Masimo Corporation (MASI) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Masimo Corporation's First Quarter 2015 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 Q and A session. As a reminder, this conference is being recorded. I would like to turn your call over to your host for today, Mr. Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Sir, please go ahead. Eli Kammerman - VP-Business Development & Investor Relations: Thank you. Hello, everyone. Joining me today are Chairman and CEO, Joe Kiani; and Executive Vice President of Finance and CFO, Mark de Raad. This call will contain forward-looking statements which reflects Masimo's current judgment, including certain of our expectations regarding fiscal 2015 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our SEC filings, including our most recent Form 10-K and Form 10-Q. You will find these in the investors section of our website. I'll now pass the call to Joe Kiani. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Eli. Good afternoon and thank you for joining us for Masimo's first quarter 2015 earnings call. I'm happy to report that we exceeded our performance targets for the quarter, with healthy gains from product revenues. We achieved GAAP earnings of $0.38 per share as a result of strong SET revenue growth, combined with higher product gross margins and our continued focus on operating expense control. Encouragingly, our product revenues rose by 11%, while on a constant currency basis, our product revenues rose by nearly 15%. The product revenue strength was due primarily to a robust growth in our SET pulse oximetry business, which was up by 14% over the same quarter a year ago as an intense flu season in the U.S. increased hospital census. Other important highlights from our first quarter include shipments of 44,000 SET and rainbow units in the first quarter, the eighth consecutive quarter in which we have shipped over 40,000 drivers. Once again, our global installed base grew by 9% year-to-year. A continuation of our margin improvement trend as our Q1 GAAP product gross margin improved by a full percentage point, as the impact of our value engineering initiatives continued to build. Based on our strong start to this year and our outlook for the remainder of 2015, we are optimistic about our ability to deliver on our performance commitments for both sales and profitability. Our core SET business is strong and the new products that we have introduced over the past 12 months are beginning to add some visible growth to our product revenues. As I have previously noted, we continue to be optimistic about our ability to deliver on the last portion of the 10-year plan, which was set in place in 2007 when we went public. In a few moments, I will provide you with some additional updates on our expectations for the remainder of 2015. But first, Mark will review our first quarter financial results in more detail. Mark. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Thank you, Joe. And hello, everybody. Reported total revenue and product revenue for the first quarter was a $154.5 million and a $147.4 million respectively. Product revenue rose by 11.4% or 14.6% on a constant currency basis versus the first quarter of 2014. As we expected, due to the foreign exchange rate volatility, our Q1 revenues were reduced by a record $4.2 million. And just to remind you, our current constant currency computations are based on the difference between the average current quarter foreign exchange rates versus the prior year average foreign exchange rates applied to the current quarter local currency revenues. And although it's difficult to estimate, there's no doubt that our Q1 revenues benefited from the intense flu season this quarter as reported hospital inpatient admissions rose by 4.1% year-to-year. Q4 2014 rainbow product revenue totaled $12.2 million, down approximately 5% or 3% FX adjusted from $12.9 million in the prior year period. The decline in the year-over-year rainbow revenues was due primarily to our prior year OUS rainbow order, which was $1.4 million lower than the current year order. Excluding the impact of this amount, our year-over-year total rainbow revenues would have been up by about 7%, and without the impact of foreign exchange rates, our rainbow revenues would have been up by about 10%. Our total SpHb revenues declined to $2.3 million from $2.8 million last year. While our total Q1 rainbow revenues were below our expectations, we continue to be encouraged by the growing pipeline of interested customers being created by our blood management sales team and the revised National Fire Protection Association 1584 standard, which requires assessment for carbon monoxide poisoning of firefighters who are exposed to smoke. As a result, we expect that rainbow revenues will accelerate as we move throughout the year. In the quarter approximately 47% of total rainbow revenues were consumables, down from 50% a year ago due to the previously mentioned prior year OUS rainbow order, which was all rainbow sensor revenue. Our worldwide end user or direct business, which includes sales through just-in-time distributors grew 12.5% in the first quarter to $125.1 million versus $111.1 million in the year ago period. Our direct business represented 85% of total product revenue in the quarter about level with the prior year period. OEM sales comprised the remaining 15% and rose by 6% versus the prior year period. By geography, total US product revenue increased by 21.8% to $107.3 million compared to $88 million in the same quarter of 2014. Our OUS product revenues of $40.1 million, declined by 9.3% in the first quarter, but rose by 0.3% on a constant currency basis, versus $44.2 million in the same period last year. Excluding the impact of foreign exchange rates, year-over-year revenue growth rates were highest in Japan and Canada. International revenues represented approximately 27% of total product revenue or 29% on a constant currency basis, compared to 33% a year ago due to the strong US product revenue growth. As Joe mentioned, our first quarter 2015 GAAP product gross profit margins rose to 65.1% from 64.1% in the prior year quarter. And, had it not been for the impact of foreign exchange rates on our GAAP product, gross profit margins would've actually been 65.5%. The improvement, we believe, is due primarily to the impact of our ongoing value engineering programs. Our first quarter total gross profit margin including royalties was 66.7% versus 66% margin in the year ago period. Reported first quarter 2015 total operating expenses were $75.7 million, a 21.9% increase from $62.1 million in the year ago quarter. However, recall that we realized an $8 million legal and related benefit in the first quarter of fiscal 2014. Without this benefit, our year-over-year operating expenses rose $5.6 million or approximately 8%. This increase was due primarily to higher legal, employee and employee-related costs, as well as marketing related expenses, which were then partially offset by approximately $1.8 million in lower OUS expenses, as we expected, due to the impact of foreign exchange rate movements. Selling, general and administrative expenses were $60.8 million, up 26% from $48.1 million in the prior year period, although up an adjusted 8.3% if you remove the $8 million benefit in the prior Q1 2014 period. R&D spending of $14.9 million rose by 6.7% from $14 million with increases in both employee and employee-related costs, as well as higher product development and clinical study expenses. First quarter 2015 operating income was $27.4 million compared to $30.2 million in the prior year period, or $22.2 million if you exclude the $8 million benefit from the Q1 2014 legal expense reversal. With the adjustment for the $8 million, our increase in year-over-year operating income was 23%, attributable of course, to the combined effects of faster sales growth, higher product gross margins and slower operating expense growth. Q1 2015 non-operating income was $153,000 compared to $200,000 in the prior year period. This income, as you'll recall, relates primarily to the positive translation impact of movements in foreign exchange rates on overseas assets offset by approximately $452,000 in net interest expense associated with our line of credit borrowings. Our first quarter of 2015 effective tax rate rose to 28%, up from 26% in the same period last year and was in line with the projections of 26% to 28%. The higher Q1 tax rate, which we expected and was discussed in our February earnings call, was due to a shift in the mix of our US versus OUS operating income resulting largely from the impact of foreign exchange rate movements from last year to this year. Our average shares outstanding for Q1 was $54 million, a 7% decline from $58 million in Q1 of 2014, due primarily to our repurchases of approximately 4.5 million shares during 2014. And as noted in today's press release, we also repurchased approximately 250,000 shares in Q1 2015. First quarter GAAP 2015 net income was $20.5 million or $0.38 per diluted share compared to $22.6 million or $0.39 per diluted share in the same prior year period, or compared to $0.30, if you exclude the $0.09 benefit in Q1 2014 from the legal accrual reversal. It's also noteworthy that net impact of foreign currency transactional and translation adjustments as highlighted in our new GAAP to non-GAAP reporting, reduced our reported 2015 Q1 earnings per diluted share by approximately $0.02. In fact, primarily because of the large impact that the movement in foreign exchange rates will have on our fiscal 2015 versus 2014 financial results, we have decided starting this quarter to begin presenting and discussing our non-GAAP revenues gross profit margins, operating expenses, operating income and earnings per share. You will find this new supplementary reporting in today's press release. We've incorporated this new reporting format in order to allow our investors to more clearly see the impact that the movement in foreign exchange rates will have on our 2015 versus 2014 financial results. We will also be including adjustments related to M&A related intangible asset amortization expenses and as we've noted today other unique items such as the Q1 2014 legal expense reversal. Over time, we will continue to evaluate other potential unique non-GAAP items and if material, we will include them in our future GAAP to non-GAAP reporting. We hope that this additional disclosure will improve our investors' ability to more clearly see our key underlying business trends. In addition, we're also going to be discussing the annual cash flow generating capabilities of the business including our annual EBITDA expectations. To that extent, based on today's updated financial guidance, which I'll discuss shortly, we expect to generate approximately $70 million in cash this year, excluding the impact of capital spending related to our new headquarters building. In addition, we're projecting fiscal 2015 EBITDA to be approximately $115 million $120 million. Just a quick comment on our updated financial guidance today. As a result of our stronger than anticipated Q1 results, and our continuing confidence, we are updating our 2015 total revenue, product revenue and GAAP earnings per share guidance. We are increasing our total product revenue guidance from $605 million to $608 million, our product revenues from $577 million to $580 million and our GAAP earnings per diluted share from $1.30 to $1.33. And consistent with our new non-GAAP reporting, we are now also providing our initial 2015 non-GAAP financial guidance for projected non-GAAP earnings per diluted share of $1.48. A reconciliation of our updated GAAP earnings per share to our non-GAAP earnings per share has also been provided in today's press release. Now just a few final comments on our balance sheet. As of April 4 2015, our days sales outstanding was 42, compared to 45 as of January 3, 2014, and over the same period, our inventory turns rose to 3 compared to 2.8. Our total cash and cash equivalents as of April 4, 2015 was $135.7 million, compared to $134.5 million as of January 3, 2015, as cash generated from operations was used primarily to fund building improvements and to a lesser extent fund stock repurchases. With that, I'll turn the call back to Joe. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Mark. As we review our Q1 performance, we're encouraged by our progress to date and improving profitability, while increasing our market share with products that save and improve lives. We remain optimistic about our outlook for the remainder of the year, as we stay on track to realize accelerating earnings growth. As we enter into the harvesting period of our 10 year plan, we're seeing steady progress in our gross margin expansion, coupled with a disciplined approach for controlling operating expenses and are benefiting from seven years of solid investment in research and development sales and clinical support that should continue to produce visible leverage in our earnings. Our 2015 guidance remains intact and we see many positive developments ahead. In Q1, our core SET business benefited from a strong flu season, which led to greater than 4% increase in hospital admissions compared to last year's Q1. Core SET product continued to gain market share, while our installed base is expanding by 9% to 10% annually. With a robust new product flow we've generated, we anticipate greater adoption and utilization of Masimo technology that provides unique benefits to our customers and ultimately their patients. In addition, growth in our outside the U.S. sales from locations such as Canada, Europe, India Japan and the Middle East is on track to exceed our domestic growth rate this year, when viewed in constant currency terms. Even so, our expectations for SET oximetry growth for the remainder of the year are based on normalized growth, and we believe that the unusual strength seen in Q1 should not be extrapolated for the full year. Rainbow, while still not growing at the rate that we had expected, is quite promising. The strong clinical interest has not yet translated to significant growth due primarily to extreme fixed fiscal conservatism of hospitals and our inability to fully present the value of rainbow due to our current limited number of approved indications for rainbow, but we view that as a passing phase we have to patiently go through. Nearly 100 hospitals have already reached a clinical decision to broadly deploy SpHb and PVI across multiple departments, but the capital budget approval process to trigger installations is still taking longer than we anticipated. As we pass through these budgeting challenges, we expect to see more of these hospitals progressing through this budgeting process and move towards installation later in the year. The key opportunity for rainbow growth continues to be the timing for availability of monitors with rainbow parameters from major patient monitoring companies. We're still expecting the introduction of our rainbow-enabled monitor for high acuity patients later this year by one of the leading patient monitoring companies, followed by additional such launches in 2016 by the others. In closing, our confidence in delivering on our 10-year plan is increasing. Be assured that the last two-and-a-half years of our 10-year plan is unfolding as we anticipated. Our outlook for 2015 and beyond is justifiably optimistic and we are excited about realizing our long-term goals of improved patient care and financial performance. With that, we'll open the call to questions. Operator.

Thank you. Our first question comes from the line of Tao Levy with Wedbush. Your line is open. Please go ahead.

Great. Thanks. Joe E. Kiani - Chairman & Chief Executive Officer: Hi, Tao.

Hi. How are you doing? So, yeah, very nice quarter, guys. So, anyway, you've tried internally to dissect the impact of the flu season? Is it sort of like the increase in the product revenues in your guidance? Is that flu mainly? Joe E. Kiani - Chairman & Chief Executive Officer: Well, we did increase our guidance for the year by the amount of increase to what we had expected in Q1. Because our belief is that the census increase was flu based. However, we still feel good about the outlook of the year, short of some census drop that we're not anticipating, we believe we're in good shape. But, to answer your question specifically, do we believe all of that was due to the flu season? I don't believe so. I think that was predominantly it. But, we also believe our market share gain and other factors led to that sense, obviously the growth was only 4%, not 12% to 15% if you look at constant currency basis, that we did see.

And so I guess, the other thing is, when I look at some of the flu data. It doesn't even look like it's necessary over yet, which is surprising. And so, as we move through the second quarter, are you seeing any of that, are you hearing any of that from your customers? Especially it seems like elderly patients are unfortunately ending up in the hospital in an increasing number because of flu in the last few weeks. Joe E. Kiani - Chairman & Chief Executive Officer: Well, anecdotally, I was with the flu last week. So, I do agree with you, it feels like it's hanging around. But as far as the factors we see with the sensor volume, we don't see the same rate of purchase for our sensors as we saw in January, February and March.

Got you. And just to make sure, when hospitals and distributors, when they replenish product that's being used, how much insight do you have into that? And basically, I'm trying to make sure that you didn't get this mass purchasing because maybe some of the hospitals inventory has been used up and now as we move forward, we might hit like just a temporary wall while they work through some of that repurchasing activity? Joe E. Kiani - Chairman & Chief Executive Officer: Well, we report based on a sell-through model. So we actually work with our distributors at the end of each quarter to understand what is their inventory, and we take that inventory out of our revenues to make sure what we are reporting is what we believe our customers purchased, not what the distributors carried.

Okay, great. Thank you very much. Appreciate it. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Tao.

Thank you. And our next question comes from the line of Chris Lewis with ROTH Capital. Your line is open. Please go ahead.

Hey, guys. Thanks for taking the questions. Joe E. Kiani - Chairman & Chief Executive Officer: Hi, Chris.

Wanted to start on the core SET business, obviously you pointed to the strong flu season. Understand that doesn't last to the magnitude going forward, but maybe you can provide some color on how we should think about the core SET growth going forward, as that strong flu season rolls off and kind of the growth expectations for that business going forward? Joe E. Kiani - Chairman & Chief Executive Officer: Well, I'm going to let Mark answer that question, but just maybe one big picture item, that the 44,000 devices that we shipped in Q1, which is about a 9% increase year-over-year from an installed base perspective, where we subtract out whatever is over 10 years old to come up with what we believe is our installed base, is to me a good indication of the kind of growth we expect volume-wise with sensors and our business. But maybe I'll let Mark answer specifically the percentage that you're asking about. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Yeah. Chris, I think in general, when we provided guidance for the entire year, that guidance assumed a SET product revenue growth rate in about the 5.5%, 6% range. Each quarter is a little bit different and then, of course, our rainbow revenue growth was a bit higher and that got us to the overall growth projections that we assume for the start of the year. So obviously, since we started this quarter and this year a bit stronger than expected, we're cautiously optimistic that maybe a little bit of that strength will carry over into the next couple of quarters. But fundamentally, I think the original guidance that we provided back in February for Q2, Q3 and Q4 are probably still the right ranges to be in and that would suggest, again, SET revenue growth rates probably in that 6%, 7% range.

Great. Appreciate the color there. And then rainbow came in a bit below where we were. Can you elaborate – I missed a portion of it – but can you elaborate on the prior year order and the dynamics that played during this quarter? And then, Joe, I think you talked about confidence in that accelerating throughout the course of this year. So what gives you that confidence? Thanks. Joe E. Kiani - Chairman & Chief Executive Officer: Well, we got a couple of big orders in Q4 2013 and Q1 2014 of last year from a large EMS provider from a country where they switched entirely to rainbow monitoring of their patient SpCO, SpMet combo. And while that's still the case and they've standardized on it, their reorder has been smaller both in volume, but also by going through one of our OEM partners instead of buying direct from us. So for that reason, so we discussed there was about $1.5 million less in rainbow revenues this year compared to last year. However, what keeps me still believing in the eventual explosive growth of rainbow is the fact that clinically, it's being evaluated and chosen to become standard of care at leading teaching hospitals and leading community hospitals around the world. Unfortunately, the budgeting cycle to buy new things that they were not buying previous to the financial crisis and then the Affordable Care Act is unprecedented. And so there's this long delay from the moment the request is put into administration to make the purchase to when we get the orders. But we do get the orders. And so we believe through the fact that we've gone since we put the blood management team together to maybe a dozen hospitals, wanting to standardize in many departments the use of rainbow to now nearly 100, also through their success that they're having, where they're talking about lives saved, they're talking about cost saved. I think it's not only going to get these hospitals to continue expanding their usage of rainbow. But the word of mouth we believe will help others as they're trying to get their budgeting done, get their budgeting approved and move forward. So we, unfortunately, we said from the beginning, we don't know when the inflection point is going to be to the s-curve adoption that we see. And obviously the x coordinates have increased a lot since we had anticipated it. But we still believe it will take off.

Great. And then if I could sneak one more in. I believe you had guided for GAAP product gross margins of 65% for the year with the expectation of them kind of sequentially improving throughout the year, first quarter came in above that number already. So, how should we think about gross margins trending going forward? Thanks. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Chris, I'm glad you asked. We did as you pointed out benefit a little bit more than we expected in the first quarter, partly of course, the top-line revenue contributes to a little bit of that improvement. We also generated a few more favorable variances throughout the quarter than we expected. Having said that, I do expect the margins in the second quarter to fall slightly below 65%, which is pretty consistent where I think most people had expected Q2 to be, and then we expect improved gross margins from Q2 into Q3, and then as usual, we expect a pretty nice increase to overall margins in the fourth quarter, again largely coming because of the significantly higher revenue expectations that we also expect in the fourth quarter.

Okay. So, safe to say that, that 65% for the years is probably a conservative at this point? Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Yeah. I think, it's realistic at this point. I mean, as the first quarter proves out, if we get another couple of positive breaks in the next couple of quarters, yeah, then I think you could consider it to be conservative at this point, but it's still a little early in the year to be gauging that.

Okay, guys. Thanks for the time. Joe E. Kiani - Chairman & Chief Executive Officer: One thing, Chris, that will say, the value engineering work that we began a few years ago is really paying off and we were a little bit ahead of schedule of what we expected for the quarter. So, hopefully, like Mark said, it's realistic and we'll have to see if it continues the way it's been.

Thank you. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Chris. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Thanks, Chris.

Thank you. And our next question comes from the line of Larry Keusch with Raymond James. Your line is open. Please go ahead. Lawrence S. Keusch - Raymond James & Associates, Inc.: Great. Good afternoon, everyone. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Hi, Larry. Lawrence S. Keusch - Raymond James & Associates, Inc.: Joe, I'm wondering if you might talk a little bit about the royalty and I guess what I'm curious about you guys obviously have baked that into your guidance for the year and couple of years out. But just curious if there is anything that you can share relative to if anything has been going on, whatsoever with Covidien or anything changing if you will now that they are owned by Medtronic? Joe E. Kiani - Chairman & Chief Executive Officer: Sure, Larry. First of all, there has been no communication that I'm aware of with Covidien/Medtronic. And while we can't be certain of A. the royalty is continuing or what Covidien/Medtronic is thinking, we do believe that the royalties should continue till October 2018, mainly because we have patents that go that long, particularly a patent that we had some interference practices with Covidien at the Patent Office that we ultimately won, and we won through the Court of Appeals, and that particular patent goes till October 2018, and to the best of our understanding, it is the core technology of the product they began selling after we won the patent trial and they were enjoying from selling the other devices. So it's the new device they've been selling since 2006, a product called N-600. So based on that we believe things should continue and that's why we have put the royalties in for the year. Lawrence S. Keusch - Raymond James & Associates, Inc.: Okay, terrific. And then I want to make sure, Joe, that I caught this correctly. I think you had indicated on the fourth quarter conference call that you anticipated high acuity monitor from Philips coming mid-year, a low acuity monitor from GE mid-year and then at some point in 2016 a high acuity monitor from GE. It sounded like from the comments this time, that perhaps that high acuity from Philips is now looking like the end of this year and now GE is perhaps looking more like 2016. I just wanted to see if I was interpreting that correctly. And if I was, any thoughts behind it? Joe E. Kiani - Chairman & Chief Executive Officer: Yes, you are. You've been paying attention. Yes, you're right, Larry. And unfortunately, the projects are just delayed. But we believe that the dates I've given you now are the best dates that I've been given by our OEM team. And also we know that Philips has already launched their low acuity monitor with rainbow. And we believe GE will be launching their low acuity monitor with rainbow shortly. But for the high acuity stuff, unfortunately, you're right, it's looking more like now towards the second half of the year and for maybe GE beginning of next year. Lawrence S. Keusch - Raymond James & Associates, Inc.: Okay, perfect. And then one last one for Mark. I guess I'm just trying to understand the non-GAAP measures that you're now presenting, which by the way I think are extremely helpful, so much appreciated. But, I suspect most of the street is at the end of the day still going to model on a GAAP basis and that sort of the way you're providing your guidance on a GAAP basis. What was the thinking in not going to a cash EPS number that would exclude deal-related amortization, as your primary non-GAAP measure and then providing some of the supplementary information on top of that? Is it just that the amortization expense is just not that large and at the end of the day, doesn't move the needle that much? Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Well, Larry, as you know, I think, we actually talked about this a couple months ago, a lot of time and energy went into trying to come up with the best presentation mode that would provide, as I said in the prepared remarks, the best visibility for our investors, primarily to understand what's going on in the core business. And so, and there are also as you know obviously other adjustments that occur, other unique adjustments throughout any given year, and this review was a great example where we had to continue to refer to this $8 million adjustment in the first quarter a year ago. And so, the beauty and the kind of non-GAAP layout that we've created now we think is that it will very clearly articulate in tabular format, what we use to try to speak to within the form of our prepared remarks and provides everybody with a black and white set of numbers to understand what we're actually saying. So, that's why we moved forward with the kind of presentation that you saw today in the GAAP to non-GAAP. And then more specifically on the cash issue, as you know, I mean, there are a number of different ways to attempt to measure that. I think our overall perspective was that what was most important was our ability to articulate the company's ability to generate the kind of cash that we are capable of generating and in fact have generated and over the next three years or four years expect to continue generating. And we think the best way to do that is simply speak to the total cash amount that we expect to generate, and in addition, provide that EBITDA number, which for a lot of people, that's another very valuable way to measure the cash generating capability of the company. So, that's the rationale why we used those two cash related items. Certainly over time, if there are other measurements that prove to be more valuable, we can certainly consider other types of measurements like the one that you mentioned, but that's the rationale behind what we presented today. Lawrence S. Keusch - Raymond James & Associates, Inc.: Okay. Great. Very helpful. Appreciate it, guys. Joe E. Kiani - Chairman & Chief Executive Officer: Thanks, Larry.

Thank you. And our next question comes from the line of Brian Weinstein with William Blair. Your line is open. Please go ahead. Brian D. Weinstein - William Blair & Co. LLC: Hey, guys. How are you? Joe E. Kiani - Chairman & Chief Executive Officer: Hey, Brian. How are you? Brian D. Weinstein - William Blair & Co. LLC: Good. Thanks. So, a couple of questions. I'll start on rainbow, you talked about 100 hospitals that you are working with and that have kind of signed contracts and are trying to get through. Can you help us understand what type of contribution would an average hospital kind of make in terms of revenue once these guys are starting to come on board, so we can have some idea as to how meaningful this can be? Joe E. Kiani - Chairman & Chief Executive Officer: Well, if all 100 hospitals came in at the level of sensor volume that we're being told that they would use per year, the dollars could be $60 million, $70 million a year. So, if my math is right, I got to make sure I'm doing math right, hold a minute, let me do the quick math. Okay. Did I get the digit wrong? Hold on. Forgive me, the number is about $7 million a year. Brian D. Weinstein - William Blair & Co. LLC: $7 million? I want to make sure, $7 million or $70 million? Joe E. Kiani - Chairman & Chief Executive Officer: $7 million per year. Brian D. Weinstein - William Blair & Co. LLC: Got it. Okay. That's helpful. And then, you had previously talked about last year, remember there was that large order that was in but then you took it out and it was sitting in the warehouse somewhere in some foreign country and you brought it back. Is that anticipated in any, I know it's not in your guidance, but what happened with that order at this point? Is that still a possibility for this year? Joe E. Kiani - Chairman & Chief Executive Officer: No. We've taken all of that out. As I mentioned before, the new rainbow guidance we've given, we took away all of those Ministry of Health type of orders that were for broad health programs in some of these countries. Brian D. Weinstein - William Blair & Co. LLC: So, it's not even a possibility for the year? I mean, forgetting about the guidance, but I mean, is there even some sort of a possibility that it comes back or is that particular order, which is several million dollars, is that really just sort of dead at this point? Joe E. Kiani - Chairman & Chief Executive Officer: No, no. It's a possibility. We've just taken it out... Brian D. Weinstein - William Blair & Co. LLC: Got it. Joe E. Kiani - Chairman & Chief Executive Officer: ... of our expectations. Brian D. Weinstein - William Blair & Co. LLC: Got it. And then, as far as OUS growth, I want to make sure I heard you, on a constant currency basis, I thought I heard you say 0.2%. I want to make sure that that's right. And if so, why was the growth so much slower outside the US this quarter? Brian D. Weinstein - William Blair & Co. LLC: Sorry. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: So. Well, I think in general, our direct in distribution business was actually, again I'll refer to the constant currency growth rate numbers, they were trending at about 6% to 7% area. Year-over-year, this one large order that you were just asking about, that obviously was a large portion of that decline. Joe E. Kiani - Chairman & Chief Executive Officer: No, no. That was not the deal he was talking about. The one he was talking about is the one we did last year with the CO met program. It's different than what I think Brian was talking about. Brian was talking about the deal that didn't happen. Brian D. Weinstein - William Blair & Co. LLC: Correct. Joe E. Kiani - Chairman & Chief Executive Officer: Not the ones that happened. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Okay. Well, no, I thought you are talking about, you are asking about the actual reason for a 0.3% OUS growth rate ? Brian D. Weinstein - William Blair & Co. LLC: Yeah. Correct. That's right. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Right. So, what happened is that part of the deal we are just talking about, last year, well, that is essentially $1.4 million of that year-over-year decline. So, that's factored into why that number is 0.3%. This was also the first quarter in a couple of quarters where we've seen a little bit more softness year-over-year in our capnography business. And that was another contributing factor to the reason why the overall OUS numbers were down year-over-year or least not up as robustly as they've been in the past. Joe E. Kiani - Chairman & Chief Executive Officer: And that's due to some business who are expecting through a couple of our OEMs that sell into Russia. So, that with a combination of Switzerland taking their currency and I guess making that float, caused one of our Swiss OEMs who also have prices that were little out of the market and both of those were big capnography OEM users of ours that impacted the overall OUS growth. Brian D. Weinstein - William Blair & Co. LLC: Okay. That's fair. And then the last thing from me is, can you give us an update on the litigation that you guys are on with Philips? And if you were successful there and you were to receive that big check, what the preferred use of cash for those dollars would be? That's it from me, guys. Thank you. Joe E. Kiani - Chairman & Chief Executive Officer: Sure, Thank you. Well, we have couple of major litigations with both Philips and Mindray. With the Philips, it's in two phases. The first phase, we won the jury verdict with about a $467 million verdict. And we are expecting from the judge, his decision once we get the judge's decision, assuming it's a final judgment, it will go up to Court of Appeals, which will take probably from that time, which we think will be before June 1, probably 12 to 18 months to get the final verdict. And so, given that this pre-judgment interest and then eventually post-judgment interest, that number should be around $500 million or more. And we would hope with that money, I guess we're using some of that money upfront and buying stock and some of the things we are doing with our new corporate headquarters. But obviously we are at looking at business development opportunities and perhaps some of that money will go to some of that as well. Brian D. Weinstein - William Blair & Co. LLC: Thanks, guys. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Brian.

Thank you. And our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is open. Please go ahead. William R. Quirk - Piper Jaffray & Co (Broker): Great. Thanks. Good afternoon, everybody. Mark P. de Raad - Chief Financial Officer, Secretary & Executive VP: Hi, Bill. Joe E. Kiani - Chairman & Chief Executive Officer: Hi, Bill. William R. Quirk - Piper Jaffray & Co (Broker): First question. Joe, you talked a little bit about the impact of flu and the positive impact that it was in the fourth quarter and the first quarter. Is there any way, you've talked about the ACA being potentially longer term driver for the business on a couple of different conference calls. Is there any way to take the pulse, no pun intended, on maybe what that's helping you out in terms of the SET business? Joe E. Kiani - Chairman & Chief Executive Officer: Well. Bill, I had actually thought the opposite. I thought ACA will be a drag on our business because we saw that when Massachusetts went through their ACA program. And last year at this time, where we saw the census reduction, you talk maybe we're seeing kind of the same thing we saw in Massachusetts when they did their thing several years earlier. So I still don't believe ACA helps, I know I've recently read that they are getting more emergency ER visits in hospitals due to limited number of primary physicians that the new patients who have access to insurance and healthcare are trying to get. But we always thought that when patients got so bad that they needed care, they got access to care through the ER. And therefore, given that our sensors are used procedurally it wasn't going to have a positive impact for us, the ACA. So we'll be just happy, because that have a negative impact on us and that's still our thinking. William R. Quirk - Piper Jaffray & Co (Broker): Okay. Got it. And then, just thinking about the new carbon monoxide regulations, recognizing that it's been difficult to kind of point to the hockey-stick effect on rainbow broadly speaking. Can you talk maybe to just potential deal activity with carbon dioxide? Is that increasing, is that getting easier for your sales reps to follow up on leads and close business? Joe E. Kiani - Chairman & Chief Executive Officer: The answer to that I believe is yes. NFPA not only impacts the U.S., but also has impact outside the U.S. and we're seeing increased activity worldwide. We actually are also benefiting from the fact that cities, municipalities are coming out of the recession, and they are getting tax dollars and therefore, the days of having to reduce headcounts of fire departments have ended and therefore, there is a renewed interest in investing in fire departments in some of the technologies they have. So, the NFPA standard just went into effect in Q1, and we do anticipate positive momentum and we've seen some already. William R. Quirk - Piper Jaffray & Co (Broker): Got it. Thanks much. Joe E. Kiani - Chairman & Chief Executive Officer: Thank you, Bill. I believe that was our last question. So with that, I want to thank you all for joining us on our Q1 2015 earnings call and look forward to seeing you all one-on-one. Thank you so much.