Good afternoon, ladies and gentlemen, and welcome to the Masimo Corporation’s second quarter 2010 earnings conference call. The company’s press release is available at www.masimo.com. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) I am pleased to introduce Sheree Aronson, Masimo Vice President of Investor Relations.

Good afternoon. Joining me are Chairman and CEO Joe Kiani and Executive Vice President of Finance and CFO Mark de Raad who will each make remarks and then take questions. This call contains forward-looking statements, which reflects Masimo’s best current judgment. However, they are subject to risks and uncertainties that could cause actual results to vary. Risk factors that could cause our actual results to differ materially from our forecast are discussed in detail in our SEC filings. You’ll find these in the Investor Relations section of our website. With that, I will pass the call to Joe Kiani.

Can we just check to make sure everyone can hear us? (inaudible) someone can't. Excuse me one moment; we are just going to make sure people can hear us. Is our moderator on the phone?

Yes, sir, I am here.

There is a delay. Okay, we are fine. Okay. Thank you. Thank you very much. Well, good afternoon. Thank you, Sheree, and thank you, ladies and gentlemen, for joining us today. Masimo achieved solid results with total revenue up 20% making this Masimo’s first ever $100 million revenue quarter. Performance was driven by a 26% rise in product revenue including a 60% increase in Rainbow revenue. This performance comes despite a still challenging economic climate and reflects double digit sales growth both in the U.S. and internationally. What’s more, shipments of Masimo SET and Masimo Rainbow SET units were up 35% to 36,700 units, excluding handheld devices. Overall, these results reveal momentum across key fronts. First, our course SET is exhibiting strong growth in share gain. The accuracy and reliability of or pulse oximetry technology along with our efficient Patient SafetyNet solution (inaudible) award are helping us to expand hospital customer relationships and win new business. As a result, Masimo’s second quarter Masimo SET pulse oximetry revenue rose 23%, which is well above industry and competitor growth rates, demonstrating strong demand for our gold standard pulse oximetry technology in both our direct and OEM channels. Second, our Rainbow platform is gaining traction as more clinicians and patients experience the benefit of our breakthrough noninvasive measurements. At $7.2 million, our Rainbow revenue hit a new quarterly high with growth coming primarily from Rainbow parameter sales, Pronto, sensor, and OEM board sales. We believe the Rainbow platform holds great promise as a long term growth engine for Masimo providing the opportunity to build new markets and further strengthen our competitive position and physician relationships. These latest quarterly figures signal that we are on the right track. Third, our powerful technology offering and expanded sales organization are delivering sizable increases in our installed…

Thank you, Joe, and good afternoon, everyone. As Joe indicated, top line product revenue performance was strong in the quarter with favorable growth rates on both a year-over-year and sequential basis. Our total revenue was up 20% to $100.1 million versus $83.6 million in the year-ago period. This was driven by a 26% year-over-year rise in product revenue to $88 million, more than offsetting a 10% year-over-year drop in royalty revenue to $12.1 million. Favorable foreign currency exchange rates added approximately $300,000 to second quarter 2010 international revenues compared to the same prior period last year. However, this revenue benefit was partially offset by $100,000 increase to operating expenses also related to the same foreign currency exchange rate movement. Given the recent concerns on foreign exchange movements, let me reiterate that our mix of foreign currency denominated revenue versus our local currency operating expense provides Masimo a partial natural net operating income hedge. However, to be clear, we have not employed any formal hedging strategies and to that extent we could still be impacted to translation or re-measurement gains and losses as we translate our local currency balance sheets into U.S. dollars at the end of each period. These gains or losses are reported in other income and/or expense on our profit and loss statement. Product revenue growth was fueled by the 23% year-over-year rise in Masimo’s SET revenue during the quarter to $80.5 million. Second quarter 2010 revenue generated from our end user or direct business, which includes sales through our just-in-time distributors, rose 18% versus the same quarter last year to $68.1 million and represented 77% of total product revenue. OEM revenue made up the remaining 23% at $19.9 million and represented a strong 58% year-over-year increase. Recall also that the pull back in hospital capital spending may…

Thank you, Mark. As you all know, Masimo’s mission is to improve patient outcomes and reduce the cost of care by taking noninvasive monitoring to new sites and applications. I have never been more enthusiastic about our ability to drive this mission forward than I am today. We are now in the final stages of a multi-year initiative to expand our global sales and marketing organization, an effort that has allowed us to roughly double the size of our sales force in the last two years and strengthen the goal – infrastructure that supports it. That sales force is now offering a host of new breakthrough technologies that address important clinical needs and have significant market-changing potential. At the same time, our R&D team is pursuing some exciting new ideas to keep Masimo at the forefront of noninvasive monitoring. We are very well positioned to take advantage of multiple growth opportunities today and over the long run. For example, while pulse oximetry has been the standard of care in critical care areas of the hospital for years, Masimo is now enabling accurate and reliable monitoring not only in the critical care areas, but into areas such as the general ward. The combination of patient controlled analgesia and lower staff-to patient ratios in the general care floors makes is less likely that a clinician will be there to observe an avoidable adverse event. Consequently, continuous monitoring of patients in general care areas of the hospital is growing unmet medical need. Masimo SET is particularly well suited for this continuous monitoring because it delivers a 95% reduction in false alarms while improving the detection of true alarms to 97% even under the most difficult clinical conditions of motion and low perfusion when other pulse oximeters fall short. This fact was made clear…

(Operator instructions) Your first next question is from the line of Bill Quirk with Piper Jaffray. Bill Quirk – Piper Jaffray: Thanks. Good afternoon, nice results, guys.

Thank you, Bill. Bill Quirk – Piper Jaffray: A couple of questions. First off, with a couple of very strong driver quarters through the first half of the year, can you talk a little bit about whether or not this is the new normal in terms of placements or are we perhaps seeing a bit of an inflated impact just from some pent up customer demand?

Well, we actually believe this should continue. Obviously there was pent up demand, Bill, from the last I guess and may be even the quarter before that year as the financial markets became so bad that everybody put a hold on everything (inaudible). So, that pent up demand did create a good first half but from what we see today, we don’t think the drivers will change much in the next couple of quarters. Bill Quirk – Piper Jaffray: Understood. Thank you. And then as a followup can you guys talk a little or give a little more color into Rainbow in terms of just from a product standpoint, what’s driving that? I assume hemoglobin is doing quite well, but if you wouldn’t mind throwing in a comment about some of the parameters like carbon monoxide and methemoglobin. Thanks.

Well, I think you kind of said it. They are all growing really nicely. We are seeing some really nice growth percentage wise. Obviously the numbers are still small and that’s why we are not breaking it down, because when they are that small they can be erratic, but I can tell you it has been growing very nicely and as we talk about it, Bill, we think when one of these parameters start becoming significant like may be 10% of our revenues, that’s the time to start breaking down that parameter out of the group and start talking a little bit more about on it on these types of calls. Bill Quirk – Piper Jaffray: Very good. Thank you.

Thank you.

Our next question is from the line of Joanne Wuensch from BMO Capital Markets, Joanne Wuensch – BMO Capital Markets: Thanks for taking the question. Stock-based compensation in the quarter, you used to include a chart in the press release. What does that look like?

Joanne, I think the number if I recall is about $2.4 million or so, but I will followup on that and get back to you. Joanne Wuensch – BMO Capital Markets: Thank you. How much did the SEDLine acquisition add to revenue in the quarter?

We are not actually breaking out SEDLine specifically under the general guise of what Joe just mentioned. What we can say is that at least currently SEDLine is a very small portion of our total revenues. However, as Joe just mentioned, we expect that to change dramatically over the next couple of years as we are able to invest the necessary resources, both from an engineering and from a sales standpoint.

I would like to add, Joanne, that certainly the growth we had did not come from SEDLine acquisition. Joanne Wuensch – BMO Capital Markets: Thank you.

You are welcome. Joanne Wuensch – BMO Capital Markets: Another question. You did announce the settlement with Hygia --forgive me if I am mispronouncing that -- over the last week or two. What is the significance of that?

Well, Hygia is a lot of – I think the two reprocessors out there and while we are not quite certain of the impact they are having, we think it’s de minimus, but the next thing is that Hygia has agreed to discontinue reprocessing, selling, exporting or otherwise transferring any of Masimo’s pulse oximetry devices originally designated by Masimo as for single use only and or any other company compatible sensors for two years. Now, we are pleased with this outcome, which is consistent with our original request in April, 2009 Hygia (inaudible) processing used Masimo sensors. Joanne Wuensch – BMO Capital Markets: Okay. My final question is OEM revenue as a percentage of revenue increased in the quarter. Is that reflective of increasing demand from some of the Philips and other larger box manufacturers? Thanks.

The short answer is yes. Joanne Wuensch – BMO Capital Markets: Alright, thank you.

Thank you.

The next question is from the line of Mayank Gandhi from Cowen, Mayank Gandhi – Cowen: Good evening. Thank you for taking my questions. Can you just talk about gross margin, you know, you again came in a little bit softer this quarter and you mentioned two factors, increased OEM revenues and incremental manufacturing expenses. It is – last quarter I think there was some impact from disposable or disposable dynamics. Is that true this quarter as well and how should we think about going forward?

Well the two items that I mentioned before, the impact of the higher percentage of OEM revenues as well as the continuing migration from Irvine, California to Mexicali were essentially the two primary reasons for that. There really are no other significant material items that impacted that margin. So, we hope that by the end of the second quarter, that the vast majority of that manufacturing transition has now been completed. So the slight drag that that has had on our margins for the first couple of quarters of this year, we plan to actually no longer see that in the second half of the year. Mayank Gandhi – Cowen: Okay. And given that you have Pronto-7 now and is – in the past I know you had mentioned about possibly the – of signing a large physician office distributor. Is that something – how are the discussions going on that front? Is that something we could expect in the near term or something that’s more for the down the line?

So, I think further down the line, as I mentioned, we want to make sure we are very comfortable with the product and how to best sell the product. We’ve had dialog with these large distributors. They have shown a lot of interest. We probably will end up selecting one of them and it could be before the end of the year, it could be beginning of the new year that will be comfortable in letting a large sales force like that aided by our regional smaller sales force to start selling Pronto-7 in the market. Mayank Gandhi – Cowen: Okay. And the margin on Pronto-7 is similar to the corporate margin or is it more than what you have right now, gross margin I meant?

Well, we think of the business as – and I assumed your question is Pronto-7 along with the consumables. Mayank Gandhi – Cowen: Yes.

And the answer is yes, it should be at least the same if not larger than what kind of margin we normally have with our Masimo SET business. Mayank Gandhi – Cowen: Okay. Thank you.

Thank you.

Next question is from the line of Gregory Hertz from Citi. Gregory Hertz – Citi: Hi, gentlemen, thanks for taking my call. I was just hoping may be just take a bit of a deeper dive on some of the growth you have with – in the OEM channel and also just the benefit you had with the Rainbow SET in the quarter. Just wondering did you say whether or not the OEMs and the increasing contribution of revenues in the quarter was due may be some pent up demand among hospitals or may be was that due to the product design cycle and may be having more of the – your OEM partners having the Rainbow SET available or if you can be just describe a little bit more about the (inaudible) Rainbow SET in the quarter? Thanks.

Sure, Greg, I think it’s really the demand from the market and then pent up demand also for devices in general. But I believe more customers globally are requesting Masimo technology from the OEMs and that’s what’s helping us become a bigger, now I think bigger drivers will be a bigger percentage of the shipments of our OEMs. Gregory Hertz – Citi: And what’s your visibility now, I mean I know you do have certain amount of visibility within your ORM partners. Has that improved and so do you see this as being kind of a sustainable level of revenue contribution for OEMs for the remainder of the year?

Well, good question, Greg, and I – what I want to say is to hedge what I am going to say, I am going to say that overall between OEMs and our direct business, we think the number of drivers will roughly remain the same. But obviously Q3 is (inaudible) than Q4 but it doesn’t feel like anything should change there. Gregory Hertz – Citi: Okay. And then one final one. With respect to the pace of the parameter rollouts, you’ve obviously been pretty consistent here in the last couple of year for launching new parameters. But in light of the SEDLine acquisition, what should we expect to hear with respect to kind of home grown parameter solutions? Should we expect to hear anything later this year or is that something that we would hear may be in 2011? Thank you for your time.

Sure, Greg. Masimo Corp. has a very broad product line in its R&D and I don’t know if we’ll deliver on this hope, but we hope to continue to deliver important new parameter each year for the foreseeable future. On top of it, Masimo Labs, which we have a relationship with, is working on a pretty big home grown parameter that we have never said we are going to do, or they ever said they are going to do, but obviously if they develop that, that one particular parameter they are working on should be helpful to Masimo’s rollout as well. Gregory Hertz – Citi: Thanks for your time.

Thank you.

Our next question is from the line of Brian Weinstein from William Blair. Brian Weinstein – William Blair: Good afternoon. Thanks for taking the question.

Hi, Brian. Brian Weinstein – William Blair: Hey, so when we met, Joe, we even met last September you indicated that you felt that the accuracy of Pronto-7 would have to be a little bit better than Pronto or that you would reconsider launching it. I believe the wafer [ph] was similar for the two in terms of the accuracy. Is that true then – is there data that you have that we just haven’t seen yet or that’s going to be presented somewhere that’s going to show any type of an increase in accuracy on the Pronto-7?

Well, you are right that I did say Pronto-7 is going to be more accurate than Pronto. From the FDA we did not seek a more accurate specification. But the product is more accurate than Pronto. Pronto-7 is more accurate than Pronto. As far as what type of data is going to be published, I don’t know if Pronto-7 data is going to be published any time soon. My guess is that it will start coming out in 2011. I do know at this year’s ASA we expect over ten studies on hemoglobin but I don’t think they are Pronto-7 specific. Brian Weinstein – William Blair: Okay. And then can you comment – in the past you’ve given some qualitative comments on quote activity around Rainbow. Can you qualitatively talk about quote activity there and has there been any change in the average time to close these accounts?

Well, we are not providing any more quote activity because I think the product is more mature, and as you can see the revenues are growing actually for Rainbow and I think that speaks volume for Rainbow and its entirety. I have in the past given you some signals about the percentage growth, hemoglobin we are seeing, and while nothing has changed, I don’t want to do that anymore until, like I said, each parameter becomes big enough as a percentage of our revenue where it warrants to break out. But to answer the second part of your question, we believe that quoting activity and the timeframe to closing have not changed that negatively. It may have changed positively slightly and that has to do with the fact that we are now selling products often to physicians’ offices, which take less time to convert from a demo to a hook, to an order. Brian Weinstein – William Blair: Okay, great, thank you very much.

Thank you.

The next question is from the line of Matt Dolan from Roth Capital Partners. Matt Dolan – Roth Capital Partners: Good afternoon. Can we maybe shift over to the international business? It looks like it was flat sequentially and I think, Mark, you mentioned some slower collection cycles over there. What’s the outlook for the international piece of the business as there are some concerns in the Eurozone?

Well, in general, Matt, we actually were very pleased with the performance in the second quarter. There was ironically one large transaction that occurred in one of our international entities in the first quarter that did not repeat of course and so as result there was from a direct revenue standpoint a slight decline. That was of course offset by an increase on the OEM side. So, in general we are very pleased with the total OUS performance. In fact against their own internal plans they are measuring ahead of plans for the year. And for the rest of the year, of course, we are heading up into the summer quarter, which is always a difficult one to call in the OUS world. But we expect to continue to see the level, the general level of revenues that we’ve seen over the first half of the year, and then ending up with a relatively strong end of the year period. Matt Dolan – Roth Capital Partners: Okay, great. And then, Joe, on SafetyNet in the general floor, I know you touched on some good data points in the prepared remarks, but may be – I think last call you talked about entering an inflection point for that particular segment of the market. Can you help kind of recalibrate us there? Are you still equally as optimistic more or less now that you’ve got another few months of hindsight?

Yes, I am equally as optimistic as I was last quarter and I recently had a chance to travel around some of the other regions of the world and amazingly even in those regions there is a lot of excitement for Patient SafetyNet. I think that study that came out was with the first of its kind, has really fueled customers’ interest in doing this because they’ve always felt that it was the right think to do for patient care, but they were afraid of cost aspect of it, and that study showed that it actually saved money. So, long story short, yes, that we are quite optimistic about the growth of Masimo Patient SafetyNet into the general ward. Matt Dolan – Roth Capital Partners: Okay. And then finally just on seasonality and modeling the rest of this year. Obviously, last year was a unique macro environment here in the U.S. Any color you could give us on the trajectory of revenues in the final two quarters here? Thanks.

Well, seasonality wise, Q3 is usually the slowest quarter because a lot of Europe shuts down for most of the quarter and the flu season is over and people are vacationing. So – but generally we see still strong demand for our technology in Q3 and Q4 and we are feeling optimistic. Matt Dolan – Roth Capital Partners: Great. Thanks, guys.

Thank you. I think we have time for one more question.

Our last question is from the line of Larry Keusch from Morgan, Keegan.

Hi, Larry. Maybe not.

Hello.

We have time for one more question, if anyone has it.

Mr. Keusch, your line is open.

Guess we lost Larry.

Okay, we lost Larry. Well, if there is nobody else, then I want to thank you all for joining us today and I am looking forward to seeing some of you in person, and Mark and I look forward to our earnings call. Thank you.

That concludes today’s conference call and you may now disconnect.