Good afternoon, ladies and gentlemen, and welcome to Masimo's 2016 Year-End Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I am pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and 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 reflect Masimo's current judgment, including certain of our expectations regarding fiscal 2017 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.

Thank you, Eli, and good afternoon and thank you for joining us for Masimo's 2016 fourth quarter and full-year earnings call. We are happy to report another strong quarter with top-line revenues in excess of our expectation and operating income at a new record level. As seen throughout 2016, we again experienced strong U.S. product revenue growth due to a combination of higher utilization, new customers and incremental revenues from our new product such as Nomoline capnography, O3 regional oximetry, SedLine Brain Function Monitoring, and Root patient monitoring and connectivity hub. We attribute our strong quarterly and full-year performance to our technologically-advanced product portfolio and its proven value to improve patient outcomes and reduce costs, as well as the exceptional abilities of the Masimo team. Our Q4 product revenues grew to $175.7 million, a 10% increase. In fact, we achieved double-digit product revenue growth in each quarter in 2016, resulting in full-year product revenue growth of almost 11% to nearly $664 million. We shipped 48,600 oximeters in Q4, a new quarterly record, producing total shipments for 2016 of 186,000 oximeters, excluding our handheld and finger pulse oximeters. In fact, our Q4 driver shipments allowed us to reach an important milestone as we now estimate our total global installed base to be just over 1.5 million oximeters, further illustrating the value of our SET and rainbow technologies to our customers. Our Q4 2006 (sic) [2016] GAAP earnings per diluted share were $3.97, which includes $3.37 in net benefits related to some special items, which Mark will discuss in more detail in a moment. Excluding those items, our adjusted Q4 GAAP earnings were $0.60, including $0.09 from the new stock option accounting rule. For the year, our GAAP earnings per diluted share were $5.65, which includes $3.43 in net benefits related to…

Thank you, Joe, and good afternoon, everybody. Our Q4 product revenues rose to $175.7 million, up 10% or 9.6% on a constant currency basis versus the $159.8 million posted for the fourth quarter of 2016. The strength was the result of all of the factors that Joe just previously mentioned. The year-over-year impact of the foreign exchange rates was relatively small, adding approximately $0.5 million to total revenues in the quarter. Q4 total revenues, which include royalty revenues, were $183.2 million, up 9.5% from $167.3 million in the prior-year period, rainbow product revenues for Q4 totaled $16.9 million, down by 11.6% from $19.1 million in the prior-year period. The decline in rainbow sales was related entirely to a decline of $2.7 million in rainbow revenues from a large customer in Saudi Arabia due to the country's current economic difficulties. Adjusting for the impact of this customer, our year-over-year rainbow revenues would have been up by 3%. Encouragingly, again excluding the impact of this customer, our single-use rainbow adhesive sensor revenues and unit volumes were both up approximately 23%. Our Q4 SpHb revenues were $4.3 million, down by 30% from $6.1 million in the prior-year period, with $2.4 million of this decline due to the same large Saudi Arabia customer. Importantly, if we exclude the impact of this large customer, our total Q4 2016 SpHb single-patient-use sensor sales were up 51%. For the entire year, our total SpHb revenues rose 13% to a record of nearly $20 million accounting for 30% of total fiscal year 2016 rainbow revenues. Our worldwide end-user or direct business, which includes sales through just-in-time distributors grew 10.8% in the fourth quarter to $152.8 million versus $137.9 million in the year-ago period. Our direct business represented approximately 87% of total product revenue in the quarter versus 86%…

Thank you, Mark. Just to maybe clarify, we're projecting total 2017 revenues of $752 million, including $721 million in product revenues, of which $4 million is attributed to the non-recurring engineering revenues and $31 million in royalty revenues.

You're right (23:01). Thanks.

So, thank you so much, Mark. As I mentioned in the introduction, 2016 was a significant year for Masimo with one important achievement being the Q4 formation of the new partnership agreement with Philips that settled all prior litigation and, more importantly, created a new partnership. We anticipate a measurable impact from this agreement that builds over the succeeding years the positive effects on the adoption of our innovative technologies and improved outcomes for patients. Including in the agreement are our rainbow products, Nomoline capnography products, O3 tissue/cerebral oximetry, and SedLine Brain Function Monitoring. As we have noted in the past, a key factor in the adoption rate of rainbow will be availability of rainbow within the monitors of major patient monitoring company. We believe that Philips has twice the market share of the next patient monitoring company in the world. Consequently, over the next few years, we anticipate an acceleration in growth for rainbow and a boost to the adoption rate of our other technologies. Having Philips as a truly cooperative business partner in this effort is exceptionally valuable, and we believe we should have a constructive working relationship with Philips moving forward. This agreement is part of the reason why we elected to increase our estimated product revenue growth rate in 2017, as Mark just noted. Over the coming years, we expect Philips agreement to continue to result in increased deployment of our technologies all over the world. With increasing acknowledgment of the clinical value of our measurements, we are making significant inroads. We are happy to report that another major U.S. hospital group recently has decided to upgrade to Masimo SET pulse oximetry. We expect to be able to disclose more information on this new customer in the near future. 2016 was a great year for major…

Thank you. Our first question comes from Tao Levy with Wedbush Securities. Your line is now open.

Thanks. Good afternoon, everyone.

Good afternoon.

Hi, Tao.

Hi. So maybe we could touch on the guidance on the revenue side. What are you assuming in there regarding sort of rainbow sales? And also how should we think about how the agreement with Philips rolls out? How much of that agreement you feel like is contained within your 2017 guidance? And the question is kind of related to, if it's just a little bit, are we going to see potentially more of a benefit from that agreement in 2018 and following years?

Yes. Sure. First of all, we're projecting about a 10% increase in our rainbow revenues. And as for Philips, while we delivered better than 10% growth in 2016, you may recall we had projected 6% to 7% increase in our revenues in 2016. So because of Philips, we actually increased our projections in 2017 where we're now projecting an 8% increase in revenues. So, we increased our revenue projections by 1%. We hope to beat that, but conservatively these are numbers we feel good about. And I think, Tao, as far as your final question, the Philips agreement should hopefully accelerate as the years continue, because of not only roll out of new products with the technology, but also roll out of other technologies. So, while Philips has rainbow now in their high-end monitor and one of their low-end monitors, rainbow is going into many other products. And then with a strong partnership, we expect further penetration into market than we've had historically with them. And yet, we have a new opportunity too with Philips integrating SedLine Brain Function Monitoring, O3 regional oximeter and the Nomoline capnography technology. So, we think hopefully we can increase the pace and the growth rate over the next few years.

Perfect. Great. Thanks a lot.

Thanks, Tao.

Our next question comes from Larry Keusch with Raymond James. Your line is now open. Lawrence Keusch - Raymond James & Associates, Inc.: Great. Thank you. Good afternoon, everyone.

Hi, Larry.

Hi, Larry. Lawrence Keusch - Raymond James & Associates, Inc.: Hey. So, Mark, I want to touch on product gross margin. And I think if I caught this correctly, you said you're looking forward to increase 50 basis points in 2017. Could you just help me? So, A, is that correct? And then B, can you just help me bridge if you were to take out the FX benefit from product gross margin in 2016, what the actual underlying gross margin expansion is that you are looking for? So, that's question one. And then, question two, DSOs, you did 54 days in the third quarter. I think you said you did 53 this quarter. I know in the 2Q, it was down around 47, so still a little bit elevated from where we were kind of at the midpoint of the year. So again, if you could provide any color as to where you think that can go and why it is elevated?

Sure, Larry. Let me take the first one first, on gross profit margins. As I said earlier, we ended up – even though the fourth quarter was obviously a very, very strong 66.5%, the full-year number was 62.5%. And if you look at that full-year number of 62.5%, approximately 40 bps of – was included relative to favorable FX rates. So, if you exclude that, you walk back down to about 64.8% versus the 65.5% guidance that we talked – sorry 65.7% guidance that we provided today. So excluding FX, we're actually looking for about a 90 bp increase year-over-year. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Perfect.

And then on the days sales outstanding question, yes, if you remember, the last couple of quarters we've highlighted the increase, essentially, from the high 40s to the low 50s was as a result of the large customer in Saudi Arabia that we alluded to in the prepared remarks today. And so, we constantly are monitoring that situation. The good news is the days have not increased at all, and we're certainly hopeful that things will come to some positive outcome in the next couple of months or quarters in that part of the region of the world, so that we will get repaid on some of the receivables that we have outstanding. Our situation, obviously, is no different than the rest of the world. And we're still very, very confident that ultimately things will get resolved there and that ultimately we will receive payment on those receivables. It's somewhat analogous to four, five years ago, we had the same situation with the countries of Southern Europe. If you remember, they were going through some very difficult times. They ultimately told us they weren't sure when they were going to pay us, but they would pay us, and sure enough, two to three years later we ended up getting paid. So, we don't know when that payment will come relative to the Saudi customer, but we're hopeful that we'll see something soon. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Perfect. And if I could just sneak one last one in here quickly. Just obviously flu has been spiking up here lately. How are you thinking about that relative to the first quarter? I believe there is a fairly easy comp versus a year ago, but just hoping that you can help calibrate us a little bit on kind of what you're building in for flu?

Well, if you're talking about the relatively easy comp relative to the flu season, I think you might be right, because last year, there was a late flu season, where I think this year people would categorize it as more of a normal flu season. And you're also right that the data that we've seen has suggested a very strong flu season this year. In general, as you know, Larry, that provides some anecdotal support to our numbers, plus or minus a little bit. But really our core revenue strength continues to come from the successful utilization of those 1.5 million drivers all over the world, plus the impact of new customers that Joe alluded to in his comments. So, the flu season, again, is helpful or hurtful essentially on the fringe. It really doesn't drive the overall movement of our top-line revenues that much. Lawrence Keusch - Raymond James & Associates, Inc.: Okay. Very good. Thank you guys.

Thank you, Larry.

Our next question comes from Bill Quirk with Piper Jaffray. Your line is now open. William R. Quirk - Piper Jaffray & Co.: Great. Thanks. Good afternoon, everybody.

Hi, Bill.

Hi, Bill. William R. Quirk - Piper Jaffray & Co.: Hi. So, first question, I guess, is just picking up off of one of Larry's. So, Mark, the FX-neutral 90 basis point gross margin improvement in 2017. I guess, should we read into that combined with your favorable mix comments that the RD sensor roll out is going at least as well as expected, perhaps better than expected?

In essence, not really, that's the good news. We have just begun, in fact, the roll out of the RD product that we've been talking about. And we expect that product to continue, obviously, much more sizable influence on our 2017 numbers. But having said that, we're not – we're expecting a relatively modest transition in the first year. We think that will accelerate in years two, three and four. So, certainly, there is a little bit of benefit of the RD transition in the product gross margin numbers that we just provided to you, but it's not, honestly, a huge part of that. Most of that increase comes from the collective continuing benefits of our value engineering efforts as well as other cost reduction initiatives that we have going on around the world in that area of cost of sales delivery. William R. Quirk - Piper Jaffray & Co.: Okay. I appreciate the color. Thank you. And then on the remaining $30 million from Philips, I think Joe, I think I heard you say at the tail end of your comments that I think $4 million of that will be recognized in 2017. So, I guess, one, could you just clarify if I heard you correctly? And then, secondly, if I did, how should we think about, I guess, the pace of the $30 million? Is it going to be fairly ratably over the next several years, or are there any boluses here that we should know about? Thanks.

Well, I think – yeah, I think, we expect the $30 billion over the next three years, and it won't be linear. Obviously, we have $4 million that we believe will come in this year and we're still looking at what it will be for 2018 and 2019, but it will be over the next three years. William R. Quirk - Piper Jaffray & Co.: Okay. Got it. Thank you.

Thank you. Thank you.

Our next question comes from Brian Weinstein with William Blair. Your line is now open. Brian David Weinstein - William Blair & Co. LLC: Hey, guys. Thanks for taking the question. I apologize for any background noise here. I'm just curious about the utilization per driver this year. It looks like the installed base was up about 6% or so. And from the best we can tell, it looks like utilization was up closer to maybe 10% or so. I'm just trying to understand the difference there, why do you think you guys are seeing an increase in utilization per driver, (44:04)? Thanks.

Sure. I believe, it's a mixture of items. One is a census increase that we saw in 2016 in the U.S. compared to 2015. The other is we think customers are recognizing the limitations of reprocessed sensors from third-parties and purchasing more of their sensors from us, and also new customers with higher consumable business orientation. Brian David Weinstein - William Blair & Co. LLC: Okay. That's helpful. And then sorry to go back to something that you might have said before on a rainbow (44:51), but there are minimums in the Philips agreement, as I recall. Is that what's assumed in your guidance are the minimums? And it looks like rainbow and SpHb specifically was down sequentially. I believe the Saudi Arabia comments were year-over-year, but not – was there anything that impacted kind of the sequential comp on rainbow? Thanks.

Yeah, Brian, I think excluding Saudi Arabia, our rainbow revenues were up and SpHb specifically was up, if you look at it from a revenue percentage about 23%; if you look at it from a sensor volume basis, about 50%. Brian David Weinstein - William Blair & Co. LLC: Yeah. I was referring to sequential. I thought that they may be down sequentially, but we can go over that, I guess, offline. But is what's assumed in the rainbow guidance for next year, does that reflect the minimum contractual royalty that you – the contractual amount that you have from Philips or is there something above that that you're assuming in your rainbow number?

Well, we really don't have a minimum contractual obligation. This is a partnership and Philips sees the value of rainbow and they really want to get the value out to the customers. Philips has been working diligently on informatics and algorithms that can bring all the data together to give a more holistic warning to clinicians and the rainbow parameters are essential to it, because many of the measurements are orthogonal to the other measurements they had before. So, no, we – I don't know if I answered your question. The bottom line is we overall see about a 1% increase in our revenue year-over-year because of Philips. We think much of that actually will be rainbow related. We'll be conservative with our forecast on rainbow, given that it's not a market that's out there, it's a market that's being developed. But we hope there's optionalities and hope we project it. Brian David Weinstein - William Blair & Co. LLC: Okay. Thanks.

Thank you so much, Brian.

Our next question comes from Chris Lewis with ROTH Capital Partners. Your line is now open.

Hi, Chris

Hey, guys. Good afternoon. Thanks for taking the questions.

Of course.

Joe, you mentioned in your prepared remarks about another large major hospital group potentially upgrading. I was wondering if you could provide any additional color on how big that opportunity may be and the expected impact we can see from that upgrades this year.

Yes. First of all, they're not the size of Kaiser, but not too far behind. Out of the respect for them, for their permission to announce their name, we didn't mention it, but hopefully very soon we will. But it's not just the sizable hospital system on the Eastern front of the United States, but one of the top-10 hospitals in the U.S. news report, a very, very high quality of business. And 2016 was a record year for us for new hospitals as well as renewing with hospitals. And this particular system was probably about 15%, 20% of at least the new business that we contracted. So, it's quite exciting and we're hoping to announce the entity very shortly there.

Okay. Congrats on that. And then, in terms of the installed base, grew about 6% in 2016 over 2015. As we look ahead, kind of how should we think about that, the growth rate of the installed base going forward?

Well, we believe our installed base, hopefully, will be exceeding 200,000 units in the future due to both the partnership with Philips as well as many other OEMs around the world integrating Masimo technologies. So, I think the growth rate will hopefully sustain, if not increase. And the only reason I say that is because we have an assumption which may not be exactly right, and that is that we retire whatever we shipped 10 years ago. So, we know a lot of our OEMs product remain in use for 15 years or more. So as we retire the prior 10 years, and those numbers starting to look higher and higher, it makes our installed base growth seem smaller, and which may not be true, but it is what we set out to do and we don't want to change the way we measure it. But it might end up doing, Chris, over time it may make the unitization look stronger, because maybe the installed base isn't shrinking as fast as we think historically.

Understand. And then just one more for me, given you paid down all of your debt in the quarter and you ended the year with over $300 million in cash. Can you talk about kind of cash deployment strategy, whether it's potentially getting more aggressive on the M&A front or continuing on the stock buyback plan or other avenues? Thanks.

Yes, of course. While I don't have an imminent deal, we haven't taken a deal to the board, we are, as part of our new five-year plan, looking at M&A more strongly. Despite expecting strong organic growth that we've been having and we think we'll continue, we think we're in a situation where acquisitions might be good for us. So, to the best of my projections, I think we'll be using the cash toward acquisitions, but again nothing imminent and it's just the strategy for the next five years.

Okay. Thanks for the time.

Thank you so much. Thank you all for joining us. I wish you all a happy Valentine's Day.

Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone have a great day.