Good afternoon, ladies and gentlemen, and welcome to Masimo's Fourth Quarter and Full Year 2022 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'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please, go ahead, sir.

Thank you. Hello, everyone. Joining me today are Chairman and CEO, Joe Kiani; and Executive Vice President and Chief Financial Officer, Micah Young. This call will contain forward-looking statements which reflect management's current judgment, including certain of our expectations regarding fiscal year 2023 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 periodic filings with the SEC. You will find these in the Investor Relations section of our website. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Management uses non-GAAP measures to budget, evaluate and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis, unless noted otherwise. Further, we will also be referencing pro forma financial measures, which include historical results for Sound United prior to the acquisition date of April 11, 2022. In our presentation today, we will once again be referring to this business as our non-Healthcare segment. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q, in order to make informed investment decisions. In addition to the earnings release issued today, we have posted a quarterly earnings presentation within the Investor Relations section of our website to supplement the content we will be covering this afternoon. I'll now pass the call to Joe Kiani.

Thanks Eli. Good afternoon and thank you for joining us for Masimo's 2022 year-end earnings call. 2022 was a momentous year for Masimo. Our Healthcare business outperformed expectations. We continue to innovate and deliver clinically proven new products in our professional healthcare markets and we accelerated our strategy to capture the vast consumer health market opportunity with the acquisition of Sound United, owner of iconic brands such as Bowers & Wilkins, Denon and Marantz. The acquisition has provided us with immediate scale across audio and automation engineering, sales and marketing and distribution that would have otherwise taken many years of diluted investment to build. Instead, we've already completed the integration of Sound United, re-branded the business as Masimo Consumer and are working to realize the tremendous potential of the hearables, wearables and telemonitoring markets unlocked by our unique combination of signal processing, physiological monitoring, audio and automation technology capabilities. Looking back on our financial performance in fiscal year 2022, the consolidated revenues exceeded $2 billion, with Healthcare revenues reaching $1.34 billion, representing 11% organic growth. The Masimo Consumer acquisition, which closed in early April last year, added $695 million to our reported revenues, bringing pro forma revenues for the consumer business to $963 million in fiscal year 2022, representing 11% organic growth as well. Our fourth quarter results continued the strong momentum we've built throughout the year, with consolidated revenues of $617 million, representing 9% organic growth. This included 10% growth from our healthcare business and 9% growth from our consumer audio business. In Healthcare, we benefited through 2022 from consistent success in winning new customers. We continued to capture significant new business during the fourth quarter gaining business with the Franciscan Ministries of Our Lady, Fresno Community Hospital and Nuvance Health. In addition, we renewed contracts with many of our customers including Cincinnati Children's and Temple University Hospital. Consumer Audio growth was fueled by new product introductions improved supply chain conditions and strong momentum in our hearable strategy. I'm excited about the long-term opportunities in this business as our integrated platform enables innovative new solutions for consumers in not just audio, but health. Later in the call, I'll share more details on the new product launches slated for 2023 that will support our long-term growth in our professional healthcare and consumer franchises. Our strong financial results in 2022 demonstrate our ability to capture increasing market share within the large and growing markets that we compete in. The progress we made across our portfolio and on our consumer health strategy positions us to create value for patients, clinicians and shareholders for many years to come. With that I'll pass it to Micah to review our fourth quarter and full year results in more detail, and provide an update on our 2023 financial guidance.

Thank you, Joe and good afternoon, everyone. Starting with the fourth quarter our results clearly demonstrate the earnings power of our combined business with revenues, operating profit and earnings per share all above the high end of our guidance range. Our consolidated revenue was $617 million representing 9% constant currency growth on a pro forma basis. For our Healthcare segment, fourth quarter revenues were $352 million representing 10% constant currency growth. Our driver shipments for the quarter reached nearly 79,000 yielding total driver shipments of 308,000 for the full year. With those shipments our installed base of technology boards and instruments grew by 7% over the prior-year period. Our Healthcare revenue growth was fueled by strong performance from our rainbow blood constituent monitoring, O3 cerebral oximetry and NomoLine Capnography and gas monitoring products. Further, we are encouraged by the progress we are making to drive adoption of our platform solutions across the various care areas in the hospitals we serve. Hospitals have been adopting Patient SafetyNet and our other hospital automation solutions in the general ward setting to enable them to streamline workflows and contribute to better patient management practices. In fact, the number of beds connected via Patient SafetyNet and Iris Gateway increased by 19% and the installed base for our Root Connectivity platform grew by more than 30% in 2022. For our Consumer non-healthcare segment fourth quarter revenues were $265 million representing 9% constant currency growth on a pro forma basis. Easing supply chain pressures and continued execution of our portfolio innovation strategy facilitated strong performance in the quarter. We saw double-digit gains for the Denon and Marantz brands, which benefited from some successful new product introductions during the quarter. In addition, Bowers & Wilkins continue to see very strong growth in their headphone franchise with those sales…

Thank you, Micah. Thank you very much. While 2022 was a big year for Masimo, 2023 should be even bigger, both because of the record new customers that came to Masimo, but also because of all the new significant milestones we expect in 2023. We had a record year for our US Healthcare business and the second best year ever for a worldwide Healthcare business in terms of new customer wins over to Masimo technologies. We anticipate achieving many significant strategic milestones in 2023 that will mark the beginning of a second phase of growth for our company and the realization of important benefits from the Masimo Consumer business. With Masimo Consumer we are now focused on strengthening and expanding the shared connected automation ecosystem that powers our remote monitoring products and services. One of the important components is our home health hub-based HEOS devices for data streaming used in our connected suite of products. Growth for HEOS continues to rise as we realize an increase in the number of HEOS-containing devices in the fourth quarter of 200,000 devices with the HEOS installed base now exceeding 3.6 million. As we outlined at Investor Day, we plan to activate over 4 million HEOS devices in 2023, which will serve as home health hub, for our secured health cloud and allow us to offer our customers untethered and connected care at home and broaden the reach of our many connected Masimo wearables, with innovative new applications in the future. We have a series of important new product launches planned this year that should set the stage for meaningful revenue contributions, from our consumer health products in the next two to three years. We shared some of these products with you at Investor Day, and we're highly encouraged by the feedback we received.…

Thank you, sir. [Operator Instructions] We'll take our first question from Rick Wise, Stifel.

Good afternoon. Hi, Joe. Hi, Micah. Very exciting to see such a strong finish to the year. There are so many places to start. Maybe I'll start first just maybe some big picture. You all talked on the third quarter call about macro challenges persisting into 2023. I'm just curious at a high level, how are you thinking about – how are you contemplating and integrating the macro pressures that remain on – again, you talked about the first quarter about currency supply chain inflation. Is your strong guidance suggesting you're thinking that things have stabilized into earlier in the year? So just – maybe just some high level to start this off.

Well, maybe I'll take a crack at and then see, if Micah wants to add some more detail to it. No, I think those challenges still exist and I'll add another one which is census and hospitals. We have not seen a return to the levels they used to be, but what makes us feel good about our guidance are many things. I mentioned the – for example, the record new customers that we attained in 2022. Well, many of that new customer contracts have not even been deployed yet. So we anticipate these hospitals converting to Masimo and beginning to use our product that will not only benefit them but of course benefit us. And I believe with all of these new exciting products and solutions we have we believe we can ride through some of those challenges. The only ones that we've seen ease so far is the supply chain. That seems to have gotten better although not perfect. But everything else I think is still challenging and we hope to be able to ride through them and hopefully exceed what we have even guided here. Micah?

Yeah. Rick, the only thing to add to that is to Joe's point at the end was on the supply chain. We've definitely seen some stabilization there. Freight costs have improved. And as I mentioned in my prepared remarks, we feel like we saw a low point in the fourth quarter. And consistent with what we mentioned in the last – the prior earnings call we feel that that's going to start to really steadily improve throughout the year. We're not out of the woods yet. I don't think any company – most companies are not out of the wood yet on supply chain issues but they're definitely stabilizing and we expect to see improvement.

Great. And again, lots of ways to go here, but I'm just going to focus on the W1, because Joe you called it out the importance of it the next version coming soon, maybe in a high level talk to us about where are you with the W1 rollout? You talked last quarter about the number of hospitals in the Middle East that are piloting W1 for COPD CHF. Where are we there? Maybe you can roll on – I'm asking a big W1 question. You announced the Masimo Philips W1 partnership. Maybe just update us in greater depth where are we – what's next? And what's baked into the outlook for 2023 for this driver? Thank you.

Thank you, Rick. So, first of all, W1 is getting incredible feedback, incredible reviews from our customers and even those independent people looking at it. We have not rolled it out through our consumer channel yet. It's still a hospital play -- hospital-to-home play. The people that have been looking at it, are happy with it. We're getting a lot of good verbal feedback. We hope to turn some of them into contracts and deployment this quarter and hopefully seeing the benefit of it in the second half hitting. I mean we're talking about systems that are looking at buying tens of thousands of these W1s and rolling them out into the home. As far as our plans for the Masimo consumer team, we want to roll it out along with Freedom and B1, because I think it's important that consumers know what we imagine, not what we have right now, because the other products are much more beautiful and user-friendly for those who want kind of the smart watch feel or if they want a wearable band like the Fitbit devices. So, we see that happening really in Q3, Q4 of this year. We might do a pre-sale rollout of these things just to let -- tease out the demand as well as let people know what's coming and which might even help the W1 sales to consumers. So, all in all things are going great. And I hope at the next earnings call, we'll be able to announce some concrete results from the hospital-to-home side of the business.

Great. Thank you so much.

Thank you, Rick.

Our next question is Marie Thibault, BTIG.

Hi. Good afternoon. Thank you for taking the questions and congrats on a strong finish to the year. I wanted to ask a question here first probably for Micah. If we could try to understand a little bit better how you're thinking about spending and the spending cadence throughout this year. If I look at the Q1 guide for operating profit, it certainly seems a little bit lighter than what I assume we will be seeing for the full year. So should we think about that sort of some of the spending on some of these new projects being a little bit front-weighted in the beginning of the year? How should we be thinking about that cadence?

Yes, absolutely. Great question, Marie. As I mentioned in some of our prepared remarks, we've got -- in the first quarter, profitability is not where we want it to be. We're doing everything we can to improve that, but where it stands right now some of our costs that are coming in through the P&L in the first quarter are related to the Apple trade secret trial case. So working through all of that is leading to some additional investment in the first quarter. Also, the strategic investments we're making for consumer health launches later in the year, we are investing that ahead of revenue as we launch those products and prepare the promotions and channels for those products, so that you will see some investment ahead there. One thing that I did mention though before is, we've got about 1% of our total revenues for the company that are tied into some of the investments we're making to really drive success with all those launches this year and making sure that we're building out the right areas and building out the channel, promotional activities properly to drive that success. So, that you'll see in Q1. Like I said, we're going to do everything we can to continuously improve that, and not only meet but exceed expectations.

Okay. That's very good to hear. Thanks for that helpful detail. Like Rick said, there's a lot of good topics here, but maybe I'll leave some juicy ones for my peers. And just try to better understand, the $15 million that you called out that you increased guidance by in addition to the FX benefit or the FX lesser headwind, what really drove that improved sales expectation? It certainly sounds like you had a really strong finish to the year, but was there something more to it? Thanks for taking the questions.

No, I think as we start to look, Marie, we had a strong finish to the year. So we basically are holding our top-line guidance from a standpoint of growth rate. So, we're still feeling very good about 2023. It's going to be an exciting year for us, and as we get closer to these product launches, it's giving us more confidence. So we're holding that overall growth rate of 6% to 8%, 8% to 10% for healthcare and about 2% to 5% for non-healthcare. And on the non-healthcare side, the Consumer Audio we're just being thoughtful that we mentioned at Investor Day. We – thoughtful and prudent about the guidance. We'll see how things play out but right now those premium and luxury brands of Bowers & Wilkins Denon and Marantz are holding up very well.

Certainly are. Okay. Thank you.

Thank you.

And our next question is from Mike Matson, Needham & Company.

Yes, good afternoon. Thanks for taking my questions. I guess I'll start with the new products, particularly in the consumer health products. So how much have you baked into your guidance for those? Is there anything in the guidance for those for this year, or have you been very conservative to just kind of keep it out?

Yes. We've taken a conservative approach there Mike. We've got – I think I mentioned even back in December that we've got a modest amount of revenue in for this year and we just want to kind of see how that plays out as we launch through those channels. Plus one key item to note is a lot of these products too are tied to FDA 510(k) approval. So we're being thoughtful about that as well.

Okay. I understand. And then just on the trade secret trial I guess, how firm is the Apple timing? And then second part of the question would just be what are the potential outcomes assuming that Masimo is victorious? I mean I'm more familiar with kind of patent trials but I've never really seen one of these before. Would it be just sort of damages or is there potential for royalties and things like that?

Yes. The dates are seeming firm. We had a conversation with our judge a couple of weeks ago and he said maybe at most there will be a one-week delay at the time. So we hope the trial will begin first week of April and it'd probably last two to three weeks. We just had a trade secret litigation in front of Judge Selna against a former employee who started a competitive product. And right before that he went to Apple and took our stuff there too. So in that case, the judge did an injunction on the products that had our technology in it. So we're hoping that with this trade secret trial, we will get an injunction. And also there are damages in this case that depending what the jury concludes and then what the judge concludes, it could be from hundreds of million dollars to billions of dollars. So we'll have to see.

Okay. Got it. Thanks. And then just one on the non-healthcare business. I know that the kind of spending there on the sales and marketing and R&D within that business specifically was – from what I remember was significantly lower than kind of on the healthcare side. Look I understand why that's the case but it was also owned by private equity. So have you guys been – or are you planning to increase any investments in sales and marketing or R&D in that business?

Well, I think you're right that previously they weren't really investing in themselves the way they should and I think there are certainly opportunities. But when it comes to the high end of music, receivers, as well as speakers, they already had a really good market penetration. So our focus is really to bolster the hearable side of their business. We want to go after the earbuds. We want to go after the headphones. And I think Micah mentioned that for example Q4, we doubled our headphone revenues compared to the same quarter a year ago. That is a $50 billion market potential that these companies combined had not even 1% of it and we have technology that makes us believe we should have a good share of that market. This adaptive acoustic technology is remarkable. The actual audio quality with Bowers and Denon and Marantz still are a lot better than what's out there. So – yes, so we will – where you're going to see our investment compared to when it was being run by private equity is to focus them on the markets that we think are large and growing and we have a reason to succeed. And – so that's going to be certainly one of them. And then, HEOS. HEOS is something they were neglecting. We think it's the Rembrandt in the old house that we found. And we're going to invest in it. And we're going to bring it out. And put the shine on it. And as you know, we want to use it to make wearable monitoring throughout the house connected always and easy. So we'll do what we can to invest in that, without sacrificing our earnings growth that we want to continue delivering.

Okay. Thanks. Appreciate it.

Our next question is Michael Polark, Wolfe Research.

Hey. Thank you. One numbers one. One bigger picture one on W1. On the numbers, I just want to be clear. The healthcare constant FX growth input like I heard 8% to 10% on this call. I'm looking at the Investor Day slides I saw 9% to 10% there. I guess what am I missing? Was there an adjustment there? If so why?

Yeah. So Mike, that's just because we were showing growth rates off of a range of last year. So based on the finishing point, it just -- it created a little bit wider range a little bit of rounding there on the range.

Got it. So dollars hold. You'd be in the quarter.

Yeah dollars hold. Yes. And we're taking up revenue by $23 million in total. And I think, -- if I can remember correctly, -- I think currency improved by somewhere around, let's say, 20 -- about $18 million, I think. I don't have it right in front of me.

Got it. The follow-up is on W1. Joe I'm curious, you're talking to systems interested in buying tens of thousands of these units. I mean, maybe this is a better question for some of your customers versus you but, is there a vision to use this as reusable equipment such that patient discharged goes home wears it for one to six months a year. And then it goes back to the hospital and can get recycled, or are you hearing more like patient is discharged and they get a W1 keep or something?

You know what that's a really good question. I think time will tell, if they'll forgive the customer. And let them keep it or they'll force it back. Certainly, the product is reusable can be cleaned, can be reused. So we'll just have to see what they end-up doing.

Thank you.

Thank you.

Our next question is Jason Wittes, Loop Capital Markets.

Hi. Thanks for taking my questions. First off, just sort of clarify. I think you said, pre-launch costs about 1% for a much -- a lot of the consumer products that you planned for 2023. Did I hear that correctly? And is, there additional costs like advertising et cetera that we should expect with those launches?

Yeah. So the launch costs -- or what we put in there is really promotional type advertising marketing dollars associated with some of those launches. Depending on the product they'll go through different types of marketing promotional through those channels of the existing consumer business. So that's what that's tied to. Of course, as you know as we talked about last December they've got -- the consumer business has over 450 sales and marketing professionals worldwide and that's what's really we're going to be able to leverage that channel in a big way, but we do have promotional activities associated with the investments on these launches.

Okay. So the incremental cost is about 100 basis points and then the rest falls on Sound United's existing infrastructure?

That's right. We're going to leverage and synergize through that channel.

Okay. Thank you. That's helpful. And then on W1, as you mentioned, hospitals looking to buy tens of thousands that means, should we be anticipating that when you announce contracts there will be basically multimillion-dollar contracts, or how do we think about W1? And how you start recognizing revenue at least acknowledging revenue pathway for W1?

Yes. Yes. We anticipate multimillion-dollar contracts. And it doesn't mean every contract will be that big but some of the systems we're talking to right now they'll be multimillion dollars maybe tens of millions of dollars a year. And it's a combination of the product and the service that we provide. So the magic of the last 20, 25 years has been our technology that really works but caring clinicians that know how to use it. So we're providing a service where caring clinicians will be able to monitor these patients remotely sometimes by the hospital staff, sometimes by third-party hospital staff, sometimes by people that we contract with. So yes so those will be a monthly service along with the products they need to assure the patient's safety and care is going well.

Good. That was helpful. I’ll get back in queue.

Thank you.

Up next is Jason Bednar, Piper Sandler.

Thanks. Good afternoon. Congrats on the quarter and the guide here guys. Maybe I'll start here first with some questions on the Stork. I just wonder if you have any maybe update on the regulatory process there, interactions you may have had with the FDA on that? And then if you could comment the same on W1. I think that one is still pending as well as you mentioned. And then can you elaborate more on the interest you mentioned Joe from the baby retailers for Stork? And how do we think about the launch process there? What kind of adoption are you assuming following approval and launch? And I'm sorry to load a lot in here, but I would be curious if you would maybe -- how you would qualify success for Stork as we look over the next two to three years? You've talked a lot about W1 today, but maybe if we can put the same stamp on Stork?

Sure, sure. On the regulatory climate, we've had some really good discussions with the FDA. We're encouraged. We hope to have SafetyNet alert finally cleared in the next quarter or two. Along with that, they recognize the W1 and some of the other products that we have like Stork and we hope to get clearances for them as well. However, we're not linking the launch of Stork with FDA clearance. While I think we'll do much better with our success with FDA clearance because it will be the first product of its kind to be cleared by the FDA. We believe we can market it internationally including in the US without FDA clearance. So -- and then I think the next part of your question was what do we think success maybe with Stork looks like. There's about four million births a year in the US and unfortunately maybe 5,000 babies die of sudden infant death syndrome a year. So we think it's a very essential product that fulfills the whole plans for Masimo SET pulse oximetry. So I don't know maybe it should reach $100 million, $200 million of revenue over the next few years. So we'll -- that I would call success and hopefully it will continue growing past that.

Okay. I mean maybe just -- I'm trying to reconcile this real time. So apologies on -- admittedly maybe not good at math sometimes. But I thought you guys were talking about 100 basis points of contribution from new products and now we're -- that was at the Investor Day. And now we're talking about maybe $100 million to $200 million from Stork and tens of millions from W1 contracts and that doesn't include B1 or Freedom. And I was going to ask some questions here on Radius T and VSP if that get lumped in there. I'm just -- I'm having a hard time reconciling that 100 basis points that maybe it was a little bit conservative, but now we're having some pretty big numbers that are thrown out there for some of these launches. So maybe help me with that maybe what am I missing or misestimating there?

Well, I think we're -- first of all the numbers we give you, our numbers we're comfortable in meeting and hopefully beating. But the truth is Masimo Consumer Health is a start-up within our company and with start-ups you really can't predict it really well. I've done one of those before. Fortunately good news is the first start-up I did became a lot more successful than I anticipated, but it took a lot longer than I anticipated. So as far as where we see success, which is I think the question you asked me on Stork success would be in the $100 million to $200 million a year. Is it going to be this year? No. I think certainly on the next few years. Hopefully two to three years. And then as far as my earlier response regarding the W1 revenues, those tens of millions of dollars in the contract, they're not going to get deployed overnight. They're going to be deployed more systematically by our hospital partners who are going to deploy them, but that will be the size of those contracts. So how much of that will hit 2023? I don't know. And if I try to tell you I did, I'd be guessing. But we're doing this because we are hoping what we started with Masimo Health is going to be a lot bigger, a lot better, a lot more impact to humanity than what we did the first time. Otherwise, why take the risk? Why go after it?

Okay. Fair enough. I'll follow-up more offline, but maybe squeeze one more in here. Just we are coming up on the word nomination windows opening. I'm just curious if you could talk about whether there's been any discussions that have or haven't been had with the activist investor that is present right now?

Well, I'd rather not get involved with that. I'm planning to hopefully meet with our shareholders, I know along the last few months and historically this is something we've done. And it will include also our new activist shareholder. So at the end of the day when I took Masimo public, I knew it's no longer my baby, it's our baby. While I'm the single largest shareholder in the company, I don't own the majority of Masimo. And I think it's going to be something that our shareholders have to decide what's the best future for Masimo, and hopefully they'll make an educated decision and something that we can all be happy about long-term.

Fair. Thanks so much.

Thank you.

Our next question is Jayson Bedford, Raymond James.

Hi, good afternoon. Maybe just a few. I wanted to ask about Healthcare gross margins in the fourth quarter. The business has kind of been historically 65%, 67% in the quarter just south of 62%. Can you just comment on the factors impacting gross margin be it supply chain FX et cetera?

Yeah, Jayson, great question. So Healthcare gross margin is around 62%. I think we're looking at those being around 63% in Q1 and steadily improving throughout the year. In Q4, they did come in softer than we expected. We did have a little bit more cost carry in from prior quarters just from where we capitalized some of the supply chain inefficiencies and manufacturing inefficiencies. And those roll out over our inventory turns they came in a little higher. We knew about most of those and we had some -- also some onetime inventory-related charges in the quarter. Nothing significant, but it did suppress our gross margins a little bit in the fourth quarter. But we are still -- based on what we're seeing with improving freight costs, things are starting to stabilize there. Inventory spot buys and higher costs related to components are stabilizing. Still not where we want them to be, but they're stabilizing as well and that's where we're getting more confident that we'll see some steady improvement throughout 2023.

And Micah, I may have missed this, but outside of the 51.7% in the fourth quarter being the floor, did you comment on gross margin in 2023?

Sorry in 2023?

Yeah.

Yeah. We've got our gross margins out there. We did provide guidance for 2023 for gross margins. For the full year, we're still -- we're looking at about 54% for the combined company on gross margin. Healthcare about 63.5% roughly. Non-Healthcare somewhere between 40% 41% for the full year.

Okay. That's helpful. And then maybe just on the other side pricing. You mentioned you renewed a handful of contracts maybe a couple of handfuls with existing customers in the fourth quarter. Were you able to capture some price on these renewals?

Yes, yes. For those who used to be with us years ago, every year, our prices used to go down a couple of percentage points, and we stabilized that. And for the last several years, they've been stable, flat, but recently, we have raised our prices. We held back on that, because we're trying to understand, whether the cost increases were temporary or permanent. We also -- new hospitals were struggling with COVID patients and lack of surgery and revenue. So with both of those things now being more clear, we have increased our prices, not 20%, 30% like some people have, but a few percentage points. And we'll probably continue doing that for a while, until it kind of helps us catch up with our normal gross margins.

Okay. And just competitively, is pricing pressure to the extent that you believe there was any pricing pressure out there, has it eased at all?

Yes, it has, because we have learned to be disciplined and sell the value, something that I didn't think would happen, but retrospectively, looking back, it has happened. Masimo SET pulse ox is the only pulse ox that has made a clinical outcome benefit. I know, it's a big thing to say, but it's true. Whether it's in the neonatal ICU, reducing retinopathy of prematurity, or whether it's in the postsurgical ward, dealing with patients with opioids, nothing else has made a positive difference than we have. And that positive difference isn't only improving clinical outcomes, but it's also been in reducing cost of care. So that has, over time, given our sales force the confidence to charge a fair price, which, by the way, is 30% to50% lower than where pulse ox sensor pricing used to be when we first launched Masimo SET. But we did not continue the price reduction, when our competitor had nothing else to do except that and bundling. So yes, so I'd say, that pressure has been reduced, and our team knows how to sell the value of our technology.

Great. Thank you.

Thank you.

We have Matt Taylor from Jefferies.

Hello, Matt.

Hey Joe. Thanks for taking the question. I wanted to see if you had any thoughts or comments on LiDCO because it was the first ITC to go across Biden's desk, and they got a good outcome there. You've got yours. Is there any read through, you think, from that? And maybe you could help us think about the crosscurrents of having kind of two shots on goal at least here with that and the trade secrets case.

Yes, of course. We -- obviously, we're very happy to see that not only in the ALJ and the LiDCO case, but the commission recommended an injunction and Biden administration did not reject it. It's the best way to make sure that innovation is protected when patents are respected, and injunction is really the last place to go to make sure that people don't think infringement is in any way an efficient way of going about things. As far as Masimo's case, as you know, the ALJ also found that Apple infringed our patent and recommended in a 330, I think, page decision that Apple should be enjoined. It's down in front of the commission. We hope that the commission will also find a forward path for our injunction. And given that President Biden did not enjoin or did not intervene in the LiDCO decision, hopefully, that means he won't intervene in ours either. So -- yes, so we're very happy about that. And at the same time, one thing we have going for us that -- maybe two things we have going for us that LiDCO didn't. One, we are the leading pulse oximetry company in hospitals. We didn't just make products for consumers. So that's a huge thing where the LiDCO product performance is probably similar to Apple's. Ours is significantly better. So there's really no reason not to enjoin it because the pulse ox isn't a serious product that they're offering ours is. The second thing is that the patent that the judge did find violated and based her decision on to enjoin them was just recently also upheld by PTAB and the IPR challenge. Interparty reexaminations is something that Apple had just taken for granted that they will get every time they seek one. Well they didn't get it on this one. So our patent is held valid it was held violated -- and held violated by the ALJ. And yes, so we feel good about that and then we have as you said, other things that we're doing in the trade secret case. But I got to say at the end of the day this is all really regretful. When we first met with Apple in 2013, we were hoping that we would be working with them for the betterment of not just our companies but the customers. This shouldn't have happened like this. It's not something that we enjoy or want to do. We just unfortunately had no choice, but to defend our innovation.

Maybe I could sneak one more in for Micah. Micah, I was just hoping it's the first full year of Sound. Could you remind us of any special seasonality or orders anything that we should be thinking about as we cadence our models that was stronger or weaker throughout the year last year that would factor in as we forecast this year?

Yes. No, I think -- Matt, it's a great question. So Q1, we're of course giving you a guidance there. It's out in our earnings presentation in more details there. That's the low point for that business and then it should steadily improve in Q2, Q3 with the high point in Q4. If you looked at some of the pro forma numbers that are out in the earnings presentation, you'll see that Q2, Q3 and Q4 last year in 2022 now that we're looking at 2023, those are probably more normalized quarters. Q1 was above the trend line. So it's a very, very tough comp in the first quarter. I think if you looked at the pro forma growth in Q1 of 2022, which was not reported under us, but that growth was due to some -- a lot of supply chain bottlenecks eased up in that first quarter and they were able to shift through those. So that was above trend line in Q1 of 2022 and that was about 22% constant currency growth. So we're going to be facing a tough comp on a pro forma basis for that business in 2023 in the first quarter, but you'll steadily see those revenues improve and then the fourth quarter being the highest again.

Great. Very helpful. Thank you, guys.

Thank you.

Thank you all for joining us. We look forward to our Q1 earnings call. Have a wonderful rest of your week. Thank you.

Once again, everyone that does conclude today's conference. Thank you all for your participation. You may now disconnect.