Masimo Corporation (MASI)

Investor Day 2017

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May 9, 2017

Okay, everybody. We're ready to begin the Massimo Investor Day. First of all, thank you, everyone, for coming out to Irvine. I know for many of you, it's quite a distance and we greatly appreciate your effort in making the trip. A couple of facilities details, just to start. Firstly, if anyone needs the restroom, the route to the restroom is through the right hand side of these curtains here and then take a left then take a right like you're headed back out towards the lobby. Secondly, we'll be having a break at 10:30 that will last for 15 minutes. Please be prompt for the return at 10:45 so we can stay on schedule. We will be having an open Q and A at noon that will run for 30 minutes up until lunch. So please try to save your questions until then to stay on schedule. We're not going to be taking questions between presentations. We'd like to really save them all for the end. And at the end, at 12:30 after the Q and A, we will have simultaneous lunch as well as product exhibits and that will run until you've learned enough from looking and touching our products. Finally, if anybody needs a ride to John Wayne Santa Ana Airport at the end of the day, we have cars that will be here at 1:30 in case anybody needs to make the red eye back to the East Coast. So with that, we are on a webcast today, and, we'll ask you to speak up loudly during the Q and A so that people on the webcast can hear. Our slides for today's presentation will be available on the Masimo Investor Events section of our website. You should be able to access those imminently if they're not already posted. That wraps up all the minor details. Now for today's presentation, on the way in, hopefully, you saw that we have a lot going on in the lobby. We also have a lot going on at the company. And we're going to take a bunch of time today to explain all the different facets of our progress here at Masimo. And our progress includes quite a bit of success. We're going to explain why we've been successful in the past and how we are going to be successful in the future and why we have confidence in our ability to be successful. And with that, I'd like to turn the mic over to Joe Kiani, Chairman, CEO and Founder of Masimo. Thank you. You have a clicker? Yes, I don't need this. Thank you so much, Eli. Thank you. Good morning. Thank you all for coming. Sorry, we couldn't keep it sunny here for those who left sunny days in New York and Boston and Baltimore area. We do appreciate the rain though if you brought that with you. We have a lot to cover today. I want to just start off just to review the history of what we've been doing, where we're going, Some of them will get up here to walk you through the details of what Some of them will get up here to walk you through the details of what I'll be covering in a summary format. So this is usually Eli's job. Please read it, the forward looking statement. Obviously, we're doing our best to give you our fair assessment of what we think the future looks like, but things could change. Okay. So I think you've kind of this is the big picture agenda for them this morning. After me, Anand will our Chief Operating Officer will walk you through our product review. Then John Coleman, our Head of Sales, will talk about worldwide direct sales and distribution. We'll take the break. Our President of OEM Business, Rick Fischel, will walk you through the OEM business model. Our Chief Operating Officer will come back to talk about the manufacturing strength and leverage. Then our Head of Europe, Middle East and Africa, Stacy, will discuss with you our plans for global health and sustainability. Mark will come and talk about the financial targets and other topics. I'll provide the closing comments and then we'll go into Q and A. So let's talk about the guiding principles. 28 years now, we've been at this. And sometimes what seems like difficult decisions are made easy when we reflect upon these set of guiding principles. Number 1, remain faithful to promises and responsibilities. 2, thrive on fascination and accomplishment, not power and greed. 3, make every day as fun as possible 4, grow individually, and therefore, the team will grow and 5, last but not least, do what is best for patient care. Our mission has been to improve patient outcome and reduce cost of care by taking non invasive monitoring to new sites and applications, but we're dropping the last part as we sit on the future part of our journey and focusing on things that help us improve patient outcome and reduce cost of care. So let's talk about some of the highlights I think hopefully you'll walk away with today. Number 1, I think maybe most importantly, our customers and partners are embracing us. I get an opportunity to travel and visit a lot of our customers. I've done it from the beginning. I can just tell you there's a palpable difference of how the customers view us as their partners in helping solve their critical clinical problems and how our OEM partners view us as some not just a company they respect and admire, but as a piece of their puzzle that their customers need from them. I can even tell you as things have progressed, our competitors as feverishly and vigorously as we compete, they also respect us as we do them. Well, we've been talking a lot in the last few years about growing at 7% to 8%. I'm happy to let you know that we're actually targeting Huron growing at 8% to 10% annually, and we're also expecting to reach 30% operating margin over the next few years. And these targets, both the growth in revenue and operating margin, do not include a lot of products that have reached feasibility that are in our pipeline today nor M and A that while we've done M and A in the past, we plan to do more in the future and yet those are not part of this projection. And last but not least, we are a 28 year old company with 4,000 plus team members that run passionately like a startup company focused on improving patient outcome and reducing cost of care. We're enjoying a market that we get to serve that's currently about a $3,000,000,000 market size, growing to over $6,000,000 over the next 5 to 7 years. And this market consists of SET, Rainbow, Root and Patient Safety Net. And SET, as you know, is our signal extraction technology for pulse oximetry. We'll talk a lot more about that. Rainbow is the new non invasive blood constituent monitor. It really is the tricorder with a sensor you put on the finger and measures toll parameters non invasively. And route is this new patient monitoring and connectivity hub that is going to be many things to many people from not only advanced monitoring in the OR to the ideal monitor for the general floor, but a device that can help automate hospitals the way if you will Crestron or Savant have helped automate offices and the home. There's a lot of clutter in the OR and the ICU. Clinicians get distracted chasing all the different devices, trying to find out what's going on with their patient, with hopefully Root, we're going to change that and make the focus to patient, chasing equipment down. And Patient Safety Net, this is a system that helps change the environment of safety for patients after their surgery in the post surgical wards. In the post surgical wards, patients are given pain medication. These pain medications take the patients to this unfortunate borderline of no pain, but no breath. And many patients unfortunately had been found dead in bed. The numbers are estimated to be 50,000 a year. And yet when people had tried to do monitoring of patients in this environment, the high rate of false alarms made it impractical. So with Masimo SET, of course, we solved that false alarm problem. And with the full solution, clinicians have seen dramatic improvement in patient safety and the unexpected, which should have been expected, has also helped reduce cost. We'll talk about that, but over 300 hospitals have now implemented the system. They're getting all tremendous results, and we believe this environment will ultimately flip one day and all bets will be monitored continuously. So the growth of 8% to 10% doesn't really estimate what we are driving towards. If you look at the market potential we see for SET, this is our revenue growth over the next 7 years. Red is SET. You see the solid line. That's what the baseline of revenue projection we see. And you see the dash lines of kind of a best case, worst case analysis of how that could go. The same is for rainbow in green and in blue excuse me, rainbow in blue and in green, route monitoring and connectivity hub. And if you actually layer all these together, we're hoping and I'm not saying we're delivering, but this is looking at a 15% plus growth rate. But we scaled it back, wanting to make sure there is a number that we feel comfortable in delivering, but something more that we're hoping to accomplish. Just looking at some of the elements more finely with the scale change, you can kind of see how Rainbow hopefully will go from about a $70,000,000 business for us by 2025 over a $200,000,000 business and route from just beginning to hopefully maybe even $600,000,000 $700,000,000 of revenue. So here's the evolution of Masimo, a company was founded not too far from here in Mission Viejo in my condominium. I still own it, I guess for memory's sake. But we've grown quite a bit. We launched signal extraction technology, pulse oximetry, in 1996 and our first end user product called the Radicle in 1999. And then you see this evolution of Rainbow measuring carbon monoxide non invasively, methemoglobin, PVI, which is an indication of fluid responsiveness in patient, spHb, acoustic respiration rate, oxygen reserve index, which is still pending FDA clearance, and then 2nd generation hemoglobin and then in between 3, which is organ oximetry measuring cerebral oxygen saturation and hopefully in the future other organs, as well as SedLine, which is a brain function monitoring technology and with our acquisition of phase in NOMALINE, capnography and gas monitoring. And you see some of the instruments going forward. In 2006, we introduced the RADICAL 7, which is the RADICAL with the rainbow technology inside, patient safety net in 2,007, and NOMALINE technology in 2012 when we acquired Phasein, EMA, which is the smallest portable capnograph used in crash cards and emergency situations ISPO2, which is our first foray into consumer market, Root, which is our patient monitoring and connectivity hub, Radius 7, which is the untethered version wearable monitor that does everything that the RADICAL 7 with rainbow technology does MitySat, the new finger pulse oximeter RAD97, our new lower cost, lower resource monitor and hopefully home monitoring with telemedicine telepresence capability. And we're about to launch RAD67, which is our next generation handheld, rainbow pulse co oximeter. And we just today announced RAD G, which is our entry into the global health market, which we'll talk about further later. So our history of success and future prospects, I think the history can hopefully be foretelling the future. We have had unparalleled innovation history. We have protected our innovation. We achieved our 10 year plan. Hopefully by the end of the year. It will be the end of the 10 year plan, but we're on our way to having achieved that, and we are now entering the next stage for Masimo. We've gone from generating, obviously, no cash flow to roughly about $50,000,000 $60,000,000 for a while now heading over to $100,000,000 to $250,000,000 of cash flow per year, which is why it creates some new opportunities for us for what we want to do in the future, both not in terms of just reinvesting in our own innovation, but some new more sizable M and A opportunities we'll be looking at. And the new addressable markets that we have already launched our products for, this is Rainbow, Root, patient safety net provides us this new set of waves that will hopefully create resonance and create much bigger waves for our future. So I think when we went public, some of you were there when we came and visited you, At the time, our revenues were $155,000,000 to now growing and projected to reach $727,000,000 for 2017. We have had incredible success for SET technology. We're now outshipping all other companies in pulse oximetry. And our newer technologies like rainbow, carbon monoxide, PVI, non invasive hemoglobin. We've expanded our technology from optical tissue based monitoring to airway gas monitoring to measuring the electrical impedance and activity of the brain and looking at using spectroscopy to measure regional saturations like the brain. We have incredibly satisfied customers. We have an unprecedented over 98% renewal rate. In the past 10, 15 years, thousands of hospitals have switched entirely to Masimo and about 100 have switched away. And every hospital I've ever visited, it wasn't even a Masimo customer. They have Masimo pulse oximeters for the times when nothing else works, they grab our pulse oximeters. So that's why we've had the steady increase of hospital conversions and I don't see that going away. And finally, for you, for our shareholders, which include a lot of our team members, we're finally getting this realization of the financial leverage of the business, going from 10% operating margin to, by the end of the year, about 24% and climbing to 30% operating margin. So if you look at the growth rate of the SET pulse oximetry installed base, it's been phenomenal. As I said earlier, we out ship all others in new pulse oximeters. We're continuing to secure new hospitals at a steady rate. Product innovation continues with new sensors. I know you've heard of the RD sensor line. It is a product that not only is more comfortable for the patient, it's higher precision and accuracy, but it has a lower cost of manufacturing. When we show that sensor to our customers, a lot of them think we're going to charge a premium for it because of the value it gives. And then we've been able to enhance the performance of our technology. We believe not too far from now, we're going to increase and show increased accuracy for pulse oximetry by 50% to 100% improvement. And there's more, more to come that we're going to continue innovating. We're not going to rest on our success. We're going to keep pushing the envelope with what pulse oximetry can do. This shows you where we've been. We started with SpO2 pulse rate and perfusion index with our SET pulse oximetry technology. Now SET pulse oximetry provides also plaque variability index. It's the only non invasive way of knowing how wet or dry the patient is during surgery or mechanically ventilated patients. And also from the pulse oximetry waveform, we can measure respiration rate. Your finger has little mouth and noses, we can detect that. Rainbow, we've added new parameters by putting more wavelengths of light inside the sensors and dramatically enhancing the hardware and software and the algorithm development. We can now measure simultaneously also hemoglobin, carbon monoxide, methemoglobin. For the first time, SPF02, which is fractional oxygen saturation. Pulse oximeters up until now gave a measurement that was oblivious to CO in the body or methemoglobin in the body. So if someone entered the emergency room with CO poisoning of 20%, the pulse oximeter would still show 98%, even though it should be showing 78%. We now can measure fractional oxygen saturation. We can measure oxygen content, SPOC. In this room, I can say what percentage are the men, but in the past, I couldn't tell you how many men were in the room. So we could tell you percentage of hemoglobin saturated with oxygen, but we couldn't tell you how much oxygen was in the bloodstream. This now can tell you how much oxygen is in the bloodstream. Oxygen Reserve Index, this is pending FDA clearance, but oxygen reserve index is the first time there's a continuous noninvasive way to know what the partial pressure of oxygen is. For those of you who know this already, forgive me, but I'm just going to quickly tell you the value of this. In room air, there's 21% oxygen. Before a patient's intubated, anesthesiologist give them a bolus of 100% oxygen to increase their oxygen carrying capacity by 5 folds to give them the reserve they need as they're trying to get the tube in to start breathing for the patient. Well, sometimes that endotracheal tube does not go to the airway. It goes to the stomach. It goes it doesn't get to the right place. And they have to do it again. And many times, they're in the blind. They don't know how much time they have left before oxygen starts dropping and could cause serious brain damage or death. So, pulse oximetry helped a lot in solving that problem, but it's a sentinel indicator. It only drops when you've lost your entire capacity and now you're really causing potential issues. So this has been shown on multiple studies to give anywhere from 30 seconds to a couple of minutes of earlier reaction time so they know can they do that second attempt or the 3rd attempt or should they start bagging the patient, getting the oxygen back up again and trying again? So this is very exciting to many, many anesthesiologists. And last but not least, RRA. This is an acoustic way of measuring respiration rate. Respiration rate had been measured before either using ECG electrodes, looking at the chest wall compression and decompression or using capnography, which you have these nasal cannulas that as you breathe in and out, it picks up CO2 going up and down. This is the first time it's been done a new way that has the benefits of capnography, which means it's reliable, the ECG method. You get so many false measurements. But it's like the ECG where it's tolerated by the patient. It's a little patch on the neck instead of cannula coming out of your nose, which is very uncomfortable, especially to awake patients. So these are the measurements. Clinical validation continues to build. 3 different continents studies have been done at Mass General, Cairo University, and I believe Osaka in Japan showing 50% to 90% reduction in blood transfusion. Blood transfusion is one of the top five expenditures of the hospital. And given that unfortunately, 42 day old blood is given to patients, it hurts the immune system, Blood transfusion has been shown to be associated with increased mortality. Can you imagine eating the steak in the fridge has been sitting there for a week? Without imagine giving 42 day old blood into the body? So a recent study at Limoges, which has been shown as an abstract so far, but hopefully soon published as a full peer reviewed manuscript, showed a 30% reduction in mortality 30 days after surgery when using SPHB and PBI, 30% and 25% reduction in mortality 90 days after surgery. This was a very large study on 3,500 patients and then 15,000 patients cohort to match these patients. So we hope to repeat the results of that study at other facilities, and we think that's going to be a huge motivation for adoption. International adoption is very encouraging. We're picking up a lot of business in the Middle East Latin America and parts of Asia. And the new Philips partnership, it's phenomenal. They are the largest patient monitoring company around the world, and we truly have a partnership now with them. Massimo Semiconductor, this is an acquisition we did several years ago. It's been a fantastic acquisition. They were one of the 2 companies in the world that made the LEDs we needed for rainbow. So we decided we had to own one of them. There aren't like for pulse oximetry where these LEDs are made for your remote controls and for taillights where there's ample supply of products out there. So after the acquisition, you'll see later we've had some really good success in reducing our cost and improving the performance of the LEDs for our Rainbow technology. So let's look at what we've seen. Our gross margin, product gross margins have been steadily increasing and with us so has our operating margin. This is a lot of work, value engineering to get there. And now as we enter the next stage for Masimo, obviously, we it's in our blood, continued technology and product innovation. We've gone from pulse oximetry to now many different products and parameters, and so we're going to continue that portfolio expansion. We have done a really fantastic work over the last 10 years increasing our footprint around the world to better serve our customers directly. And last but not least, we think it's time we step it up a bit on the M and A front. Now the projections we've given you, both 8% to 10% as well as what I showed you earlier, which was hopefully over 15% with SET, Rainbow and ROOT does not include product categories in our existing pipeline. These are all product categories where feasibility has been proven, and we are working to wrap them up. And I apologize, some of them were not comfortable in disclosing yet. So obviously, the first one, consumer and global health. This morning, you saw the first kind of a blush of that offering. But there's that's about a $200,000,000 market potential. Product B has got about a $200,000,000 potential. Product C, dollars 500,000,000 B, dollars 1,000,000,000 plus and E, dollars 1,000,000,000 plus as well. And we hope in the next few years to be to have rolled out all of these. So with that, let me ask Anand Sampath, our Chief Operating Officer, to come up and walk you through some of the finer points of our product portfolio. Thank you. I'll come back later. It's always a delight as an engineer to talk about products. So I'm cognizant of the time and the number of slides. So I will be a little quick, so please bear with me as we go through our wonderful portfolio. Just to give you a sense of how broad our portfolio is, if you go from the left hand side all the way to right hand side, it begins with our technology board. As Joe had talked about, our pulse oximetry technology, Masimo SET, is packaged on our technology board, which is used by in our own devices as well as in the devices of our OEM partners. With those boards, you need the sensors, and this is where it leads into our recurring revenue franchise in which we make disposable sensors and reusable sensors. We currently have 4 active sensor families. In addition, to take both the boards and the sensors and deliver them as instruments that people can immediately put to use, we have an array of handheld, bedside and of course, with our OEM partners integrate into the large multi parameter monitors in the OR and IC. So we will talk about some of the products in a little more detail, but just to give you a sense of orientation of the scale of our portfolio. Back to Masimo SET, which is our foundation, which is where we grew out from, Masimo SET today has applications everywhere. It is ubiquitous. Clearly, within the care areas in primary care, secondary care and tertiary care, within each specialty, SET has become an disposable vital sign. And SET, because of the value it brings with motion tolerance and low perfusion, what that generally means is if patients are shivering. If they're on medication, their peripheral blood flow, their hands are cold. When the hands are cold and the patients are shivering, you need MasimoSat. And clearly, wherever there are sick patients, you need Masimo SET again. So being able to package Masimo SET on our technology boards with our sensors in every care area in the hospital becomes even more significant. The most recent addition has been our focus in the general floor. Guess what? In the general floor, patients are more awake. They're watching TV or having family next to them, and yet they're sick enough to stay in the hospital. So conditions again ripe for read through motion, low perfusion technology. Extending outside the hospital into long term care facilities, extension facilities in hospitals, most hospitals in the U. S. Today are looking to the hotel across the hospital or even into the home where they're monitoring their patients for a limited period of time. So SET finds applicability there as well. Same things with the doctor's office and of course, to all the other animals that share our circulatory mechanism because clearly dogs, cats, lions and tigers do go through surgery. And when they do, they will benefit from the same technology because instead of putting a sensor on a finger or a ear or a forehead, now you stick it to the tongue or the base of the tail for your domestic cats and dogs as they go through surgery. And there again, the benefits of low perfusion technology comes back to be valuable. Joe talked about the effect or the benefits of MasMOS set and we wanted to give you a sense of scale on how significant it is. Talking about performance, with Masimo SET today, we have 102 studies that have compared Masimo SET with other oximetry modalities. Some are called conventional oximetry, some are called advanced oximetry. If you include all of them, 102 studies are positive with regard to Masimo, Twelve studies are neutral and there's one negative study. I did have a chance recently to go to that author of that study, who authored the negative study in Japan and be impressed upon that doctor that there was a difference in focus in what they were trying to research. Once we gave them the clinical evidence, they quickly realized that their study methodology needs to be re updated, and they're going to redo their study with the RD centers that Joe alluded to earlier. So we hope that even that negative study over a period of time will be converted into the positive bucket. The core benefit of Masimo's signal extraction technology is the ability to detect a true desaturation event. If you recall, Joe mentioned about the 21% of oxygen in room air. As you breathe, if you are unable to take that 21% oxygen and let that oxygen bind to your hemoglobin, then you're suffering to what is called a desaturation event. To be able to accurately catch a desaturation event is the sensitivity and the specificity of our technology. And with the leading other player in the market, you can clearly see that our sensitivity and our specificity remains unmatched. If the performance is so great, then what is the benefit to patients? Clearly, you'll see this kind of a discussion more in, I think, the term that people use is hard science and not generally with medical devices. But we really keep ourselves or set our expectations to the high bar and say, if we bring in a new monitoring technology, guess what, we wanted to make a genuine clinical difference. How do you measure that? Look at outcomes. So in this particular study, this was done way back in 2003 at Cedars Sinai. Doctor. Sola and his colleagues, they were looking at very low birth weight infants. These are preemies and who are preemies who have very small birthweight. And as such, they need to replicate the situation that you see in the womb as opposed to breathing room air. Room air has far more oxygen. So in that case, they actually try to reduce the amount of oxygen that is delivered to these babies in order to prevent the deleterious effects of too much oxygen, one of which is what is called retinopathy of prematurity. It is blindness that is caused because of blood vessels in the retina that grow rapidly in the presence of oxygen. So this group of researchers tried to look at changes to clinical practice, adding monitoring technology and allowing the clinicians to set up a protocol to saying do not give too much oxygen to these preemies. And over this 5 year period of time, they noticed a reduction in retinopathy of prematurity. So then that raises the question, what is the cause for the reduction? Is it the change in clinical practice? Is it monitoring? So they did yet another study. So in the second study, this is comparing 2 different centers. And in the first center, they used the Nellcor technology. The second center continued to use the Nellcor technology in what is called period 2 after there was a change to clinical practice, but Center B switched to Masimo And then see what happened to the reduction in the ROP acute ROP incidence. There's a significant difference even though the same policy change in clinical practice was made to both centers. They took that further and said, what if we change the technology now in center A, do we see the same benefit. And that was done again in period 3 and they saw a significant reduction there as well. So clearly, in terms of clinical outcomes, you can see the effect of MasMOSAT. We talked about retinopathy of prematurity in neonates. Now we'll talk about critical congenital heart defects. So there are genetic abnormalities which may cause the actual anatomy of the heart to be dysfunctional. In those conditions, conducting pulse oximeter screening 24 48 hours right after birth will help you improve the screening efficiency in being able to catch these babies right at the hospital so that they could be treated. With Masimo SET, you have a much higher sensitivity for detection of CCHD and being able to call CCHD right when it's detected. Another study, that study which I just showed you, was done in Sweden in a very large study, but this study is much more recent done in Beijing, China and with over 140,000 babies in this study. And here again, the benefits of MASIMO SED. CCHD has is this is a slide sourced from Children's National and it shows you how prevalent CCHD screening is now being deployed across the globe. In the United States, it's almost there in 48 or 49 states depending on when you count. The rest of the world, it's catching on. And in several countries, they've standardized on using low perfusion, motion resistant technology for CCHD screens. Joe also mentioned or hinted about post op monitoring, especially when people are provided with opioids for pain management. He mentioned that when you give medication for pain management, it also affects how well you breathe. And that is important because if that is not monitored, there are people who stop breathing and the negative effects of that. But clearly, with Masimo Patient Safety Net, a continuous monitoring and patient surveillance system, which was originally started in 2,008, they found that 0% of patients or 0 patients suffered preventable brain damage. There was a 50% reduction in ICU transfers, and there was a 60% reduction in rescue events. And John later will talk about the monetary benefits of those. Interestingly enough, most clinical studies, they do a study, find the results and then they move on. This group of researchers continued to do this study for 10 years. And most recently, they published this 10 year collective analysis saying that the benefits they saw in the pilot implementation continued to be accrued and the hospital now has patient safety net in 4 different care areas versus the one in which they started off with. So with that, we segue from Masimo SET to Masimo Rainbow SET. As all of you may know, and if you don't, our SET platform, remember that board I showed you, the electronic circuit board in the beginning of the picture? You can upgrade that board with software to turn on the rainbow functionality. And in medical devices, it's a relatively rare phenomenon in which devices are software upgradable to bring in dramatically new features. Ours is one such. When combined with rainbow sensors, you gain all the 12 additional parameters that you heard Joe mention in his previous talk. Let's look at some of the measurements that Rainbow Technology gives and what is the value that they generate. SPHB. With SPHB, and here's a study that came out yesterday. So there was a meeting at the International Anesthesia Research Society held in Washington. And in this society, there was a publication which revealed the results of a multicenter study at UCLA, at UC Davis and Mayo Jacksonville, in which they looked at changes in hemoglobin during surgery and in the ICU over time across 135 patients, there were at least 416 incidences or events of change in hemoglobin. And they took a blood sample and the non invasive SPHB at the same time. They then took that blood sample and ran it on 3 different lab analyzers. The main lab analyzer inside the hospital, in many ORs, you have what is called a co oximeter in the OR it's situated in the OR itself and then using a point of care device using the same blood sample. And the authors concluded that all three methods provided similar guidance for looking at hemoglobin trends. So we believe that this study, currently an abstract when fully published, will be the definitive study on accuracy with regard to changes in hemoglobin trend monitoring in these acute care settings. But what about outcome, you ask? 2 critical studies to mention. The study on the left done at Mass General Hospital looked at a reduction in the rate of transfusion and found these were on orthopedic patients that 87% reduction in the rate of transfusion. The study on the right done in Cairo, Egypt looked at high blood loss neurosurgery patients and they found that a reduction of at least 1 unit of blood per patient in that study. Joe mentioned the Limogia study. The Limogia study and the author were featured in a recent anesthesiology news article about the mortality reduction. I will not go through the same thing. But just as a case in point, we would like to have more authors study this and repeat their findings. But clearly, in using SPHB and another parameter I will talk about in a moment, together they address what this author calls a vascular filling algorithm. And that vascular filling algorithm looks at the amount of blood flow within the vasculature along with the amount of hemoglobin in that blood volume. So the combination of looking at both volume and concentration gives you this benefit, especially in acute patients. There are also ongoing studies. We have previously talked to you about NACCHO study and that is getting very close to completing its planned recruitment. And the NACCHO study is going to look at the total number of units transfused, complications and changes to length of stay. We've also initiated another study, what we call the Big 10 study, which is likely to be over 5 different research centers, and they will look at many of the similar outcomes that were already studied in the Limogia study, but it will be scaled across a much larger patient population as well. Having the performance generating the clinical outcome should then lead to guidelines. So most recently, the societies in Europe have recognized the value of hemoglobin in a non invasive monitor and has said we recommend a hemoglobin concentration and continuous hemoglobin monitoring can be used as a trend monitor. We hope more regions around the world will understand the value and incorporate that into their guidelines. Similar in Italy as well. It is recommended to use point of care instruments for non invasive and continuous measurement of hemoglobin in Humarica. We talked about Limoges and the benefits of using SPHB along with PVI. What is PVI? PVI is as we breathe, the effect or the effort of our breathing changes or modulates the pulse oximetry signal we see on the finger. If you look at turn that into a number, you get PVI. And if you use PVI to look at how patients during surgery will respond to adding more fluid or not adding more fluid, you will see that it does better than most of the invasive techniques that are there. Earlier, I showed you a slide about 102 studies that are favoring Masimo SET when compared to other pulse oximetry technology. There are 106 studies, all positive for PVI that show the benefit of using it intraoperatively as a proxy for monitoring the amount of fluid that needs to be administered during surgery. This study looks at sensitivity and specificity using the format known as a rock curve and the perfect instrument is something that goes up the y axis at the 100% and then goes to the right. So as you can see, in both these studies, PVI is getting very close to up there. Outcome studies of PVI. There was a study on the left that shows that patients with the PVI group had lower lactate levels. Good thing. Study on the right looked at a new protocol called ERAS. And in this protocol, they need to give patients a lot of fluid before and during surgery. And that the determination of the amount of fluid was guided by using PVI. And that found that they had a length of stay advantage of 2 days and a cost savings advantage as well. We talked about SPHB, which is a rainbow parameter. We talked about PVI, another rainbow parameter. And in the future, we are working on improvements to both SPHB and PVI. SPHB, we've now announced the 2nd generation version of spot hemoglobin. And Joe also mentioned the RAD67 device, which will be the first device that incorporates this technology and will be available. Shifting gears, moving to brain function monitoring. I mean, most of us have about 80,000,000,000 or so neurons, and we are looking at the consciousness activity that's generated in the cerebral cortex near your forehead or below your forehead. When patients are undergoing anesthesia, they get opioid medications called hypnotics and those suppress the function of these. And as they get suppressed, you want to know the degree of suppression by different people. And the way you do it is through brain function monitoring. You look for the EEG generated by the neurons that are firing in the brain and try to map that EEG into a single number called patient state index, 100 meaning awake, 0 meaning isoelectric or comodose. So by looking at the number, people use that number in addition to other signs and symptoms to determine the amount of anesthesia that needs to be given. Masimo acquired SedLine through the acquisition, integrated that into the Root Monitor and the Root Monitor is now having this capability. We recently launched what is called 2nd generation SEDLINE. Because you do have other brain function monitors, but with 2nd generation SedLine, there are several situations that happen. For example, depending on the age of the patient, a young patient has high power EEG. As we age, the amount of absolute EEG power decreases. So if people don't account for that and look for signatures and patterns across ages, they may deliver too much anesthesia. So we now have a system along with a process parameter that takes that into account, what we call low power EEG. Also, we have another artifact that is common. Remember, we talked about motion with pulse oximetry? With EEG, a key problem is also motion, but this time motion from muscles on our face that move, and those muscles interfere with the electrical activity that originates from the brain cell, or EMG. Next generation SedLine does a much better job of dealing with the deleterious effects of EMG and being able to give you a relatively clean signal in that context. So in the top chart that you see, that is the competitive process parameter. This is the previous generation of SedLine. This is the next generation SedLine. And you will see that even the green plots here indicate occurrence of this artifact called EMG. And you'll note that even under the presence of those artifacts, you will see a relatively clean ESI number, again, the benefit of improving SEDLAIN. Now that we have brain function monitoring on route, that has now been extended to look at tissue saturation under the forehead. What Joe called O3 and O3 regional oximetry gives you the RSO2 number. And the RSO2 is the oxygen saturation in the tissue under the sensor, in this case, under the forehead. So with a module that looks like that, that can be attached to root along with disposable sensors like so, you can apply them to a patient and determine how oxygenated is the brain while they're going through surgery. Why is that important? If you're doing heart surgery, if you're having a surgical situation where you're working on arteries or the vasculature, you might affect the blood flow to the brain. Brain being a key end organ, you need to make sure that it has sufficient oxygen for its metabolic needs, and this is a way to do so. However, if you can provide that information with a fine degree of accuracy, that allows doctors take care of their patients even better. So bringing Masimo's signal extraction technology to bear, we are able to provide an accuracy associated with our regional optometry that is far superior to the market leader. And we believe that the benefits of Root, which will be a single monitor that gives you both EEG monitoring and regional oximetry monitoring combined in the same device, you will be able to benefit, reduce the amount of real estate in the operating room and gain the monitoring advance. In addition to that, through the phase in acquisition, we are also able to add capnography to the same route monitor. So we've now seen for the route monitor 3 different instances or incarnations where it becomes a highly specialized monitor that brings in all of these monitoring capabilities in the OR and ICU. I will speed up in the interest of time, so I'm cognizant of that as well. But also, Root can be used outside the OR. In a general care setting, Root with a now newly released wearable monitor called the Radius 7, which I'd encourage you to take a look at when you visit the booth, can be worn on a patient. And this monitor wirelessly connects to root and is able to continuously monitor. And RADIUS 7 can work either with short range wireless or long range wireless within a hospital, again providing continuous monitoring because I don't know if many of you who have noticed, within the hospital as a patient recovers, they subject them to a number of mobility tests. Let's do a 3 minute walk. Let's do a 6 minute walk. When they're walking, you want to make sure their physiology behaves correctly. And this monitor allows you to do that, which then takes us into SafetyNet. Remember, we started off with SafetyNet when we talked about the benefits of continuous monitoring. So now with SafetyNet in over 300 hospitals, we have a full portfolio, which includes the wearable piece, the bedside piece. You can monitor the results of the patients on a desktop monitor or even in a pager phone device that a doctor can be using when they're mobile within the hospital. We saw this earlier and I will skip past it. Another interesting application of Root, behind Root, and I'd encourage you to see a Root when you visit outside, you will find a number of ports. These are electronic ports to plug in cables. What does that allow you to do? It allows you to connect all the other equipment in a hospital room to Root. So Root becomes the bedside integration hub. Why is that important? Hospitals don't update their capital assets frequently. So we frequently encounter a number of legacy systems in hospitals. But all the legacy systems still need connectivity. They need to pass that data to the EMR or they need to look at that trends of that data over a long period of time. And the way you do it, through root, which you already need at the bedside and one more critical function of Root. But what if you're on the ICU and you have all of these legacy monitors and you have Root? Can you integrate all that information and provide a single display that looks at the patient's physiology that conveys information to a caregiver quickly and efficiently. Again, see for yourself and the booth because we have some of the most compelling displays of integrating information, not just from our monitors, but from other monitors as well into a product, which we call UniView. It unifies, provides a single vision or a single display that brings in all of the patient monitoring information in various areas of the hospital. Outside the hospital, going into the home, we've just launched a new device family called the RAD97, not yet cleared in the U. S, but available outside the U. S, which will now allow you to bring in various home monitoring equipment, right, from your glucometers, spirometers, the scales, bring all of that information in, thermometers and not to miss this EMA catnograph, which Masimo received this technology through the phase in acquisition and our vast array of disposable and reusable sensors and MightySat, you can get all of that information into the remote care systems that exist today. This is a huge market that is growing pretty rapidly around the world as people are getting sicker. Most sick people like to be taken care of to the extent that's possible in their homes, and this monitoring now becomes a vital piece in the home as well. So with that, let me turn it over to John Coleman. Joe, I don't know if you had some comments. Before John comes up, One, that the 2nd generation hemoglobin spot check, while it's not available in the U. S. Yet until RAD67 comes out, it has been available outside the U. S. With the Pronto device. The second factoid is I don't know if some of you saw the Jimmy Kimmel show where he talked about his child having CCHD and how they were able to intervene. Actually, they detected the CCHD with our device at Cedars Sinai, and that capability was not there. I remember when my kids were born, I'd go home and do the pre- and post ductile screening, and now it's all standard of care in all 50 states and 49 mandated. So with that, John Coleman, please come on up. Thank you. Thank you. Well, we want to extend a warm welcome to you. We've been anticipating this day for a long time. We're really glad to have you here. I joined the company 8.5 years ago with a lot of optimism at that time and I want to tell you that today, knowing everything that I know, I have more optimism about where we're going and things that we have moving forward than I did at the time that I joined many years ago. And part of that optimism, before I anecdotally, before I go into my slides, is a function of Joe's leadership here at the organization. He is engaged as I've ever seen him in the results of the business, drives his leadership team to a standard that where we never feel any sense or ounce of complacency in anything that we do and that permeates down to the rest of the organization. And the second reason I think I feel such a great sense of optimism about the organization is in part because of the leadership team that Joe has assembled. We work using a sports analogy, I think it's being part of a team where being with the other players, you try to elevate your game because we all hold each other to a standard that we where we want to succeed. But it's more than that. It's we want to help each other. If there's an issue, we work on it together. If there's an opportunity to convert a place, we work on it together. If there are things that we need to brainstorm on together, we do it. So I think that says a lot about the organization and why we're having success because the leadership team is unified and it permeates down through the organization. We estimate that our reach today is over 100,000,000 patients a year in regard to the number of patients that are using our technology. And that's a combination of both those who are using disposable sensors and those who are using reusable sensors. And we believe that reach can continue to expand dramatically through the coming years as a result of some of the things that I'm going to share with you and based on things that have been shared so far in the presentation. So our growth as an organization has more than 2.5 times outpaced the market pace. So our growth rate on a compound annual growth rate of about 11% compares to the market, the pulse oximetry market of a little over 4%. And we, as Joe articulated, don't have any sense that that's going to slow down. In fact, we feel optimistic that we can even accelerate our overall growth in coming years. Part of that's a function of this. We have about 500 people worldwide who are focused on sales, direct sales or managing directly our distributors or involved in our clinical detailing throughout the world. And you see the way we break that out between U. S. And OUS. And then as I mentioned, that's sales and then clinical specialists down below. And what I'm encouraged by is that we're looking at expanding in markets around the world. We're going direct in new markets and we'll be adding a number of new people throughout this 2017 year. In fact, as many as 70 will be added during this year as we continue to grow and expand into markets internationally. So we're seeing strong growth and strong momentum in the U. S. Business. At the same time, we're seeing accelerated growth in the international business. And there are a few barometers that we look at that help us get a sense for how we're making progress in the U. S. And I want to reference a couple of them and this is one. If you look at the U. S. News and World Report 2017, 2016, 2017 honor roll, we now have 16 of the top 20 hospitals using our technology, house wide, if not, there's one that's a little less than house wide, I'll reference it, but 16 of the top 20. And you might think before I speak to that, well, you've hit your limit. That's not at all the case because we still have more than 50% of the market in the U. S. That's not using Masimo. So while we have a high proportion of the leading hospitals, at least by this measure, there's still more than 50% of the market that we believe half the market that we still have potential to pursue over the coming years. So here's the list of the top 20 hospitals in the U. S. On that U. S. News and World Report. In red are the hospitals that are using Masimo housewide. Johns Hopkins is the one exception that is not entirely housewide. Their NICU is not using Masimo SET, but everyone else in red is using Masimo SET house wide. In blue, the 2 in blue, 6 and 9 are 2 hospitals where we have approximately half of their business there today, of their hospital network. And in black, the 2 in black are not using our technology at all today, although we're working on opportunities with them. And in 2016, we picked up 3 of those top 20, 3 new ones in the top 20. Joe just referenced Cedars Sinai a moment ago, Stanford Health, which was the epicenter of the Nellcor business where, in essence, it all began and then UPMC. And I'll speak just for a moment about each of those. UPMC, as I'm sure you're familiar with, is a large institution based in Pittsburgh. They have 25 hospitals, but their articulation to us is that they plan to expand dramatically in the coming years. And we expect that we'll continue to grow through them as well. But we've just, as you know, done that not too long ago at the end of last year. They're a huge organization. But I think what I find so compelling about this is they're closely affiliated with the University of Pittsburgh. If you look at this, they have incredible research funding from the NIH, which suggests to you that here's an organization, UPMC, that is very fact based, very clinically oriented. So when we went to them and worked with them through the years to convert them, it wasn't based relationships, although relationships are important. It was based on clinical evidence, clinical outcomes and studies that convinced them ultimately to end their own experience with us because some of their hospitals have been using us previously. And based on the experience within their own organization, they decided to expand throughout all of their organization. Stanford, as I mentioned, was a long, long accounting coming. I mean, you can imagine how deep seated the feelings were toward Nellcor having originated there for all intents and purposes. But an organization, again, not unlike UPMC with incredible science based medicine, but we were persistent and doggedly determined to convert them. And just in the last few months, we were successful in doing that. And we're appreciative for the opportunity to do that. Cedars Sinai, what's amazing about that is, here's a hospital where we had no footprint at all. And how did it start? They decided that they wanted to put route with Radius 7 on one of their general wards to monitor patients. The Radius 7 is the product that you can wear on the arm and patients can ambulate. They used it on that one floor. They saw profound results in their trial period. And then they decided to expand route with Radius 7 on other floors and that then led to their expansion of Masimo SET throughout the entire hospital. So the reason we're encouraged by that is because it serves, I think, as a great example of how the technology can start in one area within a hospital and then expand broadly. And we believe that that's why there's so much potential, not only in converting new hospitals, but going into hospitals where we have a small presence, but based on their experience, they want to employ more of our technology throughout the rest of the hospital. Moving off the top 20 from U. S. News and World Report, we also converted Walter Reed this past year. As you know, some of you I imagine know, that's the hospital of POTUS, SCOTUS, and they serve the U. S. Congress as well. It's a huge facility, but we really felt honored to be able to be involved with that particular institution. I'll explain some of the reasons in a moment. Now, as I mentioned, we're seeing success in the U. S. And a sense of momentum in the U. S, not a sense of anything slowing, but things enhancing and improving. And at the same time, we're feeling optimism around our international expansion. We have, as I referenced earlier, a very broad sweep now of direct employees in many markets around the world, but we're also expanding in markets around the world. So in Europe, Middle East and Africa, which Stacy Taggart Stacy Orsat has responsibility for and she'll stand in a few minutes and present to you. We have deep seated relationships with everything everyone from the European Anesthesiology, where Anand referenced earlier, they're now implementing guidelines based on our technology, having seen the clinical evidence of it, to hospitals in various places around the world. In the Middle East, for example, you've heard Joe and Mark reference the Middle East in some of the earnings calls. We're developing strong relationships with hospitals there. Saudi government has decided to implement CCHD screening with all of their babies in the country. And the reason I referenced that is my feeling is, if a country is willing to invest their children's well-being based on your technology to help them, I think it's a statement about their level of confidence in your product and all that you do for them. In Asia, we're continuing to expand our business in Japan. We still have half the market to go at least, while we still have a large presence there. In Greater China, we're expanding our teams. In South Korea, we're expanding our team. In India, we're also growing. And as Joe referenced in Latin America, in some of the markets in Latin America, I lived in Sao Paulo, so I know the market is down there quite well. In Latin America, where there are some very resource constrained hospitals and settings, we see SPHB being implemented. So SPHB sensors are much more expensive and yet we're seeing the technology being implemented in major cancer hospital in Sao Paulo, which is perhaps the top 3 one of the top 3 hospitals in the world, AC Camargo. We're seeing O3 and SedLine being used in El Salvador and other places. So our feeling is that the fact that our technology is proven is not inhibiting people who have limited resource to engage and adopt it. Here's an example of a well funded organization in Berlin that's using our technology broadly. I've mentioned some institutions that are not as well resourced. This is Charity in Berlin. It's one of the largest teaching hospitals in the world, in Europe. And what I love about this example, and again, it really makes the 2 points. First, they've been a customer of ours for 6 years. So after a 5 year contract, they just renewed with us for a number of years. So it's another example of it's like being married to your spouse. You ask her or him, knowing what you know about me now, would you marry me again? And you might not want to know the answer maybe in some instances. But in this instance, they said, yes, we want to continue our relationship with you based on our experience with you. And what's amazing about this is they are employing the Philips IntelliVue modules, the A05 modules with Masimo Rainbow SET throughout their entire institution. They're using SedLine in 3. They have Masimo SET everywhere and other parts of the hospital are using other technologies. So again, my optimism is driven in large part by seeing examples of this where SET goes in and then the platform is there and then you can easily add to it over time based on an institution's experience with you. So if I had to say why is it that hospitals join us, why is it that they gravitate to us, there are a number of reasons, many of which I've alluded to already and Joe has spoken to in and on. But here are some of the reasons. First, they understand that we add value clinically and they don't have to believe us just because we say it. They've seen the evidence of it both in published studies as well as their own experience. There are savings that have been quantified and published. They want access to our technology. And finally, they're seeing the integration of our latest technologies in these multi parameter monitors. So I think the acid test of this clinical value, the fact that we're clinically valuable is basically the fact that many institutions around the world are willing to pay a premium for MASMOSAT versus what they might get with our competitor. And they do it willingly, above their own accord, of course, because they realize that they don't have to compromise on clinical outcomes. They will compromise on clinical outcomes by going for less expensive products and therefore they're willing to invest in their patients by staying with Masimo said. That's the ultimate sign of that. And I think we put our money where our mouth is when we say that over 98% of our customers renew with us. That says that they are willing to do that. The other reason I think, and this was alluded to earlier, that these customers these hospitals gravitate to us is because there's proven savings associated with being with us. So I'm going to build here. We're going to talk about savings from Masimo SET, then we're going to talk about savings from PVI and savings from SBHB and then ultimately savings from Patient Safety Net. And I'll give you the punch line now. In a hospital that's about 2 50 beds, we estimate based on research that's been done and studies that have been published that a hospital can save annually of that size, 2 50 beds, about almost $3,000,000 a year by implementing these technologies. That's a 250 bed hospital. So in the case of Masimo SET alone, let me build the put the building blocks on the table. This is Masimo SET only. By using Masimo SET, we found in studies that the hospitals, the clinicians are able to wean patients off of ventilators earlier. And why is that? Because they have confidence in the data, the information that's being provided and then patients are able to shorten their length of stay as a result of that as well. You cannot imagine the amount of wasted time perhaps you can as a result of false alarms. There's so much such an unproductive sort of behavior and workflow that goes on with false alarms. And because we eliminate them largely, if not entirely, there are significant productivity savings that have been documented. In all, we think that about $300,000 a little more than $300,000 a year in a 2 50 bed hospital can be saved using Masimo SET alone. And then if you add to that 315,000 PDI, which Anand referred to earlier as shortening the length of stay in hospitals and therefore reducing the cost of care over a period of time. You have savings associated with that. And also with SPHB where there are fewer transfusions given during operations. That in total then, when you add all of these together, represents savings of about $1,400,000 And that's before you add patient safety net. To me, the thing that's incredible about patient safety net is, as Anand alluded to earlier, at Dartmouth Hitchcock, where they've had the system employed for 10 years, there's not been one sentinel event or dead in bed patient in the time that they've implemented. But on top of that, they saved in that one ward of a hospital $1,400,000 They published this study where they show how they calculated that, dollars 1,400,000 while at the same time dramatically improving their care for patients. So and again, in aggregate, if you take that 1.4 plus the 1.4 associated with set PVI and SPHB, a hospital of about 2.50 beds can save close to $3,000,000 a year using our technology. It's clear that our customers and those who join us want access to our innovative pipeline. And they don't have to add dozens and dozens of different types of parameters of devices. They can take one device and they can add to that device various technologies. They can add 3, they can add SedLine, they can add capnography to the same device. And I think importantly as well, there is an increasing desire for and recognition of how powerful it is going to be to have our rainbow measurements available in multi parameter devices like Philips. Not only Philips, Philips is the latest one to incorporate, but as significant as Philips. And that's certainly something that people want access to as well. So in summary, again, someone who's been here for 9 years could be less optimistic or more optimistic. I'm more optimistic for all of these reasons. First and foremost, Masimo SET has significant growth potential, as Joe alluded to, 8% to 10%, we believe, growth potential as we win new customers, but importantly, as we retain customers and we expand our presence within their hospitals. The Safety Net expansion, I mean, the potential there is unreal and frankly, unconscionable in the sense that so 370 we know it's about 375 hospitals within around the world. In the U. S, it's everyone from Mayo Clinic to Cedars Sinai to UCSF, but there are many, many hospitals globally who are implementing the technology. But we believe there will be a day and a place and a time when it will be a requirement for hospitals to do this. And it's not any it's not a burden. Not only does it increase care, it reduces costs, it's proven. Rainbow said, as I mentioned earlier, is an opportunity to drive growth as well. As I mentioned, there's an expanding footprint. There's a large hospital system in California that is using rainbow today, particularly SBHB. They have plans to expand it dramatically throughout their institution. It's being used everywhere from Tokyo to Japan in a women's hospital, as I mentioned earlier, to Sao Paulo, Brazil to Charite in Berlin. The footprint is expanding and it's growing. And as Joe alluded to earlier, I think the 2nd generation relating to SPHV and other rainbow technology has with it reduced cost of goods, which enables us to then reduce the pricing, which will then make the product all the more appealing to places around the world and institutions around the world. I alluded a moment ago to the fact that there's growing OEM integration of our technology. We're thrilled with the Philips relationship, again, but it's the latest of many, and we believe there are more that will come surely in the future as well. And ultimately, as we said, whether it's from Mass General to Cairo to Japan and other places, Limoges, there's a growing body of evidence that it has rainbow is having a clinical impact and it will continue to have a clinical impact going forward. Ultimately, as I said, I think Root is an incredible opportunity for us to accelerate our growth because it's a platform upon which you can add additional technologies at your own pace. So you put the platform in place and if you want to add SedLine and Brain Function Monitoring and Regional Oximetry, you can see it all on the same device and you can add it whenever you want or you can add that capnography to that. And in addition to that, as there's a greater emphasis upon better healthcare by ensuring patients' records are readily available to everyone, Our route platform becomes a connectivity hub to make sure that data goes into the AMR and it's shared appropriately and quickly and it's integrated seamlessly within hospital. SedLine next generation, we spoke to earlier. Regional oximetry, we have extremely competitive pricing there with a better product. And as mentioned earlier, you have NomaLine capnography that can be added. So all in all, we're optimistic because we have momentum on the business. There's not a sense of arrogance at this company, I can assure you. There's a sense of gratitude, frankly, for where we're at and where we can go. But we have a sense for of confidence in terms of what we have, what we can expand through. And I'm confident as a result of that that our organization is going to continue to deliver on our results that our investors expect and results that our clinicians expect ultimately and their families. But thank you. I'll turn the time to Eli, and I think he's going to close for a break after that. Thank you, John. All right, everyone. Hopefully, we haven't overwhelmed you already. We are incredibly running on schedule and we'd like to stay on schedule. So we now have a break until 10:45. You can go out and get some refreshments as well as visit our product exhibits and pick up some extra information on those, which you will also be able to revisit at lunchtime. Thank you. 10:45. Okay, everybody. We're going to start again. Now I'd like to introduce Rick Fischel, President of our Worldwide OEM Business, to talk about the OEM business. I need this, not this. Thank you. Thank you, Eli. And thank you, everybody, as echoing the sentiments of the prior presenters. Thank you so much for taking your time to come here to hear about our business, not only what we believe we've done well over the years that has helped pave the way for what we're about to do, but to hear about to get a sense of the passion and the commitment from this leadership team. Ironically enough, I met Masimo as an OEM, if you will, prior to them being an OEM of Masimo Technology. So Joe Kiani and several people who are here working hard delivering great solutions today, I met them when I was a part of a monitoring company back in 1997. So I've been in the monitoring space for 3 decades and have had the good fortune to be a part of Masimo for the last 13 years. So I've seen the industry from both sides. I've seen the industry move from a conglomeration of standalone devices, truly, NIVP, non invasive blood pressure, pulse oximetry. You didn't have EEG in the OR back then, you didn't have a lot of technologies back then, but all of these technologies existed in standalone devices. And ultimately, the OEM business for the patient monitoring world happened in really as a result of demand to bring these technologies together to provide one device for the clinicians to interact with, one device that ultimately would be connected to the EMR and hence the OEM business for companies involved in innovative measurements was born. So when we look at the power of the OEM business model, we are in that space where our measurements are often desired within the constraints of a multifunction, multiparameter device. And yet there's something ironic about that. If you create an innovative measurement such as Masimo SET back in the mid-1990s, and if Joe and his team didn't establish the radical oximeter, didn't build an incredible sales organization and clinical support organization, we wouldn't be standing here today. Why? Because as I'll talk about a little bit later, OEMs generally wait for the marketplace to demand innovative solutions before they invest the money to integrate those technologies. Hence, the challenge for a company like Masimo is to have a direct sales organization that's important to creating awareness and demand, collaborate effectively with a long list of OEMs that integrate those solutions so that ideally, 1 +1 equals 3. That's the power of the OEM business model. So with that said, how has Masimo done over the years when it comes to the scope of our OEM deployments? And when we think about the OEM business today, it primarily consists of SET and Rainbow. And I'm happy to say that SET and Rainbow Technologies are integrated in more industry leading devices than any other technology as per Idata, and that's been their findings for the last several years. We're very proud of that. Now, by the way, today that's more than 200 devices and more than 70 different companies and growing. Now what are the factors that are driving the growth in the OEM sockets? We call those sockets, as you know, because they consume our reusable and disposable sensors. So the key factors driving growth, 1st and foremost, as John Coleman attested to, is customer demand. And that's demand for Masimo SET and demand for Rainbow SET, and that is in both developed and emerging markets. John's team is growing in the international markets because awareness of the benefits of Masimo is spreading around the world. This demand in the emerging markets has led us on the OEM team to establish many new relationships with what I would call a regional manufacturer, somebody who is primarily focused on building devices for a part of the world as opposed to a worldwide organization. There is a new wave that is just in the early years, where industry is combining monitoring with therapy. That therapy could be ventilation, could be infusion therapy, defibrillation therapy, a variety of therapies. And when you say they're combining it, they're combining it for the long term purpose of allowing the measurement within the therapy device to influence therapy. You heard about retinopathy of prematurity earlier from Anand. A great job talking about that. How about the ability to potentially say when saturation levels exceed the safe range, dial back the FiO2 administration, the oxygen being delivered to the baby. That would be an example of a semi automated type solution, otherwise known as closed loop. Masimo, I'm happy to say, is the gold standard in closed loop. After all, if you're going to allow a measurement itself to drive therapy decisions without forcing the clinician to interact, it needs to be the most accurate and the least suspect to false measurements. And then the last point here that I think may be lost on people is that while we have innovative technologies, these technologies have always required more advanced circuitry, advanced components that frankly are a lot more challenging to fit on a small circuit board. And so part of our challenge has been to continue to stay abreast of all of the innovations in components and circuitry to make sure that our boards have the size and power profile that will allow them to be integrated into the coming future of devices. So, I've got actually a couple of boards here from a show and tell perspective that I will show you in addition to a slide. So when we look at Masimo circuit boards, as you know, I've talked about the Masimo SET platform and the Rainbow SET platform. And what I'm showing you here is the 1st generation Masimo SET platform. It was known as MS1 compared to the latest generation of the SET platform. Now, you can see the size profile is 90% smaller, but more importantly, 98% less power than the original Masimo SET profile, while frankly delivering better performance than the initial generation. On the rainbow side, MX1 back in 2,005 compared to the most recent MX7, and you can see 40% smaller, 40% less power. And when you have a rainbow board in a device, but it's using SpO2 sensors on a given patient, not rainbow sensors, the power reduction is 70% versus the initial generation. And that allows us to put these technologies into devices that are smaller, lighter, more portable. And this is the benefit. By reducing the size and power profile of our circuit boards, it allows our OEMs to build smaller, lighter, more portable, highly battery operated devices without having to sacrifice the performance that the clinicians need for those new applications involving smaller, lighter portable devices. So, when we look at the SET and Rainbow SET business, We talk about MasMOSET and RainbowSet integrations, and what I've got here is an example of a multi parameter monitor. Here's an example of a module. It happens to be a Rainbow module. And over here, you can see rainbow measurements. And I'll talk a little bit more about that later. But what we are doing as an OEM business, in part because the marketplace is helping us go there, is we're shifting that business from a predominantly set weighted OEM business to predominantly rainbow weighted OEM business. So that shift from set to rainbow. Now as we think about that shift, I told you earlier I'd speak a little bit about the dynamics of OEM decisions, how they relate to the business model. And I can summarize that dynamic right here in these four bullets. The first thing that is important to understand is that OEMs generally, and this is a generalization, they generally respond to market demand rather than create market demand for innovative measurements. They wait for the market to say, I have to have that. And then they say, now it's worth investing in. Number 2, for innovations that require a change in care practices. Now, I'm comparing that to innovations that are just newer technology, better iterations of a similar technology, where there's no change in care practice, just a better technology that does the same thing, maybe even at a lower price. So when you look at those that require changes in care practices, the healthcare industry is a relatively slow adopter. These things often take 10 years before the momentum has gotten there, the proof, the clinical evidence is there and the market demand is there to allow that technology to start to become a standard of care. So end user customer demand is the catalyst for OEM integration. That's the truth. And yet, when a leading manufacturer makes the decision to integrate, The important thing to understand is it serves as, I'm calling it, an informal validation that, that innovative technology is real. It brings clinical value, which in turn, not only does it make it accessible to the customer, more visible to the customer, but it also helps drive end user demand. And the process goes. And that's where 1 plus 1 becomes 3, okay? I'm happy to say that we have a sizable and growing group of Rainbow OEM partners. We have more than 35 partners integrating Rainbow and more than 30 of them have already launched at least one product with Rainbow. There are numerous additional products that are going to launch with rainbow each year over the next many years. But this is the status today. And yet, based on our current progress, that's both run rate of rainbow versus run rate of set, the progression of the product plans for those companies, we project that the rainbow volume versus 2016 will grow by 2.5 times in 2022. Now, let me put that in percentage for you. By 2022, the rainbow boards will be 70% of our sockets. As opposed to today, it's about 35 percent rainbow on a percentage basis, okay? This is what that looks like. So, I'm showing you actuals for 2013, 2014, 2015. The kind of orange color is MX and the blue is set, and then you can see how the mix is shifting from here to 2022. Now our OEM business, while today is predominantly weighted in SET and Rainbow, our opportunity is to replicate what we've done with SET and RAINBOW with the other waves of technology that Joe spoke about early in this day. Starting with our NOMALIGN capnography. As you've heard here, in case you weren't already aware, we acquired the foundation of this technology in 2012 when we acquired a Swedish company by the name of Faison. At the time, I can tell you as the person who led that due diligence, because we are known for best in class measurements, we were out looking for the capnography provider that provided best in class measurements. And as you know, because we remember being Masimo when we were the small guy, we had best in class measurements, but that didn't mean we had highest market share. So we were able to find the company that had best in class measurements, and they had it then. And all we've done since then is help them improve those measurements. Now, today, there are more than 50 different companies that already integrate Nomalyte. Wow, that's a lot. You would think that business would be larger on a relative basis. But here's something notable about the Nomaline opportunity. Prior to the Masimo acquisition, Faizin as an entity was a VC backed small company. And the large OEMs don't make these decisions to integrate technologies that they think might someday not be here. So the primary reason some of the larger companies didn't integrate Nomaline was because of the fear of their financial stability. So when we integrated, when we acquired Phase it changed that dynamic. They also knew that we fully understand the need to get out as a direct sales organization and create awareness and demand for Nomaline and use that to help drive OEM integrations. So now, several years later, I'm happy to say several high volume industry leading OEMs are already integrating NOMALINE. These products will launch in 'seventeen, 'eighteen and 'nineteen. And to give you an idea of the relative comparison, the volume from just 4 OEMs will be more than 70% of the volume of the other existing 50 projected out in 2022 conservatively. Frankly, if that if we're more successful, it could match the 50. And that's the difference of depends on who is integrating your product that can drive volume. Now, by the way, this OEM growth in concert with John's growing sales organization and an expanded portfolio of products you'll learn about in the second half of this year. The capnography business for Masbo, the normal line business is going to grow by at least 4x between here and 2022. So this is going to be a major source of growth and it's going to be a combination of the OEM and direct business. Now keeping that idea of replicating the SET Rainbow model for other technologies, 3 and SedLine, Anand did a phenomenal job talking about these innovations, And other solutions we haven't yet announced to the market that are now available for OEM integration. And so these are now available. And sticking with the direct and OEM hand in glove model, since the FDA clearance in 2016 of 'three, the direct sales channel has had substantial success selling 3 and SedLine. Part of that is incremental success in one parameter will help pull along the other because of the fact that our platform, Root, has the ability to provide both of those measurements. And that's one of the reasons why that can be the case. Now, this direct success or success in the direct market is helping escalate OEM awareness and demand. So we now have a few OEMs in the process of integrating 3 and SedLine. And I've been out there talking about the fact that in 2017, the OEM versions would be here. And until recently, there were people saying, we'll wait to see how the market responds. We'll wait to see how the market responds. Now, one of the variables that will drive the market, I think we've had it barely mentioned, when you look at the forehead of this young lady, you'll see this brand new SedLine sensor that coexists on the forehead with the 3 sensor. And what's important to know is not only did it always require 2 different devices to measure those 2 to have both brain function and regional oximetry, but you couldn't do them simultaneously unless you took this much of the head. We've redesigned the SedLine sensor in a format that allows the 2 to exist at the same time that will further leverage the ability to have both technologies either in our device or an OEM device. And I mentioned the integration of these new OEM solutions. I'm happy to say that Philips is one of the companies integrating 3 SedLine and NormalLine. So when you have the largest monitoring company in the world doing that, it helps raise the bar for visibility. Now speaking of Philips, you've heard some references to Philips. As the individual who gets to spend a big part of my time now with Philips in light of this new partnership, I'm the best person to be able to attest that the dynamics of our relationship is 180 degrees different than it was. I now need more than 24 hours in a day to capitalize on the incredible opportunities this partnership presents. But what was the basis? What were the high level foundational basis for the partnership agreement? Well, certainly one of the things that mattered a lot to us was the fact that they represent 50% or more of the high acuity market. Some markets, they may be a little bit less, some markets more. But overall, generally estimated at 50% of the high acuity market. Both companies recognized that rainbow would become was on its way to becoming a standard of care. That was a fundamental foundation. And I think we knew that, and what was very exciting for us was when Philips acknowledged that same thing. And yet, when you look at this data point, you start to understand why. At the end of 2015, Philips launched Rainbow in the IntelliVue series, their high acuity monitoring series. And lo and behold, in 2016, sales of Masimo technology grew more than 35% within Philips products. Lo and behold, we did the partnership agreement near the end of 2016. And now, pursuant to the partnership agreement, we're tracking at north of 40%. So rather than be a one off anomaly, it has continued. And by the way, this is before rainbow is available in any new products. So all of the additional integration is not reflected in that growth, okay? Now the other thing that was important to Philips is that they're very focused on not only timely clinical insights and seamless workflow, but they're also focused on analytics to drive more informed decisions. And as a part of that analytics, you need incredibly important information that's timely as well. And so the ability to have these advanced parameters monitored non invasively and continuously feeds into their model to give them more timely, informed clinical decisions and seamless workflow. So a real good match. Here is an example. I'm showing you now a Philips monitor. I have added these circles in blue, yellow, I don't know what that is, magenta and red were added by me to help point you to some of the rainbow measurements that are shown on this monitor. Now, if rainbow wasn't integrated inside this monitor, these measurements would be in a separate device, typically mounted somewhere near the primary monitor. The user would have to interact with both. They'd have to figure out how to connect that monitor standalone. So, highlights of the Phillips agreement. Number 1, it is far more than just about the Rainbow integration. There is and by the way, as I think you know, some of the details about the agreement, we can't share. So I can give you broad descriptions, but by agreement, we cannot share the details. But a mutual investment in collaborative market development activities surrounding Rainbow, impactful programs to mitigate potential obstacles to upgrading their installed base to Rainbow. If you think about it, if you have to rely exclusively on selling new systems versus upgrading existing systems, that's an important point. Their integration is going to include NOMALINE, 3 and SedLine, and they are going to put our breadth of technology across a broad portfolio of their products. One other highlight of the agreement is that there are shared commitments for collaborative success, and that includes mutual commitments with defined schedules and timelines. Okay. What are the benefits we expect from this agreement? Number 1, our percentage of Phillips shipments was lower than most of our OEMs before 2016. Remember, there's tremendous growth in 2016, tremendous growth in 2017. So we saw a tremendous opportunity to grow those sockets by more than 4 times, And that's well underway. Rainbow specific benefits. We're going to provide our customers with end customer access to Rainbow without requiring separate standalone devices. Philips' ability to offer Rainbow before some other high acuity OEMs release their products with Rainbow gives Philips an opportunity to use this as an effective competitive differentiator. We all know whenever that's the case, that's beneficial for both parties. And by definition, having this available in Philips, when we look at the funnel of opportunities, it's clear that it's going to drive awareness demand and ultimately, it will enhance clinician workflow. For integration of NOMALINE, O3 and SedLine, these are brand other than NOMALINE, our O3 and SedLine are new OEM solutions for us, not new solutions, but new OEM solutions. And to have the market leader in monitoring, integrate them is going to help create a huge opportunity, awareness to the superior solutions and access, and help us expedite adoption. So I can assure you that the shared commitment for success with Philips is visible. Funnels that we're working on, the incredible sales opportunities that the teams are engaged in. I'm heading out on a trip with a bunch of meetings around the world with joint customers. And so it's very palpable. But nothing more visible for all of you in this room that I can characterize than the following video of Joe Kiani and Franz Van Houten, the CEO of Royal Philips, with a video that they've created for their sales organizations to show to potential and existing customers about the importance of this partnership. So without further ado. Hi, I'm Frans van Houten, the CEO of Philips and I'm delighted to be here with Joe Kiani, the CEO of Masimo. You may be aware that in November we signed a wide ranging multi year business partnership agreement with Masimo in patient monitoring and select therapy solutions. And for me this is a hugely important advance that combines the Philips portfolio with Masimo's expertise in non invasive sensor and signal processing technologies. Like Phillips, we care deeply about patient outcomes and reducing cost of care. Our innovations allow us to provide accurate real time measurements obtained non invasively. This means fewer missed events, fewer false alarms than any other pulse oximeter. And these have been translated to big gains in patient outcomes. So we're thrilled to be hand in hand in with Philips and improving the standard of care with our non invasive technology, with the dissemination of Masimo's rainbow technology across the Philips IntelliVue patient monitoring product ranges. Well, that's great, Joe, and I'm sure that we can build on the range of Masimo's innovations already on the Philips products, supporting customers, in fact almost immediately by doing software upgrades and integrating all this great technology. And there's more to come because we are going to introduce compelling marketing programs together designed to further accelerate the rainbow adoptions through market development. Sounds great. The Masimo team is hugely excited about this long term partnership with Philips. Well, Fran. We are too, Joe. We are very excited and we are committed to keeping the Philips and Massimo teams fully up to speed with all the innovations that are to come in the coming weeks months. So goodbye, good selling and go make patient care safer and more effectively. Good luck. Thank you. Thank you. About all the growth that has led to the creation of all these products, where do we make them and how could we make them better? A key topic that Mark and all of us talk about is how we could consistently look at bringing together at least 50 basis points of margin expansion annually. And what do we have to do to do that? It broadly comes under a few major buckets. Earlier on, I introduced you to our various sensor families. In particular, you heard from Joe and you heard from others of how we've taken the best of our technology and made it our most comfortable sensor called the RD sensor line. It also turns out that at the same time, we spent a fair amount of effort trying to make this in a consistent, repeatable, automated manufacturing setup. The second part of it, you've probably just seen a snippet in the break time about our new instrument line. Historically, when many companies had to deal with regulations, especially the electronic regulations like ROHA, which was 4 or 5 years ago, the regulation required you to remove harmful lead in solder that's used inside circuit boards. Companies would simply go make those changes on a circuit board and say we are done. They comply with the regulations. Masimo took an opportunity for this event as a catalyst to go back and fundamentally redesign the Board, take cost of goods out and dramatically advance both the benefits in size and performance that Rick talked about, but also from the amount of cost that goes into the Board, we could optimize it to a level that we hadn't before. That's opportunity number 2. And you can extend the same cost reduction opportunity, not just to the technology boards that we give to the OEMs, but also to the instruments we make ourselves. Lastly, we've now grown, and I think John showed this on his slide, where we are touching almost 100,000,000 patients annually. So what does that give us? It gives us a sense of scale, right? And hopefully, scale, if managed appropriately, will also have benefits in terms of savings. So where are we? We are in this building, which is at the top left, which is also our R and D primary R and D facility. Right across the street in a brand new facility, which we haven't yet fully moved in, we will be moved in hopefully by this weekend, We are having our Irvine front end production facility. Rick mentioned the phase in acquisition from Sweden. That's the building they're currently in, and soon they'll be going to another facility, which allows them to expand the R and D capabilities for capnography as well. Our big manpower sites are in Mexico, about 4 hours from here in Mexicali and San Luis Rio, Colorado. Lastly, there was another acquisition through which we acquired a company called Spire Semiconductor that would make LEDs for us, primarily our rainbow LEDs. So having acquired Spire Semiconductor, which is now officially Masimo Semiconductor. They make our LEDs that goes into each of the sensors, which we then assemble in Irvine production that gets shipped to Mexicali and gets turned into the full sensor that gets applied to the patient. Sorry, skip one pass. So if you look at the kinds of operations that you have at each of these locations, R and D primarily here in Sweden, Irvine Production turns semiconductor components into semiconductor assembly packages. And then we have the larger access to the larger labor pool in San Luis Rio, Colorado and Mexicali to turn them into finished sensors. So clearly, for the tens of millions of sensors that we make, we will need to have flexible capability from a manufacturing expansion standpoint to accommodate for the growth that we've heard. With that growth, there is opportunity. The opportunity is, as I mentioned, giving you the example of the catalyst for the RoHS conversion, which we then use as a driver for us to rejuvenate ourselves and relook at costs from the ground up, that has yielded us significant benefits on the technology boards themselves. You saw the dramatic reductions in size and power, But simple things, I mean, if you're buying or building 100 different houses, you could perhaps then source doors and windows from the door maker or the window maker. And perhaps when you have a deal with the door and the window maker, you can get a deal to buy 100 doors versus a few doors. So scale now gives us leverage in terms of capability when working with our suppliers, not only for optimizing the supply chain, but also to gain in terms of purchasing leverage. We've also redesigned the instrument family, as I mentioned. And most significantly, we took a dramatic reengineering effort to look at our sensor design from the ground up, look at new materials, bring in features such as weight and comfort, and at the same time, allowing that to be significantly automated. In fact, just going back to the prior slide, in Mexicali, the picture in there was very much like this, the one you see in San Luis, that you have lots of people assembling these sensors, but slowly, due to the creation of additional sensor lines for the RD sensor, we are getting more and more automated lines. That will reduce our direct dependence on labor, but at the same time will increase both the throughput as well as the efficiency of those sensors. If we look at the effort of the reengineering, it appears that over the last from 2013, approximately $40,000,000 is what we believe is an annual savings that we are generating simply because we are building so many boards and shipping as many sensors. And that is a recurring saving that we are going to get going forward. Having done that, what other opportunities are there? We could as I mentioned, because of the benefit of the scale, we now have more opportunities to fine tune our supply chain processes. We source parts from around the world. If we can time them better, we can fine tune our logistics, there is money to be saved in that whole process. We can extend the cost of goods reduction to other products. We've given you some notable examples in terms of the boards and the sensors, but there are other opportunities yet to be mined. Lastly, you've heard a lot of interest from OEMs and customers about the new technologies, about NOMALINE, about Rainbow, about capnography and SedLine and 3 sales. Each of these sensors will add to the product mix and give us the margin leverage that we can get by bringing in these higher value sensor products. So if you look at the results that have been achieved thus far and the dotted line looks at the trajectory going forward, we believe that we are in a very good position to consolidate the savings that we have achieved thus far and keep stretching that envelope as we go forward into the out years. With that, let me invite Stacy Stacy? Thank you very much. I'd like to reinforce the words of my other colleagues to thank you very much for being here today. I'm really, really pleased to speak about this topic. And while this topic often invokes views of philanthropic or donation centered approach, I'd like to reinforce that this topic, Global Health, Corporate Responsibility and Sustainability, is indeed contributing to the goals reviewed today, our financial objectives, our cost objectives. Global Health and Corporate Responsibility is a profitable opportunity for Masimo. I'd like to take a moment to thank Joe. As others have referenced, we are incredibly privileged. I am very humbled to be part of an organization that works as one team that drives towards goals that are not just about the goals that keep the company thriving, but about our responsibility to do better for mankind every single day. I'd like to thank John Coleman, who has been a leader for driving our global health vision and ensuring that we continue to evolve as a company towards our global health objectives for every corner of this world. Early in our discussion today, Joe talked about our mission, improving patient lives and reducing the cost of care. That needs to be to every corner of the globe with dignity, respect and love for every single individual. I don't know why I'm born in these shoes. I don't know why you guys are in your shoes. But I know that no matter what shoes we're in, we all deserve the same care and so do our children and our families. There are 4 areas I'd like to focus on today that look at both the market growth opportunities and also our corporate responsibility. In this space, as talked about earlier, unlike or like the rest of our health care objectives, this is a space of partners. One of our early forays into our global health initiatives was with the Clinton Global Health Initiative. And Bill Clinton reminded us of the words of Nelson Mandela, who reinforced that together, we can achieve much more success than we can as individuals. And we have learned a lot from this space about the importance of working collaboratively to solving the real barriers that exist towards delivering health care around the world. The UN Sustainable Development Goals reminded us that this is not about donations. In fact, donations have had a deleterious effect on scaling health care. This must be sustainable business. Coming together, different collaborative public and private partnerships has helped to move that ball forward, and I'll speak to a few of those today. The first one I want to focus on is improving access to safe surgery. I'd ask for you to take a moment to pause. There are 7,000,000,000 people in the world, a couple of them here today. There are 5,000,000,000 without access to safe surgery. So the people we've been talking about today, the numbers we're talking about today have been about 2,000,000,000. There's 5,000,000,000 other people who need access to safe surgery. And without that access, there are 3,000,000 lives lost every year. Scaling in this space is extremely important. We have a couple of collaboratives that we're participating in, one of them that we founded with other partners, the United for Oxygen Collaborative, bringing together public and private partners to address one of the main barriers to scaling access to safe surgery, and that's access to oxygen. So as we speak, projects are underway with the Ministry of Health in Ethiopia, who has put aside over $80,000,000 in funds to be scaling oxygen access, to be building oxygen plants, scaling access to oxygen concentrators and with that, monitoring of oxygen with pulse oximetry. That scaling, that plan with Ministry of Health in Ethiopia is not a singular project. That's a project that ministries throughout low resource countries are focused on. They're watching that project to see its ability to roll out to other countries. And the impact of that is profound. Those 3,000,000 lives are lives that matter and can contribute to our space going forward. So I talked about the auction scale up being really important. And in here, the slide I mentioned, RAD G and RAD GC. We're going to talk about those products in a moment. You'll have a chance to see those out in the main hall as well. Now RAD G and the concept was born from focusing on, 1st, the screening aspect of health care. So we talked about the surgical side. But before surgery, all of us in this room likely hoped that we don't have to go to a hospital to begin with. The goal is not to be there if we don't need to be there. And if we need to be there, to get there quickly. So not only with oxygen a barrier to global health, but having all the devices that give good information to an individual to make a decision on their health care is absolutely vital to the scaling of health care. So we look, for example, a discussion earlier today about next generation hemoglobin. And Joe mentioned about one of the factoids that Tonto 2.0, SpotCheck next generation hemoglobin is a device that we have available outside of the U. S. That device, we believe, has the capability screen non invasive hemoglobin effectively to allow for good decisions about anemia. Now funding for that is happening every day. The USAID focuses on over 1,000,000 demographic health surveys every year. Those are done with invasive thought checks on families and their children. The ability to do a non invasive check is not only helpful for gathering good data about scaling health care, but is good for the families as well and is a funded business. Screening for anemia is not just about demographic health surveys. It's also about a huge area that the UN is focused on worldwide, which is maternal health. There are over 125,000 women who die every year because of postpartum hemorrhage. That's supposed to be a joyous event, right? Hopefully, many of you have had that experience in your lives of a child coming into a world that's supposed to be a joyous moment. But awareness of a woman's likelihood of having postpartum hemorrhage or the onset of postpartum hemorrhage is critical to giving her a chance to save her life. The stability of our women around the world is a really vital aspect, as we all know, to standardizing and stabilizing our economic situation worldwide. Now the other innovation I mentioned, RAD G. So RAD G is a really critical aspect of a project that we're working in collaboration with the Bill and Melinda Gates Foundation. And that collaboration actually had an earlier starting point. The Bill and Melinda Gates Foundation, combined with the World Health Organization, was looking at the reality that the ability to screen for pneumonia was limited by technology. There are almost 1,000,000 children who die every year because of pneumonia. Now for me, I find that crazy. I'm fortunate to live in a world where I can't imagine a child dying from pneumonia, but there's 1,000,000 kids who aren't here because of pneumonia each year. World Health Organization looked at the challenge. The Bill and Melinda Gates Foundation funded the malaria consortium who started a pneumonia diagnostics tool study because they said what's happened that we can't find these kids identify these kids early enough. They studied and looked at over 20 devices, including Masimo handheld Masimo SET technology. They shortlisted those devices down to 3 devices and they identified that one of the realities of being able to screen effectively by a frontline health worker or other workers of global health is having a high quality device. Maslow SET was ranked the number one device after screening on over 2,600 children in 5 countries. The ability to not only get a highly sensitive and specific reading, as Anand mentioned earlier, but to have a health worker be able to replicate a test. That led to the World Health Organization actually changing their standards for screening, to saying that pulse of imagery should be used in screening for pneumonia. Then that led to a second study that's underway now in 5 countries where they're looking at all four levels of frontline health workers being able to screen for pneumonia. That's millions and millions of frontline health workers having a pulse of symmetry in hand to prevent those 1,000,000 lives from being lost. Now that now is cascading. So it's not just about pneumonia screening, but it's also about things like CCHD screening, which was spoken to earlier, so congenital heart defect screening. There are 400,000 children who are born with a critical congenital heart defect. They can use the same pulse of the nerve to screen and look for those children. It's a cascading technology. Now the RAD G development came around through a partnership with the Bill and Melinda Gates Foundation. And while the evidence was there already that National Set Technology was the technology to use, the standards were changing. As a company, they reinforced the importance of the partnership and moving for not just profit aspect but to the philanthropic aspect. The Phil and Melinda Gates Foundation funded almost a $5,000,000 initiative and working with the visionary engineering team to develop this device. Now why is this device important? It's the other barrier to scaling. Which is having a highly intelligent, high quality device that can teach, train and be used by any health worker and is robust and durable and reliable in any setting. It's not about cost. Cost is a factor. It's about being able to deliver good quality health care. And it's another area I'd like to thank Anand and Bilal engineering team for the vision and development of the RadG device, which we'll see today. Now those opportunities have allowed us organizationally to focus on other critical areas. The humanitarian aid aspect, which allow requires a much faster response. Now where people at the Bill and Linda Gates Foundation will say that the definition of humanitarian greatness is not just about developing technology, it's about rolling it out to have equal access for all. There are times in crisis where we have to recognize that has to happen very quickly. And so we've looked at different initiatives to say how do we use our refurbished devices, how do we use the fundraising efforts of our team to make a difference. And so examples like the $5,000,000 equipment donation to the Jordan Kingdom to help the over $1,000,000 displaced Syrian refugees who are in Jordan have access to health care technology and ensure that the people of Jordan themselves also have access. That was an undertaking we're able to do by using our cost impact of the refurbished devices, deploying them effectively. Other initiatives like working with partners in health deploy devices to Haiti during the earthquake, Sierra Leone, Liberia and others. It's been a delight to see our team working to gather their funds to make this a difference. So this is very much also a part of our culture delivered towards these initiatives with our own personal funding. So all of those areas are focusing on the people that we need to help, but we can't only speak about that. We can't take care of only the people and not take care of our planet. So as well, we're focused on our environmental stewardship. And in these areas as well, this is delivering to all of our values and our objectives spoken about earlier. I'm going to speak in a minute about a bit more detail about the RD sensors, which Anand reviewed today and others have spoken to. Also, our basics of our packaging. There are almost over 2,500,000 boxes that ship every year with adhesive sensors in it. Changes of moving that to recycled basic brown cardboard packaging has a profound impact on the waste around the world. It makes a very big difference. Other things are around us. If you look down inside, outside, maybe you guys walked by the koi pond. Hopefully, you saw the many families of ducks being taken care of outside. That's 100% recycled water with no chemicals. Later today, you'll get a chance to eat lunch that comes from our kitchen that's here. That as well as part of our environmental commitment to ensure that people are not having to leave the property to seek their food. They're more productive. They're here. And they're able to reduce their impact on the carbon footprint. Above us, you won't get a chance to see today, I don't think, but there are 900,000 kilowatts coming from the solar panels on the roof, reducing our costs and also contributing to the grid and the environment. We're very proud of these initiatives that many people, including Youngsome, have led that really are making a difference without us even seeing them around us. Now R and D, I want to go into this a little bit more because I think it's really important and speaks to the areas that John talked about with many customers adopting Masimo SET around the world. As you know, many hospitals have environmental objectives they must meet. So while they may value our technology, they're ranking and scoring us on environmental impact as well. The R and D centers allow them to meet those objectives: reducing storage space, 84% less waste. These are very real contributors to cost for hospitals for storage, cost for maximum for storage, shipping and handling of waste, very impactful realities for our bottom line and for our environmental conscience. So I want to thank you again for your time here today. I'm really proud to pass it back over to Mark Dorad and really appreciate your conscience towards supporting the incredible technology and goals of the company that looks to maintain a better world every day. Thank you. Thank you, Stacy. Well, hello, everybody. It's so great to see familiar faces, some faces I remember from, believe it or not, almost 10 years ago. So thank you very much, as we've all said, for coming out to visit us. I think Eli and I have a slightly different perspective on that though is after our last Analyst Day about 6 years ago, Eli and I have been traveling to the East Coast for 6 years. We think it's about time that you actually came out here. So thank you for actually spending some time with us today. What I'm going to try to do today very quickly is summarize a little bit about everything that you've heard today. In general, those of you who are used to Eli and myself coming out and talking about the overall financial picture of the company, hopefully, what you've heard today is the reality that the entire company is essentially on the same page because many of the things that we spend time talking about when we come out to visit are in sync with everything that you've heard earlier today. I also wanted to provide a little bit of background before we go into the slides. And that is, again, for those of you who've been with the Masimo story for many, many years, there were a number of years where for various reasons, while the company was able to keep its top line moving up and its margin line relatively flat, that there were a number of issues over those years caused us not to be able to deliver the kind of earnings performance that we were looking for. I'm happy to say, as you now know, that about 3 years ago, that all changed. And that all changed primarily because Joe and the rest of the management team decided that there was a very short window left to our 10 year plan and the leverage that we had promised from this financial model had not yet appeared. So 3 years ago, we put in place a plan to actually change that. And obviously, we sit here today bearing the fruits of that plan. I'll speak a little bit more about what we're going to do in the future. But as you know, that plan included what we called at the time reasonable top line product growth ranges. It included a commitment to improving product gross margins and it also included a commitment to growing operating expenses at a level that was appropriate for what the company needed to do around the world, but also in a sense targeting certain operating expense levels that will ultimately yield the kind of earnings leverage that we've seen over the last couple of years. So I'm here today to tell you that with all of the positive news that you've heard relative to where we think ultimately the top line can continue moving, but the commitments to gross profit margin improvement and operating expense control. And I'll remind you, we will continue to invest all over the world as required to support the growing business, but those mindsets are in place. They will continue to be in place. So along those lines, what I'm going to spend a little bit of time talking about today is the future targets relative to revenues, gross profit margin, operating expenses and operating income. We'll also spend just a little bit of time talking about our projections of where we think our model over the next 5 to 7 years should lead us in terms of our ability to create annual free cash flow over that period of time. And then finally, just a few notes on the infamous royalty gap that as many of you know is associated with the end, the eventual end of the royalty payments that we've enjoyed from Nellcor, Covidien and now Medtronic that will end in early October 2018. So we'll spend a little bit of time talking about that. So I won't rehash these bullets, but the good news is you should recognize all of these bullets as the team today talked about all the revenue opportunities that we see in front of us. The first four highlight areas that are already there. The last bullet speaks to some of those new opportunities that we alluded to earlier today in the earlier presentation. So what does this all mean? Joe mentioned at the outset that historically, as you know, last 2, 3 years, Masimo has felt good about providing revenue guide somewhere in about the 6.5% to 7.5% top line level. The results obviously have been much better than that over the last couple of years under the idea of continuing to set realistic targets, but doing everything we can collectively to overachieve those numbers. The intention is to continue that. The difference is that we're so confident today about the opportunities that lie ahead of us in light of what you saw earlier today that we're confident enough to move away from the 6.5% to 8% future revenue guidance to a level of 8% to 10% that we believe is going to be achievable for the foreseeable future. Again, a number that we feel very confident in. And again, as the slide indicates, doing everything we possibly can to exceed those type of numbers. But again, a very solid number and I think from a directional standpoint, very important to realize the company is so optimistic about the opportunities in front of us that we're willing beginning next year to take that revenue guidance up from historically where it's been for the last 2 to 3 years. The gross profit margin story, Anand spoke to that a little bit earlier. The areas that we have as opportunities are going to continue to exist. There are a number of areas related to new cost product reduction. There are also a number of opportunities we believe in the supply chain that we'll be looking at over the next couple of years. And the goal long term is to take our product margins to 70%. We don't know exactly when we'll get there, but I can tell you that there will be a maniacal focus for at least the next couple of years in setting in place all the different elements that are going to be required to get to that kind of level. This is a very nice simple chart. I can guarantee also it won't be that clean. There will be some ups and downs, but the ultimate goal over the next 5 to 7 years is for us to approach that 70% product gross margin level. And for those of you who remember the Masimo IPO story, there was a time when we were talking about 70% being the ultimate product gross profit margin targets, some that I've met earlier today, remember the IPO story. So that's where we're going to be focused on and trying to get there obviously as quickly as we can. So much of the last couple of years financial performance and improved overall bottom line results have been as a result of our ability, as I alluded to earlier, to successfully manage the rate of operating expense growth. What you see here is just an indication of the kind of disparity, positive disparity between our product revenue growth and our operating expense growth. The current year, of course, is still an estimate. So we have 3 more quarters to complete those numbers. So tough to know exactly where that bar will end up at the end of the year. But you can get a sense of the kind of gap that we're creating and the kind of gap that we're going to continue to focus on delivering. On the flip side, operating expenses, 70% product gross margin target, 40% operating income target excuse me, operating expense target. The last couple of years, for those of you who followed our numbers, we've been in the 47%, 45%, 44% range. Our intention is to keep driving that forward. But at the same time, of course, making the necessary investments that we believe are required to continue to support our growing footprint, not only here in the U. S, but all over the world. The leverage within the P and L that I spoke of earlier is evident through these numbers. And just so you know, the little blue portion of those last 2 years is the new addition of the net impact of the new stock option gain impact on the earnings per share numbers. So the bottom line numbers are the ones that you want to actually take a look at. The kind of growth rate that we've been able to present and deliver over the last couple of years is the kind of growth rate that we intend to continue focusing on. Such that right now, consistent with that 8% to 10% product growth rate, what we are focusing on and targeting to deliver is operating income of 12% to 15%. That's about 1.5% above the product growth rate range. And for those of you who have heard us speak for the last couple of years or so, obviously, while this is the initial target, as you heard today, we are doing everything we can, not only from a top line, from a margin line, from an operating expense growth rate standpoint to overachieve those kind of numbers. But directionally, we wanted to provide this kind of overview so that everybody had a sense of where we're looking to grow not only the top line, but the bottom line over the next couple of years. So assuming we complete that, the overall 5 year projection right now suggests that annual cash flow, free cash flow generation will approximate somewhere between 150, dollars upwards of almost $300,000,000 over the next 5 to 7 year period. That's a level of cash obviously that is commensurate with the increased revenue levels, margin levels and controlled operating expense growth. What are we going to do with that cash? Frequent question. The answer to that is that obviously we're going to continue to support the operating cash requirements of the company, as I alluded to, not only growing here in the U. S, not only growing OUS, but infrastructure and manufacturing requirements that fit in with the kind of automation and other opportunities that Anand had alluded to earlier. M and A, Joe mentioned that earlier today. So we'll talk a little bit about that later. Share repurchases, obviously, this is something that Massimo has been quite aggressive in over the last 3 years. In fact, in total, repurchasing approximately 11,000,000 shares over that period of time. So that is something that will continue to be on the opportunity list for us and decisions will be made as market conditions allow. And then finally, dividends. While Masimo has not paid a dividend in about 6 years, we'll continue to leave this on the list as a possibility, primarily as a reference to the potential discussions about repatriation that are circling Washington these days, because a dividend in that kind of scenario is something that is always a possibility. So I'm going to close by just spending a few minutes on what we all euphemistically refer to as the royalty gap. This is one of the more frequent questions over the last couple of years that we've received when Eli and I have been out. And of course, no surprise to anybody here, but the end of the Medtronic royalty payment stream that both parties agreed to actually middle part of last year is going to be in October 2018. So ultimately, from a model standpoint, what that means is that from 2017 to 2018, we're looking for about an $8,000,000 reduction in that royalty line. And of course, in 2019, the rest of that reduction will occur. These are estimates, but it gives you a ballpark sense of what the impact of those changes to itself in order to address that royalty gap. What I've to itself in order to address that royalty gap. What I've done here is list just a few of those to make you aware of those opportunities. Standing here today, we've of course not decided which of those opportunities to avail ourselves of. But clearly, any one of these could help close that royalty gap. The operating income growth targets that I mentioned before stand in place relative to our ability to obviously smooth out the impact of this royalty change over the next 2 years. So areas that we can help close this gap include the operating earnings of the company. Obviously, 2 years from now, we'll be an even larger company than we are today, generating, at that point, hopefully, north of $200,000,000 in cash, and the earnings from that will be a part of filling that gap. The Phillips NRE revenues, Rick had alluded to the fact that we are working obviously with Phillips on a lot of these integration activities. For those of you who remember in Q4, while we received a $300,000,000 settlement payment, about $270,000,000 of that went into our Q4 P and L, leaving about $30,000,000 of deferred revenues that are tied to certain product deliverables for the integration activities that Rick was alluding before. Of course, it's very difficult to predict when those will or will not land. So all we have suggested so far is that this year, we believe approximately $4,400,000 of that $30,000,000 will land in 2017. That obviously leaves approximately $25,000,000 left for the future years. And that will as I said before, that will continue to change as the product delivery schedules evolve over the next couple of years. M and A opportunities, again, this is another area in which filling that gap could occur and then share repurchases or in other words, using our balance sheet is another approach to help offset a little bit of the impact that will come from the reduction of those royalties. And as always, there's a there are some other things that we're working on that if they do materialize could also be opportunities from a P and L standpoint to actually help offset what otherwise would be a 2 year royalty decline. So the point really is that we're obviously well aware of this. Everybody is well aware of this. We're looking at the opportunities that we have in front of us. The good news is we've got a number of opportunities in front of us in terms of how can we actually close that gap. So with that, I'm going to turn things back to Joe Kiani. Thank you so much, Mark. Well, thank you. I'm going to try to go fast as we're trying to respect your time. And after my talk, I'll ask my colleagues to join me here to answer your questions. Before I get going, just one factoid I wanted to share with you. The Bill and Melinda Gates Foundation, when they did that study in 5 different countries to test our pulse oximeter versus the other 2 that they narrowed down from a 20, our error rate was 3%. The next best product was over 30%. So imagine you put that in the hands of 1,000,000 frontline workers to screen tens of millions of children. You can just kind of see what a problem that could be if you don't have the accuracy and sensitivity and specificity of our product. And that's why we may have been able to just do whatever we wanted to do at that point, but we decided we have a shared responsibility to make a product that's good, sustainable that they could afford it, but also one that we could sustain making and selling. So I want to start off by just before I close to tell you we've been talking a little bit about M and A opportunities and what is it that we're looking for? First of all, there's 4 parameters and not that I expect we're going to get all of those in 1, but we want to be we're looking for large markets, very large markets, high growth companies in those large markets. Ideally, it would be nice if they were non dilutive and that we could get a good price for the company. Now that combination of 4 is difficult. We may have to sacrifice 1 or 2 of those to get what we want. But I can tell you the large market opportunity and the high growth rate are essential to what we're looking for. The second thing as far as what are we looking for, you noticed we changed our mission statement. It's no longer taking patient monitoring to new sites and applications to get to the result we want, which is improved outcome and reduced cost of care. It's now improving patient outcome and reducing cost of care. That means it's not monitoring specifically that we're looking for. But we're looking for things that are products that are closer to the decision maker. Making this incredible marksman technology, as you noticed, has had life saving, life changing impact as those drugs and implantable devices have. Yet the people making decisions for buying those are not the people who are bringing in the revenues to the hospital or the people that are using it for themselves. So it makes there's a delay in getting these innovations out when there isn't a direct connection to the decision maker. And last but not least, we want diversification to reduce the risk of market concentration. A great example, what can you learn from Kodak? I think had they predicted the digital camera, it really wouldn't have helped them because making a digital camera wasn't going to be as lucrative as making film and developing film. But had they predicted that and had diversified themselves, maybe as they lost that business, they would have had 2 thirds additional business to fall back. So while we haven't done a lot of acquisitions, we've done some in the past 10 years. They've not been big acquisitions, but I think it's important we look at those and see what do we do. Every one of them was a success from Andromed that led to our acoustic restoration rig, SedLine, Spire Semiconductor and Faison. We not only effectively integrated all of them, we improved them, we reduced the cost, and all of them have helped us with the clinical leadership. So let's talk about it. We acquired Andromed, a Canadian company that had the first digital stethoscope. We took that technology and created the acoustic respiration rate that now has the best performance for detecting respiration pause and monitoring respiration yet, and yet it's comfortable and easy to wear. We acquired SedLine from Hospira. And you see on the left, this is what we acquired, a big device, pretty clunky. Not only we streamlined it, created new sensors that would work with 3, but we took that technology to a new level of performance, SedLine 2.0, using our signal processing and technical prowess. We bought NOMALINE, a company, Faizon was the name of the company in Sweden, and we were able to migrate that technology to our root and with our presence creates this incredible demand for it with the large OEMs and with the end user. We've been able to grow it rapidly. And as rapidly the revenue is growing on this, it's important to note it's without sale of cannulas. So imagine growing our set pulse oximetry business without the sale of sensors. We will be getting into the cannula business shortly. And Spire Semiconductor, as I mentioned earlier, there was only 2 companies could make the wavelengths of light we needed for rainbow. And they weren't making them exactly the way we wanted it. We didn't get the power we wanted. We didn't get the emission tightness of wavelength that we wanted. And certainly, the cost wasn't where we wanted them. We were afraid we couldn't scale up with them. So we acquired Spire in New Hampshire, and now we are creating huge savings from not only our own production of LEDs, you can see these new sensors we created even just for the set pulse oximeters, which is our core revenues. But now, with the wavelengths they made, we've been able to enhance the product, and we can now offer, instead of $100 price target for Rainbow, dollars 25 price target for Rainbow at similar margins. And we talked about these new products that we have not even accounted for in the wave of revenue growth that we expect, like A through E that we discussed earlier. And without those even, just with SET Rainbow Route and Patient Safety Net, we see ourselves growing from a 3 to a $6,000,000,000 market opportunity with these types of revenue growth in each category, which if you combine them all together, is well above 15% growth rate. And yet we're forecasting 8% to 10% growth rate. So I'll close with the key takeaways. Our customers and our partners are embracing us. The target revenue growth, 8% to 10%, target operating margin of 30%. These targets don't include contributions from the other products in the pipeline that have proven feasibility. These are not things that we're not sure we can do, nor do they account for M and A opportunities that we think are ahead of us. And yes, we are no longer a startup, but we have the passion of a startup with a 4,000 plus team member that come in here every day wanting to improve patient outcome and reduce cost of care. So with that, I'd like to take your questions. Now if you could have my team join me, I guess we'll sit down here and see what questions you have. And after this, we'll head out to lunch and we'll sit with you and answer more of your questions. By the way, Rick didn't show you that, but I don't know you could tell the size we were talking about. But this is the MS-one board. This is the MSX board. That's how small the technology has and it's now 98% lower power consumption. Thank you. So any questions? If anybody wants to ask a question, please step up to the microphone so everyone on the webcast can hear. Thank you. I know you're sticking questions, you want to ask 1 on 1. But if you have any questions, we'll take it. Otherwise, we'll go to lunch. Hi. Hello. Al Borris from Alex Brown. Could you just I listened fairly closely. I never heard the term big data used. And other than its use in R and D in the development of products, is there any market value to collecting all of that all those signals and that information? What can be done with that, if anything? Sure, sure. Big data, cloud, those are all nice words of today. Language is a virus, right? It catches on. Yes, we have been using big data and little data in our products. The 375 hospitals who deployed Patient Safety Net, almost every one of them, their data comes back to our VPN. We do analysis for them, and we gather that data, and there's a lot of really useful information there that we use minus patient identification. So it's HIPAA compliant. Secondly, we believe in individual data and the power of the patient data superhighway from each individual. If you look out there, there's a product we have called HALO, HALO index. It's not been cleared in the U. S. Yet. But HALO takes all of these measurements. We now have about 20 measurements that we collect non invasively, many of them orthogonal to each other. And using expert system condenses it to one measurement from 0 to 100. The higher it is, the more trouble the patient is having, and it's becoming a predictive tool for clinicians to know what patients need help. In addition, with the latest generation of our technology, patient safety net, we have something we call patient safety exchange, where it taps into the EMR data, snips the data for all kinds of information that's on the patient from history to blood work to future imaging. And it takes that information and helps us detect things like onset of sepsis, onset of bed stores or some things that are not immediately critical. So yes, so we are using our data and we'll be using more and more of that as the products go out, but that's just part of normal engineering and data analytics. Good afternoon. Matt Larew from William Blair. Wanted to follow-up on the comments about M and A, moving beyond the scope of just patient monitoring, thinking about patient safety more broadly. Would you think they remain within the diagnostic realm or look interventional or potentially drug delivery? And then given that Masimo products continue to proliferate beyond the inpatient setting, is there an interest in, again, taking that patient safety theme from an M and A standpoint beyond the inpatient setting? Thank you. Thank you for the question. First of all, I want to announce a new member of our team who just joined us, who's going to be heading up our business development, Thierry Leclerc, would you please stand up for a moment? Thierry has just joined us. We were colleagues at GE. He was at GE for 30 years, ran the patient monitoring business last several years. And while we all have experienced our area of monitoring, when it comes to acquisitions at this point, we are wide open. We believe we've built the shiniest, nicest house in a great neighborhood, and we're looking for a couple of new neighborhoods to move into that we think is big market, high growth, and we're looking for opportunities that where we discover something others don't. So it's not like we're looking to go pay a lot of money to buy a big company. We want to find opportunities that we think we could invest in and in 5 to 7 years, have a couple of more shiny, beautiful houses and a couple of additional new neighborhoods. So we're totally open. It could be in any market, any segment in the medical world, including consumer health. There was a question here in the front. Maybe some back here. Yes, I have a question. This is Hamed Faradi with Bank of the West. I'd like to know a little bit more about the suppliers and how the supplier universe has evolved lately? Has it diversified, concentrated? If it has concentrated, how these key strategic possibly sole source suppliers can be kept captive. Thank you. Adnan, do you want to address that? Sure. So with regard to suppliers, as our product portfolio has evolved, I think we have now have the option to work with more suppliers. So I'll give you perhaps with a general example with electronic circuit boards. We've been working with supply chain folks in that area, the top tier, Tier 1 suppliers who make contract manufactured circuit boards. More recently, we've now been able to work with contract manufacturing firms who build circuit boards who focus more on the medical industry, the aerospace industry, so that we get the ability to quickly bring in a new design for them to be able to turn that new design into a finished board within a fixed time cycle. So there are advantages to working with suppliers who deal with our types of industries, our types of volumes and kind of rightsizing that kind of partnership. So at the same time, we can't be sole sourced. We have to have multiple options. So we do keep them. So there is a variety of approaches to say suppliers A to Z. We pick 3 suppliers perhaps for a family of products and be able to have the benefits that the competencies that those suppliers bring in and we leverage those competencies, but yet we have a fallback plan should things happen. I think there's a question from who's got the mic? You have a question. So Ryan Zimmerman, BTIG. Thanks for taking the questions. The long term growth rate that you put out there 8% to 10% on the top line, really appreciate the color in terms of the product categories. Just maybe some color around the U. S. Versus OUS markets and where you see opportunities specifically potentially outside the U. S. And whether that's driven by continued penetration into those markets or converting over larger hospital contracts that you've highlighted earlier? Thank you. I'd like to give John and Rick a chance to address that. Sure. So as I mentioned, the U. S, there's still a large play that we have within the market there where we have half the market that we can go after. So many of those will be new hospitals, where we have no business with today. But there are so many hospitals in the U. S. Where it's a matter of penetrating more deeply with the technologies that we showed you earlier today, and I think there's significant growth potential there. Outside of the U. S, as I mentioned, we have a similar sort of opportunity in Japan where there are a lot of hospitals where we do not yet have extensive business. And I believe that with the right leadership and the right focus, we'll be able to target those. But as I said also earlier, there are markets where we've frankly been a little slower to enter beyond a distribution model than we might otherwise have liked, and we're changing that. We're pursuing some markets and investing with our direct people on the street right now. So that includes areas within Asia, South Korea, where we think is a very good marketplace, as well as some others in Asia as well. So I think it's a combination of all of those things. But really, again, we're finding what I'm finding intriguing is that the entry point into hospitals is not always just set. It's often set, but it can be a variety of different things that take us in now. They you might start with something that then leads us to something else very quickly and then eventually to a whole house conversion. But that's sort of the way we're thinking about it. I mean, clearly, our objective is to see the OUS growth outstrip the U. S. The U. S. Has had strong growth. We our objective is to see the OUS growth increase such that over time it becomes more like 40% of our business versus what it is today. Thank you, John. Rick, do you want to add anything to that? Yes, I would say, on the OEM front, we have a tremendous opportunity to drive breadth of integration now. So, more than 70 SET and Rainbow or more than 70 companies integrating SET and Rainbow, probably about half of those now are integrating NOMALINE. And we have our sights set on those companies that sell products in the OR and critical care space where 3 and SedLine are obvious targets. So we have the opportunity to leverage breadth within a given OEM. But at the same time, some of the growth that's happening in the emerging markets is starting in a variety of ways. So whether it's SET because they're only in recent years becoming exposed to the benefits of SET, the kind of benefits that drove the Gates Foundation to say, wow, what a difference. And yet at the same time, for some of those markets, they're totally brand new to brain function monitoring. So where we were a secondary player in major markets, in some of those markets, we're coming into the market where the interest is new and fresh, and we have an opportunity to compete right out of the gate. So there's a diversity. And I think the challenge for us and then the leaders below us is to look at every market and understand the best opportunities to penetrate the markets. And that's both from a get our foot inside the hospitals, get our foot inside the OEMs, but it's also to grow our revenues. Alex Nowak from Piper Jaffray. Two questions. The first one is, what is the plan to increase adoption of Root? Is it when a contract in a hospital comes up for a normal set to introduce ROOT into the hospital? And then the second question, the product growth guidance that you gave, does that include any competition from the royalty expiring in 2018? Well, let me just give high level answer to that and then I'll let see if John wants to expand on that. First of all, route can be many things to many people. The idea behind Root was to create something that would do to patient monitoring what PCs did to computing. Not only is a very low cost device, a $2,000 device, it's an open architecture where others can make innovative solutions for it, whether it's new sensors or new apps on it. And that should speed up innovation cycle and make the product very attractive broadly beyond even what we could do with it. There's about a dozen companies already working on projects for route. Some of them are going to be introducing products this year. But the third was to create this very rich connectivity hub so that we can not only help deliver the promise of data integration into the electronic medical record because there are a lot of legacy devices in each room that don't have a way to get their data to the EMR. But it can become this hospital automation device to help take away the clutter, unify the view and long term even control of different devices. So that means Root is interesting in a lot of different areas. First in hospital automation is the first of its kind. It's a brand new idea. Hospitals are getting excited about it. We're working on some incredible deals that I can't wait for them to finalize and announce that shows that this is really about to really happen. And there is really no competition for it there. Then in terms of a connectivity hub, it competes with Qualcomm CapsuleTech, it competes with NAND Health, IsoRona and Cerner and Epic yet at a fraction of the price because we've taken the tech model instead of medtech model where we're not charging for the data. We're making it easy. And we invested heavily in an architecture we call adaptive connectivity engine where what used to take months, maybe years to integrate, it takes weeks because the adaptive connectivity engine sits on the network, sniffs the communication, adapts itself, figures out the protocol and with just some fine tuning that takes a week or 2, it closes the loop. We had a challenge from a huge customer that said, okay, show us. Show us. We have 14 different instruments from ventilators to monitors, infusion pumps. Can you integrate? Less than 2 weeks we did it. So then there's route for SedLine, there's route for 3, there's route for capnography and NOMALINE. And these solutions right now from our competitors are big machines without integration. And of course, there's customers that like SET and Rainbow, but before they had to look at it in a small display. Now they can have the big display of Root, They can have untethered monitoring if they want with it or with Kite and Uniview see it as big as they want. So it really hopefully will become route of all rooms for many different needs. And as John's been saying, once they like it for SedLine, then they want it for 3, then they want it for Rainbow, they want it for the different additional parameters. It's really has a nice virtuous circle appeal to it. John, I'll talk to why I was thinking about that. I'd just add maybe 2 things. First, really it's about creating awareness and making sure people understand the power of this device. When they understand the power of the device, they want it, and they're willing to pay for it. We're finding more and more customers are willing to spend capital funds to buy these. And one area that, for example, that we're finding that they're willing to buy them is in the area of vital signs monitoring. Root has a vital signs monitoring capacity and we're selling a lot of them. So we're not having to include them always in contracts. In fact, we're able to sell them. And I think there's a significant market opportunity with Root. It's just awareness and ensuring people understand the power of the tool. Larry Keusch from Raymond James. So I want to start with Joe, if I could. So you and the team have presented a very impressive story here for growth for the next 5, 7 years. If you were to look at the 3 curves where you've shown the base case, the upside downside, as you think about it, what do you think your best chance is to overachieve on that baseline amongst those? Well, we are trying to be conservative, I think. Wasn't it you that kind of mocked us for last time being too aggressive? So we're trying to see conservative. Not mocked. It felt like a little mocking, but it's okay. We appreciate the criticism. Look, we're entrepreneurs. We are very optimistic about the future. And I think most likely the overshoot will come from Root and Rainbow. And I think Root because I'm hearing from our sales force, if we were pushing them, start selling Root because they're not used to selling capital. We're used to converting hospitals to SET, giving away the devices, converting them, but they're telling me, Joe, Root's helping us get the SET business. I think that's very exciting. But then Rainbow, because of the few things that are just coming together right now, Phillips. I mean, some people call Philips kingmaker in my past life. And Philips, integrated and promoted, when I first met with Frans, he said to me, look, we want to settle our legal disputes, but we may just want to pay just cash and be done with it. I'm not going to work with you unless we think Rainbow is going to be standard of care. He said, let me go do my homework, and if I think it's going to be standard of care, I'll call you. And he called me, and we met, and we as you know, we entered into this really wonderful relationship. But as they're going out, the clinical evidence is coming stronger than ever and because of the acquisition of Massimo Semi, Spire, we now can reduce the prices, kind of all coming together. I think SET, I think, is on its own trajectory. I don't see a big jump. But I think with Rainbow and Root, that's where we hopefully have some potential to really over exceed. Okay, terrific. I appreciate that. And then Mark, just two questions for you. So I think in your comments as well as Joe, there were some general themes around M and A. But I'm wondering if you could potentially provide a little bit more of sort of the financial framework that you think through or the criteria, whether it be returns on invested capital targets or year of accretion. And again, I recognize all deals take on a life of their own. So there may not be one answer that fits, but just broadly thinking. And then the second question is, as you think about the royalty gap, the $27,000,000 in deferred revenue from Philips, given its margin profile, goes a long way to filling that in. So I guess the question is, how much wiggle room do you have to control when you recognize that revenue? Sure. Let me take the last one first. I think as I implied earlier, there is a very specific detailed product integration schedule that we have with Philips. And that schedule stipulates certain targeted times for certain products to be transitioned. But the reality is it's a product development schedule. So as we chatted about earlier, the reality is while both parties are focused on trying to deliver on that, there is still a lot of uncertainty about what will happen and when. And for that reason, to date at least, we're not comfortable and at least right now specifying when we think the rest, if you will, of that $25,000,000 which is the gap between the $30,000,000 and the $4,400,000 is likely to land. I think as we get further through the integration process, as Rick alluded to earlier, is working very closely with the Phillips team. So as we get more confident in when those dates are likely to happen, then we'll be in a position to actually be a little bit clearer maybe about the timing of when that might actually land. And frankly, it could be 'twenty seven, 'twenty 18, 'twenty 19. That is the period of time that we're looking at. And then in terms of the first question, I think as Joe alluded to in his bullets, there's the desire, of course, to do a fantastic deal that's nondilutive at a very good price. The reality is it's hard to find those kind of deals out there. So I don't think, especially given Joe's reference to the fact that we're open to a lot of different opportunities, I think that really doesn't lend itself to suggest that there's a certain formula right now that we're taking a look at relative to any of these acquisitions. As you know, over the past 3, 4 years, maybe even more, 5, 6 years, most of the acquisitions we've done have been of a smaller scale, obviously, all very successful. But I think in light of what we're talking about today, that it's quite possible that we're looking at transactions larger than that. But again, at this point, too early to confine ourselves to exactly what that means relative to the checklist of items that Joe had on his schedule. So every deal, as you said, will likely stand on its own relative to whether or not we think in the long run, making that kind of commitment is the right thing to do somewhat regardless of what the short term impacts may be. Yes, Chris Lewis with Roth Capital. Thanks for taking the questions. Just a few here. I guess first, Joe, you kind of walked through some of the pipeline opportunities. I think there were 5 on the list. The last 2, you pointed to market opportunities of above $1,000,000,000 So obviously, you're not going to give too much information away at this point, but any color you can provide just in terms of potential timing for some of those larger market opportunity pipeline products to eventually come to market? Yes. Thank you. We're not asking for more details of what they are. We're on the balance between disclosing to our investors and shareholders what we're doing, plus not wanting to let our competition know exactly what we're doing. I believe those 2 $1,000,000,000 opportunities, they will start seeing their way into the market in 3 to 4 years. And in terms of just the comments around route and the potential there, how do you balance selling the device with the parameters on it versus obviously the OEM integration efforts? Well, the OEM integration effort is something we are very protective about and we appreciate what it means to us. So we do our best to work with our OEMs so that our sales force do not get better compensated, whether it's our own device or their or the OEMs' device because we don't want to create that environment. But where Root is being sold is where the other devices can't do what it does. It's the hospital automation, the connectivity hub, some of the advanced monitoring, being the ideal monitor for the General 4, these are areas where OEMs really don't have any solution or if they do, it's not really optimal. Rick, do you want to add anything or John? Well, I mean, I think I live that line every day. And I will tell you that one of the things I spoke about was the fact that if you don't get out and create the device, not just the measurements, but the devices that facilitate better safety, better outcomes, you will never have the ultimate deployment within the OEM device. It won't happen. So whether if we look back at the first Rainbow deployments, the very first device we deployed Rainbow with was the RAD57 handheld targeted at the EMS market. And we were out Joe and I were out in early 2005 meeting with the companies who now sell tens of 1,000,000 of dollars of these rainbow solutions every year, trying to convince them of the wave that was coming. And they said, well, yes, that's it. Really, you think so? And so out we went. And sure enough, the handheld was a success. And yet ultimately, in the end, the customer said, I'd love to combine it with my other vital signs and my therapy, if I could. And lo and behold, our team now in the EMS market, primarily they still sell some handhelds, but primarily, they support the OEMs who work in those markets. Root, as Joe indicated, is a totally unique point of care device. I think we see it far more as a connectivity engine and an open architecture solution that doesn't exist anywhere more than it's a real direct competitor. Whether then we'll see other OEMs build products that have similar features, who knows? But they look at it and just say, wow, what a great idea. And in the meantime, we're selling in environments and competing for monitors maybe in a space with them. And I say competing and collaborating so that in the end, they're going to pick rainbow, this, this. That's up to the customer to say, I like this deployment of it or that deployment of it. But no doubt, it gets a little blurry there. But we've been pretty good at managing that blurry line. And obviously, we like selling the devices. It's good and we want to do more of it. But the bulk of the revenue comes from the consumables. One of the incredible things about this business is the dynamics it has. When we disrupted Nelcore, Nelcore had about 90% market share. It's like trying to go after Microsoft and then doing what we did, which is eventually unseat them. But they as we've taken hundreds of hospitals every year away from them, you can see it through their royalties. I'm not disclosing anything confidential. 11 years of royalties now, you've seen it. The revenue is flat. So think about it, when we get disrupted, which may one day happen, we're not seeing anything out there, so I'm not suggesting it. But if we do, think about how protected this business is because of the consumable revenue and the whole model of sensors working with our devices only. So, we see sensors, SET, Rainbow, SedLine, O3, Nomaline, Canulus and other things that we're working on as the ultimate revenue margin expansion, operating margin expansion opportunities. That's why we're going where we're going. So because of that, as much as we're enjoying the monitoring and activity hub business and we think we're going to be in that business for a very long time, we will never lose sight of how important it is to help our OEMs succeed. Well, I don't lose much sleep. I've been through a lot. But what are some of the risks? Well, I worry about what I don't know. And one reason I'm looking at diversifying Masimo through acquisition is because I want to make sure if something comes that we're not even anticipating, Massimo will be a thriving company regardless. I think one of them is that and what could come out that could disrupt us. I think the second is the team here. We are blessed with an incredible dedicated team. And the reason engineering keeps producing such amazing revolutionary solutions that looks easy year after year is because we had them together. Really, I can count on one hand number of people we've lost over the last 28 years in engineering that we did not want to lose. And this team here, I come to work here, really John says, Joe's never more engaged. Part of it is this team. We have a fantastic team. And I remember when we went through our IPO, when the lockup came, we lost 20, 30 really good people that I did not want to lose. So as we have now generated more wealth for the new wave of people and the old, I worry about the team not being together. Do I have reasons to believe that? No. I mean, I just see them. They're dedicated. They're in it. But if there's anything I lose sleep on, it's really those 2 issues. I don't lose sleep. I get it. It's a little past 12:30. If you have any other questions, I'd be happy to answer it now. Otherwise, during lunch, we'll be mingling with you. So you're welcome to ask us any question you'd like. Thanks. Tayo Levi from Wedbush. Just a few questions, mostly on the financial side. If you go back 5 years ago, when you had the last analyst meeting, one of the, I guess, data points that struck me then and it's probably one of the things you didn't achieve was this revenue growth projection of 15% to 20%. What didn't work out over the last 5 years, we weren't able to capture that close to 20% revenue rate? Sure. Well, and I looked at those 2, by the way. We did achieve 1 of them. We achieved the operating margin. But Teo had I think had pulse oximetry come out in 2,008, it wouldn't be standard of care today. Pulsar extremity came out in the early '80s, and it was a time when you built something that looked like it was a good idea and people would buy it, and it became quickly standard of care. And when Pulse Ox came out within a few years, despite no clinical study showing outcome improvement, it became standard of care. There was a study done with 20,000 patients. I think it was in Holland, 10,000 with PULSOX, 10,000 without, no difference. Yet with our non invasive hemoglobin, the 1st generation, not even a second generation, the Mass General did a randomized controlled trial and as they said, they were surprised at the results themselves. It was a 90% reduction in blood transfusion. And so I did not expect for Rainbow not to take off the way it did take off. And I think some of that had to do we had a battle with Philips on IP. We had a battle with Mindray on IP. We ran into FDA, Office of Criminal Investigation and DOJ investigating us based on whistleblowers. Thank God everything went great. They left and they said we're a good company. In fact, no indictment, nothing. And by the way, FDA just audited us last week for a whole week, no 483s, very happy. So it was just a combination of a lot of stuff happening, medical device tax, ACA that just unfortunately we look back and maybe there were reasons, maybe there were excuses, I don't know, but it didn't grow the way we thought it would grow. So while pulse oximetry business grew the way we anticipated, rainbow didn't. I hope this time the dynamics are different. I hope not only we have a lot of clinical evidence, we've got Philips, we've got the cost reduction. I hope this time it will be different. And I guess maybe on the Philips part, you've talked a lot about Philips controlling the majority of patient monitors out there. You've also talked about the discrepancy in your relative share within Philips' installed base versus your other OEMs. If you were to capture similar share within Phillips' installed base, what are we talking about Well, we Well, we increased our projections by a percentage point growth because of the Phillips agreement. But without getting too specific, because I can't, but I don't want to share some data that they might find confidential, we see about a 20% increase in our overall socket placement. If we achieve our normal integration with an OEM that we didn't have with Philips because as good as it is now, as Rick said, it was 180 degrees different. They were doing everything they could to resist us, but just give the customers what they wanted. Sometimes even when the customer demanded it, they still shifted with something else and the customer had to fight to get it back in. The dynamics have changed dramatically. So imagine the sockets increasing by 20% more per year than what they are today. That's the beginning of it, and that's just set. This is now rainbow. And then, as Rick mentioned, SedLine, NormalLine, O3 integration in the premier patient monitoring company in the world that will assure others to do the same. It sounds like more than just an incremental 1%. It should be. Okay. It should. And then just lastly, diabetes has always been sort of something, the pipe dream of Mossimo, and I know you used to have people working on that. Anything going on in invasive glucose monitoring? Well, I joked earlier that the project was called Hummingbird. Some people are getting tired of me making this joke, but now we call it the roadrunner because every time we think we're near getting a, it says beep, beep and we fall 100 yards and we try it again. But I still have hope and I have a pulse. While I have a hope I'm going to keep working on it. We're going to keep working on it. So we're trying to make it happen. It's not in one of those projects I showed you because it hasn't reached feasibility. But we have new ideas and new thoughts of how we could bridge the gap from where it is and where it needs to be. All right. Shall we take a break for lunch and talk amongst ourselves? Thank you so much. Thanks for

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