Good afternoon, ladies and gentlemen, and welcome to Masimo's Fourth Quarter and Fiscal Year 2020 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'll 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 Chief Financial Officer, Micah Young. This call will contain forward-looking statements, which reflect Masimo's current judgment, including certain of our expectations regarding fiscal year in 2021 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.

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..

Thank you, Eli. Good afternoon and thank you for joining us for Masimo's fourth quarter and 2020 year-end earnings call. Last year was full of challenges for our customers and for millions of patients around the world who struggled to overcome the burden and effects of the COVID pandemic.

Throughout 2020 as our customers in the frontlines responded to this crisis and tried to save as many lives as possible under life-threatening conditions, we responded to their demands to rapidly secure and install new monitoring technologies, enabling them to accommodate more critically ill patients than ever before even at home.

Within this tough environment, I'm proud to say that our team contributed to the critical solutions that were and are still required to manage this pandemic. In the midst of the pandemic last year was also milestone year for Masimo as our revenues exceeded $1 billion for the first time since our founding over 30 years ago.

Today, we're even more committed to helping our customers overcome the persistent challenges related to this pandemic with an expanding portfolio of products to improve patient outcomes.

We realized many significant achievements in 2020, such as the introduction of our Masimo SafetyNet system for enabling hospital-to-home monitoring, while also capturing a wider customer base for our Patient SafetyNet solution that enables hospitals to streamline workflow and improve patient care, especially where hospital staff were overwhelmed due to many COVID patient admissions.

Within Masimo, our dedicated team was nimble in its response to our customers in the face of significant demand for our existing products, while at the same time expanding our portfolio of solutions. This expansion included several important products beyond SafetyNet for COVID.

Some organic such as Radius T continuous wearable thermometer, Centroid continuous wearable bedsore and fall detection monitor, and Masimo SafetyNet-OPEN to help institutions open and stay open safely, and other important products through acquisitions, such as softFlow, High-Flow Nasal Cannula respiratory support system by TNI, and LiDCO cardiac output and hemodynamic monitor through the acquisition of LiDCO.

We're excited to bring these clinically relevant technologies to a growing customer base around the world. On the financial front, we are happy to report fourth quarter and full-year results that exceeded expectations and set the stage for another promising year ahead. For the fourth quarter, our product revenues increased 19% to reach $295 million.

And for the full year, our product revenues increased 22%, to reach $1.144 billion. We were able to achieve this level of performance despite the unprecedented challenges related to the pandemic facing our organization, which required many modifications to our operations and the sheer determination and commitment of our entire team.

We instituted multiple safety measures throughout, including at our manufacturing facilities such as regular health and temperature checks as well as safe transportation protocols for our team members. This internal solution was the basis for Masimo SafetyNet-OPEN, recently launched worldwide for others to use.

Changes to our operations also included the production of greater inventory levels of products our customers relied upon to provide care to their patients. We have to prepare for a scenario where COVID would prevent our plant from operating. Fortunately, that never happened and hopefully won't happen.

After we are out of danger from COVID, we will bring our inventory down to normal levels.

Our customer interactions in the field were also carefully maintained in the face of heavy restrictions on hospital visitors, as our sales and installation teams rose to the occasion to ensure timely deliveries, training and product activations as rapidly as possible.

Lastly, while many of our team members work from home, most of our exceptional team of engineers continued their activities at Masimo facilities to maintain the unparalleled pace of innovation that has always been our Hallmark. I'll discuss more later in the call.

Now, I'll ask Micah to review our fourth quarter and full year results in more detail and provide you with an overview of our 2021 financial guidance.

Micah?.

Thank you, Joe, and good afternoon, everyone. As a reminder, the financial measures I'll cover today will be primarily on a non-GAAP basis unless noted otherwise. Our GAAP results and reconciliations to the non-GAAP can be found in today's earnings release as well as the Investor Relations section of our website.

At the start of 2020, no one could have predicted how a virus would drastically change the lives of so many people around the world. The unwavering commitment of our global workforce was on full display, delivering trusted technologies to our customers and their patients at a time when they needed it most.

Although, 2020 was a year dominated by many uncertainties, Masimo has established an even stronger foundation for improving patient outcomes and reducing the cost of care for many years to come. During the quarter, we shipped 83,000 noninvasive technology boards and instruments.

For the full year, we shipped 472,000 technology boards and monitors, which is nearly 2 times our normal run rate. And as a result, we have now shipped approximately 2.2 million technology boards and instruments over the last 10 years.

At the end of the fourth quarter, we estimate that our installed base has grown approximately 17% over our installed base at the end of the fourth quarter of 2019. For the fourth quarter, our product revenues were $295 million reflecting growth of 19.2% or 18.1% growth on a constant currency basis.

This included an extra week of revenue in the fourth quarter, adding approximately 3 percentage points to our growth for the period. Our worldwide sales of technology boards and instruments were up 67% due to increase demand for Masimo SET pulse oximeters and related equipment.

Also our worldwide sales of single patient use adhesive sensors were up 7% as elective procedures have continued to recover from the low point, we saw in the second quarter. Our worldwide direct and distribution business revenues grew 21% to reach $261 million for the quarter, and our OEM business revenues grew 7% to reach $34 million.

Moving down the P&L, our non-GAAP gross margins for the fourth quarter decreased 400 basis points to 63.5% compared to 67.5% in the prior year period. The year-over-year decline was primarily due to a higher than usual proportion of revenue coming from our technology boards and instruments, which have lower margins in our sensors.

Also, we continue to experience higher COVID-related costs to fulfill the increased demand from our customers and to protect our global workforce during the pandemic.

These costs include increased inventory charges and freight expenses, as well as the additional costs related to the safety protocols, we've implemented to reduce the risk of COVID within our manufacturing facilities.

Our non-GAAP selling, general and administrative expenses as a percentage of revenue decreased 260 basis points to 29.7% compared to 32.3% in the prior year quarter. The year-over-year improvement was driven by strong operating leverage, as well as a reduction in stock-based compensation expenses during the quarter.

And our non-GAAP research and development expenses as a percentage of revenue increased 120 basis points to 10.7% compared to 9.5% in the same quarter last year. As a result of the gross margin headwinds, our non-GAAP operating margin decreased 260 basis points to 23.1% compared to 25.7% in the prior year period. Moving further down the P&L.

Our non-GAAP non-operating income, which is primarily comprised of interest income, decreased 87% to approximately $400,000 for the quarter compared to $3.1 million in the prior year period.

The decrease was driven by lower interest rates - or interest yields realized on our invested cash resulting from Federal Reserve actions to cut interest rates during the pandemic.

And our non-GAAP tax expense in the fourth quarter was $11.3 million resulting in a non-GAAP tax rate of 16.4% compared to the non-GAAP tax rate of 21.9% in the prior year period. The lower tax rate was primarily driven by an increase in R&D tax credits and a decrease in non-deductible compensation expenses.

Our weighted average shares outstanding for the quarter increased 1.7% to 58.2 million compared to 57.3 million in the prior year period. For the fourth quarter, our non-GAAP net income was $57.3 million or $0.98 per diluted share. In comparison, fourth quarter 2019, non-GAAP net income was $52.1 million or $0.91 per diluted share.

This reflects non-GAAP EPS growth of 8% over the prior year quarter. Turning to our GAAP results, GAAP net income for the fourth quarter of 2020 was $70.7 million or $1.21 per diluted share. In comparison, fourth quarter 2019 GAAP net income was $52.9 million or $0.92 per diluted share. This reflects GAAP EPS growth of 32% over the prior year quarter.

Included in our GAAP earnings for the quarter is approximately $10 million of excess tax benefits from stock-based compensation compared to $2.6 million of excess tax benefits in the prior year period.

Looking back 2020 was an exceptional year for Masimo, as we delivered another record year for Masimo in terms of winning new customers and entering new markets and rapidly expanding our installed base.

On a full year basis, we increased our installed base by 17% achieved product revenue growth of 22% and delivered non-GAAP operating profit dollar growth of 17%.

And despite the many challenges we experienced with gross margin headwinds and lower interest yields on our invested cash, we delivered EPS growth of 12% on a non-GAAP basis and 20% on a GAAP basis. Now, I'd like to go into more detail on our full year 2021 financial guidance that we outlined in our press release last month.

For 2021, we are projecting product revenues of $1,200 million, which reflects year-over-year growth of 4.9%. Included in our product revenue guidance is approximately $15 million of year-over-year currency tailwinds and one less week of revenue compared to 2020. As 2020 was a 53-week year for us.

Our guidance also incorporates a roughly 1 percentage point contribution towards our full year 2021 revenue from the recently closed acquisition of LiDCO. Our non-GAAP gross margin guidance is 67%, which represents a 190 basis point increase over our 2020 results.

While we saw a decline in our gross margin last year related to a substantial shift in our product mix towards more hardware. Our expectations are for this mix shift to gradually reverse course in 2021. And our non-GAAP operating expense guidance for the year is 42.5% of revenue, which reflects a 40 basis point increase over the prior year.

Our operating expense guidance includes continued investments in R&D, increased legal costs to defend our IP and incremental expenses related to the LiDCO business. Our guidance for non-GAAP operating profit margin is 24.5%, which reflects a 140 basis point improvement over the prior year.

Included in our guidance is approximately 170 basis points of operational improvements and leverage from our existing business, which is partially offset by approximately 30 basis points of headwinds related to the acquisition of LiDCO. We expect LiDCO to be fully accretive in 2022 and beyond.

Based on the assumptions, our non-GAAP operating profit dollars are expected to grow 11.5% to reach $294 million in 2021, which reflects strong operating leverage leading to more than 2 times our revenue growth rate. Moving further down the P&L.

Our non-GAAP non-operating income which is primarily comprised of interest income is expected to be a very nominal amount in 2021, compared to the $5.3 million that we generated last year. This represents over a 2 percentage point headwind to our EPS growth rate in 2021.

We're also projecting a non-GAAP tax rate of 24.1%, and we are estimating that our weighted average shares outstanding for 2021 will be 58.7 million, which reflects an increase of 1% over the prior year. During the fourth quarter of last year, we repurchased approximately 450,000 shares of Masimo common stock.

The impact of the share repurchase on our weighted average shares outstanding is reflected in our full year 2021 financial guidance. Based on all of these assumptions, we are projecting non-GAAP EPS of $3.80; and from a GAAP perspective, we are projecting a GAAP tax rate of 20.7%, and GAAP earnings per share of $3.81 for the year.

For additional details on our full year 2021 financial guidance for GAAP and non-GAAP earnings per share, please refer to today's earnings release and supplemental financial information within the Investor Relations section of our website at masimo.com.

To conclude, we are entering 2021 with a positive outlook for revenue growth and profitability following an exceptionally strong year. Despite the tough year-over-year comparisons, we're projecting mid-single-digit revenue growth and double-digit operating profit dollar growth for 2021.

It is also important to note that when you look at it from a 2-year stacked growth perspective, our 2021 product revenues and operating profit dollars imply compound annual growth rates of 13% and 14%, respectively, when compared to our fiscal 2019 results. Our performance last year has built an incredibly strong foundation for 2021 and beyond.

We delivered another record year for Masimo in terms of winning new customers, entering new markets and rapidly expanding our installed base, which sets the foundation for a strong recurring revenue stream in the years ahead. And we remain steadfast in our commitment to delivering on our long-range growth and profitability goals.

With that, I will turn the call back to Joe..

60, Replica and Halo ION to dose customers. Hospitals have been adopting Patient SafetyNet in the general ward setting to enable them to streamline workflow and contribute to better patient management practices.

In fact, the number of beds connected via Patient SafetyNet and Iris Gateway increased by 28% this year, a rate of increase that was more than 2 times what we have seen in recent years.

The addition of alarm management and 2-way messaging with Replica is another way for hospitals to boost efficiency while improving patient care, as all members of a care team are alerted to patients in distress, while being able to interact with each other to relay critical information or intended actions.

In 2020, we introduced the first pulse oximetry product in our hospital-to-home category, Masimo SafetyNet with Radius PPG. We follow that launch later in the year with our second product in the category, Radius T, which continuously measures patient's temperature.

Shortly thereafter, we introduced Masimo Sleep, a product designed to track vital signs during sleep to help evaluate sleep health. All of these products are based on wearable wireless technologies that work with our connectivity hubs and smartphones, sometimes in an option to transmit data into the cloud for analysis by clinicians.

We're excited to launch Masimo Patient SafetyNet-Opioid, where it is currently under review with the FDA.

We're excited about the potential for SafetyNet-Opioid to help save the lives of people taking opioids at home, typically for post-surgical pain control or management of chronic pain, representing a current addressable market of over 45 million opioid prescriptions each year in the U.S. alone.

In 2017, it was reported that over 20,000 people died in the U.S. from prescription opioid induced respiratory depression at home. Our technology is designed to detect low oxygen saturation levels that can be indicative of respiratory depression, a common side effect of opioid use.

This condition can lead to the unexpected death of patients if it is undetected, as their vital organs are slowly starved of critical oxygen. We've assembled a team of professionals to help us launch SafetyNet-Opioid with a running start once the technology is approved in the U.S.

Our expectation for the commercial success of our solution have recently been bolstered by the positive results we are seeing from a related study in Utah that should be submitted for publication soon, and the approval of Medicare coverage of Innovative Technology program by CMS.

Masimo SafetyNet-Opioid system has received the Breakthrough Technology designation from the FDA, which means it may qualify for Medicare reimbursement upon FDA clearance under the terms of the MCIT program. In closing, throughout 2020, as our customers on the frontlines responded to the COVID crisis and rose to the challenge, so did our team.

We have invested heavily in innovation and product supply efforts to deliver clinically relevant solutions that have improved patient outcomes and reduced the cost of care. As we enter a new year, I'm confident that Masimo will continue its leadership in delivering innovative solutions to clinicians and patients around the world.

With that, we'll open the call to questions, operator?.

[Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from Lawrence Keusch with Raymond James. Your line is open..

Hi, this is Frank on for Larry. Thanks for taking the questions. I guess, just first off, obviously, there is going to be some significant comps in 2021, given the benefits you guys have from the pandemic.

So what can you do to help investors understand the underlying growth when going up against these challenging comps?.

Well, I think, first of all, we've done our best to give guidance in the midst of an unprecedented time, both in terms of a pandemic that we're not out of yet, although it looks promising that we will be with the vaccinations that are available.

Secondly, like you said, with a very strong 2020 and what will that mean for 2021? First of all, as I mentioned in our prepared remarks, we saw a 17% increase in our drivers, meaning it was about 2x what normally the increase is on a year-to-year basis.

And we contacted our customers that have taken those increased drivers, not every one of them, but the top 30. And what we're seeing is that they're utilizing them, which bodes well for increased utilization of our adhesive sensors.

Secondly, while we had a strong year, because we were dealing with COVID, most procedures were not happening at least almost through - almost by Q3, Q4, where they began happening at 60% to 80% level.

We expect that there's pent up demand for elective procedures as well as the normal and given our larger footprint now in the world, we expect that we'll see growth, significant growth in our adhesive sensors sales. And finally, we weren't sure that in the middle of this pandemic, hospitals would want to do anything but just deal with the crisis.

But instead, we saw a record year of hospitals willing to sign up with us to convert their hospitals to Masimo. And that was no small feat.

I think it was partially because of our team and what they did, but it was more about what Masimo meant to people, at a time when it really mattered to have the best product to be able to trust the measurement, when you can't even see the patient, sometimes because they were at home with Masimo SafetyNet and sometimes because they kept them in the ICU room by themselves and watch the measurements from outside the room.

Those numbers mattered like never before. And I think it was a great year for us. So bottom line, we've done our best to forecast what the year is going to look like. We have a lot to be hopeful about. But we also have concerns that we can't control. So let's see what happens..

All right, great, thanks. And then, just one quick follow-up. Obviously, the opioid SafetyNet, that sounds like an exciting opportunity. Are you guys assuming any revenues in guidance this year? And on the timeline with the FDA, when do you think that might be able to get cleared? Thanks so much..

Yeah, I'll take the first part. We're not including any revenues in our guidance for the year. And I'll turn it back to Joe for some of the commentary around the status..

We have for the most part of our history had a very collaborative relationship with the FDA. Probably the most collaborative time has been on this project, Masimo SafetyNet for opioids. Not only did FDA designate as a breakthrough technology, they chose it as one of 8 products that could help this epidemic. So bottom line is we're in lockstep with FDA.

FDA is guiding us and letting us know what they need. We are delivering to them what they need. And while we were conservative, not forecasting any revenues for the year, we will be disappointed if we don't launch this product this year in the U.S. So keep your fingers crossed. We'll see what happens..

Our next question comes from Matt Taylor with UBS. Your line is open..

Hi, thank you for taking the question. So the first thing I wanted to start with was, Joe, maybe just following up on your comments on the customer can continue to use the boards that were shipped last year.

If you talk about whether you think that's going to be a long-term trend and any color on how things have started here early in the year? We've seen [before to] [ph] Medtronic talking about pretty strong trend continuing in terms of monitoring and ordering.

Is that something that you can speak to as well?.

Okay, well, I think what I can tell you is we're seeing so far that those products are in use. What we think we're seeing is that those products, there are more monitored beds now in hospitals than ever before.

So, one of the things that we had anticipated for a long time is for every bed to become a monitored bed that was the entire general floor effort with patient SafetyNet. The Dartmouth-Hitchcock study did a 10-year study showing patients that were monitored with our technology did not die of opioid overdose.

But the patient group that wasn't monitored, unfortunately, they had several deaths in that group. And they also showed huge savings annually from the use of the product, because it reduced rapid response team activations by over 50% and ICU transfers by over 50%.

So bottom line, I'm telling you all this is, because I believe, as they begin using us, maybe because of the pandemic and the post-surgical wards in the general floors, I think they're going to keep using it, because it works.

It makes their work safer, their clinicians more effective and saves lives, especially with patients who are receiving drugs like opioids that could affect their respiration. As far as the Medtronic comment, I'm sure they've seen growth. But to say that their shares I think grew over us is a misstatement..

Okay, all right. Thank you. I wanted to ask another one. You recently announced the U.S. release of the softFlow High-Flow Nasal Cannula. Again, I just wanted to ask how….

Matt, could you speak….

Matt, can you - yeah..

Sorry, Matt, we can't hear you.

Would you please speak closer to the microphone?.

Is this better? Sorry..

Oh, yes, much better. Thank you..

Okay, sorry about that. So, you recently announced the U.S. release of the softFlow High-Flow Nasal Cannula Therapy, which we've been thinking about for a while after the acquisition that you did.

Do you think that could be something that's material this year? How should we think about the ramp of that product?.

Well, we wouldn't be marketing it if we didn't think it was the best product. We also think this category is an important category to help patients with their breathing. Yet, because we don't have experience in the U.S., we did not put any revenues for softFlow in the U.S. for 2021.

So there's an upside to our numbers, obviously, softFlow takes off here..

Okay. And related, we saw recently you had some trademarks for products that look like they were consumer focused. And we've seen some other activity in the space in the public arena around baby monitoring.

I was hoping, you could talk about anything that you are doing there in outside of the hospital? Or could do there in the future?.

Sure. Sure. When I started, Masimo, I named the project SET pulse oximeter, the codename was Stork, because we thought it would help deliver babies safely to home. At the time, there was concerned about sudden infant death syndrome, and this is going back to late 1980s, early 1990s.

The research showed that most - unfortunately, most sudden infant death syndrome at home of babies was really due to parents killing their babies. So that kind of killed the whole SIDS monitoring world. However, we see an opportunity to help monitor babies at home. And we are working towards that.

The company, I think, you're referring to that has recently gone public through a SPAC, their product was compared to our product at a children's hospital, Philadelphia, and was shown that they did not catch any desaturations of patients in their study.

So unless they make significant improvements in our product, that product, unfortunately, is not going to do well, critically, at least in a relevant way. But bottom line, yeah, we are looking at not just monitoring adults, we're keen on monitoring babies. And you will see more things like that from us in the near future..

Great. Thank you very much..

Thank you..

Our next question comes from Mike Polark with Baird. Your line is open..

Hey, good evening. Thanks for taking the question. Joe, I appreciate the comments on hospital automation seems like the platform is coming together there. You mentioned promising. Curious - 2-parter.

Curious, can you comment on how impactful financially hospital automation maybe in 2021? What is the number expectation built into the guidance? That's question 1. And then question 2 is, do you feel like you have a - nothing's ever complete.

But do you feel like you have a full solution now? Or are there other components that you might look to faster organically or inorganically for hospital automation, as you think about the next 1, 2 or 3 years?.

Sure. Sure. Thank you. Thanks for the question. We are not disclosing unfortunately revenues from any particular product lines at this point. And Micah can go more into that for the ones that we are. As far as completed, no, it's not complete, although it's more complete than any other solution out there.

We do intend to bring out more exciting features and products with this hospital automation platform. So - and hopefully some of them will come out the first half of this year, so stay tuned..

On the inventory, just as we move through 2021 knowing it's hard to frame, what's going to happen with the world, and - but is it reasonable to surmise that your days of inventory on the balance sheet will start to work down ratably as we progress through 2021? Obviously, the free cash flow number was limited in 2020 due to that build that you referenced..

Absolutely, Mike, as we look at inventory, this past year was very strong operating cash flow year, when you think about it, we had over $210 million of operating cash flow, despite about over $90 million of inventory headwinds.

So, again, to Joe's point in his prepared remarks, we build inventory to make sure that we didn't run out of parts that were needed throughout the pandemic.

So we think that that's going to improve now over time as we start to get back down to approaching more normalized levels, and as we sell through that inventory, so that should be somewhat of a tailwind as we move forward..

All right. Thank you..

Thank you. We have time for a couple more questions..

Our next question comes from Ravi Misra with Berenberg Capital Markets. Your line is open..

Hi, guys, thanks for taking my question. This is Iris on for Ravi. So, first, I have a follow-up question on SafetyNet, the remote monitoring pulse oximetry.

So can you talk about what the demand for that product was like in the last few quarters? So how many hospitals have purchased it so far? And then in 2021, it sounds like the next focus is really just expanding into the opioid use case.

And then beyond these 2 indications for COVID and opioid, will you be looking into maybe expanding the label for other indications?.

Certainly, we saw a modest increase maybe about 20%, 30%, to Masimo SafetyNet usage in Q4 compared to Q3 and 2-in-1 when we launched it. I think, we've got nearly 200 hospitals who are using it around the world, and monitoring many, many patients with them.

As far as our opioid SafetyNet solution, we do believe it will have application beyond opioid or drugs of abuse that could cause respiratory problems.

There's a huge opportunity and using it for COPD patients, and others, we're working with many hospitals in transferring their high-risk patients' home with our solutions, including the Masimo SafetyNet, Radius PPG solution.

And our solution that we call Doctella, which is a care pathway app that basically has a care pathway for over 150 types of procedures that get done in hospitals, and helps patients stay on the regimen they need to stay on to not have to relapse back to the hospital. So it's going well.

And we see a great opportunity and going into home with our monitoring technologies..

Okay, great. Appreciate that. And then I have another follow-up. I want to talk about the LiDCO acquisition a little bit. Can you comment on maybe how big the market is for the hemodynamic monitoring market? And then, also, if you can share any thoughts on the competitive dynamics there? Thanks..

Yeah, I think, we look at this market, as you know, a market opportunity that could be approaching $1 billion market for us.

When you look at the broad range of applications we can provide as far as with LiDCO, you're dealing with more of the patient population that that have has existing A lines or using arterial lines with PVi, it's - that's combining with our PVi technology that can reach those who are on mechanically ventilated patients as well.

So, it gives us a broad - much broader solution for things like fluid responsiveness and goal-directed therapy as well. So we look at it as a market approaching about $1 billion..

Yeah, and as far as competitive landscape, we looked at all the companies that were in the space, and we believe that LiDCO's technology has the best performance. The clinical evidence is plenty that it is the best performing product out there. And I feel that as a small company, they could only accomplish so much.

Hopefully, with our - with a bigger footprint now that Masimo can give this product and this integration in our products, and how they'll all feed into each other to provide a clear image of what's going on with the patient's oxygen delivery, cardiac output, fluid levels, I think will enrich clinicians understanding of the patients.

So we're anxious to have it all done. The team that came with acquisition is very strong. We're happy to have them and we hope to build something really good together with them..

Great. Thanks, guys..

Thank you..

Our next question comes from Jason Bednar with Piper Sandler. Your line is open..

Hey, good afternoon, everyone. I wanted to start on gross margins. Micah, I think you said something in your prepared remarks the effect of the mix shift gradually reversing course in 2021. I don't want to over read your comments.

But are you suggesting that gross margins will gradually ramp back to a more normalized level? And maybe we'll exit 2021 at a rate that's nicely above what we'll start the year? Or is the ramp more modest as we move through the year? I'm just really wondering, what's the best way to think about the progression as here we update our models, again, in light of that comment you made..

Yeah, I think it's a - Jason, I think is a steady ramp with Q1 being the low point, of course, and Q4 being the high point. But if you think about it, it's going to - it's all going to be dependent too on underlying procedures, underlying volumes in terms of patient admissions into the hospital.

So it's going to be very heavily dependent on that mix of sensors versus our instruments and boards.

So we look at it more as probably more pressure in the first half, and some of those mix pressures are going to ease up more in the back half as things open back up, and maybe there's some backlogs of surgeries that happen that drives more sensor volumes in the back half of the year.

So, I think, it's going to be a steady recovery from here through the end of next year. And hopefully, get back on track to where we were back in 2019 as we exit 2021..

Okay, that's very helpful. Thanks, Micah. And then, Joe, I wanted to come back to something you said about your top-30 customers, because I think it's an important point for investors. And I know you said those customers are utilizing the drivers. But just wondering if you can offer any additional color on what the utilization looks like.

Is it comparable to normalized driver utilization? Is it ramping towards normalized driver utilization? And if that's the case, when do you think you'll get back to more just normal utilization? Again, any extra color there would be great..

Sure, sure. Well, as you know, our normal here, which we're very proud of, we do about 240,000 drivers per year. Last year, we did about 480,000, drivers. About 10% of those drivers were inside the ventilators of our OEMs.

When we were wondering, just like you are, are all these devices going to get shelved as COVID drops? Or are they going to get used? Which, by the way, we still don't know, because COVID isn't done yet, it has dropped from the crazy highs that it was in January, and finally, below even the highs in June, July, but it hasn't gone away.

So it's not like I'm telling you to draw a line. All I can tell you is that in Q1, when we interviewed our top-30 customers, they were using them. And their growth rate, we were very happy with, not just compared to the modest usages they were having in 2020, but the kind that we're having in 2019.

So if that trend continues, my whole point was we should see 15%-plus growth in our sensor volumes this year. Now, whether or not we'll see them, I don't know, because it's just early in the quarter and not done with COVID. But that's all I could share with you, which I thought would be helpful..

Okay, and very much super helpful. Thanks, Joe..

Thank you so much, everyone, for joining us. I think there might be one more question. If there is, I'll be happy to take it, operator..

Your next question comes from Mike Matson with Needham. Your line is open..

Hey, guys. Thanks for squeezing me in at the end. This is Joseph on for Mike. Just the first one, should be pretty quick. Just curious if there's any risk to your guys' ability to produce the boards and monitors, given the global chip shortage here in 2021..

Clearly, we get impacted by shortages. In the past decade at least the shortages that came and left, we were able to manage those channels and get what we needed. Our suppliers are sensitive to us in that we are creating products that are needed for hospitals to do what they need to do for patients. So I know we typically get priority.

I don't believe we're going to have a problem, but it's possible..

Okay, well, that's helpful. Thank you.

And then, maybe just moving back to the softFlow High-Flow Therapy, is there any details you can give us about the market opportunity or the TAM there with that?.

Well, what I can tell you, while there were fears of using High-Flow Nasal Cannulas due to the fact that it did not seal entirely the airway of the patient, it was shown that it worked better for COVID patients. And I think a lot of people started seeing how High-Flow Nasal Cannula could be helpful to aide respiratory systems of patients.

We believe this could become a more prevalently used product than the other means that are available out there. And that's why we decided to make the acquisition even before COVID. But I think COVID accelerated people's understanding of what this technology can do.

So bottom line, if we were going to give you a number, we think that's going to develop to a $1 billion market. And we believe we have the best solution. Our solution doesn't require air to be connected to it. It creates its own air. It's a great German engineering. They've done it in a way that it doesn't make noise.

The UI is good enough that could be used at home. Right now under emergency authorization, it can be used at home. And we will eventually hope to get the clearance for home usage in the U.S. But it has a lot of other benefits. Giving humid air right to the tip of the cannula in the nose is a unique thing here with this product.

And we're really happy to be supporting it and making it available to our customers..

Awesome. Thank you very much..

Thank you so much. Thank you all for joining us today. We look forward to our end of Q1 earnings call. And let's hope we'll be done with this pandemic and can restore some normalcy by summertime. Thank you so much. Have a great, great day..

This concludes today's conference call. You may now disconnect..