Healthcare Conference. I'm Kristen Stewart, the Medical Supplies and Devices Analyst, and it is my absolute pleasure to have with us today Masimo. With us today, virtually here, we have Todd Koning, who is the Senior Vice President of Finance, and we also have Eli Kammerman, the Investor Relations for Masimo. So thanks, guys, for joining us, and thank you for your patience and understanding as we converted last minute here to this virtual conference.
And thanks, everybody who's on the line as well. If you would like to ask a question, as a reminder, you can email me at kristen.stewart@barclays.com. You can also chat me on Bloomberg. I am actively monitoring my Bloomberg chat screen, so feel free to text me a question, or if you're bored and just want to say hi, feel free to chat me there too.
All right, as we kick it off, I'm going to kick it off with the question I've been kicking off pretty much every webcast today with, probably not shocking here, COVID-19. It's obviously a very fluid, dynamic, evolving, ever-changing situation minute by minute here. So I'm just curious to get your thinking on what it could mean for Masimo.
I believe you have limited exposure to China itself, but I'm just curious what you think of the impact for your business. It might be a little bit more interesting for you guys than other companies that I've been talking to today because if I'm thinking about it kind of correctly, you guys could actually stand to benefit just given the product profiles. But maybe I'd love to hear your thoughts on it. Todd?
Thank you, Kristen, for having us, and I appreciate you facilitating the conference virtually. I know we couldn't get together face-to-face, but I appreciate the opportunity to do that in light of all the COVID-19 stuff going around. To that point, to your question, certainly we've had a fair number of those discussions or questions here over the day or the course of the day with investors. When we think about COVID-19 and its impact on Masimo, maybe I could attack the question or talk about the question in two parts.
One, the first part would be on supply, and then maybe the second part on the demand side of things. From a supply standpoint, when you think about maybe China and that type of impact, our exposure to China on suppliers is pretty limited.
When you look at our supply chain, you look at our raw material inventories, we feel pretty good about where they're at today. We have a pretty decent line of sight to where our supply lines are, and ultimately, we feel pretty comfortable about our current position. Obviously, that can change over time, but as we sit today, we feel pretty good about raw materials and supply chain from that standpoint.
We've got manufacturing in the majority of our manufacturing's done in Mexico in different plants and in different cities through maquiladora relationships. We have operations here in Irvine, in New Hampshire, and some small operations in Sweden as well. So from a manufacturing footprint, we certainly have a meaningful footprint and one that, at least at this point, is fairly well unimpacted, if you will, in terms of kind of COVID-19 areas.
So I think on the supply side, we're in pretty decent shape from that standpoint. On the demand side of things, you can look at, well, I guess firstly, it's important to understand and recognize that our sensors, which is the bulk of our sales, are used, especially our SpO2 sensors, are used in the critical care space.
And so to the extent that critical care admissions and utilization increases or critical care hospital admissions go up, then usage of our sensors is likely to go up. And you see that every year about this time as it relates to what I'll call the normal flu season. You can see the severity of the flu season based on the CDC tracking data that's out there and available. And so we definitely see that seasonality impact every year.
In terms of order of magnitude, we have historically said that a strong flu season might be worth a point of growth over a three-month period. If we think about COVID-19, to the extent that it drives up critical care admissions, we would certainly likely see an increase in sensor utilization and ultimately would see the utilization of our products go up as a result. Maybe that timing is consistent with the overall flu, and maybe it pushes the flu season to be longer than what it historically is. I guess we'll see how that plays out over the coming weeks and months. That's kind of how we see the impact.
Okay. Great. I was wondering if you could just comment on, did you see, I guess, any sort of change with China or South Korea or any other regions, I guess, with what you were seeing with any of the hotspots in the past? Is that something that you did see, or can you comment on that?
Yeah. I mean, I obviously can't comment specifically to kind of Q1 results, but if you look at our overall sales, about 30% of our sales are outside the U.S. China is relatively small as is South Korea in terms of its economic impact and revenue impact on our sales and our business. Japan is one of our larger geographies outside the US.
Australia is a meaningfully sized country outside the U.S. for us as well, and I guess what I'd say is that overall, Masimo continues to kind of see its normal seasonality associated with the overall flu season. And obviously, those countries and those areas are reflecting that same kind of seasonality that we historically would, so yeah, I'm not sure what more to say there.
Okay. Is Italy a large region for you guys, or not?
It's meaningful. I'd say in Europe, what we see is we see more reusable sensors than we do disposable or single-use sensors historically. We typically see the most single-use sensors in Europe in our neonatal and pediatric installations versus adult. But maybe this experience makes health systems think differently about contamination containment and those types of things versus the cost parameter or the cost factors associated with reusables versus disposables. But again, time will tell on if that has an impact on how health systems view disposables versus reusables.
Yep. Interesting point there. Okay. I guess let's move beyond COVID-19, and let's talk a little bit more big picture and just kind of the revenue growth profile of the company. Last year, you outlined your long-term goals of growing 8% to 10% on the top line, and you highlighted hospital automation, safety, and innovation pipeline as your upside potential.
And last year, you grew above that, almost 14% on a constant currency basis. For 2020, you guided to about 11% on a constant currency basis, and the Connected Care transaction is expected to contribute, I think, approximately one percentage point to the full-year growth rate. Can you maybe just talk to the revenue build over time and how we should think about the guidance for 2020 relative to the performance that you had last year?
So as you think about our business, our long-term guide is 8% to 10% top-line revenue growth, and that's kind of comprised of three components. One, 85% of our business is in SET, where pulse oximetry or the continuous monitoring of pulse oximetry is the standard of care. That market's about $1.7 billion, growing about 3% to 4%.
Our long-term growth assumption assumes that we grow at two times the rate of the market, so 6% to 8%. So we're a net share taker of 1 to 2 percentage points in the pulse oximetry space over our long-term plan. The second component of that is Rainbow. So we're about 10% of our business, historically growing at about 10%. So that's a point of growth. I think it's about a billion-dollar market opportunity for us.
The third component to that, the remaining 5% of our business, is in our advanced parameters, capnography, brain function monitoring, and regional oximetry. That in total is about 5% of our business, growing at about 20%. So there's another point. So that's how you get from 6% to 8% to 8% to 10% growth on the top line. Now, to your point, Kristen, 2019 was a great year for us. We grew 13.5% on a constant currency basis. Now, about 100 basis points of growth there was due to the acceleration or the accelerated revenue associated with the 842 accounting standard, lease standard.
So maybe on an apples-to-apples basis, it was closer to 12.5% XFX, but still strong growth and above our long-term growth rates. And we certainly saw growth rates in all three components of our revenue build grow faster than our long-term guide.
So we've seen strength across the entire business. And so as we enter 2019, as you said, our FX guidance is about 10 to 3.5% in total with about $4 million of currency headwinds, so getting us to 10 to 3.9% and 11% on an FX basis. About 1 percentage point of that's due to Connected Care transactions. So you might kind of say, "Well, why are you guiding where you're guiding given that your historical growth rate has been in that 12.5% growth over the last year or two?"
And I guess I'd kind of point to our philosophy around guidance, which is to put out guidance that's thoughtful, prudent, and guidance that we have a high confidence that we can achieve and have a decent shot at exceeding. And what I'd say is that we're not afraid to raise our guidance as we see the results come through.
And so kind of going into the year, we think it's prudent to put the number where it's at and drive to beat those numbers. And if you look at the last eight quarters, you can kind of see some of that pattern as well. So ultimately, I think our guidance philosophy has served us well, and we're going to continue to drive the business and shoot for numbers that are bigger than that ultimately.
And I guess the other thing is in terms of how we think about maybe the upside drivers associated with 2020 and what could lead to a positive scenario. I think we had in 2019 one of the strongest contracting years we've had historically. And so that gives us a fair amount of confidence that 2020 should have a good tailwind to it associated with new installations.
I think the second point is we've added some sales reps and some capacity in the sales organization, customer-facing group. That should be a tailwind as they drive adoption and utilization. And thirdly, I guess I'd add the fact that we've acquired the Connected C are assets from NantHealth through the iSirona assets from NantHealth recently, which also should help us in our own hospital automation offering and should provide some tailwind, or we have an opportunity to see some tailwinds there as well. So we think that we're going into 2020 with some wind in our sales, and we'll obviously do our best to achieve our guidance and then some.
Great. I'd love to kind of further explore that Connected Care kind of concept. I know you just touched on NantHealth and the acquisition there. Maybe we could flesh that out a little bit. I know you talk about hospital automation, and I'd love just to get a better understanding of what it all means.
I hear about Connected Care from Hillrom. I know Philips talks about Connected Care. It seems like everyone has their own kind of concept of Connected Care. And I just want to get your thoughts on why you think Masimo can really be successful with what you view to be connected care, and how do you think about monetizing it as a company?
Our hospital automation offering or our Connected Care offering is really one that is differentiated on the basis of its breadth and on the basis of its ability or the fact that we're device agnostic. We believe that we're really the only solution that can take product or can take data from any OEM monitoring system, ventilator, anesthesia pump, and take that data, shuffle that into the EMR, connect that into the EMR, take that data, present that in a clinically meaningful way, whether that's through alarm notifications, whether that's through displays or UniView in the operating room or in the ICU room, or taking that data and bringing it to the nursing station like we do with our Patient SafetyNet.
Or thirdly, take that data and provide decision support and advanced analytics through our Halo ION scoring system so that we can get ahead of deteriorating patients and their symptoms. And so we think that we're the only company that kind of does that end-to-end and does that in a device-agnostic environment. And so we think that's differentiating. And the reason we think the Connected Care transaction is so meaningful for us and why we wanted to do it is, one, they've got a great solid base of business today.
They're a well-respected brand. They know what they're doing. They've got a great team of individuals who have been selling, developing, and supporting the customers that they have. And that's meaningful for us because that can accelerate our learning curve because we have people now who've been selling this for a number of years.
We have people now who have been supporting customers for a number of years in the Connected Care iSirona space. Combine that with our own experience in the Patient SafetyNet area. We've had Patient SafetyNet out there for 10 years. We've got deep experience. That's the beginning and kind of the start of how we ultimately built up our own hospital automation solution.
And so I think when we marry that deep knowledge of the technology and the solution with a lot of commercial and customer-facing experience, we think that we've got an opportunity to kind of accelerate our learning curve and to have some meaningful upside over time associated with the Connected Care acquisition.
Okay. The other area that you've talked about at the investor day and recently as well is just the area of Opioid monitoring as a potential upside driver. Can you share what the latest is on that opportunity and how to frame it? I know reimbursement has been probably the one area that's maybe a little bit more of the uncertainty in terms of deciding how much of an opportunity this could be from just an addressable market perspective. Thanks.
Absolutely. So I think we've sized up the market to be multiples, many billions of dollars in the U.S. Just looking at the number of Opioid prescriptions, I think in 2017, the number was over 190 million. I think it was 95 million individual adults received a prescription.
Even if you kind of cut that down by two-thirds and kind of hone in on maybe 45 million prescriptions, and you triangulate that with really the two populations that receive prescriptions, one being post-surgical follow-up, people who are managing pain post a surgical procedure like a knee or a hip or a back surgery. We think there's about 15 million patients in that grouping. You look at patients who manage chronic pain through a prescription Opioid, and we think that number is around the 10 million. So you kind of get to 25 million patients there.
If you figure the average is one and a half to two and a half prescriptions a year, that kind of also triangulates to that 45 or 50 million prescriptions per year basis. And so as we've kind of sized it up, we think that maybe our entire system might be in the $150 to $200 range per person. And so as we start to look at that, we think that that's a meaningful market opportunity.
And obviously, the human impact of that is very meaningful as well, which is ultimately why we're going after this opportunity because we believe that we can do better for patients than they're receiving today. Opioid-induced respiratory depression is a real thing that ultimately has caused unnecessary deaths, both in the hospital and outside the hospital.
We've seen those in the hospital and have been able to actually solve that problem through the implementation of our Patient SafetyNet, so continuously monitoring patients in the general ward, especially those patients who are coming out of surgical procedures where they're getting a morphine or some sort of Opioid drip to manage the pain, and so we've been able to really address that problem in a very meaningful way through the Patient SafetyNet installation, so we really want to take that same experience and bring it to the home patient because we know there are patients who get Opioids, whether that's from post-surgery or post some sort of procedure.
They come home, they use the Opioid, and they may experience Opioid-induced respiratory depression and ultimately pass away without anyone knowing or finding out. And so our ability to address that market through continuous monitoring of those patients through a sensor is real, and it's there.
And so our solution essentially is a wearable sensor that connects wirelessly to a little home hub and that has an application on the phone that allows the sensor to notify whomever the patient indicates that they would like to notify so that if they do go to sleep or take a nap, that if they have respiratory depression and their breathing slows and their pulse oximetry levels get low enough, that it will alarm audibly and try to wake the patient up.
And if that doesn't work, it might connect somebody down the hall or a neighbor, or ultimately, an emergency response might be available as well to save the patient. So that's kind of the solution. We were able to get clearance on the wearable sensor last May, and then we have recently submitted a de novo application for the sensor or for the home hub and the application on the phone. And so that's with FDA since February, and we've been working very closely with FDA on that. And ultimately, we'll see where the approval timing lands on that.
But we're optimistic. We've been working very well with the FDA, and they've been very good to us in this process. From a reimbursement standpoint, we think that reimbursement will require data, and data really requires an approval. And so that reimbursement pathway is probably two years out from now. So we're definitely in this for the long run, but believe that we can absolutely make a difference on the way to that reimbursement pathway.
Okay. And then in the last couple of minutes that we have, I do want to talk a little bit about capital allocation because you guys have a great balance sheet, good cash flows. You ended the year with almost $700 million in cash, no debt. Last year, you made the strategic investment in a private company, TNI Medical, which is a high-flow nasal therapy market company, which was interesting and kind of seemed to me to be a little outside of what I would expect to be your wheelhouse. Obviously, this year, you acquired the connected care assets, which we've talked about.
How should we think about Masimo just from an M&A perspective? Should we think about you guys getting a little bit more acquisitive in the space, going a little bit more outside of where you operate? Just some general thoughts on capital deployment and M&A, perhaps.
Absolutely. So I think from a capital deployment standpoint, we're obviously very committed to our ability to design internally products that are breakthrough and can have meaningful patient as well as economic and shareholder impact. So we're committed to keeping our R&D spend at 10% of sales. I think it kind of starts there.
And then from a share buyback perspective, we've got a board-approved share buyback program in place, and so that'll trigger as it needs to and as it's been set up. And then that kind of does lead us to the M&A track and discussion. And we're definitely looking for targets that are places where we can leverage our expertise, our signal processing technology and ability, our sales and clinical footprint, our ability to manufacture products.
And then from a finance perspective, targets that can be accretive to our 8% to 10% long-term growth rate and can support a 30% operating margin and deliver a return on invested capital in three to five years. So those are our financial filters that we apply. And really, we're trying to stay disciplined to that. And historically, we haven't done a lot.
We've looked at a lot of things, but we haven't done a lot. And I think that's really reflective of asset prices and what's been out there, and it's reflected the fact that we're being disciplined in our approach. Maybe prices change and opportunities change going forward. I guess time will tell if that's the case or not, but we'll remain disciplined and continue to do what we've been doing on the M&A front.
And certainly, we think Connected Care is a great tuck-in and a great addition to our hospital automation and connectivity platform. And from a TNI perspective, we think that given it's in the respiratory space and all of that, it was a natural place to start with an investment and dip our toe in that area. So I think ultimately, from an M&A perspective, we remain very active and interested in looking at what's out there and applying a discipline to that process.
Perfect. All right. Well, our time is pretty much up. I'm just wondering if there's anything that may take-home messages you'd like to leave the audience with before we sign off?
We remain focused on patient care, and I think in the environment of COVID-19, we're obviously doing our best to meet the needs and the demands of patients, and that's really what's at the forefront of our mind at the moment, so maybe we just leave you with that.
Perfect. I just want to thank you and Eli again for your patience and understanding in helping us make this go virtual. Thank you for your time this afternoon, and thanks, everybody, for joining us on the webcast as well. With that, I will wish you a great rest of the day and stay safe out there.
Thank you very much.
Thank you. Take care.
All right.
All right. Bye-bye.