Good afternoon, everybody. Welcome to the last, almost last, presentation of the day. We're glad to have Masimo Corporation. I'm Travis Steed, Bank of America, Research Analyst, and have Joe Kiani, Chief Executive Officer of Masimo, and Micah Young, Chief Financial Officer. So thanks for joining us today. Thanks for having us. Of course. So, you know, just reported, you know, Q1 recent, a couple weeks ago or last week, and came in slightly ahead on revenue and margins. And just maybe kind of think about, you know, the trends in the quarter and how the core business kind of played out. Yeah, we're happy to see the business stabilize. And you know, we went through this incredible period during COVID where I think we grew 20% revenue. Our drivers went up from 240,000 to 480,000. And pulse oximetry became a household name. We introduced the COVID product that allowed people to send patients home and bring in when they need them. And just was a really exciting, terrifying period. Then afterwards, it was a little weird, right, 'cause I think a lot of customers had hoarded products, and there was these gyrations in the market. We're feeling that we're finally in a steady-state situation. We started feeling that way Q3 last quarter—last, last year, Q4 last year, and now Q1. As you noticed, not only we did really well from a great, hard quarter to beat Q1 of 2023, we beat it in sense of revenue and volume. The TIs were incredible. We did $100 million of TI. And remember, TI is true incremental. So it's the new contracts we gain with new hospitals minus anything we've lost. So when we say we did $100 million of TI, that means we're gaining market share probably two to three times the normal rate. This is after a year where we did $400 million in TI, where we normally did $150-$170 million at best. So all in all, we feel really good about the business, and we feel like things are gonna get better. The comparables are gonna get a lot easier. And yeah, we're looking forward to a strong 2024. Thank you. One One other area of focus has been kind of the weaker driver shipments. Under my understanding, it's not really affecting the kind of the cadence of installation. So maybe you can kind of talk through that a little bit. Yeah. First of all, the drivers we report are the OEM boards we ship and the monitors we ship. Obviously, the monitors we ship, we ship directly to hospitals, so those are gonna soon consume sensors. The boards we ship, it's up to the OEMs when they ship it out to the customers. Some of our OEMs—you may have seen them report—they're public companies. They've had good quarters. So our softer driver quarter to them means they were hoarding some of our OEM boards, and they have been shipping them to our customers now. And from the report we're getting, as Micah had already told folks in the Q4 earnings call, Q1 was supposed to be the trough. It feels like it is at 50,000 drivers. We think Q2 will be 55,000, and Q3, Q4 will be back to the 60,000 level. But I think we began telling our stockholders the true incremental numbers because, at the beginning, every driver was a new sensor driver. Now, as we've become the number one market leader, not every driver is a brand new sensor driver. Some of them are replacement. So we thought the TI, which is the growth, is the way for you to be able to know how we're doing in market share gains. When you think about utilization for drivers kind of back above pre-COVID levels at this point, what's driving that? Well, that's the good news. The fact that sensor utilization per driver is—and the revenues are better than ever—it means two things. Not only the big bolus of drivers we shipped in 2020 didn't get all put in the closet. It looks like a lot of them are being used. But it also means hospital census is up, and they're utilizing our products, which we're very happy about. Yeah. I think one thing to add is, you know, back in 2019, we were about 1.8 million drivers. We were, today, we're sitting about 2.6 million. So we've seen a, you know, about a 50% increase from where we were back in 2019. But our, our consumable revenue per driver is higher than it was in 2019. So we're still, despite, you know, shipping 2X back in 2020, we shipped an extra 240,000. That's about 10% of our install base today. And even those, those may be lower utilization if they're going into general floor or other care areas. We're still seeing very good utilization overall in the install base. Think about the drivers of the high single-digit growth. Can you walk through the components of that a bit more? The—sorry? The high single-digit revenue growth? Yeah. So if you look at kind of how things are playing out right now, is we've seen good growth even in a very tough comp for Q1. Our consumable revenues were up 2%, in the first quarter against a very, very tough comp. Capital was down 21%. So if you kind of play out for the year, we're guiding 6%-9%. But all that growth is coming from consumables. So what's what we're seeing is, you know, if you go out and look at some of the things we put out in some of our recent earnings presentation, the consumables within each category, whether it's, you know, Rainbow, it's capnography, SedLine, O3, all those consumables are driving good revenue growth that's above our long-term growth rate. So the trend is there. And all that's coming off the strong contracting. Keep in mind, the contracts we do, customers typically don't sign up for 100% of volume. They sign up for minimum volumes. So we typically outperform on those contracts. That's what we show as the minimum commitment. So as you start to see that $100 million that Joe referred to in Q1 and say that's, let's just say simplify it and say it's five years on average of the contract life, you know, that $20 million a year starts to layer in. So that's where we're, we're seeing good, strong growth coming off of winning new customers. We're also seeing our, we're able to get into install equipment into customers where they go back a year ago, it was difficult to get into the hospitals. Some, some were short nursing staff. We were getting delayed with equipment going in from OEM partners. We had our own challenges. So today, that's, that's stabilized. We're getting in more. We're able to install and start driving the revenue growth. Is this high single-digit growth algo kind of back on track for second half this year and into 2025? Yes. Yeah. Especially when you look at consumables. I mean, over 80%-85% of our business is consumables today. 15% is capital. So we're not a capital-intensive company. We're—we focus on the recurring revenue stream of consumables. We feel very good that we're on track to that high single-digit, that 8%-10% type of growth for consumables. Capital's a little tricky just because of the, you know, where the environment is. Patient monitoring was a key area of focus for capital budgets during COVID. A lot of hospitals were deferring the higher-intensive capital, the, the, the larger capital items. And now, they're probably refocusing some of those budgets towards those as well. But, you know, we feel very good about where we're positioned with, again, driver shipments is not the best indicator right now. Contracting is. And we believe the drivers are gonna come back. Yeah. If I could add, the Q2 projections we just gave, when we announced our Q1 numbers, it's about a 20% increase in. Q2. Sensor revenue. So even if you look at the first half with 2%, we're gonna be more than double-digit growth the first half of the year. So, so we feel like it's come back. You know, when we first gave our projections for the year, we assumed the low end was a 0% census increase. The high end was 1%. And it looks like Q1 was about a 2% or 3% census increase. So that's really helping us meet and beat what we guided at the beginning of the year. How are you feeling about Q2 in that range? Yeah. Second quarter? Yeah. Second quarter, we're thinking we're gonna do, like, nearly 20% growth. Right. And so far, it's tracking that way. And, you know, we have this tool sales summary. We get to look at the sales on an hourly basis. And the sensor volumes are finally coming in in an orderly way, not lumpy. Mm-hmm. like it was for a few quarters before. Yeah. I think Q2 implies somewhere between 16%-20% growth on the range, so and then on the year-to-date, things kind of normalize out for the first half and then normal comps in the back half of the year. Got it. And then on gross margin, kind of raise the gross margin guide 60 basis points. Mm-hmm. In the kind of the core business. What gave you the confidence kind of on a Q1 to raise the full year by that much? Yeah. We're seeing good traction on our transition in Malaysia. As you know, we've had a lot of headwinds over the years with inflationary costs, with the workforce down in Mexico. The peso's been a headwind for us. But we've been watching Malaysia very closely over the past few years. And it's a much lower cost in terms of the direct labor costs. You know, it's probably close to 30%-40% lower today. So we've been transitioning that. We've—you know, at the end of March, we were around two-thirds of the way there. So we were on track to actually have a full transition of sensors by the end of this year, so if not earlier. So we're on track. Originally, we thought that would take through the middle of next year to get to that point. So that's tracking well. We believe, you know, the labor cost is gonna give us 60 basis points. And we will, you know, then focus on driving the efficiencies as we start to get more stable, you know, volumes going through that plant. Especially with Malaysia, like, how much upside could there be kind of left in 2024 on the margin side? Yeah. I mean, we brought it up originally. I mean, we're ahead of schedule. So we brought up 60 basis points. So we're getting the direct labor starting to come in. But it's gonna get us in a good trajectory as we go into 2025. You know, we were trying to get back on that path to get back up in the high 60s gross margin. Ultimately, we wanna get up even higher than that. But we only need to get to 66% to get to be a 30% EBIT margin business. And, you know, that's another 350 basis points based on where we're guiding today. And a third of that's gonna probably come from those efficiencies we're seeing in Malaysia. We've got a lot of other cost reduction initiatives that we have in place that we're putting in place today that's gonna set us up for the rest of that path to 66. Great. Yeah. I wanna get into the longer-term margin in a minute. But before we do, there's kind of a couple items kind of check the list on of kind of post-Q1 that came up. I think the first is the Rad-G recall. I don't know if there's a way to kind of size that. Yeah. Let me. I'll, I'll take that one. The Rad-G is a project that the Gates Foundation funded. It was meant to be a very low-cost pulse oximeter, developed for mainly detecting pneumonia in children in developing countries. 5 million children were dying of pneumonia every year. And the Gates Foundation was trying to fix that. They narrowed down to four or five pulse oximeters. They took them, including us. They took it to those countries, five of them, tested on 5,000 children. And we had a 3% error rate. The next best product had 30%. So they came to us saying, "We want you to develop this. We'll pay for it. But make it low, low cost." So to make it low, low cost, we took away some of the redundancies we normally put in our instruments. Secondly, we saw an opportunity where there's no pulse oximetry during surgery for 5 billion of our population. So we also made it a continuous mode, not just spot check. Some of the countries in Africa couldn't buy it unless we had FDA clearance. So we sought FDA clearance so they could buy it. Then some of our salespeople noticed a product that was the lowest-cost product. They began selling it. We got one notification that a child had died, that had come from hospital as a newborn with terrible illness and a year later died. The parents, when they got to the child, they said the product was flashing, which is what it's supposed to do. Nothing to do with the recall reason, to the best of our knowledge. Then the recall happened because to be RoHS compliant, you can't use lead anymore for soldering. But part of the process, the board has to be cleaned before you put the components on. The supplier that was shipping us those boards didn't do the right steps. So some of the boards came with that contaminant still on. What that did, it caused the pulse oximeters to turn on and off, on and off. Just would not work. So the team met last August. When they learned about it, they did an HHE. They decided to recall it. Then it was given to one of the individuals, a high-level individual, to do the recall. That individual, knowing the vast majority of these products are in Kenya and, you know, all kinds of places, it's hard for people to replace things, was working on a software solution to give to them and did not immediately do the recall waiting for the software, knowing these products either work or they don't work. So it's not a risk to the patient. Bottom line, we learned about it on February 14th that the recall hadn't still happened. I said, "Do it right away." We did it that day. But the DOJ began investigating. And why did we delay the recall? And they're right. We shouldn't have delayed the recall. And we have been very forthcoming. We're working with them. We apologize. Tell us what we need to do. But no patient was harmed because of this 'cause the product just won't work from the beginning. We need to—we've improved our process that someone can't sit on the recall that long. But that's the whole thing. We don't think it's gonna be a problem. Very few units were ever sold in the U.S. So we think it's gonna be okay. But we'll, we'll see. We'll see what DOJ wants to do. We're working with them. Is there any real financial impact to talk about? No. We took a recall reserve. So I think it was around $3 million in the quarter. Non-recurring type of reserve. So that was already booked. We, you know, took a more of a conservative view on that. So we think the financial impact's already been covered. We don't expect it to impact revenue or any financial results going forward. Great. And then there was the accounting disclosure with Sound United. It seems like all the historical numbers are still good. But just wanted to touch on that for real quick. Oh. Go ahead. Yeah. So after we completed the acquisition, we had a former employee from Sound United, basically came to me and said, "You know, there's some, you know, there's some complex accounting issues that I'm trying to understand. I can't, you know, I can't fully grasp what's going on." And I said, "Okay." We knew it was tied to intercompany transactions and foreign currency impacts. And it was complex. So I immediately, you know, had our team reach out. We started working with a Big Four firm, making sure that they reviewed the process 'cause we had just done the acquisition. And we didn't see anything, any issues at the time of the acquisition. But we wanted to make sure. So we had them look at it. Everything was fine. Fast forward to the end of the year. Every quarter, I have my teams certify financials all the way up 'cause we got a big organization. So I wanna know, are there issues? They bubble them up. Well, it came back up again from the same employee. You know, around that time, we also found out that same employee had also filed or sued former employers before. So, but we took it serious. I had our internal auditors. I had our external auditors look at it. Everyone, our team came to the conclusion, both internally and externally, that the financial statements were fine. Everything's properly stated. We're, you know, now that they went, became a whistleblower with the SEC. SEC came back and just has asked questions. I've spoke with them. And we're fully complying with the request. They have to go through their procedures on a whistleblower case. I think we did everything the right way. I, I do not expect any restatement. Yeah. Micah got two separate audit firms to look at it before he booked whatever he was gonna book. And they all agreed that it was fine. And it was her misunderstanding. So, yeah. Great. And then there was a board member that just resigned. And any color, I guess, on health issues or age? I don't know if there was any color on that. Well, we've lost two really good board members, Rolf and Adam, over the last three months. It's been really a lot of it because of the stress of the activists on the board. I—without getting into all the details, two, three times, I tried to save Rolf from resigning. But finally, he did have a retinal detachment. And his doctor had ordered them not to do anything for a month. So he just said, "Look, I can't do this anymore." And he resigned. But it's a shame. A great guy. Great loss. But you know, we just got to manage through this period. All right. Perfect. Yeah. Now, maybe going back to more the longer-term margins. I know you provided the bridge to the 30% operating margins in your earnings deck recently. Yeah. Maybe walk through some of the key cost initiatives to get to the 23%-25% healthcare margins today at a 30% over time. Yeah. And I'll try to stick to the kind of the midpoint of that range so I don't bounce numbers all over the place. Right now, we're trying to, you know, ultimately, to get to 30%, we need to get to 66%, as I mentioned before, on the gross margins. You know, that's 350 basis points of improvement. A third of that should come from Malaysia. You know, the other, call it another third of that will come from just normal leveraging of our install basis. We continue to grow high single digits on the consumable side of the business. And then the final third of that is we've focused—our engineers are focused on taking costs out of products each and every year. And we've got a good lineup of cost reduction initiatives that are well-defined that should start to roll out and start to benefit us in next year and years to come. So, you know, we're, we're trying to get there as fast as we can. We're not—we haven't given up on 70%. It's just all the inflationary costs that have come in the past, you know, four or five years. And it's a lot of companies have faced those same, same type of costs. You got to find new ways to get there, right? And, we're not giving up on that. But we have a very good pathway to 66. And that gets us to 30%. The other piece is, you know, leveraging our R&D investment. As we continue to grow, we've got a lot of, you know, shots on goal to continue to deliver growth in those, those high single digits, low double-digit range. So, you know, we should be able to leverage R&D, we think, down to about 8% of revenue. Maybe even longer term, we can get down closer to 7%. And then the last one's, you know, SG&A. So selling expenses, we're continuing every year, we're leveraging more and more revenue per rep. And that's a key metric that we look at internally. And we've got a large sales force. We've made investments to get into new markets. And those new markets, you know, those are investments we've made in the past. So we're—we believe we're in most of the markets we need to be in today. So now, it's just a matter of continuing to leveraging that up. And we've done a great job over the past 4 or 5 years. The only challenges have been that we've had to make some investments in areas like the wearables. But we've kind of carved that out and showed what the new—you know, the Remain Co P&L looks like post a separation. The last piece is, you know, general administrative costs. We've every year, each and every year with revenue growth, we leverage that. You know, typically, growing that about, you know, half of revenue growth or lower. So that's kind of to get there. R&D's gonna give us 100 basis points at the midpoint. Another 150 comes from leverage of SG&A. And then once we get there, we'll talk about the next milestone. How do you think Masimo compares to some of the businesses like GE Healthcare and Siemens where, you know, OPEX is kind of mid-20% of revenue? Yeah. I think over time, we can get there. Absolutely. You know, it's all about continuing to scale the business. And, you know, some of those companies are much larger in terms of overall revenue. And it just—it takes some time to scale it. But—and each and every year, you have to overcome inflationary costs as well and, you know, the increases in your workforce and in terms of compensation, so. How do you think about the opportunity to get to kind of 40, 40%? Yeah. I really believe we can eventually get our margins up closer to 70%. For Rolf? I think we can bring SG&A and R&D down to about 30% together. So I think we could get to 40%. That's been a model I've been working on, especially if we take the investments that we're making in the wearables and hearables and put it in a spin. We can still be a very innovative company at Masimo Healthcare. As you know, I don't think anyone has been a serial innovator as much as our company has since the beginning. I think we can keep that up, as Micah said, to about 6%-7% type of a R&D expenditure. Mm-hmm. There's been a lot of back and forth with, Politan and, and some of the, the activists. I'm curious what your expectation is for kind of the annual general meeting and the shareholder vote. Well, I think we expect that we'll win. The reason is that, you know, the calculus was different last time. I I think ISS and others asked, "Well, what's the harm of adding two members that are a minority out of five or seven?" Now, Politan's trying to get the control of the company. They have 9% of our shares. And they're trying to get four out of five board members. So I don't think that's gonna play well. And on top of it, they're trying to replace me. I, I've been founder, CEO, and the driving the innovation of Masimo since the beginning. Any CEO, I think ISS has a high bar to vote against, let alone, I think, my background. So I think we should get favorable reports from ISS. Then hopefully, our shareholders will back us because I don't think they want us to hand the keys over to an activist who's never run anything before. So, you've expanded the board, you know, to seven. You've, you know, announced the intentions to separate the consumer business. And you've also, you know, expanded margins this past quarter. You know, what, what else do you think, you know, Quentin's looking for? I don't know. I really don't understand what's driving him because he's been on our board since June last year. He only made one suggestion the entire period, which is to take out the expenses for the Apple litigation out of the non-GAAP numbers. No other recommendations. No other suggestions. Yet we'd heard that he thinks some shareholders or he wants us to spin the consumer health business. So now that we're doing it, that we've announced it, and we have really great opportunities either to do a straight spin or do a JV, you would think he'd be all for it. But from everything I'm seeing, he seems dead against it. So I don't know what he wants. Any view on some of the candidates that are being proposed for the board and, you know, kind of the value that they potentially bring to the board? Well, first of all, historically, the people that have been on our board have been either chairmen, CEOs, senators, very influential MDs. The candidates he usually brings are mid-level managers like Michelle. And this time, he's got the same. One of the candidates, it's a biology/chemistry background CTO. So nothing to do with what we're doing. The other one seemed reasonable. He was the ex-CFO. And we need someone like that to chair our audit committee. And that's one reason we said we will accept him. But he rejected that. We're gonna run, of course, not just me. But we think we have another candidate that's willing to take Rolf's place. And so we'll run another person that's gonna be really, I think, a far better person to put on the board, much more strategic. And I hope our shareholders will agree with that. We'll vote for us to continue what we've been doing. You know, we've done just so you know the spin JV. I don't think it's the best thing for Masimo. I really believe we could build a really much more powerful company if it's all together. But I've listened to our shareholders. Our shareholders, the majority of them actually believe they should be together. But the majority owners of Masimo, they like to see it separated. So because we work for our shareholders, I agreed to do it. Now, I agreed to do it in a way that the dream stays alive for the consumer health business to help change the way patients are treated. That's why it Sound United with the wearables, with the hearables, and a team that can help it make it happen. You know, we're doing everything we can to make this a company that's run by the majority of the shares. So, it sounds like the kind of main reason you decided to do the separation is because of kind of what you're hearing from shareholders and any other reasons around that separation. And which kind of leads me to think about, are you kind of committed to doing this kind of no matter what happens with the outcome of the vote? Yes. 100% committed to doing it. We may have been able to even do a JV before the shareholder meeting because the JV wants to get it done by June 25th. But right now, the activist is pushing back, threatening litigation. So I don't wanna get into a lawsuit. I'd rather wait till after the proxy to do it. Hopefully, they won't go away. I always say the most important thing to any deal is momentum. And so I hate the fact we're gonna lose momentum. And I hope that'll go away. But I, you know, I thought the shareholders wanted that. And if they do, they should tell him to back off 'cause he's threatening to sue us if we try to do the JV before the proxy. And I don't wanna do it. When are we gonna hear more on the deal? Well, assuming the JV doesn't go away 'cause we aren't gonna be able to probably do it before the shareholder meeting, our plan is hopefully second half of June to hold a meeting either in Boston or New York and explain at least the JV deal. Ideally, also the entity that's doing it. But at least let you know the structure. I also hope to show you the new, really cool product we've created, the next generation Root, that I think will be just phenomenal for patients and hospitals. So hopefully, at that meeting, we'll show you both. All right. Any other, any other topics you'd like to cover? Oh, thanks for having us. All right. Great. Thanks a lot. Thank you. Thank you. Thank you so much for coming.