Good day ladies and gentlemen, and welcome to Masimo Corporation’s fourth quarter and full year 2008 earnings conference call. My name is Lindsey, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. As a remainder this conference is being recorded for replay purposes only. I would now like to turn the call over to your host for today’s call, Mr. Steve Moran, Executive Vice President and General Counsel of Masimo.

Welcome to Masimo’s fourth fiscal quarter and full year 2008 earnings release conference call. Our press release was distributed about an hour ago. If you have not seen the release and would like to, a copy is posted on the Investor Relations page of our website at www.masimo.com. On the call today are Joe Kiani, Masimo’s Chairman and Chief Executive Officer, and Mark de Raad, Executive Vice President of Finance and Chief Financial Officer. In just a few moments, Joe and Mark will deliver remarks on our results achieved during the 2008 fourth quarter and full year 2008 and general comments regarding our business including an update of our fiscal 2009 financial guidance. After Joe and Mark offer their comments there will be a question-and-answer session in which they will answer as many questions as time permits. Before we begin, let me remind you that this call may contain forward-looking statements. While these forward-looking statements reflect Masimo’s best current judgment, they are subject to risks and uncertainties that could cause our actual results to vary. Risk factors that could cause Masimo’s actual results to materially differ from our forecast are discussed in detail in our filings with the Securities and Exchange Commission. With that I would like to turn the call over to Joe Kiani, Chairman and CEO.

Thank you ladies and gentlemen for joining us today. Earlier today we announced our financial results for both our fourth fiscal quarter and full year 2008. As I noted in our press release today, we are happy that despite the difficult economic conditions, we continued to see strong demand for Masimo SET and Masimo Rainbow SET technology and products. In fact, the 31,700 drivers that shipped represented a record quarter for Masimo, and we now estimate that our total installed base of Masimo SET and Masimo Rainbow SET sockets excluding handheld devices has increased to 567,000 net drivers, up from 470,000 drivers just a year ago. We believe that this strong shipment level in the face of very difficult economic conditions is further evidence that hospitals continue to recognize the superiority of our technology allowing hospitals to both improve their patient care as well as reduce their overall cost of care. In addition to strong fourth quarter and full year financial results, which March will review with you in more detail, the fourth fiscal quarter of 2008 also included some important business and operational milestones that I would like to briefly mention. Late in Q3, we initiated a limited market release of continuous noninvasive hemoglobin parameter for our Rainbow SET platform. As we’ve explained before, this limited release was not the commercial launch of hemoglobin, but we limited the release because as with the release of our other products, we’ve found that with limited marketing testing, we can sometimes significantly improve our product before we commercially release the product. The limited market release also allows us to obtain valuable feedback on how we can best develop and deliver our training programs for our new products. In our Q3 earnings call, I mentioned that we hoped to have from 10 to…

Please keep in mind that all my comments will, except when I note otherwise, relate to financial results on a GAAP basis. As a reminder in fiscal 2007 prior to our initial public offering, Masimo was required to report GAAP earnings per share under the two class method. For the benefit of our investors we have continued to include in our quarterly earnings releases today the non-GAAP 2007 financial statements with 2007 earnings per share computations as if the current if-converted method had been used in the prior periods. Earlier today, we reported record total fourth quarter revenues of $83.1 million which consisted of record product revenues of $71.4 million and royalty revenues of $11.7 million. This represented an approximate 29.4% increase in year-over-year fourth quarter product revenue growth. As Joe mentioned, we shipped 31,700 new Pulse Oximeters and Pulse CO-Oximeter drivers into the marketplace, and based on these shipments, we now estimate that our total worldwide installed base net of the estimated retirements to be approximately 567,000 drivers. Importantly this is up 21% from the estimated 470,000 net installed units just one year ago. As we’ve noted in the past, the shipment of new Pulse Oximetry units is important because once installed these units generate future sensor sales which continue to represent the most significant component of our total product solution revenues. During the fourth quarter of 2008, we generated approximately $4.7 million in Rainbow related product revenues which was up 161% from $1.8 million in the comparable prior year period. Our stronger than expected Rainbow revenues were related to a large OEM MX board order as well as very strong US demand for the RAD-57 related, we believe, to the end of year budget related purchase. Included in the $4.7 million of Rainbow related revenue were our initial…

As a reminder, and especially for any new investor that may be on this call, I wanted to review some important messages regarding Masimo. In the mid-90s, we revolutionized pulse oximetry with our measure-through motion and low-perfusion Masimo SET Pulse Oximetry technology. Today, Masimo SET Pulse Oximetry is helping caring clinicians save numerous lives and eyes, and Masimo SET is considered to gold standard for pulse oximetry. Our market share for new pulse oximetry sales is noticeably higher than our market share of pulse oximetry revenues. This is due to the time it takes to have the installed base of pulse oximeters catch up with the annual rate of pulse oximetry shipment. Within five years, due to the accumulation of the installed base, our revenue market share should start approaching our annual shipment percentages. We have revolutionized noninvasive monitoring again with Rainbow, or what we call Rainbow SET. Masimo Rainbow SET allows clinicians and emergency professionals to measure carbon monoxide, methemoglobin, PVI which is a measure of slowed responsiveness, and now hemoglobin and oxygen content continuously and noninvasively for the first time. Analysts have projected that hemoglobin will be $1 billion market opportunity bringing Masimo’s long term potential market opportunity to over $3 billion. As I explained earlier, we are currently in our limited release phase for Hemoglobin. The response to it has been very encouraging, and we hope to release noninvasive Hemoglobin commercially in late March. While we are very excited about Hemoglobin and its long term future, we can’t determine the level of demand that will occur in 2009. For example, when pulse oximetry was introduced in the early ‘80s, the growth didn’t happen overnight. You guys can look at that model, and we’d be happy to point you to it, but we do believe we will get…

(Operator instructions) Your first question comes from the line of Bill Quirk with Piper Jaffray. Bill Quirk – Piper Jaffray: Mark, the first question is for you. The sequential decline in gross margin, I assume that was pretty much tied to the strength in the driver business, i.e., it was kind of a mix shift with some lower margin products?

Yes. That was one of the reasons. There are a couple of small minor reasons, but the change you’re talking about is 0.4%, nothing overly dramatic. Nothing worth mentioning. Bill Quirk – Piper Jaffray: Secondly, Joe, I understand that you don’t necessarily want to commit to a hemoglobin number for ’09. I want to push on this one a little bit. Can you help us think a little bit about that in the context of the guidance? Obviously you guys assumed something when you put the numbers together.

Yes, we did, and I think as we looked at it, we just didn’t look at what the appetite we thought was for our product by the number of clinicians and customers who had contacted us, but rather we also looked at the historical growth for pulse oximetry when it was introduced, and when we looked at that, we basically saw that within about 5 years, pulse oximetry came from of course nonexistence to about $100 million in revenues. So, it’s difficult for us to tell you what we’re going to do this year. Obviously things are different. The economic is different. The whole environment of how products get paid for is different. Masimo is not a brand new company like many of those companies were when they were introducing pulse oximetry, so we do have a good reputation and a team that can on a positive take it forward hopefully in a fast way, but we feel comfortable giving you our Rainbow revenue numbers, but given the newness of the product, we’re just not prepared to give you a number for Hemoglobin by itself. Bill Quirk – Piper Jaffray: Given how guys have decided to price the product, i.e., close to about $100 a sensor and then obviously the license fee, have you guys given any thought to changing that strategy at all? For example, taking away the license fee for a big order or that type of thing?

We are flexible in that as long as overall price of the sensors or the price of the equipment is amortized in one or the other, we can look at that. So far, we’re dealing with early adopters, so it’s hard to make grand statements about what it will mean to others. So far, we haven’t seen pricing as a major issue towards our success with Hemoglobin, but one of the things I mentioned, we also hope in 2009 to introduce this new sensor system. We coined it ‘risposable’ which is the combination of reusable element and a disposable element that reduces the cost of goods for the disposable element, so we’re looking to introduce that, and we hope to have that be roughly about half the price of the single sensor disposable model. When we did our market survey, we had noticed based on the survey, assuming the survey was correct, that a good percentage, I think 30% or 40% of our customers that we surveyed felt that $100 price on the sensors was enough of a price for them to jump forward given the cost savings and the care improvements that they expected, but I think the number jumped up to 60% or 70% when the price fell below $60, so we hope with the introduction of this new risposable sensor system we’re coming out with, we’ll also be able to reach a broader audience. Bill Quirk – Piper Jaffray: Joe, timing on some ARM data or rather second generation ARM data?

The timing of that data in terms of clinical results I would guess the earliest would be January 2010, short of some of the other maybe international forums, so that’s what I’m expecting right now.

Your next question comes from the line of Tao Levy with Deutsche Bank. Tao Levy – Deutsche Bank: You mentioned at the end of the quarter you had 23 hemoglobin customers. Can you give us a sense of how many monitors were at those customers?

I think probably 60 to 70, I would say. Tao Levy – Deutsche Bank: On average 2 to 3 then?

Yes. Roughly. Tao Levy – Deutsche Bank: You talked about the timing of ARM being similar to hemoglobin. Is that going to be 510K, I assume, and when do you expect to file that?

Yes. We expect it to be a 510K. Before we actually acquired the technology from Andromed, they had 510K clearance already on it, so we expect to be doing an update of 510K, and we hope to have something submitted, I guess, towards the middle of the year. Tao Levy – Deutsche Bank: As I look at your basic and your SET business, again we are still seeing amount of revenues generated per socket going up. What’s driving that, and should we just extrapolate what you did here in the fourth quarter going forward or is there a reason why that might move down in 2009?

That’s a good question, Tao. In Q4, we started hearing that census had dropped, and therefore we had anticipated that maybe sensor per driver would potentially drop, but we did not see that happening. Again, our best estimate is that potentially two things happened. First of all, outpatient type of surgeries dropped which normally don’t use disposable probe and maybe paying patient census dropped, which unless things really got bad, it should not affect our business because pulse oximetry is a standard of care in every surgery, every ICU, every recovery room. I don’t have a better crystal ball than you do, but I would just think that things should be where they have been. I wouldn’t expect a big change. Tao Levy – Deutsche Bank: Joe, you mentioned briefly on M&A. What are you thinking there? Are you thinking that you could easily plug in, say it’s a monitor out there? You obviously have a bunch of cash on the balance sheet.

We are mostly at this stage of our company interested in new technology that we think is a good fit for our mission, so if we think there’s an opportunity for us to bring some of those technologies in, that wouldn’t be companies that have necessarily revenues, although it could but would allow us to maybe continue to improve our product pipeline over the next several years.

Your next question comes from the line of Sara Michelmore with Cowan & Company. Sara Michelmore – Cowan & Company: Back on hemoglobin Joe, I think you used the word hope to release in late March. I’m just wondering what exactly are the gating factors here in terms of when you’d be able to do a commercial release and assuming that it’s just a couple of weeks away in terms of what your target is?

I think the hope has come to my language recently because of the new Obama administration, but we are expecting to launch end of this quarter, and short of something that I can’t foresee right now, all looks good. Sara Michelmore – Cowan & Company: In terms of the limited release customers, what have you learned in terms of how they are evaluating the product? What has their process been, how are they looking at cost savings, potential and clinical improvement potential in terms of how they would incorporate that product?

We are seeing customers use it mostly in the operating room, some in the ICU, trying to better administer blood transfusions and basically avert occult bleeding or hemorrhage that’s not seen. Sara Michelmore – Cowan & Company: In terms of this international commercial change that you are making or expansion you are planning on, are there particular geographic areas that you are focused on there and does it impact at all some of the markets that you currently go through distributors?

We are planning to go direct in a few additional countries this year, but mostly it’s increasing our presence in the countries that we are already direct in. We hope that by the end of the year we will have reached critical mass in every country that we are direct in, including the US. Sara Michelmore – Cowan & Company: Lastly, could you give us an update on the business in Japan, Joe?

The business in Japan under the leadership of Jon Coleman is going very well. It’s grown to what we had expected, maybe even better. I don’t think we’ve done a breakout for Japan, but it’s grown. I think Mark had mentioned international grew this year by 50%. Certainly, Japan contributed to that and was head of that pack.

Your next question comes from the line of Matthew Dodds with Citigroup. Matthew Dodds – Citigroup: Joe, first on the sensor contracts, I know a lot of it is razor blade focused. Can you just state broadly if that is different in the US versus OUS, are there actually some capital sales for you OUS? Two, how does your model compare with Covidien and some of the other players? Do you have a higher percentage of long-term disposable contracts?

First of all, OUS does far less adhesive sensor sales than in the US, both in total and percentage. Our market share we believe is the same. It’s not even potentially higher OUS, but certainly they are sensor revenues or the revenues wouldn’t make you think that due to the lesser purchases of sensor, and had it not been for Rainbow the fact that we can sell hemoglobin and CO and met and PVI at a good margin and what we believe will be a healthy revenue stream, we may have not even gone direct in many of those countries. The other piece that I just want to say before I answer this second part of your question is that the Hemoglobin does allow us to maybe turn some of the international markets into the disposable or risposable sensor customers in that it’s much more sensitive to sensor placement and therefore really makes a reusable sensor not practical in the long-term care settings like OR and ICU, so over time we hope that international will grow more in line to other medical companies rather than what pulse oximetry companies do in general. What was the second question? Matthew Dodds – Citigroup: How are you different in your percentage of long-term contracts versus Covidien or some of the smaller players? Would this have an advantage for you given what’s going on with the economy?

I’m not sure I understand that question. Matthew Dodds – Citigroup: Covidien, are they mostly razor blade contracts as well in the US or the OUS when you compete with them?

Of course, I don’t know. If I was going to give you a guess for that answer I would say we have a larger percentage of our sensor business under contract than they do. Matthew Dodds – Citigroup: One last question for either you Joe or Mark. The physician office expansion, of the 200 sales reps you talked about for Hemoglobin in general, is there some rough idea on what that physician group could be?

Well, that doesn’t really include the physician office sales reps. With it, we could be up to 220 by the end of the year.

Your next question comes from the line of Joanne Wuensch with BMO Capital Markets. Joanne Wuensch – BMO Capital Markets: That 200 number, what does that compare to at the end of 2008?

Joanne, that was about 135, I believe, 138 maybe. Joanne Wuensch – BMO Capital Markets: And did you give of your Rainbow SET revenue guidance number, how much of that you think is Hemoglobin?

No. We did not. Joanne Wuensch – BMO Capital Markets: Can you give that or give us an idea of a range?

Not now, maybe in the future we will. We are comfortable breaking down our business between Masimo SET Pulse Oximetry and Rainbow, but we are not yet ready to talk about Hemoglobin, CO, MET, PVI independently. Joanne Wuensch – BMO Capital Markets: Since you’ve had a couple of Obama commentaries, I need to ask the question is there anything in the budget that you saw that you think may be impactful to your business?

Well, I’m entrepreneur, so I will give you that disclosure. I’m optimistic that his plan will actually help release capital spending for our OEM partners and maybe also for ourselves in areas like Hemoglobin. There’s a package that’s going to be an investment in healthcare infrastructure. I think that’s going to free up other dollars that would have been spent there that may come towards our way indirectly, plus I like the fact that the Obama campaign is pushing for quality because we believe that our customers are getting higher quality of care, better patient outcomes with our technology, and therefore there will be more impetus to do best practices across different hospitals in the country. Joanne Wuensch – BMO Capital Markets: When you talk about international expansion, what does that entail in terms of cost to build it?

In general, Joanne, there really isn’t anything truly incremental to the numbers that we’ve already provided. As you know over the last couple of years, Masimo has invested heavily in our international expansion, and I think this is just sort of a reaffirmation of that just under a different structure, as I said before, primarily to allow our management team to consolidate all of their international sales activity under one structure, and everything from a spending standpoint that will be required to achieve that is in the numbers that we talked about earlier.

(Operator Instructions). Your next question comes from the line of Spencer Nam with Summer Street Research. Spencer Nam – Summer Street Research: I just wanted to get a better sense of how your conservations with hospitals are going on in terms of both your pulse ox products and also the hemoglobin tests. How are these hospitals with the budget crunch responding to the hemoglobin tests and potential of ramping that up, and also in terms of your discussions with pulse ox, clearly so far things have been very smooth in terms of demand flow, but are you seeing maybe the sales cycle increasing a little bit or hospitals thinking a little bit more about as they prepare to upgrade their pulse ox for the coming years?

Now on Rainbow, on Hemoglobin, that is new territory for us. Although we could change our model and not sell the parameter and sell sensors like before, even if we did that, the customer is still seeing a new product, but they have to get comfortable with the fact that our product is going to help offset invasive tests that we’re doing before, blood transfusions that are not necessary that also has not just cost implications but care implication, and get themselves comfortable to those kinds of purchases. The good news is we never projected that we were going to get hospital wide conversions to Rainbow like we do with pulse oximetry. Instead the projection is that the ORs will buy a handful first and try it. ICUs will buy a handful and try it. Similar to the way pulse oximetry was introduced to US hospitals and abroad, so we think that smaller rate of purchase done broadly over many hospitals is going to be key to over time the clinicians and hospitals seeing the true value of what noninvasive hemoglobin measurement, methemoglobin measurement, PVI and CO will do for them, so I’m sorry for the long answer, but I just want to get you at least the picture that we see since I can’t give you an easy answer.

Your next question comes from the line of Bill Quirk with Piper Jaffary. Bill Quirk – Piper Jaffary: Mark, I know you mentioned, at least I think you mentioned, there was an incremental contribution in the fourth quarter from Hemoglobin. Did you disclose the specific number there or maybe I just misheard you?

No. I did not disclose the Total Hemoglobin. Bill Quirk – Piper Jaffary: So there was a contribution, you didn’t disclose it. Okay.

At this time, there are no questions. I’ll now turn the call over to Joe Kiani for closing remarks.

Thank you so much all for joining us this afternoon. We look forward to our next call, and hope that we can continue delivering on what we have promised you.

This concludes today’s Masimo Corporation’s fourth quarter and full year 2008 earnings conference call. You may now disconnect.