Earnings Call: Q4 2017

Feb 27, 2018

Afternoon, ladies and gentlemen, and welcome to the Masimo's 4th Quarter and Full Year 2017 Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I'm pleased to introduce Eli Cameron, Masimo's Vice President of Business Development and Investor Relations. Thank you. Hello, everyone. Joining me today are Chairman and CEO, Joe Kiani and Executive Vice President of Finance and Chief Financial Officer, Micah Young. This call will contain forward looking statements, which reflect Masimo's current judgment, including certain of our expectations regarding fiscal 2018 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our results to differ materially from our projections and forecasts are discussed in detail in our SEC filings, including our most recent Form 10 ks and Form 10 Q. You will find these in the Investors section of our website. Also, the company has chosen to implement certain non GAAP financial measures that will be incorporated into our financial guidance for 2018. In addition to GAAP results, these non GAAP financial measures are intended to enable investors to assess the company's operations in the same way management assesses operations. Management uses non GAAP measures to budget, evaluate and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website. In addition to the earnings release issued this afternoon, we have posted a quarterly presentation within the Investors section of our website to supplement the content we will be covering today. I'll now pass the call to Joe Gianni. Thank you, Eli. Good afternoon, and thank you for joining us for Masimo's 2017 Q4 year end review. 2017 was a rewarding year for us as we achieved significant new milestones in our business, while introducing a variety of groundbreaking new products. In addition, we ended the year on a high note with financial results that once again exceeded expectations and point to another exciting year ahead for us in 2018. Now that we've completed our 10 year plan, we are embarking on a new journey to realize a set of larger objectives over the next 7 years. In our Q4 results, we saw product revenues rise by 13% to $199,000,000 reflecting another strong quarter of double digit growth. During Q4, we captured some significant renewals from incredible hospitals and hospital systems, while also winning important new hospitals and other significant care providing institutions due to the proven ability of our products to improve outcomes and reduce the cost of care, and not to mention excellent customer service. U. S. Revenue growth reaccelerated compared to Q3 into double digits and was complemented by similarly strong growth overseas. We were gratified to realize another sizable increase in worldwide SET and rainbow oximeter shipments in the Q4, which rose by 12% versus last year to reach 54,100 units, producing an estimated installed base of 1,591,000 oximeters, excluding our handheld and finger pulse oximeters. For the 3rd quarter in a row, exhibitor shipments were over 50,000 units, which we believe is a strong indication of our momentum. Our Rainbow business performance was strong too in the 4th quarter as sales grew by over 40%, driven by strong growth across all geographic regions. We also realized solid growth for our new product, including NOMALINE capnography, SedLine brain function monitoring and O3 Organ Oximetry. With these three products generating also over 40% increase in revenues year over year in the Q4. For the full year, our product revenues increased by 12% to $741,000,000 which includes rainbow growth of 15%. We are proud and grateful for our performance in 2017 and the many new customers that adopted our set and other technologies for patients and hospitals and alternate care settings. I'll discuss some additional business updates later in the call today. Now I will ask Micah to review our Q4 results in more detail and provide you with our 2018 financial guidance. Micah? Thank you, Joe, and good afternoon, everyone. For the Q4 2017, we reported total revenue, including royalty and other revenue of $225,200,000 which reflects growth of 22.9% over the prior year period or 22.1% on a constant currency basis. Our product revenues were $199,200,000 for the quarter, an increase of 13.4% over the prior year period or 12.5% on a constant currency basis. We saw solid growth in both our U. S. And international regions, broad based strength across our product portfolio. For the full year of 2017, product revenues increased by 11.7% on both a reported and a constant currency basis to $741,300,000 which was even above our most recent guidance of $736,000,000 dollars As Joe mentioned, our newer products such as Nomaline capnography, 3 organ oximetry and SedLine brain function monitoring delivered aggregate growth of 48% over the prior year period, with 44% on a constant currency basis, which represents yet another quarter of strong growth for these product lines. Rainbow product revenues grew 43% to reach $24,000,000 in Q4 or 42% on a constant currency basis, which was driven by strong growth across the majority of our geographies and distribution channels. SPHB revenue grew 47% or 44% on a constant currency basis as we continue to see strong adoption of this breakthrough measurement with increasing amounts of positive clinical data to support usage. For the full year 2017, rainbow revenue increased by 15% to $76,600,000 which is above our expectations of $74,000,000 for the year. Our worldwide end user or direct business, which includes sales through just in time distributors, grew 14% to $173,400,000 or 13% on a constant currency basis. Our direct business represented approximately 87% of total product revenue in the quarter, which is in line with the prior year period. OEM sales rebounded with a 13% increase to $25,800,000 for the quarter or 12% on a constant currency basis, representing 13% of total product revenue in the quarter. By geography, our U. S. Product revenue grew 13% to $136,400,000 compared to $120,500,000 for the Q4 of 2016. Our international product revenue grew 14% to $62,700,000 or 11% on a constant currency basis, driven by strong growth in Japan, EMEA and Canada. Based on these strong results, international revenue represented approximately 31% of total product revenues in the quarter, which is essentially in line with the prior year period. Royalty and other revenue was $26,000,000 for the quarter compared to $7,500,000 for the Q4 of 2016. The current quarter results included $19,000,000 of NRE revenue as we completed significant project milestones ahead of schedule relating to the integration of various Masimo technologies into Philips monitors. Royalty revenue from Medtronic declined by $500,000 to $7,000,000 for the quarter. Now let's turn to the rest of the P and L. For the Q4 of 2017, total gross margin including royalty and NRE revenue was 68.3% versus 67.9% in the prior year period, bolstered by the additional $19,000,000 of NRE revenue. Also note that total cost of goods sold included an expense of $2,200,000 for project expenses related to the NRE revenue from Phillips. Our product gross margin for the Q4 was 65.3% compared to 66.5% in the prior year period. Product gross margin was in line with our expectations as we had noted on our previous call that a higher level of placements of monitors with customers due to a robust year of new contracts would result in higher amortization costs in the Q4. Over the long term, these additional monitor placements are expected to result in high sensor and other related product revenues. In addition to the higher equipment amortization, we also incurred some inventory charges related to new product introductions, which are replacing prior generation products. For the full year, product gross margin was 64.9%, which was in line with our most recent guidance of 65% product margin for the year. As I will describe momentarily, we are optimistic about our potential to increase gross product margin annually based on increased scale of manufacturing and our customers' continued conversion to the newer RD sensor line. Selling, general and administrative expenses increased 13% to $78,400,000 in the 4th quarter, which included an asset write down of approximately $10,500,000 related to an unpaid balance due from a former agent in connection with a foreign government tender. In comparison, Q4 2016 SG and A expenses were $69,400,000 which included a $5,000,000 charitable donation. If you exclude these items in both periods, SG and expenses would have increased approximately 5% over the prior year period. Research and development expenses increased 11% to $16,100,000 in the 4th quarter compared to $14,500,000 in the prior year period. The increase in R and D spending was attributable to the timing of clinical trial expenses and higher staffing levels as we continue to invest in delivering innovative technologies to the marketplace. For the Q4 of 2017, total operating expenses were $94,500,000 which included the $10,500,000 asset write down that I previously mentioned. In comparison, Q4 2016 operating expenses were a credit of $186,100,000 which included a 2 $70,000,000 benefit from the Phillips agreement offset by the $5,000,000 charitable donation. If you exclude these items in both periods, total operating expenses would have increased approximately 6% over the prior year period. We are happy to report 4th quarter operating profit margin increased to 26.3 percent largely driven by the due to the benefits of scale from our 13% product revenue growth and the achievement of higher margin NRE revenues, which was largely offset by the asset write down in the period. Moving further down the P and L, non operating income for the quarter was approximately $700,000 compared to non operating expense of approximately $2,900,000 in the prior year period. During the Q4 of 2017, we realized net interest income of approximately $700,000 This compares to prior year interest expense of over $300,000 and an FX remeasurement loss of approximately $2,500,000 Now turning to tax. Our tax expense in the Q4 was $59,700,000 which included a one time charge of $43,500,000 related to the Tax Cuts and Jobs Act offset by a $4,100,000 tax benefit from stock option exercise. Our average shares outstanding for the quarter was approximately 55,600,000 up from 54,200,000 in the year ago period. We repurchased 271,000 shares during the quarter for approximately 23,000,000 mostly towards the end of the period. So the benefit of the reduction in shares is not entirely visible in our results this quarter. The 2.6% increase in our weighted average share counts over the prior year period is due primarily to the impact of stock option exercises and the dilutive impact that a higher stock price has under the treasury stock method. For the Q4 of 2017, GAAP net income was $400,000 or $0.01 per diluted share, which included a one time charge of $0.78 related to U. S. Tax reform offset by a $0.07 tax benefit related to stock option exercises. In comparison, Q4 2016 GAAP net income was $215,300,000 or $3.97 per diluted share, which included a one time benefit of $3.43 related to the Phillips agreement and a $0.10 tax benefit related to stock option exercises. On a non GAAP basis, our 4th quarter 2017 net income was $40,000,000 or $0.72 per diluted share. In comparison, 4th quarter 2016 net income was 24,600,000 or $0.45 per diluted share after adjusting for the benefit of the Phillips agreement and tax benefit related to stock option exercise. Our strong earnings performance in the Q4 of 2017 was primarily driven by our 13% product revenue growth and a lower growth rate for operating expenses. As I mentioned earlier, our higher margin NRE revenues, which contributed approximately $0.22 per share, were largely offset by the asset write down of approximately $0.18 per share for a total net impact of $0.04 per diluted share in the quarter. Our days sales outstanding was 55 for the quarter, down from 55 days at the end of the Q3 of 2017. Our inventory turns were 2.9 for the quarter compared to 2.6 at the end of the Q3 of 2017. Inventory fell by approximately $3,000,000 from the Q3 level as we sold more product during the traditionally strong winter season and we also incurred some inventory charges related to new product introductions. Now I'd like to discuss our full year 2018 financial guidance. As Eli mentioned in our opening remarks, the company has chosen to implement certain non GAAP financial measures that will be incorporated into our guidance for 2018. A reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website. For 2018, we are projecting total revenue, including royalty and other revenue to be approximately 8 $1,000,000 This projection includes $808,000,000 in product revenue, which reflects growth of approximately 9% over the prior year period. We are also anticipating $28,000,000 in royalty and other revenues compared to $57,000,000 in the prior year period. We expect approximately $3,000,000 in NRE revenues from our Phillips partnership in 2018. Separately, with our Medtronic royalty agreement expiring royalty revenue for 2018. We expect total non GAAP gross margins, including royalty and other revenue, to be approximately 66.8% or 30 basis points lower than prior year, which is primarily driven by a $29,000,000 reduction in royalty and NRE revenues that carry a higher margin than our core product lines. Also note that our total cost of goods sold projection, which will include an expense of approximately $1,000,000 for project expenses related to the $3,000,000 of project projected NRE revenues from Phillips. We anticipate full year non GAAP product gross margins to be approximately 65.8% or 80 basis points higher than prior year. This is consistent with our goal of delivering at least 50 basis points of product gross margin improvement each year as we drive towards our long term goal of 70% product gross margins. We are estimating total non GAAP operating expenses to be approximately $354,000,000 or 42.4 percent of total revenue. Based on these assumptions, we are projecting total non GAAP operating profit margins to be approximately 24.4 percent of total revenue or 50 basis points lower than prior year, which is primarily driven by 2 60 basis point headwind from the reduction in royalty and NRE revenues. This is being offset by a strong margin contribution from our core business in addition to the year over year impact of the asset write down. Moving further down the P and L, we expect to generate approximately $4,000,000 in net interest income in 2018. And based on our expected mix of U. S. And OUS profits, we are estimating that our non GAAP tax rate will improve to approximately 25% as a result of the recently enacted tax legislation. We are also estimating that our weighted average shares outstanding for the year will be approximately 56,000,000. Based on all of these assumptions, we are projecting 2018 non GAAP earnings per share of $2.80 dollars And from a GAAP perspective, we are projecting 2018 GAAP earnings per share of $2.90 which includes an estimated $6,500,000 of excess tax benefits from stock option exercises, offset by acquisition related depreciation and amortization expense of approximately $1,300,000 net of tax. Based on our new non GAAP financial definitions, both of these items are excluded from our GAAP earnings to arrive at our non GAAP earnings per share. You can find further details of both our GAAP and non GAAP financial estimates and a reconciliation of those estimates within today's earnings release and the investor presentation, which are both posted on our website. With that, I will turn the call back to Joe. Thank you, Micah. For Masimo, 2017 was a milestone year as we reached the 10 year anniversary of our IPO. We have completed our 1st long term plan as a public company and we're embarking on a slightly shorter long term 7 year plan with a goal of delivering annual revenue growth of 8% to 10% and a long term goal of 30% operating profit margins. As you just heard from Micah, we expect to realize product revenue growth of 9% in 2018, in combination with product revenue earnings growth that is higher than that. We feel good about the great potential ahead for Masimo as our breakthrough technologies are increasingly adopted by care providers who recognize the value of our technologies for improving their patient care and outcomes. We're happy about our performance in 2017 as we started the year projecting our product sales of $717,000,000 based upon growth of approximately 8%, and we achieved product sales growth that was more than 3 percentage points higher than that with sales reaching $741,000,000 Similarly, we're determined to exceed our forecast again this year, if possible, by winning more new hospital and ultimate care customers and consistently securing renewals with our existing customers. Our presence in global markets is rising as we realize growth of 12% to 28% in various regions around the world last year, facilitated by increased investment overseas. Our total OUS sales for 2017 rose by 18 percent with especially solid growth in Europe, the Middle East and Latin America. Our global sales efforts will strengthen further as we invest in staffing and various regions to educate clinicians about the benefits to patients of our unique products. We intend to expand our global infrastructure in a thoughtful process that should reduce the risk of any particular geographic weakness by having an increasingly larger and more diversified customer base. In 2017, we were gratified to see many major hospitals convert to Masimo SET pulse oximetry and Rainbow SET pulse co oximetry. We were fortunate to welcome new customers in Q4, including Prospect Medical, a hospital system with hospitals in 6 states, including California, New Jersey and Texas, along with UT Southwestern Medical Center and Kindred Healthcare. Other major wins for us last year were NYU and St. Luke's Hospital in Pennsylvania. Internationally, we secured new agreements with Nagoya University in Japan, Clinicum Der Philips Universitur Marburg, Artemis that was in Germany, Artemis Hospital in India, Nicosia Children Hospital in Cyprus, and Trou Lille Hospital in France. In addition to gaining those important new customers in 2017, we signed very significant renewals, including those with Kaiser, Northwestern Hospital, Henry Ford Hospital, Cincinnati Children's Hospital, Novant Health Hospitals in the Southeast, Serra Hospital in United Arab Emirates, Hospital For Sick Children and HHSPC in Canada, Great Ormond Street in U. K. And Grupo Curran Salud in Spain. Our newer products, including 3 Organ Oximetry, 2nd generation SedLine Brain Function Monitoring and NOMALINE capnography are becoming an important source of growth for us. We're encouraged by the rapidly rising sales of these products, which had aggregate growth of 40% for the full year. These three technologies all work with Root, so they can be deployed all at once or in a step by fashion over time, providing streamlined and low cost path to adoption by customers who don't need to install yet another monitoring system at bedside for each new parameter they add. In 2017, we received multiple new product clearances around the world, including in the U. S, Japan and the EU. Our recently cleared RAD97 with video and audio capabilities has great potential for broad adoption in the home healthcare environment, as well as traditional hospital and alternate care environments. We're currently in discussions with 2 large healthcare systems that are actively considering the deployment of RAD97 for many of the patients at home after being discharged from the hospital. Our oxygen reserve index or ORI is a measurement that we're optimistic about based on accumulating data showing real clinical value for anesthesiologists. ORI is a relative index that correlates with changes to PAO2 for patients on supplemental oxygen and can provide an early warning of an imminent desaturation. A recent study of ORI by Doctor. Kisuki Yoshida of Fukushima Medical University in Japan investigated the usefulness of ORI for rapid sequence induction of general anesthesia. Doctor. Yoshida and his fellow investigators found that ORI trends enabled a prediction of oxygenation reduction approximately 30 seconds before SpO2 starts to decline and concluded that by monitoring ORI, the incidence of hypoxemia during rapid sequence induction could be reduced. In January, we received FDA clearance for our next generation SedLine brain function monitor. This new version of SedLine helps clinicians monitor under anesthesia and provides an enhanced patient state index based on the use of our groundbreaking signal processing technologies similar to the approach we invented with SET pulse oximetry. In addition, the new SET line has an enhanced display for viewing the spectral features of EEG developed with researchers at Massachusetts General Hospital. SedLine is used with our root patient monitoring and connectivity platform and can be deployed in combination with our 3 organ oximetry monitor to help provide clinicians with a more complete picture of the brain. We are also making SedLine available to our OEM partners. Moving into 2018, we have substantial potential to increase our earnings to rising margins and benefit from investments we made in the past, enabling us to realize the potential leverage of our business model. New products and services we are introducing can produce more opportunities to help patients as well as more opportunity to increase busy clinicians' productivity as well as our own sales productivity. In addition, we are seeing the steady adoption currently have a fraction of our customers using RD sensors. We currently have a fraction of our customers using RD sensors, leaving good potential ahead for further adoption and associated margin improvement. We're starting 2018 with a new long term plan that includes actions to propel our global growth and an ever expanding product portfolio that includes more breakthrough medical products, some of which will be announced later this year. We anticipate a steady flow of clinical data from luminary clinical investigators that demonstrate the clinical benefits from the use of our technologies. In turn, we expect to see adoptions rise as more clinicians become aware of the value of Masimo breakthrough products for improving outcomes and delivering the most reliable and useful clinical information in real time. We have never been more focused on our mission to improve patient outcomes and reduce cost of care. Our outlook for 2018 and beyond is positive and we look forward to sharing more good news with you as the year progresses. With that, we'll open the call to questions. Operator? Your first question comes from the line of Rick Wise from Stifel. Your line is open. Good afternoon, Joe. Thanks for the great finish to the year. Maybe just to start off, if I remember correctly, NRE revenue comes from reaching Phillips project specific milestones. And since it was so nicely ahead of schedule, should we imagine help us understand, should we imagine that the Phillips inflection point could occur a little sooner than sort of the second half of 'eighteen that you've talked about? Am I reading too much into it? Maybe just generally remind us where you are in the Philips co marketing agreement and any special activities we should be thinking about during 'eighteen? Certainly, Rick, and thanks for joining us. We have already seen our Philips partnership deliver better results than we had anticipated. We continue to think that trend will continue in 2018 and beyond. And yes, you're right, with the work we were able to accelerate in 20 17, we believe it will help us overachieve on our business objectives with Philips in 2018. And just again, could you give us any more color on where you are in terms of the co marketing efforts or initiatives? And just again, any highlights that we should be thinking about as the relationship matures and evolves? Certainly. By the end of Q4 2017, Philips was hitting their stride in marketing of Rainbow along with us. We have been enjoying a renewed sense of partnership from the sales channels from Europe to the U. S. To East Asia and even parts around the world like India and other places like Latin America. So I what I can tell you is that there are a few elements with our Philips relationship. 1 is, of course, the set oximetry, rainbow SET oximetry, pulse co oximetry. There's also the expansion of the availability of our technology into their full line of products, which is going to continue happening. And in fact, the work we did towards the end of 2017 will expedite those. And then there's the integration of our new technologies like SedLine, NomoLine and 3, which are going to be happening and I hope with the work that we've been doing with Philips, you're going to see 2 of those 3 products begin being available to our mutual customers in the first half latest beginning of Q3 2018. Yes. And Joe, you highlighted on this call, I've heard you highlight several times probably recently, your excitement about the new 7 year plan and their multiple drivers. But with the business performing so well, your clear optimism about 2018, 2019 and beyond. Sort of a 2 part question related to M and A. Number 1, to what extent as you're thinking about that optimism about the future, is M and A still sort of critical debt thinking? What are your latest thoughts about M and A and what might happen in 'eighteen? And I guess just again part of it all, if the base business is doing so well, when I say base meaning the entire portfolio and technology and relationship doing so well, Does that make you feel a greater sense of urgency about pursuing M and A as an incremental driver of growth? Or just how are you thinking about it all in that kind of context? Well, great question, Rick. We have the luxury with our own current products and products in the pipeline to grow our business the way we have been discussing and maybe even better than it without any acquisition. So the acquisitions that we're looking for are not to meet our business targets of tomorrow, but rather while we're shepherding Masimo as management of this company, we are looking for opportunities that might further diversify Masimo and establish its security for the very long term. That's why despite there being a lot of wonderful companies out there that we could go acquire, we are not going to allow our stock and our shares to be diluted with major acquisitions. What we're looking for are unique opportunities that we see a gem that we think we could go invest what we're good at investing in and make sure we're delivering ROIC extension within 5 years. So because of the standard we have, based on how good our business is going, we may never acquire anything. But I just wanted our shareholders to know a year ago when I talked about this that while I always be looking to make sure we do our best to deliver each quarter, each year to the best we can for our shareholders, as a management team, I want us to focus on making sure we deliver the utmost results within 5 years. So I'll just leave it at that that you are so right. We have so much going on that there is really we could just easily say we're not in acquisition mode because of that. But I just think we have the bandwidth. We just bought in Tayo Levy, who has joined us as Head of Business Development, and we have an amazing breadth of management here that are very capable. So we're on the lookout for something special, which may or may not happen. Okay. And just one last one for me. Thank you for that thoughtful answer. Maybe I'll pick on you, Mike, a little bit. Just as we think about the quarters or the flow of the quarters this year, I know you're not giving any specific guidance, but is there anything you'd have us think about whether it's on the revenue side or the cost side beyond the expiration of the Medtronic royalty, anything you'd have us think about as we try to figure out the models for 2018? Thank you both. Sure, sure. Michael, do you want to answer that? Yes. Thank you, Rick. As you mentioned, we're not going to give specific quarterly guidance. But you should think about throughout 2017, we had strong comps in the back half of the year. You'll see growth rates a little higher, especially with the flu season in Q1. And you'll see it more in Q1 and then normal seasonality for the out quarters, probably heavier Q1 and then softer Q3 is kind of how we're thinking about it than historical averages. But you should be able to go look back at the last 2 or 3 years and get an idea of how to phase in that revenue. Thank you. And then as far as the royalties are concerned, as you know, we have been receiving those royalties for a decade. When they began, they were about 80% of our income. Today, they're very small, maybe about 20% of our income going down to even lower. So most investors from day 1 to even today did not put that royalty income in our PE ratio for earnings per share for the value of Massimo. Instead, they separated it and they put that royalty on an estimated cash value of it at the time on top of our market cap from our normal product business. So I don't expect something dramatic to happen with the value of Masimo because of that approach. But as we have done, we'll continue to minimize the impact of the loss of those royalties. And if we can in 2019, we'll do our best to have investors not even feel it. But again, I don't believe anyone who's been long term shareholders of our company nor tracking our company has weighed those royalties in a way that going to cause some type of a titanic shift. Thanks again. Thank you. Your next question comes from the line of Bill Quirk from Piper Jaffray. Your line is open. Great. Thanks. Good afternoon, everybody. Hi, Bill. Hi, Bill. Hi, Joe. So I guess the first question is a couple of years ago back in the 'fourteen, 'fifteen flu season, Masimo had a pretty nice benefit. I recall it was difficult quantify because obviously it's somewhat of an indirect measurement. But you guys had a nice benefit in the 4th and the first quarter. And I confess, I would have thought that maybe we would have seen a little bit of a bigger impact on set consumables in the Q4, Joe. What I guess, why am I steering in the wrong direction here? And are you seeing any impact in the Q1? Thanks. I'm not sure what you're talking about Bill. I don't know how to respond to that. Well, what I mean Joe is that when we have a bad flu season, we do tend to see higher admissions. And looking back to the transcripts from a few years ago, it certainly appeared as though you had a nice benefit from that, albeit indirect because it's not as if you're selling a flu test or something like that. But nevertheless, it helped with hospital expenses. So I guess that's where I was directing the question. Well, we had a really strong Q4 last year and yet I think we said in the U. S, our Q4 revenues grew double digit over last year. So I don't know. I mean, beauty is in the eyes of the shareholder, I guess. So you can look at it the way you like. I certainly wasn't trying to suggest it wasn't a good quarter, just to be clear. Secondly, just thinking about Joe, you mentioned a number of hospital renewals. And can you comment a little bit about perhaps how smoothed out those are over the years? We're not looking at any big boluses or anything like that in terms of hospital renewals? And then maybe just a comment on pricing. It certainly appears based on your results that it's pretty big. Well, obviously, Kaiser, which was part of our renewal last year, is our biggest customer. So the renewal, by definition would be a big bolus. But our renewal rate has been over 98% and despite some of the sizes of these renewals, there was nothing unusual about last year except the fact that it was another strong year of our customers re signing up with us. And then just on overall pricing? I'm sorry, Bill, what was that question? Overall what? Just pricing trends on the sensors themselves? We've been very disciplined and our customers value our technology. So while our competitor has been out there doing some predatory pricing, we have not had to yet respond to it. Got it. Thank you. Thank you, Bill. Your next question comes from the line of Brian Weinstein from William Blair. Your line is open. Hi, guys. This is actually Andrew Brackmann on for Brian this afternoon. How are you? Hi, Andrew. Hi. So I wanted to go back to the Phillips agreement, just for a second. So it's been in place for a couple of quarters. Can you talk a little bit about any impacts on the other partner relationships that you've seen as a result from the Phillips agreement? Well, we haven't seen anything change. I believe based on a long term agreement with Philips and the fact that the industry generally doesn't want to have some doesn't want to be left out when Philips has something, it should, if anything, bolster our ability to have more OEMs wanting to continue with us or expand with us. So but to answer your question, no change. Okay. Thanks. And then the other question I had. Joe, at a conference earlier this year, you had talked about the general award expansion. Can you talk a little bit more about how far penetrated you think you guys are into that right now? And then how do you guys pivot here and kind of begin to take more share in that space? Thanks. Certainly. It's hard to know the exact percentage, but I'll try to give you some color. I would say right now probably somewhere between 5% to 10% of our customers are doing monitoring in the general floor. But I think the number of general floor beds that they're monitoring is even well below the 5% line. So I think there's a huge opportunity given that every one of these hospitals, which we now have several 100 hospitals who are doing continuous monitoring on the general floor, having similar results to the study that came out from Dartmouth Hitchcock, which they saw a dramatic reduction in ICU transfers and rapid response team activation and no more dead in bed over a 10 year period. So given that it saves lives and saves money and it keeps repeating itself at every place we go, I think one of these days, just like the way the Berlin Wall fell, that wall is going to fall and you should see continuous monitoring at every bed where patients are on opioids or they have a risk of apnea. So it hasn't happened yet in a way that we expect, but it is definitely continuing to grow within our business. Got it. Thanks, guys. Thank you so much. Thank you all for joining today. We look forward to getting back and reporting our Q1 results in a couple of months. So we wish you a wonderful 2018. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.