Masimo Corp (MASI) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Masimo Corporation Earnings Conference Call. My name is Betsy and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Mr. [Nick Ladiko] from Ruth Group. Please proceed, sir.

Thanks, Operator. Welcome to the Masimo Corp. fourth quarter and fiscal year 2007 earnings conference call. Masimo senior management joining us on the call today will be Joe E. Kiani, Chairman and Chief Executive Officer, and Mark P. de Raad, Executive Vice President and Chief Financial Officer.

Before we begin, Masimo cautions you that this conference call includes forward-looking statements. All statements other than statements of historical facts included in this conference call that address activities, events, prospects, or developments that Masimo expects, believes, or anticipates or may occur in the future are forward-looking statements. These forward-looking statements are based on current expectations about future events affecting Masimo and are subject to uncertainties and factors relating to its operations and business environment, all of which are difficult to predict and many of which are beyond Masimo's control.

Certain factors mentioned in this conference call, including the risks outlined under Forward-looking Statements in Masimo's press release filed today and under Risk Factors in its periodic reports filed with the SEC, will be important in determining future results. Although Masimo believes that the expectations reflected in its forward-looking statements are reasonable, Masimo does not know whether its expectations will prove correct.

All forward-looking statements included in this conference call are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date hereof. Masimo does not undertake any obligation to update, amend or clarify these forward-looking statements or the risks outlined in today's press release or its SEC filings, whether as a result of new information, future events or otherwise, except as may be required under federal securities laws. And with that, I'd like to turn it over to Joe Kiani.

Thank you, Nick, and thank you, ladies and gentlemen, for joining us today. With me on the call today is Mark de Raad, our Chief Financial Officer. 2007 was a year of important milestones for Masimo. The year started with us receiving the Excellence and Technology Innovation Award from the Society of Technology Anesthesia for our engineering prototype demonstrating the feasibility of noninvasive total hemoglobin monitoring.

We launched PVI, the first noninvasive way to measure patient volume and fluid responsiveness in mechanically ventilated patients. We expanded our Rainbow SET monitoring platform with the launch of our bedside Radical-7 monitor and Rainbow family of sensors. We received numerous EMS and Fire Association recommendations to use pulse CO-oximeter to screen for carbon monoxide poisoning and we closed the year with shipping our 500,000 pulse oximeter and pulse CO-oximeter, which was an important milestone for many of us here.

These milestones, built on a solid foundation, fueled our financial performance in 2007, helping us achieve record growth as we helped more clinicians care better for their patients in their rapidly evolving patient care business.

Mark will go through our Q4 2007, 2007 for the full year financial highlights and then provide you with our 2008 guidance. After Mark's review, I would like to spend a few moments updating you on some of our recent announcements and then hopefully answer any questions that you may have. Thank you. Mark?

Thank you, Joe. On today's call I will be reviewing our fourth quarter financial results and some key factors contributing to these results. Please keep in mind that all my comments will relate to financial results on a GAAP basis. The only exception will be our annual 2007 earnings per share, which we have presented in our earnings release today in both GAAP and non-GAAP formats.

As in prior quarters, we have continued to provide shareholders with this information because we believe it is relevant to our post-IPO capitalization structure and therefore relevant to future quarter earnings per share calculation.

Our total fourth quarter revenues were a record $69.3 million and consisted of record product revenues of $55.2 million and royalty revenues of $14.1 million. This represented an approximate 29% increase in year-over-year product revenue growth. We shipped over 29,400 new pulse oximeter units or drivers into the marketplace and, based on these shipments, we now estimate that our total worldwide installed base, net of retirements, to be approximately 470,000 units. This is up from 377,000 net installed units just one year ago.

These shipments of these new drivers are key because, once installed, these drivers generate future sensor sales, which continue to represent the most significant component of our total product solution revenues.

During the fourth quarter we shipped approximately 1.5 million in Rainbow related products, about equal to the level sold in the prior year fourth quarter, but up from the 1.3 million we sold in the third quarter. Importantly, on a year-to-date basis we shipped 6.1 million in Rainbow related products, which was up 65% from approximately 3.7 million in the same prior year period.

While these new Rainbow revenues relate almost entirely to the sale of our handheld Rad-57 products, we have in the latter half of 2007 begun to see limited sales from our new bedside Rainbow parameters, which became available in only June of 2007.

Fourth quarter 2007 product revenues generated from our direct and distribution channel totaled 41.8 million, or 76% of total product revenues, while OEM revenues totaled $13.4 million, or 24% of total product revenues. Importantly, this compares to approximately 66% and 34% respectively in the same prior year periods and is, we believe, clear evidence that our aggressive investment in expanding our worldwide direct sales force has gained important traction and is allowing us to expand our customer base both here in the U.S. and throughout the world.

Similarly, on a year-to-date basis, our direct and distribution revenues totaled $143.7 million, or 72% of total 2007 product sales, compared to $104 million, or 67% of total 2006 product sales. In addition to the increased number of direct sales representatives, these year-over-year increases are also the result of changes from distribution sales models to direct sales models in such countries as Canada and Australia.

During the fourth quarter our U.S. shipments totaled $41.4 million, or 75% of total shipments, compared to $32.8 million, or 77%, in the prior year period. The increase from 23% international shipments to 25% in the fourth quarter of 2007 was primarily attributable to strong fourth quarter shipments into our European region, with notable gains in Germany, France, and Italy. For the first full year of 2007, direct shipments within the U.S. were $152.1 million, or 76% of total product revenues, which was up from $120 million, or 77%, in the prior year period.

Our fourth quarter royalty and license fee revenues decreased to $14.1 million from $18.8 million in the prior year period due to the anticipated lower royalty rates associated with our 2006 settlement agreement with Nellcor, now of course known as Covidien. Just to remind you, our settlement agreement with Nellcor included an approximate 20% royalty rate in 2006 and a 15% rate in 2007.

Our total fourth quarter gross profit margins rose to 63.8% from 63% in the same prior year period. This year-over-year increase was due primarily to the impact of increased sales of our Rainbow products and lower manufacturing costs resulting from efficiencies derived from higher production levels. Total gross profit margins for the fourth quarter declined to 71.2% from 74.3% in the prior year period due to the impact of $4.7 million in lower year-over-year royalties.

Our fourth quarter engineering expenses were $5.5 million compared to $5.6 million in the same prior year period. The prior year period expense included approximately $700,000 in special bonus payments made to employees associated with the dividend declaration in the 2006 fourth quarter. Excluding these expenses, total year-over-year research and development expenses increased by about $600,000 due primarily to higher research and development staffing levels. In fact, as of December 2007, we now employ a total of 130 engineering and engineering related staff, up from 98 in December of 2006.

Fourth quarter selling, general and administrative expenses rose to $26.7 million, up from $21.9 million in the prior year period. This increase was primarily the result of our continuing efforts to expand our direct sales and marketing organizations in both the U.S. and throughout the world. In addition, our expenses increased due to an expanded focus on direct marketing activities, trade shows and other promotional programs throughout the world. As a result of our continued expansion effort, we have increased our worldwide sales staff by nearly 30% in the last year and as of December 2007 had 113 worldwide salespeople focused on our direct selling initiatives.

In addition to increasing the size of our direct sales organization, we have also added necessary resources in marketing and in various areas of finance, legal, human resources in order to support our expanding worldwide business and to operate as public company. In total, our selling, general, and administrative staff rose by 23% to 360 at the end of December 2007 from 292 at the end of December 2006.

Fourth quarter net income before taxes was $17.5 million, down slightly from $18.9 million in the prior year period. This decline is consistent with the $4.7 million decline in royalty revenues, but was partially offset by stronger product revenues and gross margins. In fact, it's important to note that notwithstanding the impact of the lower royalty payments, our pretax operating income rose in the 2007 fourth quarter compared to the same prior year period.

Because of the benefit from the completion of an R&D tax credit project and other one-time tax benefits, our fourth quarter effective tax rate fell to 31.3% from 42.2% in the prior year quarter. Similarly, because of these adjustments, our 2007 tax rate fell to approximately 38% from 42.2% in the prior year period. As a reminder, our higher 2006 effective tax rate was due to a nondeductible dividend payment made in the first quarter of 2006.

So in summary, the combination of our stronger fourth quarter 2007 revenues, higher margins and related operating expenses resulted in net income of $12.1 million, or $0.20 GAAP earnings per share, including $0.02 per common share related to the year-to-date tax benefit recorded in the fourth quarter.

As I noted previously, because of the treasury stock method of computing GAAP earnings per share was appropriate for the entire fiscal fourth quarter, there is no relevant non-GAAP earnings per share calculation for the fiscal fourth quarter of 2007. For the full year of 2007, Masimo generated net income of $42.3 million, or $0.60 per common share, as computed in accordance with GAAP.

As previously noted, a non-GAAP earnings per share computation is still relevant for the full year 2007 because of the difference between the GAAP accounting treatment and the stand-alone treasury stock method of computing earnings per share. Therefore, on a full year basis, our non-GAAP earnings was $0.74 per common share.

Now I'll make just a few comments on our balance sheet. For the nine month period ended December 29, 2007, total cash rose to $96.7 million from $88.6 million at the end of September 2007 and from $55.4 million at December 31, 2006. During this period we generated $29 million in cash from operations, while using $7.2 million in investing activities.

We generated a net of $20.7 million in cash from our financing activities, primarily resulting from a combination of the net proceeds of our initial public offering of $47.8 million and other Q1 and Q2 borrowings of $20.1 million. These increases were offset by the February 2007 dividend payment of approximately $37.4 million.

At December 29, 2007 our trade days sales outstanding was 44, while our inventory turns were 3.5. These compare to trade DSO figures of 47 and inventory turns of 3.7 as of December 2006. Both of these ratios are within our expected ranges. The slight decline in our inventory turns ratio is consistent with our philosophy of ensuring that we have sufficient inventory levels to be able to be responsive to both our business growth requirements and flexibility based upon our customers' needs.

Now I'd like to take a moment and provide some guidance relative to 2008. In our first earnings call in September 2007 we indicated that it would be our intention to provide annual financial guidance at the beginning of each fiscal year as part of our first earnings call in that year. However, we also emphasized that we did not intend to provide any specific quarterly guidance, consistent with our primary focus on addressing and preparing for long term opportunities in our marketplace. So, consistent with these guidelines, we'd now like to offer the following financial guidance for the full year of 2008.

For the full year 2008, Masimo expects total revenues to be approximately $292 million and total product revenues to be approximately $246 million. Masimo also expects full year 2008 GAAP earnings per common share to be approximately $0.52 per share. Included in the $0.52 per common share projection is approximately $11 million, or approximately $0.11 per share, in expected 2008 stock-based compensation charges, up from $3.9 million, or approximately $0.04 per share, in 2007.

Because of the increasingly large impact of stock-based compensation on the Company's overall reported financial results, the Company will in the future report both GAAP earnings per common share under the treasury stock method but also clearly identify the quarterly amount of stock-based compensation cost included within the GAAP earnings per common share figures.

Of course, the projections and guidance that I just discussed are estimates only and actual performance could differ. Thank you for your time. And now I will turn the call back over to Joe.

Thank you, Mark. That's great. I have several points I want to make to, to kind of pull [some things up] for us for the past and then talk about how things are going to be hopefully affected by those activities of the past in the future. I want to start off by saying again we revolutionized pulse oximetry with our measure through motion and low perfusion Masimo SET technology. Today, Masimo SET is considered the gold standard for pulse oximetry.

Number two, with product revenue shy of $200 million and a $1 billion plus market growing at a 6% to 10% rate, our revenues represent 20% of the worldwide pulse oximetry market. But according to Frost & Sullivan, in 2006 we shipped 38% of new pulse oximeters sold in the U.S. hospitals. As Mark mentioned, in 2007 we've shipped even more pulse oximeters than we did in 2006. If we continue at these rates, within five years we should have our fair share of pulse oximetry revenue as well.

We have revolutionized noninvasive monitoring again with Rainbow SET. Masimo's Rainbow SET allows clinicians and emergency professionals to measure carbon monoxide, methemoglobin, PVI, and now hemoglobin continuously and non-invasively for the first time. Analysts have projected that hemoglobin will be a $1 billion plus market, giving Masimo a total market opportunity of $3 billion to $4 billion.

However, it is difficult to predict when our revenues from Rainbow will fall on the steep part of the S curve of technology adoption. Rainbow is exciting beyond what it will do for us in terms of growth. With it, we are going to save and improve the lives of even more people.

Now, 2008 should be a great year for Masimo, clinicians and patient care due to several factors, which I'm going to list and explain. Number one, PVI. PVI should help clinicians and emergency personnel understand better if their patient is dehydrated or needs more fluid. With mechanically ventilated patients, PVI may become a useful tool to see if the patient has developed heart complications or is dehydrated by checking PVI values versus fluid administration, called fluid responsiveness.

PSN, or Patient SafetyNet, which we introduced in 2007, with Masimo SET pulse oximetry and pulse CO-oximetry, should help clinicians avert life threatening events in the general ward. And I'm sure you guys saw the press release we did on HealthTrust. With HealthTrust Purchasing Group, we now have 20% of the U.S. hospitals who before did not have access to Masimo will now have access to Masimo technology. And NFPA's recommendation will lead to more firefighters and emergency professionals to gain access to our lifesaving CO monitor, the Masimo Rainbow SET Rad-57.

And of course, last but not least, the hemoglobin. Noninvasive hemoglobin should dramatically improve the care of anemic patients and patients at risk of blood loss. Once approved by the regulatory body, clinicians can gain access to it rapidly due to, a. Masimo Rainbow SET is a platform solution available on our OEM [MX board] and end user monitors such as Radical-7.

Therefore, the Masimo Rainbow SET platform allows for new measurements such as noninvasive hemoglobin to be installed via a simple software upgrade. And once upgraded, the clinicians can choose between three types of sensors, Masimo SET, Masimo Rainbow and Masimo Rainbow Super Sensors.

With one Rainbow Super Sensor, clinicians will be able to have nine measurements, including SpO2, SpHb, which is our hemoglobin, SpCO, carbon monoxide, SpMet, methemoglobin, PVI, pulse rate, and perfusion index, with one sensor on the same platform. And last but not least, through sales force expansion and optimization, we're going to continue to expand and optimize our sales worldwide.

With that said, I want to end my talk with a couple of closing thoughts before I take your questions. One is our clinical contribution and business model has allowed us to build a solid business with our breakthrough measure through motion pulse oximetry, with room to grow as we bridge the gap between our new pulse oximeter sales and the installed base which drives sensor sales and most of our revenue.

And finally, we have a great innovation engine. We have very bright and talented engineers and we are eager to solve more of the remaining problems clinicians and care providers face. So with that, I would like to turn it to you now to ask your questions. Nick?

Operator, we'll take questions now, please.

Thank you, sir. (OPERATOR INSTRUCTIONS). And your first question comes from Bill Quirk from Piper Jaffray. Please proceed, sir.

Thanks. Good afternoon and congratulations on the great results, guys.

Thank you, Bill.

Thanks, Bill.

First question is concerning the 2008 guidance, Mark. What have -- what have you assumed in there for total hemoglobin?

As of right now, a very small amount. As Joe just alluded to, the product has just recently been submitted for FDA approval. Our expectation is that will take a reasonable period of time. We expect some shipments towards the end of '08. But as a result, in terms of our financial expectations for '08 we have a very, very small amount of revenue related to total hemoglobin.

So something probably under a couple million dollars safe to assume?

Yes.

Okay, great. Secondly, just kind of going back to a topic from the last conference call, we had chatted a little bit about the distribution model that you have for the EMS sales. And I know that you guys were at least considering changing that from a distribution to a direct model. Is there any update here that we can talk about?

Well, Bill, we -- you are right and we are working with our distributor. They have a very succinct message and numbers that they need to hit for us to continue with them. We hope they will and we'll continue with them. But if they don't, we do plan to go direct sometime in Q2.

Understood. Okay, so it's still a work in process, so to speak.

Yes.

And then last question, again bouncing back to Mark, R&D came down meaningfully on a sequential basis. I know you don't want to give line item by line item guidance, but is there any reason to think that this is going to go back to the levels we saw in the third quarter, Mark, or is this a fairly good run rate from here?

No, I think in general, Bill, what we're looking for on a year-over-year basis is about a 10% to 15% increase in total R&D spending. So I think if you take the kind of numbers that we had in the fourth quarter. As you pointed out, there were a couple of unique items, one related to the capitalization of certain R&D expenses, and that's why the actual reported GAAP engineering expense was a little bit lower than you might have otherwise thought for the fourth quarter. But I think if you build off of a 10% to 15% base from our overall '07 engineering expense, that'll get you in the right range.

Understood. Thanks a lot, guys.

Thank you.

Your next question comes from Tao Levy from Deutsche Bank. Please proceed.

Good afternoon.

Hi, Tao.

Hey. So a few questions on my end, just to touch again on the guidance. I just want to make sure I understand your comments there regarding the options. That's primarily due to the increase in the stock price that your option expense is going up so much for '08? So if we were -- I mean I guess it's difficult to do an apples-to-apples, but is that number going to increase again from '08 to '09 or is it less dependent on the stock price at that point?

Well, that's the magical question, right, Tao? Well, I think what's relevant is, of course, and the reason why we highlighted this year, is that relative to where our expectations were for stock-based compensation and relative to where we are right now, of course, because of where the current stock price is, and in addition, of course, our expectation that we will continue to increase the amount of options that we grant commensurate with the increase in the amount of staffing that the Company enters into next year, both of those items obviously contribute.

Obviously we can't predict where the future stock price is going to go. Safe to say that if it continues to move up, then future years 123R computation expense will be higher as well. But we think we've taken a pretty good and conservative look at '08 in terms of where we think these expenses will be. But, as you know, it's all very much dependent upon the ultimate price of the stock.

Okay, great. Thanks. That's helpful. Also, it looks like if I look at the quarter, the product revenue per install has trended up here in Q4. I mean it looks like it's probably one of the higher numbers in the last several quarter. What's driving that, if I've done my math correctly?

Yes, there really -- I think the primary driver there is that, on a relative basis, we shipped a little bit fewer drivers in the fourth quarter than we did in the third quarter and so your denominator in that computation obviously has changed a little bit. Other than that, we honestly don't see a very dramatic shift in our average dollars per driver.

Okay. And then just extrapolating that to your guidance in -- for 2008, if you continue sort of installing at the same pace that you've been doing it in '07, it looks like the dramatic increase sort of in product sales that you guys are guiding to versus what I have in the model comes -- is it coming mostly from revenue per installation or do you expect to significantly accelerate the market share that you're capturing on the drivers out in the field?

I think it's primarily from our expectation that the average dollar per driver, as historically we've seen, continues to rise. Obviously we gauge how many revenue dollars per driver we believe we're going to be able to see, but history tells us that our customers on average have been purchasing anywhere from 10% to 15% above that number.

So the impact of that obviously over the 470,000 drivers that we now have placed throughout the world, even a slight change in that kind of -- or that kind of acceptance in terms of number of sensors purchased per driver, as you know, can have a pretty dramatic impact on that overall price. And I think that's really just a continuation of that assumption.

Okay, that's kind of what I was getting at with my prior question as well. And just lastly, the royalty for 2008 that you're assuming, it's higher than what I had in my models. And I was just trying to figure out, are you assuming the lower end of the range of the royalty rate? The higher end? What are you looking for in the first quarter?

And again, if you're assuming the lower end, why is that -- why is the royalty number that you're expecting, again, not much higher than we would have thought with the royalty change?

Well, hopefully we've ended most of the discussions about royalties going forward. We've done a very in-depth analysis on this particular issue, Tao, and as you know have had different perspectives on the proper way to be modeling this going forward. We have decided, based upon the information available to us, to assume that we will be looking at the higher royalty rate from 2008 forward.

So as a result, included in those numbers that I referred to before is an assumption that we will be seeing the higher end of the royalty rate in 2008, which, just to remind everybody, would be a 13% royalty rate number versus the previous lower range estimate of 10%.

Okay, great. Thank you very much.

That's 15% for 2007.

Right. Thanks, Tao.

Your next question comes from Phillip Legendy from Thomas Weisel Partners. Please proceed.

Hi. It's Phillip Legendy. I wanted to --

Hi, Phillip.

Hi, guys. I wanted to see if we could focus a bit on the hemoglobin opportunity. And I -- recognizing it's early and you don't want expectations to get out of control, how do you -- well, first off, how do you quantify the opportunity?

As far as with the market potential, the market size, are you asking?

Yes.

Well, we have seen different assumptions on kind of how big that market's going to be by actually some of the people on this call and we believe that to be correct, maybe on the conservative side but correct. So we see there's about $1 billion plus market opportunity. And we'll see where the plus leads us.

Okay. And I guess maybe another way for us to think about how that could affect your business, what -- can you give us an idea of what percent or what proportion of your existing users could use or ongoing revenues could be using the hemoglobin sensor instead of just a regular standard oximetry sensor?

There are two types of Radicals out there, the original ones we started shipping in 2000 and the ones we began shipping in 2005 called Radical-7 or Rainbow Ready Radicals. The Rainbow Ready Radicals, including the Radical-7, all they require is a software upgrade. And there's probably around 40,000 plus of those out there. The other Radicals, which I believe are probably another 40,000 to 50,000 of them that are out there, those would require some hardware upgrades but even those would be minimal cost to us and minimal time to do the upgrades.

So potentially we have about 90,000 devices out there that could pretty easily start using the hemoglobin software and hemoglobin sensor, the Super Sensor we call it, hopefully as soon as we get regulatory approval.

Okay. How should we think about the incremental margin of hemoglobin revenues? I mean it's a high margin contribution if you're just doing a software upgrade, but what other costs might be associated there? I mean do you have selling costs, training costs, et cetera?

Well, I think maybe the best way to explain that is just to say we've been saying that we hope to have our margins approach the 70% level by 2011 where kind of at the latest -- or the earliest, excuse me, that the royalties from Nellcor could cease. So we believe hemoglobin and the other Rainbow parameters are going to help us get there.

And I think just to maybe talk a little bit about maybe how to best think about where this is going to begin impacting us, we really think the impact is going to be in 2009. As we said in our press release, we expect to have regulatory approvals in the second half of 2008 and hopefully at that time we'd like to take some select accounts, maybe 10 to 50 hospitals, and use -- install our technology for day-to-day clinical use as a beta site. And then once we feel like everything's gone smoothly, then roll it out commercially worldwide.

And just -- but at a top level, I would love to understand, are there going to be real costs associated with this? do people need to be trained or is it just going to be plug and play in terms of how you want to do the rollout?

We've learned the hard way that any new measurement or parameter that you introduce will require some training, at least some education to its existence. But it really should be minimal because the sensor is going to look very familiar. It's going to look like a pulse oximetry sensor, whether it's adhesive type or the reusable finger clip type and you put it on. And instead of just getting SpO2 and CO and MET, you also get on top of hemoglobin. So I don't expect a lot of training but obviously there's going to be some education of the market about its availability.

Okay. And one more. Sorry to take all this time. Separate from the hemoglobin, your assumption that Nellcor royalty is now going to be at the top end of the range that -- I think, does that mean that they have been unable or that you expect them to be unable to come up with workarounds for certain pieces of the IP or maybe you can flesh out for us what -- why your analysis led you to this conclusion that they were going to be paying the higher royalty rate?

Well, I think there were numerous things, but probably the most compelling for us was that Nellcor released a product called the N-600x a few months ago, maybe several months ago. I don't know exactly now how many months it was. But that product was introduced after about 18 months of our settlement agreement and in that product they left the algorithm alone. In fact, if you go to their website you can kind of click on it and see the footnote that the algorithm hasn't changed.

So that -- we would have thought that if they were going to take out the feature that we allowed them to take out and pay us a lower royalty rate, they would have done it by now. We do believe that feature, one reason we kind of put that out there in our settlement for them to do is because we think if they do take it out, it is going to make their product more inferior and therefore we kind of like to see that. I know maybe some people don't like to see the royalty going down, but I think actually business-wise it'll probably help us if they took it out.

So anyway, after kind of looking at that product, seeing the 18 months have gone by and other factors, we thought probably at this point the most realistic expectation is that they're not going to take that element out.

Got it. Okay. Thanks, guys.

Guys, we're about out of time for questions. If there's another one maybe, Nick, you want to -- well, let's take the last one, please.

Your next question comes from Matthew Doods from Citigroup -- Dodds, excuse me, from Citigroup.

Hey, thanks and good afternoon. You're trying to run a short call, Joe, but you have 40 minutes. I have a couple of questions for you. First, for Mark, when you talk about the royalty rate, you said 13%. It looks like you're assuming no growth for Covidien in terms of sales, probably conservative given what they've been done. Is that the right way to look at it?

Yes. In fact, in our out years, we're actually assuming that the total amount of revenues will begin declining.

Okay. And then for Joe on hemoglobin, you did mention in the press release Monday that you're going to debut it at the WCA in Cape Town.

Yes. Yes, that's correct. Did we lose Matt?

Yes, sir. If you'd like to press star 1 again, Matt, I could go ahead and transfer you in.

Hello? Joe, you hear me?

Yes, I can hear you now.

Sorry about that. So at the WCA in Cape Town you're going to debut the product, but will we see any additional data from what we saw at the ASA last year?

I believe there's going to be one study shown, but it may be more anecdotal study that's going to be shown. I don't think there's anything else beyond that.

And is there anything coming after the WCA? Since now we're talking about hemoglobin a little more, can we expect any larger studies before launch?

I don't believe so, Matt. I think one of the studies that'll be interesting to do once we roll into it is kind of look at the outcome improvement of the availability of non-invasive hemoglobin. We don't expect that we need to do more accuracy studies to prove its accuracy or its value. We've already -- I think there's already enough studies that have done that. Plus, with the latest data we've submitted to the FDA, we're pretty confident that people, when they use it, they'll get the same accuracy.

Okay. Thanks, Joe. Thanks, Mark, and congratulations.

Thank you so much, Matt.

Thanks, Matt.

I would now like to turn the presentation over to Mr. Joe Kiani for closing remarks.

Well, I just -- I apologize if I kept this meeting too short. But I want to thank you all for joining us and I hope to see you all face to face soon. Mark, anything else you want to say?

No.

Well, thank you so much for joining us. Have a great day.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect and have a wonderful day.