Q4 2023 Masimo Corp Earnings Call

Okay.

Operator: Good afternoon, ladies and gentlemen, and welcome to Masimo's fourth quarter and fiscal year 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 speaker's remarks, there will be a question and answer session. I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investors for the, Hello, everyone.

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to Massimo Sports, Florida in fiscal year 2020 earnings Conference call.

Speaker Change: The company's press release is available at Www Dot National Dotcom.

Speaker Change: At this time all lines have been placed on mute to prevent any background noise.

Speaker Change: After the speakers remarks.

Speaker Change: There will be a question and answer session.

Eli: Please do introduce Eli.

Eli: Your line cameraman, Massimo <unk>, Vice President of business development and Investor Relations.

Eli: 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 2024 financial performance. However.

Eli Kammerman: 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 that reflect management's current judgment, including certain of our expectations regarding fiscal year 2024 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially.

Eli: 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.

Eli Kammerman: 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.

Eli: 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.

Eli Kammerman: 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. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Please note that we have updated our non-GAAP definitions to exclude all legal expenses associated with our ongoing litigation with Apple.

Eli: The company's operating results in the same way management assesses such results.

Eli: 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 and therefore, the financial <unk>.

Eli: We will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Please note we have updated our non-GAAP definitions to exclude all legal expenses associated with our ongoing litigation with Apple <unk>.

Eli Kammerman: In addition, 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 gap financial measures is included within the earnings release and supplementary financial information on our website.

Eli: 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.

Eli: In our presentation today, we will once again be referring to this business as our non health care segment.

Eli: 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.

Eli Kammerman: 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 in 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.

Eli: 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.

Eli: The content, we will be covering this afternoon I'll now pass the call to Joe Kiani. Thanks, Eli.

Joseph Kiani: Thank you, Eli. Good afternoon, and thank you for joining us for Masimo's 2023 Year-End Earnings Call. We exited 2023 with growing momentum driven by record contract wins for the year in our healthcare business, important FDA clearances for innovative new products, and strong growth in our hearables business. With stabilization of hospital census and operations post-pandemic, our healthy contract backlog, and our cutting-edge innovations in growing markets, Masimo is well positioned for 2024. In addition, our hospital contract wins have more than doubled from four years ago within our target markets, which has resulted in meaningful gains in market share. The engine of our growth continues to be innovation.

Joseph Kiani: Good afternoon, and thank you for joining us for Massimo is 2023 year end earnings call.

Joseph Kiani: We exited 2023.

Joseph Kiani: With growing momentum driven by record contract wins for the year in our healthcare business.

Joseph Kiani: And FDA clearances for innovative new products and strong growth in our <unk> business.

Joseph Kiani: With stabilization of hospital census, and operations post pandemic are healthy contract backlog and our cutting edge innovations in growing markets.

Joseph Kiani: <unk> is well positioned for 2024.

Joseph Kiani: In addition to sensor utilization, having stabilized a hospital contract wins have more than doubled from four years ago within our target markets, which has resulted in meaningful gains in market share.

Joseph Kiani: The engine of our growth continues to be innovation and in Q4, we received numerous FDA clearances for innovative products to improve outcomes and reduce the cost of care some of which I will discuss later.

Joseph Kiani: And in Q4, we received numerous FDA clearances for innovative products to improve outcomes and reduce the cost of care, some of which I will discuss later. Outside of healthcare, we are investing in the Masimo consumer brand and intend to realize rapid growth for hearables and wearables as we launch a steady stream of unique products containing our proprietary technology, a few of which I'll talk about later. In fact, starting this quarter, we are providing visibility into our hearables and wearables revenue so that you can see how we are performing in these strategic growth categories. For our financial performance in fiscal year 2023, consolidated revenues exceeded $2 billion. With healthcare revenues reaching $1.28 billion, the non-healthcare segment exceeded $770 million in revenues for the year.

Joseph Kiani: Outside of healthcare, we are investing in the maximal consumer brand and intend to realize rapid growth for horrible and wearables as we launch a steady stream of unique products containing our proprietary technologies.

Joseph Kiani: A few of which I'll talk about later.

Joseph Kiani: In fact, starting this quarter, we are providing visibility into our <unk> and wearables revenue. So that you can see how we are performing in these strategic growth categories.

Joseph Kiani: For our financial performance in fiscal year 2023, consolidated revenues exceeded $2 billion with health care revenues, reaching 128 billion, the non healthcare segment exceeded $770 million and revenues for the year.

Joseph Kiani: The challenges of 2023 have forged a stronger, more resilient Masimo, and we have a bright future ahead. We are making a positive impact on health care across the world by improving Masimo's long-term position. In the past six months, I toured many parts of the world, visiting our customers and meeting our team.

Joseph Kiani: Okay.

Joseph Kiani: The challenges of 2023 have forged a stronger more resilient Massimo and we have a bright future ahead we.

Joseph Kiani: We are making a positive impact for our health care across the world at improving mass in those long term position.

Joseph Kiani: In the past six months I toured many parts of the world visiting our customers and meeting our team.

Joseph Kiani: I can tell you resoundingly that our customers love what we are doing and where we are taking non-invasive monitoring. Our team is proud and excited to contribute to these bold efforts. With that, I'll pass it to Micah to review our fourth quarter and full year results in more detail and provide an update on our 2024 financial guide. Thank you, Joe, and good afternoon, everyone.

Joseph Kiani: Can tell you resoundingly that our customers love what we're doing.

Joseph Kiani: And where we are taking noninvasive monitoring.

Joseph Kiani: Our team is proud and excited to contribute to these bold efforts.

Joseph Kiani: With that I'll pass it to Micah to review, our fourth quarter and full year results in more detail and provide an update on our 2024 financial guidance.

Micah Young: You, Joe and good afternoon, everyone for the fourth quarter, our consolidated revenue was $549 million or.

Micah Young: For the fourth quarter, our consolidated revenue was $549 million, and our health care revenues were $340 million, which was near the upper end of our guidance range and represented a 4% decline on a constant currency basis versus Q4 2022. Our consumable and service revenues grew 1%, partially offset by a 24% reduction in capital equipment and other revenues versus the prior year period. However, more importantly, our healthcare revenues increased 10% sequentially, driven by expected seasonal increases and improved sensor volume. Further, our strong hospital conversions in 2023 have resulted in unrecognized contract revenue increasing 4% sequentially and 16% over the prior year to reach $1.5 billion. This gives us confidence in our growth outlook for the healthcare business. For our non-healthcare segment, fourth quarter revenues were $209 million, down 23% on a constant currency basis versus the prior year.

Micah Young: Our healthcare revenues were $340 million, which was near the upper end of our guidance range and represented a 4% decline on a constant currency basis versus Q4 2022.

Micah Young: Our consumable and service revenues grew 1% partially offset.

Micah Young: By 24% reduction in capital equipment, and other revenues versus the prior year period.

Micah Young: More importantly, our healthcare revenues increased 10% sequentially driven by expected seasonal increases and improved sensor volumes.

Micah Young: Further our strong hospital conversions in 2023 have resulted in unrecognized contract revenue, increasing 4% sequentially and 16% over the prior year to reach $1 5 billion.

Micah Young: This gives us confidence in our growth outlook for the health care business for our non healthcare segment fourth quarter revenues were $209 million down 23% on a constant currency basis versus prior year.

Micah Young: This business segment increased sequentially due to the holiday season, but declined year-on-year due primarily to challenging macroeconomic conditions, including high interest rates, which weighed on consumer spending. Now moving down the P&L, for the fourth quarter of 2023, we reported a consolidated non-GAAP gross margin of 50%. This included gross margins of 61% for our healthcare business and 32% for our non-healthcare business. For our consolidated business, our non-gap operating profit was $92 million, and our non-gap earnings per share was $1.25 for the fourth quarter.

Micah Young: This business segment increased sequentially due to the holiday season that declined year on year, due primarily to challenging macroeconomic conditions, including high interest rates, which weighed on consumer spending.

Micah Young: Now moving down the P&L for the fourth quarter of 2023, where we reported consolidated non-GAAP gross margin of 50%. This included gross margins of 61% for our health care business and 32% for our non health care business.

Micah Young: For our consolidated business, our non-GAAP operating profit was $92 million and our non-GAAP earnings per share was $1 25 for the fourth quarter.

Micah Young: Finally, through focused improvement in working capital and optimizing cash flow, we generated significant operating cash of $77 million, which allowed us to pay down a portion of our debt. Overall, 2023 was a year marked by uneven financial performance as we addressed shifting environments for both business segments. However, we made significant progress strengthening our market position, which gives us confidence for 2024 and beyond. We also had significant new customer wins and a growing contract backlog in health care that positions us well for growth this year. Now I'd like to provide more detail on our full year 2024 financial guidance that we initially outlined in our pre-announcement in January. For the full year 2024, we are projecting a consolidated revenue range of $2,045,000,000 to $2,165,000,000. For our healthcare segment, we are projecting revenues of $1,345,000,000 to $1,385,000,000, representing 6-9% constant currency growth. For the non-healthcare segment, we are projecting revenues of $700 million to $780 million, representing a 4% decline at the midpoint in constant currency.

Micah Young: Finally through focused improvement in working capital and optimizing cash flow, we generated significant operating cash of $77 million, which allowed us to pay down a portion of our debt.

Micah Young: Overall 2023 was a year marked by uneven financial performance as we address shifting environments for both business segments. However, we made significant progress strengthening our market position, which gives us confidence for 2024 and beyond.

Micah Young: We also had significant new customer wins, and a growing contract backlog in healthcare that positions us well for growth this year.

Micah Young: Now I'd like to provide more detail on our full year 2024 financial guidance that we initially outlined in our pre announcement in January.

Micah Young: For the full year 2024, we are projecting a consolidated revenue range of $2.045 billion to $2 billion $165 million.

Micah Young: For our healthcare segment, we are projecting revenues of $1.345 billion to $1.385 billion, representing 6% to 9% constant currency growth.

Micah Young: For the non healthcare segment, we are projecting revenues of 700 million to $780 million, representing a 4% decline at the midpoint in constant currency.

Micah Young: We believe gross margins will steadily improve throughout the year. For fiscal 2024, we are projecting a consolidated non-gap gross margin of 52%, comprised of 62% for our healthcare segment and 33-35% for our non-healthcare segment. We are intensely focused on improving our gross margin as the largest driver of earnings leverage for us. Our plan to transition a large portion of our sensor manufacturing to Malaysia is well underway, and we expect to reap the benefits of increased efficiencies and lower production costs over the next few years. We are also projecting a consolidated non-GAAP operating profit of $307 million to $322 million.

We believe gross margins will steadily improved throughout the year for fiscal 2024, we are projecting consolidated non-GAAP gross margin of 52%.

Micah Young: Comprised of 62% for our health care segment, and 33% to 35% for our non health care segment.

We are intensely focused on improving our gross margin as the largest driver of earnings leverage for us our plan to transition a large portion of our sensor manufacturing to Malaysia is well underway and we expect to reap the benefits of increased efficiencies and lower production costs over the next few years.

Micah Young: We are also projecting consolidated non-GAAP operating profit of $307 million to $322 million we.

Micah Young: We expect to benefit from the improvements in gross margin and disciplined spending, partially offset by the return of performance-based compensation to normalized levels. Moving further down the P&L, we are now projecting non-operating expense of $51 million, a tax rate of 26% to 27%, and Weighted Average Shares Outstanding of $55 million. Based on these assumptions, we are projecting a non-GAAP EPS range of $3.44 to $3.60. Turning briefly to our first quarter outlook, we are projecting consolidated revenue of $476 million to $501 million, non-GAAP operating profit of $63 million to $69 million, and Non-GAAP Earnings Per Share of $0.67 to $0.74. Please refer to the earnings presentation on our investor website for further details. In summary, our outlook for 2024 assumes a rebound in revenue growth for our healthcare segment. There are many reasons to be positive about our prospects this year.

Micah Young: We expect to benefit from the improvements in gross margin and disciplined spending.

Micah Young: The offset by the return of performance based compensation to normalized levels.

Micah Young: Moving further down the P&L, we are now projecting non operating expense of $51 million a tax rate of 26% 27%.

Micah Young: And weighted average shares outstanding of $55 million.

Micah Young: Based on these assumptions, we are projecting a non-GAAP EPS range of $3 44 to $3 60.

Micah Young: Turning briefly to our first quarter outlook, we are projecting consolidated revenue of 476 million to $501 million non-GAAP operating profit of $63 million to $69 million.

Micah Young: And non-GAAP earnings per share of <unk> 67 to <unk> 74.

Micah Young: Please reference the earnings presentation on our Investor website for further details.

Micah Young: In summary, our outlook for 2024 assumes a rebound in revenue growth for our healthcare segment. There are many reasons to be positive about our prospects this year.

Micah Young: Over the past over the last two quarters, we have gained a better understanding of the shifting customer ordering patterns and have confidence that sensor volumes have stabilized.

Micah Young: We have a strong contract backlog things to a record year for converting new customers and expanding our footprint with existing customers with that I will turn the call back to Joe. Thank you Mike.

Joseph Kiani: Over the last two quarters, we have gained a better understanding of the shift in customer ordering patterns and have confidence that sensor volumes have stabilized. We have a strong contract backlog thanks to a record year for converting new customers and expanding our footprint with existing customers. With that, I'll turn the call back to Joe.

Micah Young: Yeah.

Joseph Kiani: But a deeper understanding of post pandemic market conditions and a strong start to the year for our healthcare business. We are confident in our guidance and look forward to reestablishing our track record of consistency and predictability.

Joseph Kiani: Besides strong sensor orders a record customer conversions in 2023 provide the foundation for that confidence and show how our commitment to delivering innovative technologies into the marketplace sustained not only our long term future, but the short term growth.

Joseph Kiani: Thank you, Micah. With a deeper understanding of post-pandemic market conditions and a strong start to the year for our health care business, we're confident in our guidance and look forward to reestablishing a track record of consistency and predictability. Besides strong sensor orders, our record customer conversions in 2023 provide the foundation for that confidence and show how our commitment to delivering innovative technologies into the marketplace sustains not only our long-term future but our short-term growth potential. I'd like to share a few new highlights on products that we have gotten approval for by the FDA in late 2023 that we expect to contribute to growth over the next few years. The U.S. approval and launch in October of our Oxygen Reserve Index, or ORI, was an important milestone that will add to the growth of our Rainbow product.

Joseph Kiani: <unk>.

Joseph Kiani: I'd like to share a few highlights on products that we have gotten approval by the FDA in late 2023 that we expect to contribute to growth over the next few years.

Joseph Kiani: The U S approval and launch in October of our oxygen Reserve index.

Joseph Kiani: Ray was an important milestone that will add to the growth of our rainbow products.

Joseph Kiani: <unk> has already gained significant traction outside the U S with Orion sensors, becoming their routine option for pulse oximetry monitoring in some countries.

Joseph Kiani: And now accounts for approximately 20% of Rainbow sales.

Joseph Kiani: Alright gives our customers the ability to see declines in oxygen before pulse oximetry can detect some changes which is important in the or.

Joseph Kiani: ORI has already gained significant traction outside the U.S., with ORI-equipped sensors becoming the routine option for pulse oximetry monitoring in some countries, and now accounts for approximately 20% of Rainbow sales. ORI gives our customers the ability to see declines in oxygen before pulse oximeters can detect some changes, which is important in the O.R. It is just as important to know when the patient has been given more oxygen than they need.

It is just as important to know when the patient has been given more oxygen than they need and all I can help them determine that.

Joseph Kiani: For our business not only our eye is yet another clear differentiator, but every pulse oximetry sensor conversion to our Rainbow sensor adds a price premium of at least 30% per sensor.

Joseph Kiani: An ORI can help them determine that. For a business, not only is RRI yet another clear differentiator, but every pulse oximeter sensor conversion to a rainbow RRI cope sensor adds a price premium of at least 30 percent per sensor, depending on whether a customer has deployed R.I. with our 4 LED rainbow sensor or with our 8 or 12 LED rainbow sensor. Another important FDA clearance for us last year was for the medical version of our W1 watch, which was cleared in November. We can now promote W-1 to U.S. healthcare institutions for use with patients before and after surgery, as well as for long-term monitoring of chronic conditions. As we've shared in the past, we see great market potential for these applications and have received multiple indications of interest from hospitals.

Joseph Kiani: Depending on whether our customers deploy our eye with our four lead rainbow sensor or with our eight or 12 Leds Rainbow sensors.

Joseph Kiani: Another important FDA clearance first last year was for the medical version of R. W. One watch which was cleared in November.

Joseph Kiani: We can now promote <unk> to U S health care institutions for use with patients before and after surgery as well as for long term monitoring of chronic conditions.

Joseph Kiani: As we've shared in the past, we see great market potential for these applications and have received multiple indications of interest from hospitals.

Joseph Kiani: Hospital at home initiatives continued to gain traction with health care systems, which see large opportunities to reduce costs and improve outcomes.

Joseph Kiani: Hospital at Home initiatives continue to gain traction with health care systems, which see large opportunities to reduce costs and improve outcomes. We view our remote monitoring technologies as unique key enablers for these programs to deliver care safely and efficiently. We also received FDA clearance in December for our Stork baby monitor with alarms and alert functions to be activated based on a physician's prescription. Stork is the only product to help parents monitor SpO2 pulse rate and temperature for sick and healthy babies.

Joseph Kiani: We view, our remote monitoring technologies as unique key enablers for these programs to deliver care safely and efficiently.

Joseph Kiani: We also received FDA clearance in December.

Joseph Kiani: For our Stork baby monitor with alarms and alerts functions to be activated based on this physicians prescription.

Joseph Kiani: Stuart is the only product to help parents monitor SPL to pulse rate and temperature for sick and healthy base. In addition, the optional AI based camera already helps detect babies, who rollover under stomach.

Joseph Kiani: In addition, the optional AI-based camera already helps detect babies who roll over on their stomachs, with many more applications to come. Outside of healthcare, we are leveraging our core healthcare technologies and signal processing capabilities to deliver differentiated products that will profitably take share in the large and growing markets for hearables and wearables. Our hearables category grew 115% last year due to the combination of focused investment and the launch of new products. For example, last fall, we launched the Denim Pearl earbuds with AAT, Adaptive Acoustic Technology. Masimo AAT enables customization of the sound spectrum for an individual's unique hearing profile and provides a truly optimized listening experience.

Joseph Kiani: With many more applications to come.

Outside of healthcare, we are leveraging our core health care technologies and signal processing capabilities to deliver differentiated products doubled profitably take share in the large and growing markets for <unk> and wearables.

Joseph Kiani: Our hero both category grew 115% last year due to the combination of focused investment and the launch of new products.

Joseph Kiani: For example, last fall, we launched a denim pearl ear buds with adapt.

Joseph Kiani: Adaptive acoustic technology.

Joseph Kiani: Massimo.

Joseph Kiani: <unk> enables customization of the sound spectrum for an individual's unique hearing profile and provides a truly optimized listening experience.

Joseph Kiani: As I mentioned earlier, hearables and wearables are strategic growth categories for Masimo as we undertake our Hospital to Home initiative. In 2023, we increased our revenues for these products by more than 90% to reach $90 million. With products such as STORK, OTC, Pending FDA Clearance, W1, and Pearl with AAT, along with other new product introductions, we expect to see significant growth in this category in 2024 and beyond. We have three product launches planned for 2024 to celebrate our 25th and 35th anniversary. Freedom, H1, and the next generation version of our Root Connectivity Platform.

Joseph Kiani: I mentioned earlier <unk> and Wearables are strategic growth categories for Massimo as we undertake our hospital to home initiative.

In 2023, we increased our revenues for these products by more than 90% to reach $90 million.

Joseph Kiani: But products such as storage OTC pending FDA clearance.

Joseph Kiani: You won and Pearl that AAP, along with other new product introductions, we expect to see significant growth in this category in 2024 and beyond.

Joseph Kiani: We have three product launches planned for 2024 to celebrate our 2015 35th anniversary.

Joseph Kiani: Freedom H, one and the next generation version of our root connectivity platform we.

Operator: We are excited about what the Freedom Biosensing Watch and the H1 hearing enhancement device will do for consumer health and what our next-generation root platform will do for health care in terms of improving patient care as well as hospital finance. In closing, our ability to translate our core technologies and competencies into products that deliver better outcomes for consumers, patients, and providers continues to be the engine for long-term growth across all our businesses. With that, we'll open the call to questions. Operator?

Joseph Kiani: We're excited about what the freedom bio assessing watch and the H one hearing enhancement device will do for consumer health.

And what our next generation route platform will do for health care in terms of improving patient care as well as hospital finances.

Joseph Kiani: In closing our ability to translate our core technologies and competencies into products that deliver better outcomes for consumers patients and providers continue to be the engine for long term growth across all our businesses.

Speaker Change: With that we'll open the call to questions operator.

Speaker Change: Okay.

Operator: The floor is now open for questions. So to ask a question this time, please press star, the number one on your telephone keypad. Our first line of questions comes from Mary. Debunked with BTIG. Please go ahead.

Speaker Change: So, let's now open up for questions.

Speaker Change: Question. This time from spec tied to number one telephone keypad.

Speaker Change: Our first line of question comes from Barry.

Barry: Hey, Paul with BPI E Z go ahead.

Operator: Hi, thank you. Good afternoon. Thanks for taking the questions. I wanted to start here, I think, on a standard one on guidance. I just want to understand what's included on the high and low ends of the guidance ranges for both health care and non-health care.

Barry: Hi, Thank you good afternoon. Thanks for taking the questions I wanted to start here I think on a on a standard one on guidance I just want to understand what's included in the high and low ends of the guidance ranges for both health care and non health care and if you can help us think about the Q1.

Micah Young: And if you can help us think about the Q1 cadence, the quarterly cadence throughout the year, that would help me understand, particularly on the non-health care side. Yeah, so Marie, for the start of the health care business, the $1,345,000,000 to $1,385,000,000, if you look at the low end of the range, we'll start there, that assumes a 0% census as far as any contribution from in And it also assumes the weak capital environment that we're seeing. We're seeing good strength in our consumables products, but capital is continuing to be a very difficult environment for us, as well as others. If you look at the higher end of the range, that assumes closer to a 1% census growth.

Speaker Change: Cadence the quarterly cadence throughout the year.

Speaker Change: That would help me understand particularly on the non healthcare side, if you can.

Speaker Change: Absolutely, yes, so Murray for the start of the healthcare business.

Speaker Change: The 1 billion $3 45 to 1 billion <unk> hundred 85 if.

Speaker Change: If you look at the low end of the range, we'll start there that assumes.

Speaker Change: Zero percent census, as far as any contribution from from inpatient admissions.

Speaker Change: And it also assumes.

Speaker Change: The weak capital environment that we're seeing we're seeing good strength in our consumables products, but the capital has continued to be a very difficult environment for us as well as others.

Speaker Change: If you look at the higher end of the range.

Speaker Change: That assumes more of closer to a 1% census growth.

Micah Young: And it also assumes that we see improvement coming from a lot of the installations that we expect throughout the year as we continue to gain new customers and win new customers. And it also assumes that we're going to have some improvement in the capital environment at the high end of the range. We have also stripped out any large orders, so those would be up to the guidance for this year. Those are completely stripped out of that range.

Speaker Change: And it also assumes.

Speaker Change: That we that we see improvement and coming from a lot of the installations that we expect throughout the year.

Speaker Change: As we continue to gain gain new customers and win new customers.

Speaker Change: And it also assumes that we're going to have some.

Speaker Change: Some improvement in the capital environment at the high end of the range.

Speaker Change: We also have stripped out any large orders so those would be upside to the guidance for this year those.

Speaker Change: Those are completely stripped out of the out of that range.

Micah Young: If I turn to the non-healthcare business, probably the best way to describe that is we expect the hearables growth to continue and expect it to be at least 50% growth off of this year after a very strong growth last year. So that implies that the range of 700 million to 780 million, at the low end of the range, it would imply a high teens decline in the core audio business, and at the upper end of the range, it would imply a mid-single-digit decline in the upper end of that range. So again, the hearables strengthen that business, which has now become over 10% of the revenues for non-healthcare, and continues to grow, off Okay, so that hearable strength is disguising a bit some of the softness you're expecting in a consumer.

Speaker Change: Turning to the non health care business.

Speaker Change: The best way to describe that is we expect the <unk> growth to continue.

Speaker Change: That we expect to be at least 50% growth off of this year. After a very strong growth last year. So that implies that the range of $700 million to $780 million at the low end of the range. It would imply high teens decline in the core audio business.

Speaker Change: And the upper end of the range. It would imply a mid single digit decline in the upper end of that range. So so again, the <unk> strengthening that business has now become over 10% of the revenues for for non healthcare continued to grow offsetting softness in the court.

Speaker Change: Okay. So that here will strengthen disguising it that some of the softness youre expecting in consumer.

Micah Young: And then as a follow-up on that, the Q1 cadence for consumer may be a little bit lighter than we were looking for. Can you help us understand kind of the seasonality of that business as you understand it today? Yeah, so we we went back and looked historically with the team and just tried to understand kind of their seasonality You know prior to the acquisition and kind of back in more normalized years and that seasonality is about 21% It can hover between 21 22 percent of revenues for the full year that guidance is in that zone for per Q1 and and and and typically a third of the revenues come in Q4 with a stronger holiday season, so That's how we're thinking about both businesses kind of getting back onto that normal seasonality And again, we're growing the we're getting into new channels and new markets with the hearables So that's going to continue to be growth throughout the year that gives us More confidence in that and that guidance range for for non health care, Okay, that's really helpful, Micah.

Speaker Change: And then as a follow up on that.

Q1 cadence for <unk>.

Sam or maybe a little bit lighter than we were looking for can you help us understand kind of the seasonality of that business as you understand it today.

Sam: Yes, So we went back and looked historically with the team and just try to understand kind of the seasonality.

Sam: Prior to the acquisition and kind of back in more normalized years and that seasonality is about 21%.

Sam: It can hover between 'twenty, one 'twenty, 2% of revenues for the full year that guidance is in that zone for Q1 and in typically a third of the revenues come in in Q4 with a stronger holiday season. So.

Sam: That's how we're thinking about both businesses kind of getting back onto that normal seasonality.

Sam: And again were growing the we're getting into new channels and new markets with the <unk>. So that's going to continue to be growth throughout the year.

Sam: It gives us.

Sam: More confidence in that guidance range for non health care.

Speaker Change: Okay. That's really helpful. Mike if I can ask a question here for more detail on the healthcare side I Wonder if I understand what youre seeing today.

Micah Young: If I can ask a question here for more detail on the healthcare side, I want to understand what you're seeing today in the hospital census on some of the dynamics you've discussed in the past, like, you know, the shift to ambulatory surgical centers and patients reusing sensors. What are some of the latest that you're seeing on some of those trends that we know impacted results last year? Yeah, I think what we're seeing now, and I think that that's what's being seen out there in the broader market, is that those inpatient trends and census trends are probably around that one to two percent kind of hovering in that zone.

Mike: On the hospital Sanchez on some of the dynamics you've discussed in the past like the shift to ambulatory surgical centers and patients are using sensors, what are kind of the latest that you're seeing on some of those trends that we know impacted results last year.

Mike: Yeah, I think what we're seeing now and I think that Thats whats being seen out there in the broader market is.

Mike: Those inpatient trend and census trends are probably around that 1% to 2% kind of hovering in that zone. So.

Micah Young: So, you know, if that continues, that will be a positive for us in 2024. And then, in terms of just sensor utilization for the business, we see that's back and stabilized. We think that any inventory destocking is behind us, and that gives us confidence. That's why we came out early in January to provide that guidance as we started to see those trends heading in the right direction in the second half of the year. All right.

Mike: If that continues that will be a positive for us in 2024.

Mike: And then in terms of just sensor utilization for the business, we see that's back and stabilized we think that the any inventory destocking is behind us and that gives us confidence. That's why we came out early in January to provide that guidance as we start to see those trends heading in the right direct.

Mike: <unk> in the second half of the year.

Speaker Change: Alright, very good to hear thanks for taking the questions Youre welcome.

Micah Young: Very good to hear. Thanks for taking the questions. Our next question comes from the line of Mike Polark with Wolfe Research. Please go ahead. Good afternoon.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Mike <unk> with Wolfe Research.

Mike: Go ahead.

Mike: Hey, good afternoon. Thank you for taking the question I wanted to drill down on this capital commentary, Mike and Joe just mentioned, maybe kind of a little choppy soft is this what's going on here is this.

Joseph Kiani: Thank you for taking the question. I want to drill down on this capital commentary Micah and Joey just mentioned, maybe kind of a little choppy soft. Is this what's going on here? Is this still working through the exceptional capital placements you had during COVID, and we're coming off the sugar high? Or is there just time for that to work its way through?

Mike: Still working through kind of the exceptional capital placements you had during COVID-19 and we're coming off of.

Mike: That sugar high and there is time for that to work its way through or is there is there something else and I guess I'll lead you here, obviously as you probably know one of your competitors or your.

Joseph Kiani: Is there something else? And I guess I'll lead you here. Obviously, as you probably know, one of your competitors, your key competitors, decided to keep the monitoring business, and they called out a change in competitive position as a reason for choosing that. Have you seen any different behavior out of your key competitor? And do you agree with their assessment of the landscape?

Mike: Key competitors added to keep.

Mike: The monitoring business and they called out a change.

Mike: And competitive position as a reason for choosing that.

Mike: Have you seen any different behavior out of your key competitor and do you agree with their assessment about <unk>.

Mike: The landscape.

Speaker Change: Yeah, Let me maybe try to address that high level, and then by the microglia or anything to add.

So first of all yes, I think we're getting over the sugar high of capital purchases during Covid. The good thing we're not.

Joseph Kiani: Yeah, let me maybe try to address that high level. Then, maybe, Micah, if you have anything to add. So first of all, yeah, I think we're getting over the sugar high of capital purchases during COVID. It's a good thing we're not in the capital business, because it would be really rough. For some companies, you've seen it. It's really stopped them in their tracks. But the good news is, for us, because we're getting so much of our growth from new conversions, from New Hospital switching to Masimo, and for us to almost exclusively keep all of our customers. The only time we've lost any is when they were purchased by a larger system that was our competitor's account.

Speaker Change: And capital business, because it would be really rough.

Speaker Change: But some companies you've seen it.

Speaker Change: It's really stopped in their tracks.

Speaker Change:

Speaker Change: But.

Speaker Change: The good news is for us because we're getting so much of our growth from new conversions.

Speaker Change: From new hospitals switching to Massimo.

Speaker Change: And for us to almost exclusively keep all of our customers and the only time. We've lost any is when they were purchased by a larger system that was our competitors account.

Joseph Kiani: So for those reasons, our outlook is very positive regardless of the capital. And then, as far as our competitor, I heard that they're saying they're keeping an eye on us because it's competitive. You know, they're probably competing well in our leftovers because in the markets that we're targeting, we are winning really strongly by an order of magnitude more than we lose. So, yeah, there are markets that we're not focusing on, and those are the low-end markets where, you know, the countries can't afford the kind of performance and technologies that we have. But in America's US, Canada, in Europe, Japan, Korea, and the Middle East.

Speaker Change: So for those reasons, our outlook is very positive regardless of the capital.

Speaker Change: Then as far as a competitor I heard that theyre, saying theyre keeping monitoring because it's competitive.

Speaker Change: They are probably competing well and our leftovers because in the markets that we're targeting we are winning.

Speaker Change: That's really strongly the order of magnitude more than than we lose.

Speaker Change: So yes, there are markets that we're not focusing on and.

Speaker Change: Those are the low end markets were.

Speaker Change: The countries.

Speaker Change: The forward.

Speaker Change: The kind of <unk>.

Speaker Change: Performance in technologies that we have.

Speaker Change: And America is U S Canada.

Speaker Change: In Europe, Japan.

Speaker Change: Korea Middle East, we are just taking market share and about two extra rate all of our normal.

Joseph Kiani: We are just taking market share at about 2x the rate of our normal. So while I don't know what they're doing, I'm glad they're full of our leftovers. Helpful. Follow-up on margin, you know. Nice to see the guide kind of smooth out here at 15%. Obviously, lots of puts and takes in there. The incentive comp reset is a... limiting factor year-on-year. The question is beyond twenty four kind of, How do you feel about margin? What's the direction of it?

Speaker Change: So while I don't know what Theyre doing I'm glad they're full our leftovers.

Speaker Change: Helpful.

Speaker Change: Follow up on margin.

Speaker Change: Nice to see the guide kind of smoothed out here at 15%, obviously lots of puts and takes in there the incentive comp reset as a.

Speaker Change: Limiting factor year on year. The question is beyond 24 kind of.

Speaker Change: How do you feel about margin whats the direction of it.

Micah Young: Do you feel like margin expansion is a core part of the algorithm as you kind of restart the growth here and specifically from Mexico to Malaysia, kind of how impactful is that? I'm curious for any quantification timing of that benefit. Thank you so much.

Speaker Change: Do you feel like margin expansion is a core part of the algorithm as you kind of restart the growth here and specifically on Mexico to Malaysia kind of how impactful is that I'm curious for any quantification.

Speaker Change: <unk> of that benefit. Thank you. So much yes. Thanks, Mike Great question gross margin leverage is a key area for us.

Micah Young: Thanks, Mike. Great question! Gross margin leverage is a key area for us, as well as just overall property margin leverage over the coming years. We still want to drive, and I'll really hit on the healthcare side here, but our focus is to get back up, into the high 60s margins again. We've got a very good path, you know, to get to the mid-60s, just with the things we're doing in Malaysia, with some of the key product cost reduction efforts that we're undertaking right now, and the focus of our engineering and manufacturing teams. We also will see leverage in our equipment placements because where we are, we have a heavy amount of equipment placements right now due to all these customer conversions that we have that will leverage over time.

Speaker Change: As well as just overall operating margin leverage over the coming years, we still want to drive.

Speaker Change: And.

Speaker Change: Really hit on the healthcare side here.

Speaker Change: Our focus is to get up back up in the high sixteens margins again.

Speaker Change: We've got a very good path.

Speaker Change: To get to the mid sixties, just with where things were doing in Malaysia with some of the key product cost reduction efforts.

Speaker Change: We're undertaking right now and the focus by our engineering and manufacturing teams.

Speaker Change: We also will see leverage in our in our equipment placements.

Speaker Change: We have a heavy amount of equipment placements right now due to all these.

Speaker Change: Customer conversions that we have that will leverage over time, so between those things we feel good about getting up in that mid <unk> margin over the next few years and then.

Operator: So, between those things, we feel good about getting up to that mid-60s margin over the next few years, and then, you know... And we just got to continue that path and leverage the business and get back up into the high 60s. So, that's going to be a great lever for us as we move forward and really deliver additional growth and earnings as well. Operator, next question please.

Speaker Change: And then we just got to continue that path and leverage the business and.

You can get back up into the high <unk>. So so that's going to be a great lever for us.

As we move forward and really deliver.

Speaker Change: Growth in earnings as well.

Speaker Change: Okay.

Speaker Change: Operator next question please.

Speaker Change: Okay.

Operator: Yes, our next question comes from the line of Mike Matson with Needham. Peace. Go ahead.

Yes. Our next question comes from the line of Mike Matson.

Mike Matson: Needham and company. Please go ahead.

Joseph Kiani: Yeah, thanks. So I wanted to ask one... Joe, you mentioned you were launching the H1 Hearing Assistance product this year, and I know that's an area you've kind of talked about sort of indirectly being interested in, but you hadn't really mentioned any specifics around products or timing. So, it sounds kind of interesting to me, so I was just wondering if you could provide any more detail around that, maybe the kind of market opportunity and so forth. Sure, thank you.

Mike Matson: Yes. Thanks.

So I wanted to ask one.

Mike Matson: Joe You mentioned you were launching the H one I'm curious it's been product this year and I know thats an area, you've kind of talked about sort of indirectly being interested in but you haven't really mentioned much specifics around products or timing. So.

Speaker Change: It sounds kind of interesting to me if I was just wondering if you could provide any more detail around that and maybe the kind of market opportunity and so forth.

Speaker Change: Sure. Thank you yeah I.

Joseph Kiani: I think, as I've mentioned before, one of the reasons we acquired Sound United was for their audio engineers, as we were planning to get into the hearing aid market for low to moderate hearing loss. So with the help of that team, the help of the Neuro team in Australia, and our own engineering team here at Irvine, we are developing what I hope will be a revolutionary hearing aid. And we call that H1 for now; that might stick as a final name, but I think H1 should be available for sale this year.

Speaker Change: I think.

Speaker Change: I mentioned before one of the reasons, we acquired sand United was for their audio engineers as we were planning to get into the hearing aid market for low to moderate hearing loss.

Speaker Change: So with the help of that team to help with the neuro team in Australia.

Speaker Change: And our own engineering team here in Irvine, we are developing.

Speaker Change: What I hope will be a revolutionary hearing aid and we call that H one for now I might stick as the final name, but I think <unk> should be available for sale this year.

Joseph Kiani: Okay. And do you have any feel for the TAM or pricing or anything like that at this point? Yeah, my understanding is the TAM is $35 billion roughly, and our pricing is probably going to be around $1,500 in that area. That's what we're planning to do. Now, we, to sell that over-the-counter, which we can now with the new regulatory guidelines that have been changed, we still have to get FDA clearance, so we're going to have to submit an H1 for FDA approval for sale in the U.S., but many countries will be able to sell it under a CE mark. Okay, I got it. And then just on the, you know, all the contract wins are obviously positive. Just wondering to what degree this uncertainty around your primary competitor Medtronic's, you know, separation and now kind of retention of their monitoring business, do you think that's contributed to customer willingness to kind of switch to Masimo or not? I don't think so.

Speaker Change: Okay.

Speaker Change: And.

Speaker Change: Do you have any feel for the tam or pricing or anything like that at this point.

Speaker Change: Yes, my understanding the Tam is $35 billion roughly.

Speaker Change: And our pricing is probably going to be around $500.

Speaker Change: Okay in that area, that's what we're planning now.

Speaker Change: We to sell that over the counter which now we can.

Speaker Change: With the new regulatory guidelines that have been changed we still have to get FDA clearance. So we're going to have to submit the <unk> for FDA approval for sale in the U S.

Speaker Change: Many countries will be able to sell it.

Speaker Change: Under our CE Mark.

Speaker Change: Okay got it.

Speaker Change: And then just on the <unk>.

Speaker Change: The contract wins are obviously positive.

Speaker Change: Just wondering to what degree has kind of the.

Speaker Change: Uncertainty around your primary competitor Medtronic.

Speaker Change: Sure.

Speaker Change: Separation and now I'll kind of retention of their monitoring business is that do you think thats contributed to.

Speaker Change: Customer willingness to kind of switch to Massimo or.

Speaker Change: I don't think so I think what really changed.

Joseph Kiani: I think what really changed our market share gains was COVID. I think Pulse oximetry and its accuracy really meant a lot. People started thinking, well, why am I not using Masimo?

Speaker Change: Our market share.

Speaker Change: Gains with Covid.

Speaker Change: Think when.

Speaker Change: Pulse oximetry and its accuracy really meant a lot people started thinking well why am I not using mass.

Joseph Kiani: And on top of that, we created the Radius PPG, which is a tetherless wearable monitor that changed things. We created the COVID system for patients at home, remotely monitoring them at the hospital. All of that just made us really the company to go to for pulse oximetry. I think that's one reason why, if you look at 2019, we were doing about $170 million in TI, true incrementals, and now we're doing about $400 million. So, yeah, we don't think it had anything to do with their spinoff or not. We really think it did. It just finally made people think, why are we resisting it?

Speaker Change: And on top of that we created the radius PPG, which is titled less wearable monitor that.

Speaker Change: Change things with credit.

Speaker Change: Covid.

Speaker Change:

Speaker Change: System for patients at home remotely monitoring them at the hospital all of that just made US really the company to go to for pulse Oximetry and I think that's one reason if you look at 2019, we were doing about 100.

Speaker Change: $70 million in Ti truly incremental now we're doing about $400 million.

Speaker Change: So yeah, we don't think it had anything to do with the spin off or not.

Speaker Change: We really think it's.

Speaker Change: Just finally made people think why are we resisting it.

Joseph Kiani: As you know already, no other pulse oximetry has been shown to have a positive clinical outcome despite the fact that they became ubiquitous before we even entered the market. But ever since Masimo set pulse ox has been introduced, because it works accurately during motion and low perfusion, because it works on dark as well as light pigmented patients during other challenges, the studies have been incredible, blindness in the neonatal ICU has dropped, detection of CCHD is now possible with newborns, and people on opioids are now dying from overdose on the general floors after their surgeries. So all of that, by the way, comes with reduced costs. You know, we calculate that, on average, a 250-bed hospital can save about $4 to $5 million a year by switching to Masimo.

Speaker Change: <unk> already no other pulse oximetry has been shown to have a positive clinical outcome. Despite the fact that they became ubiquitous before we even enter the market, but ever since Massimo set pulse ox has been introduced because of whats accurately during motion and low perfusion because it works on <unk>.

Speaker Change: Dark as well as like pigment to patients during other challenges.

Speaker Change: The studies have been incredible.

Speaker Change: Blindness in the neonatal ICU has dropped.

Speaker Change: Detection of CCH D is not possible with newborns and.

Speaker Change: People on opioids are not dying from overdose under journal floors. After their surgeries, so and all of that by the way comes with reduced costs. We calculate that on average at 250 bed hospital can save about $4 million to $5 million a year by switching to mass.

Joseph Kiani: That really makes our pulse oximeter sensor prices irrelevant, because we could charge 5x more, and we'd still be showing cost savings to the hospital. So the competitive advantage we have is really big, and I think customers during COVID have finally decided to take advantage of it. Okay, great. Thanks. Bye.

Speaker Change: So it really makes our pulse oximetry sensor prices irrelevant because.

Speaker Change: We could try to five X more and we'd still be showing cost savings to the hospital. So the competitive advantage. We have is really big.

Speaker Change: And I think customers during Covid finally decided to take advantage of it.

Speaker Change: Okay, great. Thanks.

Joseph Kiani: Thank you. Sorry for the long answer. But I just want you to understand that this isn't just two companies competing with similar technologies. There's a huge difference.

Speaker Change: Thank you sorry for the long answer, but I just want you to understand this isn't just two companies competing with similar technologies. There is a huge difference.

Operator: And that's why we're winning continuously. It's become even bigger in the past few years. Our next question comes from the line between Jason Bednar and Piper Sandler. Please go ahead.

Speaker Change: That's why we're winning continue continuously and it's become even bigger than the past few years.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Our next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead.

Speaker Change: Okay.

Operator: Hey, good afternoon. Thanks for taking the questions. Yeah, Joe, Mike, I wanted to start with that driver number. It's definitely lighter than our model.

Hey, good afternoon, thanks for taking the questions.

Joe Mike I wanted to start with that driver number.

Definitely lighter than our model I think there are probably wider than where most estimates were sitting here I think the lowest absolute figure you've had since the first quarter of 2018 I guess you can look at this two ways.

Micah Young: I think they're probably lighter than most estimates we're sitting here. I think the lowest absolute figure you've had since the first quarter of 18. I guess we can look at this two ways. I mean, you put up good results in spite of those driver sales being lower; you're tapping into that large installed base, really driving better utilization. So maybe the driver figure means less today than it has historically, but I guess the alternative here is that drivers have fallen for four consecutive quarters. And I guess I'm just having a hard time reconciling this against that record contract that we continue to hear about.

Speaker Change: You put up good results in spite of those drivers sales being lower are you tapping into that large install base really driving better utilization. So maybe the driver finger means less today than what it has historically.

Speaker Change: I guess the alternative here as the drivers and fallen for four consecutive quarters now I guess I'm, just having a hard time reconciling this against like that record contract and that we continue to hear about.

Micah Young: So I guess the question here is, you know, whether investors need to be concerned with the driver decline. And then what's the outlook for this line as we look ahead? Will drivers grow in 24? Does this need to decline further? Any help there would be great.

Speaker Change: The question here is whether investors need to be concerned with the driver detail and then what's the outlook for this line as we look ahead to drivers grow in 24 does this need to decline further any help there would be great.

Micah Young: Yeah, thanks, Jason. Yeah, I am less concerned about the driver numbers. We think this is more short-term in nature. The focus for us, and what we really focus on internally, is that, you know, those incremental new business and contract wins. And that's what's giving us confidence with our outlook. We are coming off a transition from years where there was a lot of monitoring that was done by the bedside. And we think that replacement cycles of existing equipment have slowed temporarily.

Speaker Change: Yes, thanks, Jason.

Speaker Change: Yes, I am less concerned about the driver numbers.

Speaker Change: We think this is more short term in nature, the focus for us and what we really focus on internally.

Speaker Change: Is that the incremental new business and contract wins, and that's what's giving us the confidence with our outlook.

Speaker Change: We are coming off a transition.

Speaker Change: From years, where theres a lot of monitoring those those put by the debt side, and we think that that replacement cycles of existing equipment have slowed temporarily.

Joseph Kiani: We believe that it will kind of trough; our expectation is that it troughs in Q1 and then starts to improve back up to more normalized levels as we exit this year. So we think it's going to start heading in the right direction based on our internal estimates, and that's less of a concern for us. Our concern is really getting after new business, converting customers to Masimo technologies, and placing the equipment in there in return for those recurring sensor revenues that's gonna continue to help us grow in the outlook that we've provided for this year. I guess, Michael, what's the disconnect between record contracting and new customers, which theoretically need drivers to consume the sensors? You know, why isn't that translating into a better driver number? And we're seeing this driver number decline. Well, let me maybe take this.

Speaker Change: We believe that it will kind of trough our expectation is it troughs in Q1, and then starts to improve back up to more normalized levels.

Speaker Change: As we exit this year. So we think that's going to start heading the right direction based on our our internal estimates and.

Speaker Change: That's less of a concern for us our concern is.

Speaker Change: It is really getting after new business converting customers to Massimo technologies and placing the equipment in there in return for those recurring sensor revenues, that's going to continue to help us grow.

Speaker Change: And the outlook that we provided for this year.

Speaker Change: I guess, Michael what's the what's the disconnect between record contracting, which new customers, which theoretically they need drivers to consume that sensors why isn't that translating into a better driver number and we're seeing this driver number D cell.

Michael: Let me maybe take this.

Joseph Kiani: So, 20 years ago, every driver was a new driver for us, and it was growing our sense of business. Today, given that we have a significant market share, every new driver is not a new driver that you see. It's replacing an existing Massimo socket.

Michael: <unk>.

Michael: So 20 years ago every driver was a new driver for us and it was growing our sensor business.

Speaker Change: Today, given that we have a significant market share the new every new driver is not a new draft that you see it's replacing an existing Massimo socket.

Joseph Kiani: Now, the second part of your question is, what's the disconnect? So that's why it's not a one-for-one to see a doubling of our contract wins with a doubling of our driver volume. Okay. Okay. I'll probably follow up a little bit on some of this, but just to maybe hear, I did want to ask one more, maybe tough question here, so maybe apologize up front, but, you know, there's definitely a lot of interest here on this topic, just with the latest developments with the board. You know, Joe, from your public commentary, it still sounds like there's maybe some difficulties in the boardroom, to put that maybe gently. The announced departure here recently of a board member, you didn't fill any of those vacated committee positions with board members that were elected during last year's shareholder vote cycle.

Speaker Change: So that's why that is not as important now the second part of your question is.

Speaker Change: What's the disconnect well it doesn't take as many drivers for us to secure these.

Speaker Change: <unk> T is $400 million worth of them.

Speaker Change: Because it's basically we put the number of sockets that they need.

Speaker Change: That has to be replaced to get that sensor contract. So that's why there's not a one for one to see a double doubling of our contract wins with a doubling of our driver.

Speaker Change: Volumes.

Speaker Change: Okay.

Speaker Change: Okay, Okay, Yeah, I'll, probably follow up a little bit on some of this but just to maybe here I did want to ask one more maybe top one year. So maybe apologize upfront, but there's definitely a lot of interest here on this topic just with the latest developments with the board.

Speaker Change: Jochen you're public commentary still sounds like there's maybe some difficulties in the board room to put that maybe gently.

Speaker Change: The announced departure here recently of a board member you Didnt fill any of those vacated committee positions with board members that were elected during last year's shareholder vote cycle, maybe help us through what the latest discussions have been regarding the business strategy with your board members that were elected last year, whether theres been any progress made on finding common ground between <unk>.

Joseph Kiani: Maybe you could explain what the latest discussions have been regarding the business strategy with your board members that were elected last year, whether there's been any progress made on finding common ground between your position and where Palatine currently stands. And then, if you'd comment, I think a lot of investors would be interested to hear your thoughts with respect to, you know, the, you know, kind of upcoming shareholder vote that we're all looking forward to this summer. Well, first of all, I won't lie.

<unk> and where pallets and currently stands.

Speaker Change: And then if youll comment I think a lot of investors would be answered to hear your thoughts with respect to that.

Speaker Change: The kind of the upcoming shareholder vote that our all what can add to this summer.

Speaker Change: Well.

Speaker Change: First of all Oh.

Speaker Change: I won't lie it's been a rough rough start with the new board members, but we're managing things are getting better.

Joseph Kiani: It's been a rough, rough start with the new board members, but we're managing things. Things are getting better. We're getting along better. We're finding more common ground. And yeah, we're sorry to see Adam Mickelson leave, but Adam had served exceptionally well, but he had a lot of personal things he had to attend to, including twins that were just recently born.

Speaker Change: We're getting a lot better.

Speaker Change: We're finding more common ground.

Speaker Change: And yes, we'll see we're sorry to see Adam Mikkelsen leave, but Adam had served exceptionally well, but he had a lot of personal things he had to attend to including twins that were just recently born we wish him well who's going to Miss all the fun here, but.

Joseph Kiani: We wish him well. He's gonna miss all the fun here, but we intend to replace Adam, but we're gonna find, hopefully, someone that is well-suited for that position. And the new board members, from the ones that the shareholders voted in, the activists, which were Quentin and Michelle, who do sit on our committees, audit, comp, governance, but also the new board members, Bob Chapik and Rolf Klassen, they sit on many committees now. So look at this... Before the election, we had board members that had been here for five to maybe 15 years, with me, I guess, 35 years.

Speaker Change: But.

Speaker Change: We intend to replace Adam, but we're going to find hopefully someone that is well suited for that position.

Speaker Change: And the new board members.

Speaker Change: From the ones that the shareholders voted in the Actavis, which are Clinton and Michelle.

Speaker Change: Good to sit on our committees audit calm governance.

Speaker Change: But also the new board members, Bob Chapek and wealth clawson, they sit on many committees now.

Speaker Change: So look.

Speaker Change: Before the election.

Speaker Change: We had board members that have been here for five to maybe 15 years.

Speaker Change: That was me I guess 35 years, but.

Speaker Change: Now I think we only have one board member left that has a tenure of more than one year.

Speaker Change: But the rest of them have been here now for just.

Speaker Change: From a few weeks to a few months.

Joseph Kiani: Okay, thank you. Our next question comes from the line of Jason Bednar, from Brainward James. Peace, go ahead. Sorry, this is Eric on for Jason today.

Speaker Change: Okay. Thank you.

Speaker Change: Hello.

Speaker Change: Our next question comes from the line of Jayson Bedford.

Jason M. Bednar: From Raymond James Please go ahead.

Jason M. Bednar: Yes.

Jason M. Bednar: I'm sorry, yes. This is erik on for Jason today.

Joseph Kiani: Just a couple of clarifying questions. When you're talking about wearables, hearables, and storage, I'm just trying to figure out, Stork is going to be reported under the healthcare revenue segment, and wearables will be non-healthcare, and I guess where does W1 fit in? Well, I'm glad you asked that because I want to make sure you understand our definitions of how we segment things.

Erik: Just a couple of clarifying questions when you're talking about.

Erik: Okay.

Erik: Wearables and herbalist and stock I'm, just trying figure out.

Erik: Historically is going to be reported under the health care revenue segment, and Wearables will be non health care, and I guess, where does <unk> fit in that.

Speaker Change: Well I'm glad you asked that because I wanted to make sure you understand what definitions on how we segment first of all yes. There is a health care segment and our consumer segment, so something like stork with prescription is certainly going to be on their health care.

Joseph Kiani: First of all, yeah, there's a health care segment and a consumer segment. So something like Stork with a prescription is certainly going to be on their health care. But it doesn't mean that it's not considered a wearable. So our wearable definition is all of our sensors that attach to the body and do not have a cable connection to it for continuous monitoring. It started off with Radius 7 and then Radius PPG, Radius VSM, and W1, and Radius T. So those are our definitions of wearables.

Speaker Change: But.

Speaker Change: It doesn't mean that it's not considered a wearable so are aware wearables definition as all of our sensors that are attached to the body and do not have a cable connection to us for continuous monitoring it started off with radius seven.

Speaker Change: And then.

Speaker Change: <unk> PPG radius via some.

Speaker Change: And W. One.

Speaker Change: Radius key.

Joseph Kiani: And Stork, by the way, is a wearable. As far as other products that will enter the wearable category, there will hopefully be Freedom and the Freedom Band. And then there's a whole host of wearables we're working on for other measurement modalities. And on the hearables, it's the headphones, both in-ear and outer-ear, and it'll include not just our regular hearables that we have today but the hearing aid as well.

Speaker Change: So those are our definition of the Wearables and store by the way is a wearable.

Speaker Change: As far as other products that will enter the variable category it'll be hopefully freedom and freedom band.

Speaker Change: And then there's a whole host of Wearables, we're working on four other measurement modalities.

Speaker Change: And on the horrible it's the headphones, both in inner and outer ear and it will.

Speaker Change: <unk> includes not just.

Speaker Change: Our regular variables that we have today, but the hearing aid as well.

Joseph Kiani: And sorry, just to make sure I understand. Anything that's wearables, that's.., healthcare revenue and then the hearables is in the non-healthcare revenue just want to know just for looking at the growth. No the hearing aid the hearing aid will be considered healthcare but it'll be part of the hearables just like Radius PPG is a healthcare product but it's part of the wearables. Okay and just one other follow-up on specifically looking at STORC and W1.

Speaker Change: Okay, and just sorry just to add.

Speaker Change: I understand.

Speaker Change: Anything Thats wearables.

Speaker Change: Healthcare revenue and then the hero halls amazingly non healthcare revenue just wanted no concern looking at the hearing the hearing aid will be considered health care, but it'll be part of the hero bowls, just like radius PPG.

Speaker Change: Health care product, but as part of the Wearables.

Speaker Change: Okay, and just one other follow up specifically, starting with <unk> I know earlier last year.

Joseph Kiani: I know earlier last year you talked about, you know, obviously they were a little bit more delayed in getting FDA approval than we all hoped for, but you had mentioned an expectation about a one percent revenue contribution in 2023. Is that, I assume that didn't hit that number, but is that a number for 2024 to look towards? Well, I don't know what all of our wearables did, but I think Stork made about $2 million in revenue last year, and while it was great that by the year end we got FDA clearance for RX, that wasn't long enough to really take advantage of it last year, but we still don't have FDA clearance for OTC, and until we get that, it'll impact our Stork business because we can't alert parents to Right now, we can only alert them about temperature, dangers, and for those who've gotten the prescription for STORC, they can get alerted for SpO2 pulse rate as well. Okay, thanks a lot.

Speaker Change: You talked about you know obviously, there is a little bit more delayed in getting FDA approval, then we all hope for but.

Speaker Change: An expectation of about a 1% revenue contribution in 2023 is that right.

Speaker Change: That didn't hit that number but is that a number for 2020, Florida look towards.

Speaker Change: Well I don't know what all of our Wearables did but I think stork that about $2 million of revenue last year.

While it was a great debt by the year end, we got FDA clearance for Rx.

Speaker Change: That was a long enough to really take advantage of it last year, but also we still don't have FDA clearance for OTC and until we get that it will impact our business because.

Speaker Change: We can alert parents to alarms for SPL, two and pulse rate without a prescription. So once we get the OTC clearance then we'll be able to alert parents, even without a prescription for SPL two in pulse rate dangerous.

Speaker Change: Right now we can only alert them on temperature.

Speaker Change: Dangers.

Speaker Change: And for those who've gotten the prescription for historic they can get alerted us for spo to pulse rate as well.

Speaker Change: Okay. Thanks, a lot.

Joseph Kiani: Thank you. I think we have time for one more question. Okay, and our last question comes from Lionel Fick Chopra from Wells Fargo. Peace, God. Hi, this is Dino Weinstock on behalf of Vic Topra.

Speaker Change: Thank you.

Speaker Change: I think we have time for one more question.

Speaker Change: Okay and our last question comes from the line of Vik Chopra from Wells Fargo. Please go ahead.

Speaker Change: Hi, This is Dino weinstock on for Victoza.

Joseph Kiani: So you recently received 510K approval for an over-the-counter version of MITESAT, the fingertip pulse oximeter. Could you talk about how your launch plans for MITESAT might address market opportunities? Yeah, thanks for asking. Yeah, we just got that clearance in Q1. That's why it wasn't part of my statements for last year.

Brian Weinstein: So you recently received a five 10-K approval for an over the counter version of <unk> set the fingertip pulse Oximeter could you talk about how your launch plans for mindset.

Speaker Change: Mike.

Brian Weinstein: Address the market opportunity.

Speaker Change: Yes, thanks for asking it we just got that clearance in Q1, that's why it wasn't part of my statements for last year, but yeah, we're really excited about that.

Joseph Kiani: But yeah, we're really excited about that because right now, you know, people can't differentiate between a fingertip pulse oximeter that they can rely on and one that they can't. So we're competing with $20 products at a $200 price tag. So a lot of people think, well, why should I buy the $200 product?

Speaker Change: Because right now.

Speaker Change: People can't differentiate between a fingertip pulse oximeter that they can rely on and ones that they can so we're competing with $20 products at <unk>.

Speaker Change: $200 price tag.

Speaker Change: A lot of people think well why should I buy the $200 product now that we have FDA clearance as a medical product for Mighty said OTC.

Joseph Kiani: Now that we have FDA clearance as a medical product for Mideasat OTC, we have plans to hopefully make it available across all the major pharmacies and, obviously, online. You can buy it right now online, but the real, I think, push will be in the pharmacies. So I know at one point when we were expecting FDA clearance sooner than we got it, there was a major pharmacy system that wanted to provide it. So we're just picking up that conversation again, and hopefully, in 2024, we will successfully deploy Mideasat through all the major pharmacies. Thank you; that's helpful.

Speaker Change: <unk> plans to hopefully make it available across.

Speaker Change: All of the major pharmacies.

Speaker Change: And obviously online you can bind right now online.

Speaker Change: But the real I think push will be and the pharmacies. So I know at one point when we were expecting to FTA, Chris a sooner than we got it.

Speaker Change: There was a major pharmacy.

Speaker Change: System that wanted to provided and so we're just picking up that conversation again and hopefully in 2024, we will successfully deploy might've said through all the major pharmacies.

Speaker Change: Yeah.

Speaker Change: Thank you that's helpful.

Joseph Kiani: And then on the status of the Apple litigation, are there any updates you could provide? Well, we were happy that we got our injunction as a patent owner and a company that makes products that are competing in that space. That's ultimately what we wanted.

Speaker Change: And then on the status of the Apple litigation is there any updates you could provide.

Speaker Change: Well, we were happy that we got an injunction the patent owner and a company that makes products that are competing in that space. That's ultimately what we wanted.

Joseph Kiani: We hope in the future to broaden our injunction, hopefully beyond just SPO2, as well as beyond the U.S., and hopefully to get damages for the infringement. So those cases are pending. We hope to have a trade secret case and patent case in California this year. The court in California just ruled that they're still pausing our patent cases in California because Apple is doing a Hail Mary with the federal court to try to have them hear what they lost. Assuming they lose that, which we think they will, hopefully, we'll have the patent and trade secret cases together here in California before year end. And in Delaware, we are making great progress. It's gone a lot faster than we expected. We do have a new federal judge. Our magistrate has become the judge in that case. She has a very busy schedule.

Speaker Change: We hope in the future to broaden our injunction.

Speaker Change: Hopefully.

Speaker Change: Beyond just SPL too as well as beyond the U S.

And hopefully get our damages for infringement.

Speaker Change: So those cases are pending but we hope to have a trade secret case and patent case in California. This year.

Speaker Change: The court in California, just ruled that she is still pausing our patent cases in California.

Apple is doing a hail Mary where the federal court to try to have them here over here, what they lost assuming they lose that which we think they will hopefully we will have the patent and.

Speaker Change: Trade secret case, together here in California before the year end.

Speaker Change: And in Delaware.

Speaker Change: We are making great progress Thats gone a lot faster than we expected we do have a new federal judge.

Speaker Change: Magistrate has become the judge in that case, she has a very busy schedule. So while we thought for sure we're going to be in trial in Delaware in 2024, we're not certain of that at this point, we might but we might not it might push to 2025.

Joseph Kiani: So while we thought for sure we're going to be on trial in Delaware in 2024, we're not certain of that at this point. We might, but we might not. It might push to 2025. Thank you. Thank you so much, everyone, for your time. We appreciate it. We feel like we're back. We're looking forward to reporting to you our Q1 results soon. Hopefully, it's going to be a great year. Thank you so much. This concludes today's conference call. You may now disconnect.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Thank you so much everyone for your time.

Speaker Change: Appreciated we feel like we're back.

Speaker Change: Looking forward to reporting to you our Q1 results soon and.

Speaker Change: Yeah.

Hopefully, it's going to be a great year. Thank you so much.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: This concludes today's conference call you may now disconnect.