Masimo Corp

NASDAQ:MASI

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Masimo's First Quarter 2023 Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

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

[Eli Kammerman]

Thank you, and hello everyone. Joining me today are Chairman and CEO, Joe Kiani; and Executive Vice President and Chief Financial Officer, Micah Young.

This call will contain forward-looking statements, which reflect management's current judgment including certain of our expectations regarding fiscal year 2023 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 accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. In addition to GAAP results these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results.

Management uses non-GAAP measures to budget, evaluate and measure the company's performance and sees these also as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency to better reflect the underlying financial performance of the business. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise.

Further we will also be referencing pro forma financial measures, which include historical results for Sound United prior to the acquisition date of April 11, 2022. In our presentation today we will once again be referring to this business as our non-healthcare segment.

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 earnings presentation within the Investor Relations section of our website to supplement the content we will be covering this afternoon.

I'll now pass the call to Joe Kiani.

[Joe Kiani, Chairman & Chief Executive Officer]

Thank you. Thank you, Eli. Good afternoon and thank you for joining us for Masimo's first quarter 2023 earnings call. We started the year with solid performance and are excited about the many new products coming out of our research and development pipeline this year.

Our consistent focus on life-improving innovation continues to drive growth in our professional healthcare, consumer health and consumer markets. And now supported by the scale and infrastructure of our Masimo consumer business, our health and healthcare innovation is going to reach people from all blocks of life.

Our consolidated revenues for the first quarter reached $565 million. We delivered healthcare revenues of $347 million and consumer revenues of $218 million. New customers in our pulse oximetry business and increasing traction for rainbow and advanced parameter products strengthened our healthcare revenues this quarter. In fact this was the best first quarter in our history for new conversions of hospitals to Masimo.

In addition to rainbow blood constituent monitoring, which has now become over 10% of our healthcare revenue we had solid growth in our SedLine and O3 brain monitoring and normal line capnography and gas monitoring products. Robust growth for hearables led the performance of our consumer business along with the strong market reception for some recently launched AV products.

Despite many consumer-facing companies struggling post-COVID, our consumer business remains on track. Meanwhile, we're leveraging our unique combination of signal processing physiological monitoring audio and automation technology capabilities to launch a series of new and innovative products to revolutionize consumer health.

On that point, later in the call, I'll update you on the recent launch of our STORK baby monitor and opioid halo, as well as some of the other new products planned for this year, that we expect will contribute to our long-term success.

With that, I'll pass it to Micah to review our first quarter results in more detail and provide an update on our 2023 financial guidance.

[Micah Young]

Thank you, Joe, and good afternoon everyone. For the first quarter, we achieved consolidated revenue of $565 million and non-GAAP earnings per share of $0.87. For our healthcare segment, first quarter revenues were $347 million, representing 16% constant currency growth. Recall, that our first quarter 2022 revenues were adversely affected by supply chain challenges that produced a shortfall in that period and resulting growth of only 3%, which was subsequently recovered in the second quarter of last year.

We shipped over 77,000 drivers in the quarter and we are on track to ship over 300,000 drivers this year. At the end of the first quarter, we estimated that our installed base has grown by 7% over our installed base at the end of the first quarter of 2022. As Joe mentioned, our healthcare revenue growth was driven by strong performance from our rainbow blood constituent monitoring, SedLine and O3 brain monitoring and Nomoline capnography and gas monitoring products.

For our non-healthcare segment, first quarter revenues were $218 million, representing an expected decline of 9% on a pro forma and constant currency basis. This was in line with our guidance as this business faced a tough year-over-year comparison due to the fulfillment of backordered products in the prior year quarter that drove 22% constant currency growth, right before the acquisition closed.

Hearables including headphones and earbuds remain a key category for growth. Hearable sells more than doubled in the first quarter versus the prior year period, primarily driven by the Bowers & Wilkins headphone franchise. While we're pleased with the strong growth we're seeing in this category, we expect the launch of the Denon Pearl, AAT earbuds later this year to further elevate our hearables business, as we bring truly differentiated technology to our consumer audio brands.

Now, moving further down the P&L. For the first quarter of 2023, we realized consolidated non-GAAP gross margin of 52%. This includes gross margins of 62% for our healthcare business and 36% for our non-healthcare business. Consistent with our guidance, we expect to see gross margin steadily rise over the course of 2023, as our supply chain continues to stabilize.

For our consolidated business, our non-GAAP operating profit increased 8% to $76 million, which was a solid result despite year-over-year currency headwinds and the elevated litigation costs associated with the trade secret misappropriation trial against Apple. And our non-GAAP earnings were $0.87 per diluted share, which included an increase of $11 million in interest expense over the prior year period related to the debt incurred for the acquisition and share buyback.

To summarize, we delivered first quarter results at the high end of our guidance as our healthcare business again realized steady gains in market share across the portfolio. In our non-healthcare segment, we saw impressive growth from our hearables products despite a difficult year-over-year comparison. And we have an exciting lineup of new products rolling out this year, that will help us advance our strategy, drive long-term growth and improve lives whether in the home or in the hospital.

Now, I'd like to provide an update on our 2023 financial guidance. For the full year 2023, we are maintaining our previous guidance ranges for consolidated revenue of $2.415 billion to $2.460 billion, non-GAAP operating profit of $400 million to $405 million and non-GAAP EPS of $4.70 to $4.80. As we discussed last quarter, we are taking a disciplined approach to our product launches and leveraging our Masimo consumers' capabilities and channels to maximize the impact of the incremental 100 basis points of promotional investment we are making.

For our healthcare segment, we are maintaining our previous revenue guidance of $1.450 billion to $1.465 billion, representing 8% to 10% constant currency growth. For the non-healthcare segment, we are maintaining our previous guidance range of $955 million to $995 million, representing 2% to 5% growth on a pro forma and constant currency basis. Please reference the earnings presentation on our investor website for further details. In conclusion, our outlook for 2023 reflects solid growth in our business, while incorporating prudent investments to support the new products we will launch this year.

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

[Joe Kiani, Chairman & Chief Executive Officer]

Thank you, Micah. I'm delighted to report that we received de nova FDA approval for Masimo opioid Halo, a revolutionary product for the detection of opioid-induced respiratory depression in people taking opioids at home. The listed opioid-related deaths are at an all-time high and unexpected death from opioids even in patients who are complying with recommended dosages are a significant problem in the U.S.

Over 80,000 people died due to opioid overdose. We intend to play an active role in reducing these deaths by alerting patients and their loved ones when opioid-induced respiratory depression occurs. The alarm functionality of opioid Halo provides an early warning of depressed respiratory function that should result in vulnerable patients being woken up and saved from a terrible fate. And if not then in an alarm with location is sent to the nearest ambulance.

On May 1, we began marketing opioid Halo to drugstores and addiction treatment centers. We are going to do our best to make sure, there is awareness of opioid Halo as we believe if used it could save people from opioid-induced respiratory depression. With the transition of naloxone brands to over-the-counter status, large retailers are creating display areas that promote opioid safety and awareness within their stores and we expect opioid Halo, which has over-the-counter and prescription clearance to become part of that initiative.

On May 3, we launched STORK at the 2023 Kids Expo in Las Vegas. We had very strong interest from major retailers, including one of Masimo consumers largest customers, which will carry STORK and give it a very prominent display location in stores. We're currently selling different configuration of STORK on the masimostork.com website and expect to announce important retail channel presence as well as large online baby registries for STORK over the next six months.

The marketing team at Masimo consumer is doing an excellent job of gaining attention for STORK both online and in traditional retail channels. These efforts should accelerate adoption of the product in the second half of this year. As one of our first consumer health product launches STORK is creating a great template for how our teams can leverage our integrated global brand and marketing framework, which we will rapidly refine and replicate as we learn from the STORK rollout and launch more consumer health products.

We will also soon launch our first hearables based on our adaptive acoustic technology platform. The AAT platform creates personalized listening profiles for each user, customizing the sound spectrum for each person's unique ear architecture and tearing sensitivities to ensure that no instrumental detail or sound goes unheard. These next-generation earbuds will be marketed as a Denon Pearl and Pearl Pro to leverage Denon's heritage of world-class acoustics and we have already received very strong interest from retailers that gives us confidence in a rapid sales ramp.

Shifting to wearables. Our W1 watch is gaining traction as Cambridge University Hospital in the U.K. and Charité German Health Center in Berlin have expanded their telehealth programs with Masimo W1.

Last but not least Masimo Freedom Watch with Android operating system is slated for sale in the second half of the year. We showed Freedom at the BNP Paribas Tennis Tournament in March and have begun presales on our e-commerce site. In addition, Freedom sleep band will round out our portfolio of wearables, which addresses a range of distinct consumer health needs at various price points and can be displayed together in retail stores for marketing synergy hopefully, prior to the Christmas holiday season. We also continue to make progress, building our home-based medical data ecosystem that connects our wearables and remote monitoring products and services to HEOS devices allowing us to feed data from the wearables, into our secure Health Cloud.

We grew the number of HEOS connected devices by approximately 180,000 in the first quarter. We intend to grow Masimo by making a real difference in people's lives, and hospitals and home. But we can't do that, without the dedication and commitment, of our team and support of our shareholders.

For the first time since we took Masimo public in 2007, we will be engaged in a proxy contest. We encourage all of our shareholders to book. The outcome will be consequential for our company's mission, strategy and guiding principles, which have been incredibly important to our success.

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

[Operator]

[Operator Instructions] Our first question comes from Marie Thibault with BTIG. Your line is open.

[Marie Thibault, BTIG]

Hi. Thank you so much for taking the question and congrats on a very strong start to the year.

[Joe Kiani, Chairman & Chief Executive Officer]

Thank you, Marie

[Marie Thibault, BTIG]

I wanted to start here with just a basic question about the healthcare business. I think last quarter you mentioned, that there had been some encouraging pricing trends and contract renewals. Just wanted to hear what drove some of the strength that you saw in healthcare. I know you mentioned some of the parameters, but I wonder if there are other sustainable trends that you can also point to?

[Joe Kiani, Chairman & Chief Executive Officer]

Well, I don't know if we'll sustain this, but Q1 was our biggest quarter ever in converting hospitals to Masimo SET Pulse Oximetry new customers. I think it was twice the rate that we normally do. So, that's very encouraging. Pricing has stabilized. Cost of goods, has stabilized. And one of the other things that we're encouraged about is, the traction that rainbow is getting noninvasive hemoglobin, PVi outside the US and our capnography O3 and SedLine businesses.

So we see that all really, really positive. The only thing is from the best -- I guess the best estimate that we have, census has returned to 2019 level, but it hasn't grown. It's the 2019 level where normally each year, census and growth by 1% to 3%. From the best we can see, we're finally back at 2019 level.

So all in all it all bodes well, we hope that eventually COVID-related deaths that affected a lot of elderly people, that would use hospitals regularly in their last years of life, will go through and the new norm will begin. And with the huge conversions, we've had this quarter and the past couple of years, we think overall will be ahead of things. So, I hope that helps.

[Marie Thibault, BTIG]

Yes, it does. Thank you. It sounds like it's heading in the right direction. I wanted to ask my follow-up here then on opioid Halo. Congrats, very much on getting through the FDA with that and great timing with the naloxone going OTC as well. I wanted to sort of understand, how you think about your go-to-market strategy. You mentioned that some drug stores will offering Halo as part of the over-the-counter naloxone effort. Is there a plot to try to get reimbursement at some point? I think I recall out of pocket of $250, which is more than most people spend in the drugstore. So curious about the business model, longer term here then.

[Joe Kiani, Chairman & Chief Executive Officer]

Yes. Longer term, we do hope to get reimbursement, but that might take a few years. In the meantime, we are doing a multipronged sales approach from over-the-counter, drug stores to reaching out to the kind of physician offices that do surgeries, in their offices and send people home with opioids, to make them aware of it. And we're reaching out to states that have received settlement money from the opioid companies, that want to use that money for the greater good of people that are potentially addicted to opioids already. So I think hopefully, with all of that until we do get reimbursement we should have strong adoption of sales.

[Marie Thibault, BTIG]

All right. That all makes sense, Joe. Thank you so much.

[Joe Kiani, Chairman & Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from Matt Taylor with Jefferies. Your line is open.

[Matt Taylor, Jefferies]

Hey, thanks for taking the question and congrats on a good start to the year here. So I guess I was open to ask a little bit about current state of litigation. Obviously, we saw the mistrial. So I was hoping you could update us on what you think ultimately happens there? And maybe just remind us about what's coming up here with the ITC and the other trials you have in the future?

[Joe Kiani, Chairman & Chief Executive Officer]

Sure. Sure. Big picture we have five separate litigations with Apple. It started off with the patent and trade secret lawsuit we filed here in Orange County, which got split into two, a trade secret case and a patent case as supposed to resume post PTAB ruling and appellate court decisions.

Then we filed the ITC case and with the International Trade Commission to stop the importation of foreign manufactured products that infringe patents. Then Apple sued us in Delaware for patent infringement and we countersued in Delaware for patent infringement, antitrust and unfair competition.

So with the first two things. Of course, the ITC case you know we won the first stage of that. We're waiting for the commission to rule. The commission delayed the ruling. Right now we expect middle of July to get a decision. And assuming it's favorable and President Biden doesn't stop it, we could see the exclusion of the Apple Watch with pulse oximetry in September time frame

On the – on the trade secret case, we just had a Orange County. It was quite three to four -week process. The evidence came in – incredibly strong – the evidence came in that showed in 2012 Apple decided to make a watch. They quickly decided the most important feature of that watch would be health sensing with pulse oximetry. They realized they did not know how to do pulse oximetry, so they started a project called Rover to look at all the companies in the world that do pulse oximetry.

Quickly they decided Masimo and with the two standout pulse oximeter companies both run by me and my trusted technical VP with Marcellus Lamego. So they recommended, while they recruit some of my team to Tim Cook to acquire Masimo. They thought Masimo would be a great acquisition not just because of our technology and our people but because I could take over their healthcare business. And they also were shut down.

Tim Cook said, this all came in in front of the jury. Tim Cook said, we don't do acquisitions like this. And then they looked at doing maybe a joint development with us while still recruiting our people. Although there had a BD kept warning them this is not good karma. We shouldn't be doing this. But they were doing it. Right around that time when they were looking at joint development, the CTO at Circle Cor, Marcela Lamego they had identified as my confidant finally responded to Apple and said "You know what yes maybe I will join you guys and bring all of the stuff to you if you give me a high-level technical executive role." Which at that time it looks like that stopped their business development front with us.

And instead Steve [indiscernible], who apparently have 3000 to 4000 engineers reporting to him and the watch started a confidential project to go one layer lower. They had Marcella now our CTO. They had Michael O'Reilly our CMO, which by the way evidence came in they both took our trade secrets to Apple. And they also unfortunately decided to go one layer lower and attract our engineers and directors and they did. They hired between 20 to 30 additional people. The jury got to see some of that evidence and they also got to see that Apple launched their pulse ox in 2020, knowing that it wasn't good enough to get FDA clearance. But because of the COVID chaos they called it, they thought SpO2 would help them gain market share from Fitbit, which they launched it. Probably the worst thing is about 100 million people now have pulse ox on the back of their watch it doesn't really work. Their goal is to just get two measurements on 90% of the people each day and they fell short of that. They got at 37% of the time two measurements each day.

So all of that stuff was in front of the jury. They saw how they took several of our trade secrets. Right before the jury went to delivery. The judge I think believing we had a jury that was going to go all the way with us took away our business trade secret case which we disagreed with but we're going to have to wait for appeal on that.

But despite all of that unfortunately the jury hung up. It isn't as though it's been reported there was 6:1. I can't get into more details on that, but it wasn't like that. But unfortunately we did hit that. So at this point I guess in life you don't get many do-overs. We're going to get another do-over. So we will be retrying this case. And hopefully given how good the case came and how everyone assumed they would go we expect next time we'll get very different results.

[Matt Taylor, Jefferies]

Thanks for that great answer. Any thoughts on the timing of that coming back around?

[Joe Masimo]

No. We don't know. It's up to the judge. It could be two to three months to another year. We don't know.

[Matt Taylor, Jefferies]

Okay. Cool. Thanks very much for that answer.

[Joe Masimo]

Thank you.

[Operator]

Our next question comes from Michael Polark with Wolfe Research. Your line is open.

[Michael Polark, Wolfe Research]

Hi. Good afternoon. Thank you for taking the questions/ Maybe a guidance question. I see the affirmation for the year on face. As I look through the deck I see a modest reduction to the consumer gross margin input. That's the standout. I guess for Mike any other twists and turns within the guidance affirmation we should be mindful of here?

[Micah Young]

No. So Michael the only thing we held of course guidance on top-line, bottom-line, EPS and operating profit. But we did have -- if you look at the look slightly lower on the full year for the consumer business on gross margin. That just reflects in the first quarter where we saw some lingering spot buys that impacted that business. And we really didn't change the outlook for the last three quarters, but let that kind of flow through the year.

And we also --we did a very good job of managing expenses in the first quarter to offset that. So you'll see a little bit softer gross margins but also improvement on lowering operating expenses for the year reflected in that guidance. But we're seeing -- overall Michael we're seeing stabilization of the supply chain. The trends that we're seeing exiting the first quarter are a good signal for us. We still expect a steady rise in gross margins throughout the rest of this year with Q1 being the low point. .

[Michael Polark, Wolfe Research]

If I can follow up another guidance question or modeling question. 2Q any feel for 2Q modeling? Specifically, I guess both segments but also kind of want to make sure we're all understanding of the unusual year-on-year comps given kind of the supply chain snafu last year in 1Q and then getting all caught up in healthcare in 2Q. So kind of just sequentially Micah how do you think about revenue progression? Thank you so much/

[Micah Young]

Yes absolutely. Great question. So if you think about the first year -- first half of the year last year to your point is there's a lot of supply chain disruption in those quarters or on the consumer side there is some improvements from the fulfillment of backorders. So the way I'd think about it you'll see the second half more normal comps. But in Q1 last year as I mentioned in my prepared remarks the healthcare business grew 3%, Q2 grew 19%. Traditionally, our healthcare business based on seasonality and the non-healthcare both step back in Q2 and then you start to see progression in Q3 and our heaviest quarters in Q4.

So just be aware of that comp the 19% growth comp in Q2 on the healthcare side. We also saw comps for the non-healthcare business of 22% growth in Q1 last year and then 10% growth in Q2, which is above trend line just because of the fulfillment of those backorders. So, I think the first half you'll see that we're up against some tough comps and still up against tough comps in Q2 but then those comps should ease and normalize out in the back half of this year.

[Operator]

Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

[Jason Bednar, Piper Sandler]

Hi, guys. Good afternoon. Joe or Micah, I wanted to start on maybe some of the new products as we think about Halo STORK W1. I know this is a funding year for a lot of these new products, really a building year to get these products off the ground. But can we talk about maybe an immediate-term economics on the hardware help us with how you're thinking about margins and what volumes need to reach with Halo or STORK or W1 in order for those offerings to be breakeven? And then maybe from a timing perspective, should we be thinking about breakeven in 2024, or is this more of a multiyear process to get that part of the business profitable?

[Joe Kiani, Chairman & Chief Executive Officer]

Well, we -- high level we expect all of the business to be profitable from the day we launched them. We're not seeing margin limitation despite manufacturing, the W1s right here in Irvine, we expect good margin on those. Micah, do you want to add anything to that?

[Micah Young]

Yes. No, I think Jason, we would expect, to Joe's point, I mean those gross margins should be -- or the margins on those products should be supportive of our overall gross margins for the company. So to Joe's point, they wouldn't -- we don't expect those to be dilutive. In fact if we can start to see -- drive some subscription-type revenues around some of those products as well over time, we could see even steady improvement above the corporate average.

So -- but we are making some investments. I think I mentioned in my prepared remarks about 100 basis points of promotional investments this year. And we're going to be very prudent and thoughtful about that as we invest going forward and we want to see good results and we'll continue to make the right investments to grow that business.

[Jason Bednar, Piper Sandler]

Okay. I guess just, as we think about -- and maybe we're thinking about this differently in terms of how we're bucketing that profitability, but to say that they're profitable in year one, we're talking about like more than $20 million in revenue from these products this year, which I don't think is what you're saying Micah, I don't want to put words in your mouth but -- sorry, go ahead.

[Micah Young]

No, that's not -- I don't think that's what we're saying. I think what Joe is referring to is that, it would be supportive of our gross margins. In terms of breakeven. I mean we're going to have to see how that plays out, but we're making about 100 basis points of investment this year and we have high expectations for these products, especially we think we'll see some meaningful revenues going into next year that could drive some leverage in that business. And hopefully, we turn profitability within the next year or so.

[Joe Kiani, Chairman & Chief Executive Officer]

Yes. I think also it's important to note that, we've done advertisements before and we've done it every year practically since we launched our product. And when you advertise even for a certain product, it does lift all boats in other areas. For example, during COVID, we were advertising our COVID product. And while the COVID products said, well, it actually helped Masimo grow. So yes, I think -- I don't think we are looking at losing money with any of this.

[Jason Bednar, Piper Sandler]

Okay. No, fair enough. I mean I think the one thing that's really hard to tease out or tell right now is this -- these are entirely new categories that you're -- entirely new channels that you're marketing and selling into which I think is why I'm just trying to gauge all the sensitivity around spending and then the uptake but it sounds like that's right now not expected to be an issue or a problem. But maybe shifting to a different follow-up here.

[Joe Kiani, Chairman & Chief Executive Officer]

Well Jason, let me just maybe that's actually not a bad thing you're raising it maybe the confusion out there. Remember that's why we bought Sound United. There's 400 to 500 salespeople at Sound United that were there when we acquired them that were going to be helping these new products. So while it is a new category for Masimo for the combined entity, we're not hiring people to support these launches. We're -- that's why we bought Sound United.

[Jason Bednar, Piper Sandler]

Understood. Yes, I'll handle some more there may be and following offline here. But from a competitive perspective I guess I'm just wondering if you're seeing any changes in practices or tactics with your main patient monitoring competitor out there, evaluate some alternatives to its business -- not asking you to speak ill of a peer, but is there a distraction with that group, or have you seen them turn more aggressive? Just -- and any shift in behavior there just with that asset being up for -- potentially up for sale or being spun off?

[Joe Kiani, Chairman & Chief Executive Officer]

Well, it never helps to underestimate your competitors. But on the healthcare side, I think they tried everything. They can't slow us down. I hope to when they say that about the consumer side.

[Jason Bednar, Piper Sandler]

Okay. Thanks.

[Operator]

Your next question comes from Jayson Bedford with RJ. Your line is open.

[Jayson Bedford, Raymond James]

Good afternoon. Just a couple of questions. I guess just on the pipeline here where do you stand with the timing of FDA clearance from both W1 and STORK? And then just walk through the decision to launch STORK without clearance?

[Joe Kiani, Chairman & Chief Executive Officer]

We don't know and we don't want to guess on when they're going to approve things. We're delighted that we got opioid Halo cleared and we hope the rest will clear as well. But the decision to launch STORK is because it's a baby monitor. If you notice we are not making alarm monitoring claims or things like that. And there's a significant business out there without making or needing to make those claims.

So, we decided to begin the sales of these products given that we were seeing the high interest of the retailers that we're talking to without making those claims. But of course as soon as we get the FDA clearance we will announce that and I think it should help as well.

[Jayson Bedford, Raymond James]

Okay. Just off topic here or a different topic. Is there any way to parse out the incremental cost related to the Apple suite in 1Q? And then just on the retrial from an expense standpoint are most of these costs sunk, or would you expect a similar spend on round two?

[Joe Kiani, Chairman & Chief Executive Officer]

We're not new to defending our IP, but we are new to people just exercising the hell out of the court with motions. I think the number of motions Apple filed that was leading up to this trade secret trial we're about three times what we're used to. So, it's funny you say that because I've been asking Micah can we non-GAAP this extra stuff that's really related to Apple not our standard stuff. Whether he gets comfortable with that or our auditors get comfortable with that, I don't know. But it is really not normal.

[Jayson Bedford, Raymond James]

Is there any way to quantify it?

[Joe Kiani, Chairman & Chief Executive Officer]

I think we have. In the Wall Street Journal article, I think I mentioned we spent $55 million up until now on the Apple litigation. And of course it's not just a trade secret case, it's the ITC case, and the patent case but there's a lot more to go. As I said there's five cases. We've just begun on two of them. So, my -- unfortunately I think we're going to spend over $100 million on these litigations.

[Micah Young]

And Jayson just to clarify that's over -- since the inception of the cases. So, it's over multiple years, about three years.

[Jayson Bedford, Raymond James]

All right. thank you.

[Operator]

Our next question comes from Mike Matson with Needham & Company.

[Mike Matson, Needham & Company]

Yes, thanks. I just had a few on the Freedom watch. So -- and I guess the bands as well for that matter. But I checked out the website. It looks like it's got a $1,000 price tag on it. It seems pretty high compared to the competing products out there.

Just wanted to get your take on that especially since -- I assume it would require a subscription as well. And then what -- you said there was a lot of interest from the retailers and store. Have you seen -- what's the interest level been in the bands and Freedom?

[Joe Kiani, Chairman & Chief Executive Officer]

Yes. The -- we have three price points when it comes to the wearables. The most expensive is Freedom at about $1000. The next most expensive product is a W1 at about $500. And then the Freedom band will probably be around $250. So we'll have something that does biosensing the exact same biosensing for everyone, I believe. So then it's just a matter of what features do they want? And are they willing to pay for those features?

I've seen people get really excited about the privacy switch, which nobody else has. So we'll have to see. But as I've said before our customers that we're targeting are people that have chronic illnesses and that need a serious monitor that's serious measurement and they want it in a way that's unobtrusive. So time will tell where we go. And as you know we are trying to manufacture these products in the US, which makes the cost of goods greater than if we were doing them in China. But we'll see how it goes. Fortunately due to our conservative financial officer, we haven't projected a lot of revenue for these things. So we'll see.

[Mike Matson, Needham & Company]

Yeah, yeah. Fair point. But -- and then just W1 in the healthcare setting, are you seeing any signs of traction there with that product and channel?

[Joe Kiani, Chairman & Chief Executive Officer]

Well, W1 right now is being really marketed by our hospital sales force outside the US. In the US we're still waiting for FDA clearance. We had not begun putting W1 into the consumer channel, because we didn't want the consumers to think that is the watch we have in mind. We want them to first know Masimo as Freedom that is a much more beautiful design and has a lot more features. So now that we have begun the presales on Freedom we're giving our consumer business team, the ability if they want to begin selling W1 to their channel. So that may start happening towards the second half of the year.

[Mike Matson, Needham & Company]

Okay. And if I can just get one more in on the quarter. So I know there was an earlier question but I guess I want to get more specific the consensus I'm looking at it's $591 million of revenue a $1.11 on EPS. Is that -- are you guys comfortable with that? Do you think the street has analysts have modeled it correctly for the second quarter?

[Micah Young]

Yeah. I think Mike when I look at the numbers right now, it looks like there was a consideration for the seasonality of both businesses where they traditionally stepped down in Q2. And the comps from last year if you -- as I mentioned before healthcare is up against a 19% comp on the growth rate last year in Q2 and non-healthcare is up against a 10% comp in Q2 last year.

So I think you've got to look at that consider that we still will see pretty heavy year-over-year currency headwinds as well similar to what we saw in Q1. And then of course the -- it starts to turn I believe into more of a tailwind in the back half on currency. So make sure that you're thinking through that as well.

[Joe Kiani, Chairman & Chief Executive Officer]

Yes. But we reiterated the full year guidance. So while the quarters might not be exactly the way you guys have put out there we feel really good about the whole year.

[Mike Matson, Needham & Company]

Yes.

[Joe Kiani, Chairman & Chief Executive Officer]

I think that was our last question. We thank you for joining us today and I know you guys are going to be spending a lot of time with Micah and Eli. Look forward to talking to you next quarter.

[Operator]

This concludes today's call. You may now disconnect.