Please stand by. We're about to begin. Good afternoon, ladies and gentlemen, and welcome to Masimo's fourth quarter and FY 2021 Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Now I'm pleased to introduce Mr. Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please go ahead, sir.
Thank you. Hello, everyone. Joining me today are Chairman and CEO, Joe Kiani, and Executive Vice President and Chief Financial Officer, Micah Young. This call will contain forward-looking statements which reflect management's current judgment, including certain of our expectations regarding FY 2022 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC. You will find these in the investor relations section of our website. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures.
In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Management uses non-GAAP measures to budget, evaluate, and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q, in order to make informed investment decisions.
In addition to the earnings release issued today, we have posted a quarterly earnings presentation within the investor relations section of our website to supplement the content we will be covering this afternoon. I'll now pass the call to Joe Kiani.
Thank you, Eli. Good afternoon, and thank you for joining us for Masimo's Q4 and 2021 year-end earnings call. While 2021 was a very challenging year in global healthcare and for millions of patients, we were able to help ease the burden on hospitals, their caregivers, and patients by providing them with our breakthrough technologies. As some hospitals were overwhelmed with COVID-19 patient admissions, our monitoring products made a real difference in patient care. Our team demonstrated our commitment to our mission and guiding principles by putting our customers and patients' priorities first. The long duration of the COVID-19 pandemic drove demand for monitoring equipment and tools to enhance the productivity of overburdened healthcare workers. We manufactured and installed record numbers of our innovative products last year despite supply chain challenges, building on our reputation for responsiveness and dedication to our customers.
As a result, our installed base grew by 7%, while our revenues for fiscal year 2021 grew by 8% against the 22% revenue growth in the prior year. We achieved revenues of $1.239 billion in 2021 as more customers than ever used and switched to Masimo products, acknowledging our clinically superior performance and value for optimizing care and improving outcomes. During 2021, we expanded our portfolio of products with a combination of internally developed and acquired technologies that enable caregivers to rapidly capture the most accurate patient data regardless of the setting. We broadened sales and marketing efforts for the softFlow non-invasive ventilation system for patients with respiratory distress and extended the reach of the LiDCO cardiac output and hemodynamic monitoring products used in surgery.
Our 2021 results exceeded expectations and have positioned us for a year of double-digit constant currency revenue growth in 2022. I'll discuss more later in the call, including further details on our pending acquisition, which we announced with our earnings press release. Now I'll ask Micah to review our Q4 and full- year results in more detail and provide you with an overview of our 2022 financial guidance.
Thank you, Joe, and good afternoon, everyone. Our Q4 results were well above expectations as we once again shipped a record volume of single patient use sensors while our driver shipments once again exceeded our pre-COVID run rate by more than 20%. Increased demand for patient monitoring in hospitals has been durable, as these results demonstrate. We had a record-breaking fourth quarter of securing new customer contracts, resulting in another record contracting year for Masimo. In fact, we converted a major U.S. hospital system to Masimo technologies in the fourth quarter. During the quarter, we shipped 76,000 technology boards and instruments, which was the highest quarterly figure for 2021, and points to continued demand for our technology.
We have shipped approximately 2.3 million technology boards and instruments over the last 10 years. As of the end of the Q4 , we estimate that our installed base has grown 7% versus our installed base at the end of the Q4 2020. This is a notable increase considering the surge in our installed base a year ago. In fact, we estimate that our installed base has grown 25% over the past two years, from the Q4 2019 to the fourth quarter 2021. For the Q4 2021, we reported product revenue of $328 million, representing growth of 11% on a reported basis and 11.5% on a constant currency basis.
If you recall, our Q4 2020 results included 1 additional week of revenue, which added roughly 3% to our growth rate for the prior year period. Regardless of the extra week in the fourth quarter of 2020, our revenue has increased 32% over the past two years from the Q4 2019 to the Q4 2021. Our worldwide sales of single patient use sensors were up 15% versus the prior year period, driven by strong demand for our SET sensors. In line with typical seasonality, our sensor revenues increased by 4% sequentially versus the Q3 2021.
For the Q4 2021, our worldwide sales of technology boards and instruments were down 3% versus the prior year period due to the COVID-related spike in purchases in 2020. However, our worldwide sales of technology boards and instruments increased 5% sequentially versus the Q3 2021. Moving down to P&L. Our non-GAAP gross margin for the fourth quarter increased 240 basis points to 65.9% compared to 63.5% in the prior year period. If you recall, in the Q4 2020, we experienced significant COVID-related inefficiencies which suppressed our gross margin. Our non-GAAP selling, general and administrative expenses as a percentage of revenue increased 30 basis points to 30% compared to 29.7% in the prior year quarter.
Our non-GAAP research and development expenses as a percentage of revenue decreased 50 basis points to 10.2%, compared to 10.7% in the same quarter last year. For the Q4 our non-GAAP operating profit was $84.2 million, or an operating margin of 25.7%. In comparison, Q4 2020 non-GAAP operating profit was $68.1 million, or an operating margin of 23.1%. This reflects non-GAAP operating profit dollar growth of 24% over the prior year period, driven by strong revenue performance and operating margin expansion of 260 basis points over the prior year quarter. Moving further down the P&L, our non-GAAP tax rate was 16.9%, which came in below the 22% tax rate that was implied in our last guidance.
This is primarily due to higher than usual R&D tax credits in combination with a favorable geographic mix. Our weighted average shares outstanding for the quarter was 57.8 million. For the Q4 , our non-GAAP net income was $70.1 million or $1.21 per diluted share. In comparison, fourth quarter 2020 non-GAAP net income was $57.3 million or $0.98 per diluted share. This reflects non-GAAP EPS growth of 23% over the prior year quarter. Turning to our GAAP results. GAAP net income for the fourth quarter of 2021 was $68.3 million, or $1.18 per diluted share. In comparison, Q4 2020 GAAP net income was $70.7 million or $1.21 per diluted share.
Included in our GAAP earnings for the quarter was $4.4 million of excess tax benefits from stock-based compensation, compared to $10 million of excess tax benefits in the prior year period. Overall, for the fourth quarter, we delivered strong performance across the business that exceeded expectations with double digit revenue growth, operating profit dollar growth of 24%, and EPS growth of 23%. Our driver shipments once again exceeded our pre-COVID run rate by more than 20% even after the large surge in driver shipments we experienced in 2020. Looking back, 2021 was another record year for Masimo in terms of winning new customers. Despite the difficult year-over-year comparisons, we delivered revenue growth of 8%, operating profit dollar growth of 12%, and EPS growth of 11% on a non-GAAP basis.
Over the past two years, from fiscal year 2019 to fiscal year 2021, we have increased our revenues by 32%, operating profit dollars by 31%, and EPS by 24% on a non-GAAP basis. Over the same two-year period, our installed base of technology boards and instruments has increased by 25%. The number of connected beds via Patient SafetyNet and Iris Gateway has grown by more than 50%, and our installed base for our Root Connectivity platform has more than doubled. Now, I'd like to go into more detail on the full- year 2022 financial guidance that we outlined in our press release last month. It is important to note that this guidance does not reflect the impact of our pending acquisition, which Joe will discuss in more detail later in the call.
For 2022, we are projecting product revenues of $1.35 billion, which reflects year-over-year growth of approximately 9% on a reported basis and 10% on a constant currency basis. Included in our product revenue guidance is $7 million of year-over-year current currency headwinds. Our non-GAAP gross margin guidance is 66.5%, which represents a 70 basis point increase over our 2021 results. Our non-GAAP operating expense guidance is 41.7% of revenue, which reflects a 30 basis point decrease over the prior year period. Our guidance for non-GAAP operating profit margin is 24.8%, which reflects a 100 basis point improvement over the prior year period.
Based on these assumptions, our non-GAAP operating profit dollars are expected to grow 14% to reach $335 million in 2022, which reflects strong operating leverage and profit dollar growth that is 1.5x our revenue growth rate. Moving further down the P&L, our non-GAAP non-operating income, which is primarily comprised of interest income, is expected to be a very nominal amount in 2022. We are also projecting a non-GAAP tax rate of 24% and weighted average shares outstanding of 58.8 million. Based on these assumptions, we are projecting non-GAAP EPS of $4.34. From a GAAP perspective, we are projecting a GAAP tax rate of 19.4% and GAAP earnings per share of $4.27 for the year.
For additional details on our full- year 2022 financial guidance for GAAP and non-GAAP earnings per share, please refer to today's earnings release and supplemental financial information within the investor relations section of our website at masimo.com. To conclude, our performance last year has built a strong foundation for 2022 and beyond. We delivered another record year in 2021 in terms of winning new customers, which has expanded our potential for future business across our entire portfolio and sets the foundation for a strong recurring revenue stream in the years ahead. As we introduce products into new markets this year and beyond, we can play an important role in improving patient outcomes and reducing the cost of care. We are entering 2022 with a positive outlook for revenue growth and profitability.
Our guidance reflects our confidence for driving double-digit organic growth for both revenue and operating profits as we remain steadfast in our commitment to delivering on our long-range financial goals. With that, I will turn the call back to Joe.
Thank you, Micah. There's no question that 2021 provided us with an opportunity to shine by contributing to solutions for the multiple challenges related to the pandemic. As the threats from COVID-19 now start to diminish, we're all well-positioned to build on the progress we achieved in the last two years from winning the trust of more customers. This has led to a record amount of new customer businesses, including Providence, a 50+ hospital system with 25,000 physicians, a total of 120,000 caregivers serving 25 million patient visits a year. This is due to increase our ability to make even a bigger positive difference. We feel that the end of the pandemic is in sight. Our observations in the field reveal that hospitals are becoming more optimistic about a return to normal conditions.
We should benefit from the rebound in surgical procedures because our solutions include a variety of products used in surgery that are positioned for growth in 2022 and beyond. These products include Rainbow®, SedLine®, O3®, NomoLine®, and LiDCO®. Our ability to accurately measure hemoglobin levels with Rainbow and cardiac output with LiDCO® in combination with SET® pulse oximetry and O3® organ oximetry provides clinicians with a valuable means of assessing oxygen delivery to vital organs. Knowing oxygen delivery levels in real-time can optimize intraoperative blood transfusions and help improve outcomes. Masimo is evolving from a company with breakthrough non-invasive monitoring technologies for hospitals into a company that can provide breakthrough monitoring capabilities in any setting, fulfilling our mission of taking non-invasive monitoring to new sites and applications.
From the launch of iSpO ₂over a decade ago, we have implemented a major strategic initiative to leverage our clinically superior technologies into wearable devices for deployment in the home setting. Our home strategy is coming to fruition with significant new products and features that will contribute to our success in this emerging field, including the recent announcement of telehealth features with Masimo SafetyNet ® and the Masimo Watch ® . Last week, we announced a significant expansion of the capabilities of Masimo SafetyNet ® to include secure video conferencing to enable a comprehensive telehealth solution. With this new capability, we can provide patients with a better hospital-at-home experience, as well as virtual doctor visits from their home.
Masimo SafetyNet ® now allows clinicians and hospitals to schedule and conduct multi-way audio and video-based virtual appointments with at-home patients through the Masimo SafetyNet ® smartphone app while being able to view continuous and spot-check vital signs and other physiological data. We see telehealth and telemonitoring as areas where we can deploy our differentiated, clinically superior technologies to obtain the most accurate patient data to drive optimal outcomes in patient management. Complementing these technologies with software and hardware that facilitates easy interactions between patients and healthcare professionals is critical. Data is useful only when it's true and readily available to experts that can interpret it. Masimo SafetyNet ® can become a premier telehealth solution by integrating reliable telemonitoring with telehealth to provide superior patient experience that is fast, reliable, and easy to use. We've developed a full suite of products for enabling effective telemedicine.
The Masimo SafetyNet ® app is the easiest way for patients to connect with their doctors and care team without having to download additional apps or send in their physiological measurements separately. Our devices from home monitoring today include the tetherless Radius ® PPG and Radius T° ® sensors, which can collect oxygen saturation, pulse rate, respiration rate, temperature, and other data. Our newest offering in our telehealth product suite is the Masimo W1 ® , wearable monitor, which we recently debuted at the Arab Health Conference and is expected to be released worldwide in the second quarter this year. The Masimo W1 ® is a versatile product that uses Masimo SET ® technology to obtain oxygen saturation, pulse rate, and respiration rate on the wrist unobtrusively. In addition, we have added capabilities for measuring steps, detecting falls, and capturing ECG signals and arrhythmias.
Today, we announced our intent to acquire Sound United, a company with a premium consumer technology platform and iconic universally recognized brands like Bowers & Wilkins, Denon, Marantz, and Polk Audio, as well as an integrated wireless software platform, HEOS, connecting devices and networks in the home. As important, Sound United has an excellent team of leaders, engineers, manufacturing, and supply chain experts in high-fidelity consumer electronics. The transaction is expected to close near mid-year and is subject to customary closing conditions. We expect this acquisition to be immediately accretive and to support our long-range revenue growth target of 8%-10%. The Sound United transaction aligns with Masimo's priorities, objectives, and vision by advancing our strategy of enabling connected monitoring across both the hospital and home.
We see significant opportunities to cross-leverage technologies, bringing Masimo's clinically superior solutions into the home and on the go, as well as bringing Sound United's premium technologies into hospitals to advance our hospital automation connectivity and cloud-based technologies. The technology and expertise with Sound United will serve us well as we aim to augment our telehealth and telemedicine strategy. Their well-established reputation and presence in the home can be leveraged by Masimo to accelerate our success in gaining adoption of integrated home-based telemedicine solutions, first with the Masimo W1 ® . In addition, Sound United unlocks access to large, well-established consumer channels, offering us immediate scale with leading retail establishments like Best Buy in the U.S. and Euronics in Europe. Our portfolio of products for consumer health and wellness is expanding as we launch more wearable technologies into the market.
We intend to build on the success of products such as Masimo Sleep ® , Radius T° ® , and MightySat ® with forthcoming introductions of some exciting new technologies. Our go-to-market strategy is highly differentiated in bringing clinically superior technologies to consumers using our clinical and signal processing expertise to enable better health and wellness decisions at home and on the go. The potential for Masimo technologies to be integrated into wearables and connected consumer devices is a key driver of our announcement today. The strategic expansion of Masimo in the hospital and into the home has been underway for years as we develop many innovations that broaden the use cases and addressable markets for our technology. We've added hospital automation and connectivity solutions, and we're now introducing exciting new products for telehealth, telemonitoring, and consumer health and wellness.
These new opportunities outside the hospital represent very large and growing addressable markets that far exceed the size of the traditional markets that we serve today. We hope to succeed in these new markets by delivering superior technologies that have proven success in the hospital setting. In closing, Masimo is well-positioned for growth in 2022 and beyond with a steadily increasing installed base and a team focused on improving patient care. We're looking forward to a post-COVID normalization that will facilitate broader use of our products across multiple settings. This year should be a very productive one for Masimo as our customer interactions intensify and we expand our addressable markets. We remain committed to our mission to improve patient outcomes and reduce the cost of care and taking non-invasive monitoring to new sites and applications. With that, we'll open the call to questions. Operator?
Thank you very much, Mr. Kiani. Ladies and gentlemen, at this time, any questions or comments, please press star one. If you do find your question has already been answered, you can remove yourself from the queue by pressing star one again. With that, we'll take our first question this afternoon from Matt Taylor with UBS.
Hey, good afternoon. Thanks for taking the question. So I'd love to hear more from you about the opportunity here for Masimo with the acquisition. Maybe you could give us a sense for some of your vision about how you'll integrate Masimo technology with these brands and how quickly that could evolve to take more of your hospital technology into the home.
Sure. Thank you. I'm gonna give you, I think, a fraction of what we're planning because of competitive reasons, but I think you'll see even the fraction of what we're discussing is gonna be significant. First of all, I want to tell you, since I was a kid, I've been an enthusiast of audiophile equipment and the engineering that is done to create these incredible products that can not only replicate recorded music, but do it in a way without distortion and with incredible fidelity. The companies that are part of Sound United are the best of the best. What a fantastic thing. We're gonna hopefully do things to help them become even better.
Even though Denon is a 100-year brand, Marantz a 50-year brand, and so forth, Bowers & Wilkins and Polk, an English and a US company, were the first two Japanese companies that have just done a remarkable job. They've got things like HEOS®, which we really like in the connectivity side. We also see their incredible team and the way they've developed the channels in the past 15 years, led by Kevin Duffy, as a big relief maybe and an opportunity that we see for the launch of Masimo W1® and other products that are coming. We have expanded significant resources for many years to get to this place from a technological perspective, and we believe this team will help us maximize the potential for Masimo W1® and other products that are gonna follow.
Secondly, maybe as I'm getting older, my hearing is getting worse, but there's an opportunity with the earbuds and the new regulations in the United States regarding hearing aids to really do some cool things in both listening to music and having communication to improving the hearing and the experiences of many, many people. We see that as another large opportunity that we will now better be able to serve. These are projects we've been working on internally, but now with Sound United, we can hopefully accelerate them and reach a broader audience more rapidly.
Maybe I could just ask a follow-up on the financials that you gave for 2025 here. I guess could you just talk about how it's immediately accretive and any longer-term history that you can give us with the growth rate, why you're confident in this high single-digit growth longer term?
No, let Micah.
Yeah, absolutely. Yeah. Matt, Sound United grew double digits in 2021 and that exceeded historical growth rates. Going forward, we expect a long-term growth rate of high single digits. And we'll provide more update on the 2022 outlook and on into next year, as we think about going forward, once we close the deal and hopefully we'll have an investor day around that time that we close the deal, to really, talk about the markets in a bigger way and what we're doing to bring, them into the hospital and what we're doing to bring us more into the home with their efforts as well.
I think there's a lot of synergies with this deal and we're excited about what we can do with our clinical , clinically superior solutions as we go into the home and even on the go with Sound United. Also, just their premium technologies are very valuable for things that we wanna do in the hospital and as we look to advance our hospital automation connectivity and cloud-based technologies.
Thanks, Micah.
Thank you. We go next now to Rick Wise with Stifel.
Good afternoon, everybody. Joe, one question for you to start. L ook, I'm not a consumer analyst. I have many products in my home with these brand names, so I know it well. I'm just, and I guess I'm confident, very confident, highly confident that you wouldn't have done this transaction unless you had truly visionary ideas and thoughts about how it's gonna contribute to Masimo and over time. Maybe, because I'm not as smart, maybe you can help me out better understand how do we think about this translating into revenue, not in five or 10 years, but in the next couple of years? How is this all gonna unfold? That we're gonna see a what?
I mean, a series of products that combine Masimo technology and this Sound United technology. Is that gonna start kicking in in 2020, once the deal is closed quickly, or it's gonna take several years to put all this together? I'm just not sure how I'm gonna explain to somebody exactly what this means to sales growth and margins and the outlook for Masimo for the next few years.
Thank you, Rick. First of all, you're one of the smartest guys I know. But we're gonna stretch our minds, and we're gonna stretch yours. I think we're gonna put you not just in healthcare, but consumer healthcare. At the Analyst Day that we intend to have post-closing, we're gonna lay out some of the immediate product lines and the revenues we anticipate. What I can tell you is that this strategy has been percolating for several years of requiring something like Sound United to help us with a strategy that I've been working on for over a decade. Look, I am really excited about this, and I wish I could share with you our vision of where we're going with this.
As you can imagine, our competitors might like to know that too, and I don't want to mess up the future by talking about it ahead of time. I always criticize the TED Talkers. We're doers. We're not TED Talkers. Why don't you let us deliver, and you'll see. It won't take 10 years. You're gonna see some of the benefits pretty quickly after the merger is complete. Again, Micah will keep you guys abreast of the best date, but we're gonna have an Analyst Day, and I hope you can come out and meet some of the folks from Sound United, see some of the things we're planning to do together.
Okay. I get it. I eagerly await that moment. Turning to a couple more mundane things. Micah, I have to say, I'm impressed with the gross margin guidance, the operating margin guidance. I might have feared in my heart of hearts that, given supply chain challenges, chip shortages and whatnot, that the outlook might be more challenged. Help us think through that and how you're doing it?
Yeah. Great, Rick. Great question, Rick. J ust like any company right now, I mean, everybody's facing supply chain challenges. The team's done a great job of navigating through those. Not to say they don't still exist and that we will navigate through some more in the future. Our operations team has done a great job. We've continued to see some pressure from, S ome pricing pressure. We've had some higher freight costs that have come through the numbers this past year. Like I mentioned before, a lot of those costs really were magnified during the pandemic and, probably set us back a couple of years on our gross margin initially. W e said that we're assuming those in our guidance as we're looking forward.
We've incorporated that to the best of our ability as we move forward, and we feel very good as we move into this year. That's why we're reconfirming our guidance and expectations and outlook. It's a very strong outlook going forward. We're coming off another record-breaking fourth quarter in terms of winning new customers, which is really kind of fueled that confidence for us as we're thinking about the outlook going forward. That's how I look at it right now, Rick. W e're gonna do everything we can to continue to navigate some of those choppy waters that every company is facing right now.
Great. Just one last thing, if I could ask one more. Y ou talked, I think, Micah, about the post-COVID recovery should be positive for Masimo. Your field check-
Yeah.
This is positive. That all sounds great. Help us understand, P art A, what you've dialed in in terms of recovery assumptions into your guidance. Two, how specifically, how do we think about that, return to more normal elective? How do we think about the potential impact on top-line growth? Thanks so much.
Yeah, absolutely. Rick, I mean, as you know me by now, working with me several years now, so , I'm very thoughtful, prudent about how we guide. We wanna be confident in our guidance. W e are kind of modeling out a steady return, again, through the next few months. W e believe that we'll start to see a pickup in volumes as we move throughout the year. W e still believe, you know, volumes are probably down, c ensus volumes are probably still around 80%-90% range as we move throughout the fourth quarter and still suppressed.
We're feeling like, things are gonna start to open back up more and we've incorporated some of that in our guidance.
Thank you very much.
Thank you. Next we'll go to Mr. Mike Matson with Needham & Company.
Yeah. Thanks for taking my questions. I guess just a few on the acquisition. Can you maybe tell us what Sound United's gross margin and operating margins are roughly? It looks like the EBITDA margin is about 14%, I think.
Yeah, Mike. You're right. We'll update you more on the margin profile, but you're right on the EBITDA margin. Or EBITDA dollars. It's about $125 million of EBITDA. Of course, top line's around $900 million in terms of revenue. You're doing the math right. It's right around 14% is what they delivered, based on our estimates for 2021 calendar year. We'll disclose more as we get closer to the close and of course, as we get closer to our investor day and really demonstrate how this all comes together in terms of the combined company.
I know you all wanted to break out the revenues. We promise, post-acquisition, we'll break out the revenues and the profits from both businesses.
I mean, is it safe to assume that at least the gross margin is lower than Masimo's? I mean, just given the nature-
Yeah.
of the consumer products? Yeah.
Yeah.
Okay.
Absolutely. I think if you went out there and looked at some of the peers to the company, I mean, you would see it, probably closer, maybe a little, slightly lower than even our capital sales margin. So you're probably in the ballpark, but I'd say go look at some of the peer companies that are out there.
Okay. Then is there any way you can give us any sense of cost synergies you're expecting with this deal?
Sorry, I.
No. No, we're not expecting any cost synergies. We want that entire team. We hope we can keep the entire team. No, not that.
Okay. Just finally from a manufacturing perspective, can you maybe talk about any opportunities there to you know leverage your purchasing and you know manufacturing facilities and things like that for you know since it's all electronic products?
Yes. I think, that is a really mature and well run area, and we do hope from their manufacturing supply chain team, there'll be things we can learn, there'll be things we can add. The great thing is, they'll add a few more R&D centers as well as at least two, about three more manufacturing sites for us, which will allow us to have a more global reach into the best people we can hopefully get.
Okay. Got it. I'll let some others get on. Thank you.
Thank you.
Thank you. Just a quick reminder, ladies and gentlemen, star one for any questions. We go next now to Jason Bednar with Piper Sandler.
Hey, good afternoon. Thanks for taking the questions. Guys, a lot of different things I'm gonna ask here, so I'll try and pack a few in here. On Sound United, I guess help me out with a few items in this deal. It's a big deal for you. You're putting your stake in the ground and bringing in-house a consumer technology company. What made Sound United the right asset for Masimo to acquire versus other targets out there and/or partnerships that you may have been able to form with other technology companies? Or why was outright ownership here the right approach? As it seems like the main joint technology here is the connectivity element you referenced. So maybe why not simply license that part of the technology from Sound United?
Well, we did look at many different, consumer, companies, consumer technology companies, and we liked Sound United the most for several reasons. One, their management team. Two, their distribution channel, that is essential to what we believe is an important product for us, which is the Masimo Watch®. Three, it's the brands and the quality of those brands and the durability of those brands. This is not a company of products that are here today, gone tomorrow. Not that it was critical, but it was great that their management team are based out of Carlsbad. They're just, 40 minutes from here. That all made them an ideal company for us to, get to the finish line with.
Okay. All right,
To your question of partnership, I'll just tell you that we really wanna control the strategy. We don't want the things we have in mind to get leaked out there, and we need the undivided attention of this team. When we were developing Rainbow, there were two companies that had the semiconductor, LED, and photodetectors that we needed for Rainbow®. It was hard to get exactly what we needed. We acquired a company called Spire Semiconductor. They're now called Masimo Semiconductor, and it was one of the best things we ever did because not only we were able to focus them on our challenges, but we ended up getting much better products at much lower costs, and it's even helped our pulse oximetry SET® business because of what they can fabricate for us.
I think, we're totally open to partnerships. We have many of them. We started as an OEM company where we reached partnerships with about 100 companies. This is a strategic area where we felt we need to have it all in-house under one family.
Okay. I guess maybe following up on that point. To be fair, there's a lot of really good consumer technology brands out there that you maybe could acquire. Is the overriding value here just that you're acquiring channel relationships at a, while bringing on some pretty decent EBITDA in the process? I guess what I'm struggling with is, like, what's unique about this asset as far as integrating with Masimo's technology down the road?
Yeah. I think the channel is the obvious with the management team, and. There's more. There are technologies that they have, that we have, that together I think will do a lot more for people. Again, I can't get into that stuff right now, but they were. I mean, I could not think of a better company for us to acquire given how we envision the future.
Okay. Just one more from me, then I'll hop back in the queue. I guess, is there any concern or can you talk about, where we are with respect to revenue and EBITDA over the last 12 months, that you referenced there being bolstered by a pent-up demand during the pandemic? Just maybe, like, how you see this growth, the business looking when we move to kind of post-COVID, and maybe get beyond some of this, what was potentially some pent-up demand? Or do you not see it that way?
You're talking about Sound United or Masimo?
Sorry. Just with Sound United.
Yeah. Well, you have to assume that there is some COVID-19 bump. That's really the way we went into it, and it's still the way we felt comfortable with it. If you speak to the management team, there doesn't seem to be a slowing down. I think it's because of not only some of the new products they've gotten into, but some of the new products that they're gonna be introducing. Even on their own, they're, you know, bullish that this is not gonna end. However, we're being more conservative, and we acquired it assuming, high single digits long-term growth, but maybe a little slowdown, right after COVID-19.
Okay. All right. Thanks, Jim. Very helpful.
Thank you. Thank you so much. Look, I wish I could share with you all the things we're thinking and wanting to do. I know it's a little frustrating, but we are more likely to accomplish the end goal if we can keep some of that to ourselves until the products come to market.
Thank you. We'll go next now to Jayson Bedford with Raymond James.
Hi, good afternoon, and thanks for taking the questions. Just a couple here. I hope this isn't a naive question, but where do you see the bigger cross-sell opportunities here? Is it Sound United products into the hospital or Masimo products into the home?
Masimo products into the home. We see some opportunities for future products that we're gonna be creating for hospitals that come from an integration of Sound United and Masimo's technologies, but immediately we think they're gonna be beneficial to our push into consumer healthcare.
Okay. Just on that, the Masimo W1® offering, what needs to happen before you launch it? I think you said Q2. What needs to happen before you launch it? Is there regulatory requirements? Then talk about the channels that you'll use to sell that product.
Well, we go through a process called a pre-market release, a limited market release, and then the full market release. We do that even when we think the product is done. We do that to ensure by the time we call the full market release, hopefully we have a perfect product. We're right now in a pre-market release mode. As you saw, we debuted it at Arab Health. We have customers in the Middle East that are using it, or about to use it. As far as, I think, when you mentioned kind of the timing of the actual full market release, it depends how smoothly the pre-market release stage and the limited market release stage goes. Sometimes they're done in a couple of weeks to sometimes they're done in several months.
As far as your regulatory question, we can market this thing without regulatory clearance, but we plan to submit for FDA clearance because we believe this will be used by many people as a health product, as not just a wellness product. We might have two versions of it like we do today, the Rx version and the consumer version.
Okay. That's helpful. Maybe just last one on Sound United. It obviously looks attractive from a valuation standpoint by med tech standards. Can you just, Joe, maybe highlight some of the risks involved in this deal that you see?
Yes, of course. The risks involved if we don't keep the management team, if we lose some of the key people that we wanna keep. The risks involved. I told you about a decade ago where we launched iSpO₂, this new market could be a mirage or an oasis. We're seeing it more as an oasis. It looks like COVID-19 helped cement that vision instead of it being a mirage. We could be wrong about that. One thing I can tell you, regardless of where we hope to take this to the home, we think everything we're gonna do with Sound United will make us a better company for hospitals and professional caregivers.
Whether it becomes a home run or a second base, it's gonna help us be a better company to our current customers.
Okay. Thank you.
Thank you.
Gentlemen, it appears that is all the questions we have for this afternoon. Mr. Kiani, I'll turn things back to you for any closing comments.
Well, I wanna thank everyone for joining us today. I'm looking forward to our Analyst Day, where post-closing, we can share with you more. By then, hopefully, you'll also be able to play with the Masimo watch yourself and maybe buy some of it yourself. Bottom line, this is an exciting time for us. This is the first major acquisition we've done post roughly seven smaller tuck-ins that we've done, which every one of them have been successful. This is a wonderful opportunity for all the possibilities we've been hoping for. Have a wonderful day and rest of your evening, and we'll see you shortly. Thank you.
Thank you, Mr. Kiani. Again, ladies and gentlemen, that will conclude today's Masimo's Q4 and FY2021 earnings conference call. Again, we'd like to wish you all a great afternoon. Goodbye.