had a fraction of our customers using RD sensors leaving good potential ahead for further adoption and associated margin improvement. We're starting 2018 with a new long-term plan that includes action to propel our global growth, and an ever expanding product portfolio that includes more breakthrough medical products, some of which will be announced later this year. We anticipate a steady flow of clinical data from luminary clinical investigators that demonstrate the clinical benefits from the use of our technologies.
In turn, we expect to see adoptions rise as more clinicians become aware of the value of Masimo breakthrough product for improving outcomes and delivering the most reliable and useful clinical information in real time. We have never been more focused on our mission to improve patient outcomes and reduce cost of care. Our outlook for 2018 and beyond is positive and we look forward to sharing more good news with you as the year progresses.
With that, we'll open the call to questions. Operator?
Your first question comes from the line of Rick Wise from Stifel. Your line is open.
Good afternoon, Joe. Thanks for the great finish to the year. Maybe just to start off, if I remember correctly, NRE revenue comes from reaching Philips project specific milestones. And hence it was so nicely ahead of schedule should we imagine – help us understand, should we imagine that the Philips inflection point could occur a little sooner than sort of the second half of 2018 that you've talked about? Am I reading too much into it? Maybe just generally remind us where you are in the Philips co-marketing agreement and any special activities we should be thinking about during 2018?
Certainly, Rick. And thanks for joining us. We have already seen our Philips partnership deliver better results than we had anticipated. We continue to think that trend will continue in 2018 and beyond. And yes, you're right with the work we were able to accelerate in 2017 we believe it will help us overachieve on our business objective with Philips in 2018.
And just again could you give us any more color on where you are in terms of co-marketing efforts or initiatives, and just again any highlight that we should be thinking about as the relationship matures and evolves?
Certainly. By the end of Q4 2017, Philips was hitting their stride in marketing of rainbow along with us. We have been enjoying a renewed sense of partnership from the sales channels from Europe to the U.S. to East Asia, and even parts around the world like India and other more places like Latin America. So what I can tell you is that there are a few elements with our Philips relationship. One is, of course, the SET oximetry, rainbow SET oximetry, Pulse CO-Oximetry. There's also the expansion of the availability of our technology into their full line of products, which is going to continue happening. And in fact the work we did towards the end of 2017 will expedite those. And then there's the integration of our new technologies like SedLine, NomoLine, and O3, which are going to be happening. And I hope with the work that we've been doing with Philips you're going to see two of those three products begin being available to our mutual customers in the first half, latest beginning of Q3 2018.
Yeah. And, Joe, you've highlighted on this call, I've heard you highlight several times probably recently your excitement about the new seven-year plan and their multiple drivers. But with the business performing so well, your clear optimism about 2018, 2019 and beyond, sort of a two part question related to M&A. Number one, to what extent as you're thinking about that optimism about the future is M&A still sort of critical to that thinking? What are your latest thoughts about M&A and what might happen in 2018? And I guess just again part of it all, if the base business is doing so well, when I say base meaning the entire portfolio and technology relationship doing so well, does that make you feel a greater sense of urgency about pursuing M&A as an incremental driver of growth or just how you're thinking about it all in that kind of context?
Well, a great question, Rick. We have the luxury with our own current products and products in the pipeline to grow our business the way we have been discussing and maybe even better than it without any acquisition. So the acquisitions that we're looking for are not to meet our business targets of tomorrow, but rather while we're shepherding Masimo as management of this company, we are looking for opportunities that might further diversify Masimo and establish its security for the very long-term. And that's why despite there being a lot of wonderful companies out there that we could go acquire, we are not going to allow our stock and our shares to be diluted with major acquisitions.
What we're looking for are unique opportunities that we see a gem that we think we could go invest what we're good at investing in and make sure we're delivering ROIC accretion within five years. So because of the standard we have based on how good our business is going, we may never acquire anything. But I just wanted the shareholders to know a year ago, I talked about this, that while I'll always be looking to make sure we do our best deliver each quarter, each year to the best we can for our shareholders, as a management team, I want us to focus on making sure we deliver the utmost results within five years. So I'll just leave it at that that you are so right. We have so much going on that there is really – we could just easily say we're not in an acquisition mode, because of that, but I just think we have the bandwidth. We just brought in Tao Levy, who've joined us as Head of Business Development and we have an amazing breadth of management here that are very capable. So we're on the lookout for something special, which may or may not happen.
Great. And just one last one from me. Thank you for that thoughtful answer. Maybe I'll pick on you, Micah, a little bit. Just as we think about the quarters or the flow of the quarters this year, I know you're not giving any specific guidance, but is there anything you'd have us think about whether it's on the revenue side or the cost side beyond the expiration of the Medtronic Royalty, anything you'd have us think about as we try to figure out the models for 2018? Thank you both.
Sure. Sure.
Micah, do you want to answer that?
Yeah. Thank you, Rick. As you mentioned we're not going to give specific quarterly guidance, but you should think about you know throughout 2017, we had you know strong -- we have strong comps in the back half of the year. So you'll see growth rates a little higher especially with the flu season in Q1 and you'll see it more in Q1 and then you know normal seasonality for the out quarters probably heavier Q1 and then softer Q3 is kind of how we're thinking about it than historical averages. But you should be able to go look back to the last two or three years and get an idea of how to phase in that revenue.
Thank you. And then as far as the royalties are concerned, as you know we have been receiving those royalties for decades. When they began, they were about 80% of our income, today they're very small maybe about 20% of our income and going down to even lower. So, most investors from day one to even today did not put that royalty income in our PE ratio for earnings per share for the value of Masimo, instead they separated it and they put that royalty on a estimated cash value of it at the time on top of our market cap from our normal product business. So I don't expect something dramatic to happen with the value of Masimo, because of that approach. But as we have done, we'll continue to minimize the impact of the loss of those royalties. And, if we can in 2019, we'll do our best to have investors not even feel it. But again, I don't believe anyone who has been long-term shareholders of our company nor tracking our company has waived those royalties in a way that's going to cause some type of a Titanic shift.
Thanks, again.
Thank you.
Your next question comes from line of Bill Quirk from Piper Jaffray. Your line is open.
Great. Thanks, good afternoon everybody.
Hi, Bill.
Hi, Bill.
Hi, Joe. So, I guess the first question is a couple of years ago, back in the 2014, 2015 flu season, Masimo had a pretty nice benefit. I recall it is difficult to quantify because obviously it's somewhat of an indirect measurement, but you guys had a nice benefit in the fourth and the first quarter and I confess I would have thought that maybe we would have seen a little bit of a bigger impact on SET consumables in the fourth quarter. Joe, what – I guess what why am I steering in the wrong direction here and are you seeing any impact in the first quarter? Thanks.
I'm not sure what you're talking about Bill. So, I don't know how to respond to that.
Well, what I mean Joe is that when we have a bad flu season we do tend to see higher admissions and looking back to the transcripts from a few years ago, it certainly appeared as they had a nice benefit from that, albeit indirect because it's not as if you're selling a flu test or something like that, but nevertheless it helped with hospital census. So, I guess, that's the route I was directing the question?
Well, we had a really strong Q4 last year and yet, I think we said in the U.S. our Q4 revenues grew double digit over last year. So, I don't know, I mean beauty is in the eyes of the shareholder I guess, so you can look at it the way you like.
I certainly wasn't trying to suggest it was a negative quarter, Joe. So just to be clear. Secondly, just thinking about Joe, you mentioned a number of hospital renewals and could you comment a little bit about perhaps how smoothed out those are over the years? We're not looking at any big boluses or anything like that in terms of hospital renewals and then maybe just a comment on pricing, it certainly appears based on your results that it's pretty stable?
Well obviously Kaiser, which was part of our renewal last year is our biggest customer, so the renewal by definition would be a big bolus, but our renewal rate has been over 98% and despite some of the sizes of these renewals, there was nothing unusual about last year, except the fact that it was another strong year of our customers' re-signing up with us.
And then just on overall pricing?
I'm sorry, Bill, what was that question, overall, what?
Oh just pricing trends on the sensors themselves?
We've been very disciplined and our customers value our technology. So, while our competitor has been out there doing some predatory pricing, we've not had to yet, respond to it.
Got it. Thank you.
Thank you, Bill.
Your next question comes from the line of Brian Weinstein from William Blair. Your line is open.
Hi, guys. This is actually Andrew Brackmann on for Brian this afternoon. How are you?
Hi, Andrew.
Hi, Andrew.
Hi. So, I wanted to go back to the Philips agreement, just for a second. So, it's been in place for a couple of quarters. Can you talk a little bit about any impacts on the other partner relationships that you've seen as a result from the Philips agreement?
Well, we haven't seen anything change. I believe – I believe based on a long term agreement with Philips, and the fact that the industry generally doesn't want to have some – doesn't want to be left out, once Philips has something, it should, if anything bolster our ability to have more OEMs wanting to continue with us or expand with us. But, to answer your question, no change.
Okay thanks. And then the other question I had. Joe, at a conference earlier this year, you had talked about the general ward expansion. Can you talk a little bit more about how far penetrated do you think you guys are into that right now? And then, how do you guys pivot here and kind of begin to take more share in that space? Thanks.
Certainly. It's hard to know the exact percentage but I'll try to give you some color. I would say right now, probably somewhere between 5% to 10% of our customers are doing monitoring in the general floor. But, I think the number of general floor beds that they're monitoring is even well below the 5% line.
So, I think there's a huge opportunity, given that every one of these hospitals, which we now have several hundred hospitals who are doing continuous monitoring on the general floor, having similar results to the study that came out from Dartmouth-Hitchcock, which they saw a dramatic reduction in ICU transfers and rapid response team activation and no more dead in the bed over a 10-year period.
So, given that it saves lives, it saves money and it keeps repeating itself at every place we go, I think one of these days, just like the way the Berlin Wall fell that wall is going to fall and should see continuous monitoring at every bed where patients are on opioids or they have a risk of apnea. So, it hasn't happened yet in a way that we expect, but it is definitely continuing to grow within our business.
Got it. Thanks, guys.
Thank you so much. Thank you all for joining today. We look forward to getting back and reporting our Q1 results in a couple of months. So, we wish you a wonderful 2018. Thank you.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.