Okay, welcome back from lunch, everyone. Again, thank you for attending the annual Raymond James Institutional Investors Conference. We're excited to have with us for the next presentation, Masimo. Masimo has really been a company that has witnessed very consistent and high levels of growth over the last couple of years. There's been highly consistent margin expansion. I think the new product cycle is very impressive at the company, and the company's really shown some disciplined capital allocation to go along with that. One of the chief architects of all of that is with us today, so I'm happy to have Micah Young join us. Micah is the EVP and Chief Financial Officer, and also in the audience today is Eli Kammerman, who's Vice President of Business Development and Investor Relations. So with that, Micah, I'll turn it over. We'll do 15-20 minutes or so of presentation.
We'll have a couple of 10 minutes or so left for Q&A, and then we'll adjourn to the Cordova 2 room downstairs for a breakout session.
So, is there a clicker here in the back?
Is there a clicker?
There it is.
All right, can you hear me?
Thank you, Larry. Appreciate the opportunity to be here with you today. We're going to share a little bit about the Masimo story just more broadly, get into some of the long-term plan as well as the key growth drivers of the business. Before I get started, I just want to remind you that this presentation contains forward-looking statements as well as non-GAAP financial measures, so please refer to the Investor Relations section of our website for more information. Masimo went public back in 2007, and we've had a strong track record of growth since our IPO. We're a 30-year-old company, but only been out on the public for about the last 12 years.
If you look at the growth, we've gone from a $200 million revenue company to now we're guiding this year to $1.035 billion, which over that time has been about 13%-14% growth for the company on average. We're executing very well on our long-term plan. Back in May of 2017, we held an Investor Day that laid out a new long-term plan, a seven-year plan, and we guided to top-line growth of 8%-10% at that Investor Day. If you look, the gray bars represent the midpoint of that 8%-10% growth, and the red bars is our current trajectory in the business to where we're guiding this year at $1.035 billion in 2020. And then the trajectory off of that represents the midpoint, the 9% growth on the out years.
Tracking very well against our long-term plan. We'll also talk more about profitability and what we're doing there as well as our EPS growth and what those drivers are. We've got a strong track record of innovation as well. As I mentioned, we started or the company was founded by Joe Kiani back in 1989. In the early stages of the company, Joe and Mohamed both developed what's called SET pulse oximetry, Masimo SET pulse oximetry, and it really changed the way pulse oximetry worked. If you looked at that time, 70%-90% of alarms were false alarms. What happened was when a patient moved, it would read low blood oxygen saturation, and it followed the venous rather than arterial blood. When we talk about SET, it's signal extraction technology.
We were able to separate the noise from the venous blood and read the arterial blood, and that's what drives the accuracy, and that's why we were the first to get an accuracy specification of 3% early on, and we've improved that over the years, as you can see here, to 1.5% accuracy through motion and low perfusion, and if you look over the years, we've also added a lot more parameters. If you look at the top section, you'll see all the parameters that we've added. We've developed what's called Rainbow. It's a proprietary platform that has, with one fingertip sensor, you can measure up to 12 different parameters, and then with an acoustic sensor on the neck, you get a 13th parameter, so some of those parameters are total hemoglobin, so measuring blood hemoglobin, trying to help with transfusion decisions in the hospital.
Also, carboxyhemoglobin, methemoglobin. Some of those are the other measurements that we've brought along. And then over the years, we've also developed our own devices, our own monitors. We, of course, work with a lot of OEM partners, but we've also designed a lot of devices over the years, and we've also developed software solutions. So if you look now, and we've just recently launched what's called our Hospital Automation Initiative this past year, we now have a broad portfolio of not only equipment but also software solutions that we plan to make into more of a service SaaS-type model in the future. We're now in over 150 countries around the globe. We touch over 100 million patients each and every year with our technologies.
We've also built up a very large installed base, and I'll talk to you more about those in a minute, and we have very strong partnerships with our OEMs. If you look at our installed base, we've shipped over 1.8 million technology boards and monitors over the last 10 years, and those come from not only our direct channel that we're building up but also through all of our OEM partners. We have integrated our technology boards, as you can see on the top left here, into over 200 multi-parameter monitors with over 70 leading OEM brands. When you look at our monitoring markets, this has been our core business over the last several years. It represents about a $3 billion total addressable market opportunity, and we believe that's going to grow to about $4.5 billion by 2025.
And if you break that down and you look at SET pulse oximetry or the oximetry market, it's about a $1.7 billion market growing 3%-4%. And our long-term plan we laid out, as I mentioned, back in 2017, we assumed that we would grow 2x that growth rate, so about 6%-8% as a company, and we've been growing at or above the high end of that range over the last few years. Oops, let me go back. Then if you look at Rainbow, we believe our Rainbow technology platform, that proprietary platform, represents about a billion-dollar market opportunity as well, and we're the only ones that offer all those non-invasive parameters, the 12 parameters I mentioned on one fingertip sensor. About six or seven of those parameters, we're the only ones that are offering those non-invasive measurements. So that's a billion-dollar market opportunity.
When we laid out our long-term plan two years ago, we said we expect that to grow for us about 10% per year, so double-digit growth, and then you look at our other advanced parameters: NomoLine capnography and gas, SedLine brain function monitoring, and O3 regional oximetry. Those combined represent about an $800 million market opportunity, and that's growing double digits and really driven by the large market of capnography, which is about a $550 million market opportunity growing 10%-15%. So we laid out in our long-term plan that we would grow those other advanced parameters about 20% per year is what's assumed in that 8%-10% growth plan. Now, if you start to look at some of the other initiatives that we've brought along, and these are opportunities for upside to what we've provided in our long-term plan.
We're still at the early stages. We have about 13 sites right now or hospitals that are utilizing our Hospital Automation portfolio, but we started this project about 15 years ago. We started building out all the components and elements of Hospital Automation. I'll go through a lot of those here in a minute, but we believe this is about a $1.5 billion market opportunity for us, and I'll take you through a little bit of kind of what we offer as our solution. So it all started with Root. So we're looking at connecting all the devices in the hospital room, whether it's an anesthesia machine, infusion pump, a ventilator, or a multi-parameter monitor. We can connect and take all that data and distribute it through our middleware, which is called our Iris platform.
The Iris platform is a high-fidelity, low-latency bus architecture that can take all the parameter data, waveform data, alarms and events, as well as two-way audio video. In real time, it can distribute that data to any endpoint throughout the hospital system. The flow of the data is not limited. We can take it back into the OR room where you've got kind of a cockpit display called UniView, and we'll talk more about that in a minute. You can take it into a central nursing station or a central viewing station through what's called Patient SafetyNet. We can also use our Replica, which is a software solution. We can take that data and distribute it to a mobile phone or a smart device, as well as distributing the data back into the electronic medical records of the hospital. I'm going to jump into UniView.
This is an example of UniView. If you think about a surgical team in the OR, and they need to have access to the data, and it's much more visual if you can have it on a large screen monitor as opposed to on all the different devices in the room that are very disconnected. We connect all the data through Root, and then through Iris, we can get that data back up into this customizable display. Clinicians, surgeons, that care team can customize views. If they want to see a sedation state, they can see a sedation state. If they want to see how the patient's oxygenated, they can see that as well. If they're trying to manage blood, they can look at total hemoglobin combined with PVi and see that on the screen as well.
But this gives them a customized view, a cockpit view, to where they can drag and drop any of those parameters they want to see. That makes it very visible for the surgical team in the hospital room. And then, of course, it highlights those parameters that are driving distress on the patient. So you can see those real time. It's very low latency, sub-second latency on the data, but all this is real-time parameter data and waveform data that's coming from all the devices in the hospital room. So you can literally see any parameter you want to measure. This just shows you the waveform. You can put it in a gauge view, again, customize it like a cockpit for the surgical team. What's neat about this presentation, it kind of brings our discovery. We have a Discovery Lab, what we call.
It's basically a big demo room that shows how hospital automation works in a real hospital setting, and what I like about this presentation is it kind of brings all those components to life a little bit, so you can see here, Patient SafetyNet. This is where we can send the data through our Iris Gateway back into a central nursing station or central viewing station where you can monitor up to 200 patients remotely, and you can see all the parameter data. You can see where there's patients that are in distress, and again, all this data is coming from all the devices back in the room. We'll also get into where you can see the Halo Index Score, and that really takes a lot of the parameters. It can capture over 62 parameters for a patient.
And what it does, it's got machine learning to where we can actually establish a baseline, a personalized baseline for a patient, and how they deviate from that baseline can tell us if a patient is under distress or deteriorating. So those scores will rise as the risk to the patient rises. And then, of course, we can get all that data: waveform, parameter, two-way audio video, alarms and alerts back to the smartphone, to where clinicians, nursing staff can collaborate. We can fire off alarms and escalate those alarms. So if a nurse is off duty, we can escalate to the next nurse on call. They can also customize as far as what patients they're being assigned to on the floor or throughout the hospital and monitor everything that's in the room they can visually see on the phone or the smart tablet.
And then, of course, we're also deploying advanced algorithms that can provide decision support, and there's going to be a lot more to come on that in the future. So now looking at Root. Root's a very customizable platform as well, and there's a lot of opportunity to not only use it for continuous monitoring but also Vital Signs Checks. And if you think about it, you can capture all the data from all the devices through Root because it's connecting all the data. You can capture the live, real-time data and then send that into electronic medical records. You can also, on Root, update some of the manual inputs like temperature, pain level, level of consciousness for the patient. And with one push of a button, you can send all that data into electronic medical records of a hospital.
I'm sure many of you have been in a hospital and seen nurses transcribing manually on charts, and Root, with Vital Signs Check, eliminates all that complex workflow and streamlines it with all the data that we're already capturing, and then there's Halo ION. This is basically an index score I mentioned earlier. You can capture over 62 parameters of a patient, and that's continuing to grow, bring all those parameters together, and be able to determine through the score, through one score, it looks at a combination of different parameters, so if your blood oxygen saturation level is declining, your respiration rate is going up, it can alert with a higher risk score that that patient is under distress, so this is something very exciting for us. It's in the early stages right now.
We just deployed it, what was it, Eli, about a year, year and a half ago? Yeah.
And still very new, new concept for hospital systems, but we're very excited with what this technology can do in the future, especially as we get more advanced in our algorithms and being able to provide decision support to clinicians. So as we think about it, we now have a full suite to where we can provide automation across the entire continuum of care, whether it's in the OR, the ICU, the Med-S urg, general floor, or IT biomed. We even have what's called Iris Device Management, where we can take software solutions and push those down from the IT floor down to bedside to all the devices and update them. So we've got a lot of things that can improve workflow and streamline healthcare IT systems. The other major initiative, in addition to hospital automation, is opioid safety.
If you look at the opioid crisis in the U.S., in 2017, there were over or nearly 50,000 opioid-related deaths, and of those were 20,000 deaths related to opioid prescriptions. So this is a big crisis in the U.S., and there's a lot of activity going on to reduce prescriptions and try to reduce the use of opioids, but we look at this as a pretty sizable market opportunity. First, let me step back. If you look at what we've been able to accomplish on the general floor of hospitals, where if you think of opioids, opioids induce respiratory depression, which starves the body of oxygen, which can create cause organ damage or even death. And that's where you hear about Dead in Bed in a hospital. Those who are prescribed opioids, maybe they have a combination with other drugs, and they go to sleep and never wake up.
We've got studies, for example, that show with Dartmouth-Hitchcock that they did a study over a period of time that showed that when they implemented it in part of their hospital and on the general floor, combining Patient SafetyNet with Masimo SET technology with a high accuracy, they were able to reduce ICU transfers and rapid response team activations by over 50%. And it also resulted in about $1.5 million a year of savings to the hospital, net savings. And over that five-year period, there were no more Dead in Bed. And they've also, and that's been, they're going to have now a 10-year study. We're hoping that comes out here soon that's going to show even more better clinical outcomes on that data.
But if you think about it, we're extending the continuum of care from the hospital, the general floor, and we're taking our Masimo SET technology, which has the highest accuracy and reduction to false alarms, into the home, and it's just as important to, if not more important, to monitor a patient who has just been prescribed opioids in the home as it is in the hospital, so this is a big opportunity for us. If you look in 2017, there's 191 million opioid prescriptions. If you assume that there's pressure to reduce the use of opioids, we haircut that by about 30%. It gets us down to about 134 million of prescription opioids, and we're focusing on about a third of that population.
If you think about it, our focus is on those who just underwent surgery and are prescribed opioids, so post-operative patients, as well as long-term chronic pain management patients as well, and that's about a third of the population, so there's about 45 million prescriptions that make up our total addressable market, and then as we look at the overall market, that puts it at just over $4 billion a year, and that does not even include the illicit use population. Here's a picture of Radius PPG, which is the wireless sensor, and you can see that that has the board inside, the Masimo SET technology inside. And that was launched or approved in May of last year.
We also are working with the FDA on getting the full package approved, which includes a hub, which can capture data even when your smartphone is off, as well as a software application that can perform alarm management. So if you need to set up caregivers or a care team around you that can respond, whether it's family members or a caregiver or a local EMS, it'll send alarms and alerts to them to respond with a Narcan to recover that patient. Our long-term plan, I'm going to update you on what we provided back in May 2017 Investor Day, was revenue growth of 8%-10% top line, even though we've been growing faster than that at the high end or better of that range. Operating margins of 30%, EPS growth of 12%-15%, and free cash flow.
Our long-term goal is to get over $300 million of free cash flow per year. If you look at our innovation, we have a lot of things in the pipeline. We've invested about 10% of our revenue in R&D over the last several years, and we plan to continue to do that. So there's a lot of innovation in the pipeline that's not even in these goals. Hospital automation, opioid safety, those provide us multiple opportunities for upside to the long-term plan. And then as Larry mentioned earlier, we want to be very disciplined in our capital deployment. First, we're reinvesting in further innovation. Of course, 10% of our revenue goes into R&D, but a high priority for us is strategic acquisitions. So we think of those as where we can leverage the core strengths of our business.
We are very good at high-volume manufacturing, signal processing expertise, as well as our clinical footprint. We have a very strong clinical footprint in over 150 countries around the globe, primarily in critical care, but we also have some outside the hospital as well, and when we think of strategic acquisitions, we also want acquisitions that support our long-term growth rate of 8%-10% top line, operating margins of 30%, and that are accretive to our return on invested capital over less than five years. So those are some of the things we look at, and then we also have a share purchase program in place today, and I'm not going to get into the details of that, but it's based on purchasing at levels that are predetermined based on that plan. As I mentioned earlier, we've been executing very well in our long-term plan.
Revenue has grown since we set up a long-term plan from $738 million to $1.035 billion, which is what we're estimating this year. It's an average growth of over 12%, and as I mentioned, above the high end of our revenue growth plan range. Operating margins, we've taken that from 18.6%. This year, we're guiding to 24.7%, and that includes about 50 basis points of headwinds from the Connected Care transaction that we just entered into in the first quarter of this year. Very strong improvement. We've averaged about 150 basis points of margin improvement per year despite those headwinds this year, and we also believe that this acquisition is going to provide us opportunity and support our 30% operating margins long-term. Non-GAAP earnings per share, we've grown from $1.73 all the way up to $3.56, which we're guiding to this year.
We're offsetting some slight dilution from the transaction this year, but 27% average growth over the last three years. In terms of operating margin improvement, as I mentioned, we're targeting 30%. About 40% of that improvement is going to come through our gross margins, which we'll talk about, and about 60% of that improvement is going to come through operating expenses. And SG&A expenses will be the primary drivers. We want to continue to hold our investment in innovation high at 10% to continue to fuel growth in the company. In terms of gross margin improvement, we are expecting another 200 basis points as we're targeting 70% long-term, and we plan to get that through manufacturing scale. We're also designing our products to manufacture, and the team, we have a dedicated team doing that year in and year out where they're looking.
They don't look at just one year of making a 5% improvement. They look out multiple years at a long-term horizon and look at what a product should cost, and they've been designing to get there. So that's why we've seen a nice acceleration in our gross margins over the last several years, and we're tracking very well to that long-term plan. And the other one is leveraging our installed base. We have a large installed base out there in the field, and as we continue to drive more revenue towards those sophisticated premium sensors, that gives us more revenue per driver, and we can leverage the cost of that installed base. What's time right now, Larry? We're getting close.
We're close.
Yep. So I'm going to skip on operating expenses just to wrap up here, but just a few key takeaways. We've executed very well in our long-term plan. As I mentioned before, our long-term plan growth rate of 8%-10% per year has multiple opportunities for upside as we start to really drive the strategic initiatives for hospital automation, opioid safety, and we have a large pipeline of innovative products that are coming in the future that we haven't announced, and we have a very clear roadmap to our long-term operating margins of 30%.
Perfect. Thank you for that. We've got just a couple moments for questions. I guess because it is topical, we should probably address coronavirus. You, as a business, don't have a lot of exposure to China, but certainly you have a lot of market share presence in Europe and the U.S. So maybe talk a little bit to the extent that this virus does continue to spread, how Masimo is positioned, and I guess what I'm really thinking is it feels like you should be pretty insulated from any ripple effects of the infection.
Yeah, so yeah, we have limited exposure to China in terms of supply chain, and a very small percentage of our revenue is based in China. But back to your point, as we look at if the virus were to spread more into the U.S., Europe, where we have a much larger presence, we could see some higher sensor volumes come from that if we see a surge in hospitalizations, and of course, we're sitting right on top of a very strong flu season, one of the strongest that we've seen in years.
So, I guess the point is even if, so you're obviously used in surgical procedures, so even if elective surgical procedures were to come down, it would make sense that the offset might be increased census within the hospital because of hospitalization.
Because of higher hospitalizations. That's correct.
Okay. All right. And then I guess the other question really is, as you think about the hospital automation business, which again, I think has a significant opportunity in front of it, there are a lot of competitors that play tangentially in that space, whether it be Philips on one side, whether it's Epic or Cerner on the other side. Where do you guys sit that's unique that you think you're competitively positioned better than the others?
Yeah. I think there's a few things. So number one, we provide an enterprise-wide solution where we can connect all the data, and we have one middleware, which is the Iris platform, that can shuttle that data to any endpoint. And as I mentioned before, it's real-time data that we can do that with. If you were to look at trying to provide central viewing station where you can monitor all the patients, providing alarm management and reporting, and then as you think about mobile, even using on mobile devices, each one of those requires a different vendor or a different piece of equipment or server in the hospital. So what we can bring in is just Iris that can do all those things.
We've been thinking about this for the past 15 years, and that's why we feel that we're uniquely positioned because we have that middleware that can do all those things, and we can charge a fraction of the cost to the hospital system. So that's one. Two is the fact that we can take the real-time data and distribute it to any endpoint throughout the hospital. That's different because a lot of them are pushing the data into the electronic medical records, which has a higher latency. It's delayed information where we can take that real-time data and make decisions, help clinicians make better decisions real-time with a very subsecond latency. And then just the last thing would be we also have what's called ACE, Adaptive Connectivity Engine, sorry, and that allows us to implement our technology solutions a lot faster than our competition.
Got it. Last one, and then we'll wrap up. You, on your most recent fourth quarter earnings call, certainly hinted at hemoglobin starting to gain some real traction here. So I'm wondering if you could break that down a little bit for us and give us a sense of what's going on and what you saw as you exited 2019.
Yeah. As we exited 2019, we saw one of our strongest contracting years in terms of new incremental business overall for the company, but also what we were really excited about was that it was heavily driven by Rainbow. As Rainbow Technologies, we were able to contract our highest year in the history of the company within the U.S., and we're starting to see that momentum build as we've implemented a new business model. We've had the accuracy improvements of Rainbow over the years, so we've improved that to where we feel very good about the accuracy. We also have the clinical data that can support that in terms of clinical outcomes.
So really, it's been implementing a new business model, and we feel like that's been kind of an inflection point for us, and we're seeing a very strong exit to 2019 as we move into 2020, which of course sets you up for 2020.
Yes. That's well for 2020. Okay. Terrific. We will adjourn there. Management will be available in Cordova 2 for a breakout session. Thank you.
Thanks.
Well, welcome.
Yeah.
Not a presentation.
I should just yell at you. Where's that timer? I couldn't see it. It was backwards. It was facing you. It wasn't.
Will Robinson.
Danger, danger.
All right. Thanks, guys. Well, I'll see you around.
Yeah.
Okay.
Yeah.
Yeah.
And.