Good afternoon, ladies and gentlemen, and welcome to Masimo's Fourth Quarter and Fiscal Year 2023 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..

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 2024 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. Please note we have updated our non-GAAP definitions to exclude all legal expenses associated with our ongoing litigation with Apple.

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..

Thank you, Eli. Good afternoon, and thank you for joining us for Masimo's 2023 year-end earnings call. We exited 2023 with growing momentum driven by record contract wins for the year in our healthcare business, important FDA clearances for innovative new products and strong growth in our hearables business.

With stabilization of hospital census and operations post-pandemic our healthy contract backlog and our cutting-edge innovations in growing markets Masimo is well positioned for 2024.

In addition to sensor utilization having stabilized, our hospital contract wins have more than doubled from four years ago within our target markets, which has resulted in meaningful gains in market share. The engine of our growth continues to be innovation.

And in Q4, we received numerous FDA clearances for innovative products to improve outcomes and reduce the cost of care some of which I will discuss later.

Outside of healthcare, we are investing in the Masimo consumer brand and intend to realize rapid growth for hearables and wearables, as we launch a steady stream of unique products containing our proprietary technologies, a few of which I'll talk about later.

In fact, starting this quarter we are providing visibility into our hearables and wearables revenue so that you can see how we are performing in these strategic growth categories.

For our financial performance in fiscal year 2023 consolidated revenues exceeded $2 billion with healthcare revenues reaching $1.28 billion the non-healthcare segment exceeded $770 million in revenues for the year. The challenges of 2023 have forged a stronger more resilient Masimo and we have a bright future ahead.

We are making a positive impact for healthcare across the world and improving Masimo's long-term position. In the past six months, I toured many parts of the world visiting our customers and meeting our team. I can tell you resoundingly that our customers love what we are doing and where we are taking non-invasive monitoring.

Our team is proud and excited to contribute to these bold efforts. 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 2024 financial guidance..

Thank you, Joe and good afternoon, everyone. For the fourth quarter, our consolidated revenue was $549 million. Our healthcare revenues were $340 million which was near the upper end of our guidance range and represent a 4% decline on a constant currency basis versus Q4 2022.

Our consumable and service revenues grew 1% partially offset by a 24% reduction in capital equipment and other revenues versus the prior-year period. More importantly, our healthcare revenues increased 10% sequentially driven by expected seasonal increases and improved sensor volumes.

Further our strong hospital conversions in 2023 have resulted in unrecognized contract revenue increasing 4% sequentially and 16% over the prior year to reach $1.5 billion. This gives us confidence in our growth outlook for the healthcare business.

For our non-healthcare segment fourth quarter revenues were $209 million down 23% on a constant currency basis versus prior year. This business segment increased sequentially due to the holiday season, but declined year-on-year due primarily to challenging macroeconomic conditions including high interest rates which weighed on consumer spending.

Now moving down the P&L. For the fourth quarter of 2023 we reported consolidated non-GAAP gross margin of 50%. This included gross margins of 61% for our healthcare business and 32% for our non-healthcare business.

For our consolidated business, our non-GAAP operating profit was $92 million and our non-GAAP earnings per share was $1.25 for the fourth quarter. Finally through focused improvement in working capital and optimizing cash flow, we generated significant operating cash of $77 million, which allowed us to pay down a portion of our debt.

Overall, 2023 was a year marked by uneven financial performance as we address shifting environments for both business segments. However, we made significant progress strengthening our market position which gives us confidence for 2024 and beyond.

We also had significant new customer wins and a growing contract backlog in healthcare that positions us well for growth this year. Now I'd like to provide more detail on our full year 2024 financial guidance that we initially outlined in our pre-announcement in January.

For the full year 2024, we are projecting a consolidated revenue range of $2.045 billion to $2.165 billion. For our healthcare segment, we are projecting revenues of $1.345 billion to $1.385 billion representing 6% to 9% constant currency growth.

For the non-healthcare segment, we are projecting revenues of $700 million to $780 million representing a 4% decline at the midpoint in constant currency. We believe gross margins will steadily improve throughout the year.

For fiscal 2024 we are projecting consolidated non-GAAP gross margin of 52% comprised of 62% for our healthcare segment and 33% to 35% for our non-healthcare segment. We are intensely focused on improving our gross margin as the largest driver of earnings leverage for us.

Our plan to transition a large portion of our sensor manufacturing to Malaysia is well underway and we expect to reap the benefits of increased efficiencies and lower production costs over the next few years. We are also projecting consolidated non-GAAP operating profit of $307 million to $322 million.

We expect to benefit from the improvements in gross margin and disciplined spending partially offset by the return of performance-based compensation to normalized levels. Moving further down the P&L we are now projecting non-operating expense of $51 million, a tax rate of 26% to 27% and weighted average shares outstanding of 55 million.

Based on these assumptions, we are projecting a non-GAAP EPS range of $3.44 to $3.60. Turning briefly to our first quarter outlook. We are projecting consolidated revenue of $476 million to $501 million, non-GAAP operating profit of $63 million to $69 million and non-GAAP earnings per share of $0.67 to $0.74.

Please reference the earnings presentation on our investor website for further details. In summary, our outlook for 2024 assumes a rebound in revenue growth for our healthcare segment. There are many reasons to be positive about our prospects this year.

Over the past-- over the last two quarters, we have gained a better understanding of the shift in customer ordering patterns and have confidence that sensor volumes have stabilized. We have a strong contract backlog thanks to a record year for converting new customers and expanding our footprint with existing customers.

With that, I'll turn the call back to Joe..

Thank you, Micah. With deeper understanding of post-pandemic market conditions and a strong start to the year for our healthcare business, we are confident in our guidance and look forward to reestablishing our track record of consistency and predictability.

Besides strong sensor orders, our record customer conversions in 2023, provide the foundation for that confidence and show how our commitment to delivering innovative technologies into the marketplace sustains not only our long-term future but the short-term growth potential.

I'd like to share a few new highlights on products that we have gotten approval by the FDA in late 2023 that we expect to contribute to growth over the next few years. The US approval and launch in October of our Oxygen Reserve Index or ORI was an important milestone that will add to the growth of our rainbow products.

ORI has already gained significant traction outside the US with ORI-equipped sensors becoming the routine option for pulse oximetry monitoring in some countries and now accounts for approximately 20% of rainbow sales.

ORI gives our customers the ability to see declines in oxygen before pulse oximetry can detect some changes, which is important in the OR. It is just as important to know when the patient has been given more oxygen than they need, and ORI can help them determine that.

For our business, not only ORI is yet another clear differentiator but every pulse oximetry sensor conversion to a rainbow ORI-equipped sensor adds a price premium of at least 30% per sensor depending on whether customers deploy ORI with our 4-LED rainbow sensor or with our 8 or 12-LED rainbow sensors.

Another important FDA clearance for us last year was for the medical version of our W1, watch which was cleared in November. We can now promote W1 to US healthcare institutions for use with patients before and after surgery as well as for long-term monitoring of chronic conditions.

As we've shared in the past, we see great market potential for these applications and have received multiple indications of interest from hospitals. Hospital-at-home initiatives continue to gain traction with healthcare systems which see large opportunities to reduce costs and improve outcomes.

We view our remote monitoring technologies as unique key enablers for these programs to deliver care safely and efficiently. We also received FDA clearance in December for our Stork baby monitor with alarms and alerts functions to be activated based on the physician's prescription.

Stork is the only product to help parents monitor SpO2 pulse rate and temperature for sick and healthy babies. In addition, the optional AI-based camera already helps detect babies who roll over on their stomach with many more applications to come.

Outside of healthcare, we are leveraging our core healthcare technologies and signal-processing capabilities to deliver differentiated products that will profitably take share in the large and growing markets for hearables and wearables.

Our hearables category grew 115% last year due to the combination of focused investment and the launch of new products. For example last fall, we launched a Denon PerL earbuds with AAT, adaptive acoustic technology.

Masimo AAT enables customization of the sound spectrum for an individual's unique hearing profile and provides a truly optimized listening experience. As I mentioned earlier, hearables and wearables are strategic growth categories for Masimo as we undertake our hospital-to-home initiative.

In 2023, we increased our revenues for these products by more than 90% to reach $90 million. With products such as STORK, OTC pending FDA clearance, W1 and PerL with AAT, along with other new product introductions, we expect to see significant growth in this category in 2024 and beyond.

We have three product launches planned for 2024 to celebrate our 35th anniversary, Freedom, H1 and the next-generation version of our Root Connectivity platform.

We are excited about what the Freedom biosensing watch and the H1 hearing-enhancement device will do for consumer health and what our next-generation Root platform will do for healthcare in terms of improving patient care as well as hospital finances.

In closing, our ability to translate our core technologies and competencies into products that deliver better outcomes for consumers, patients and providers continue to be the engine for long-term growth across all our businesses. With that, we'll open the call to questions.

Operator?.

[Operator Instructions] Our first line of question on from Marie Thibault with BTIG. Please go ahead..

Hi. Thank you. Good afternoon. Thanks for taking the question. Wanted to start here, I think, on the standard one on guidance. I just want to understand what's included on the high and low end of the guidance ranges for both healthcare and non-healthcare.

And if you can help us think about the Q1 cadence, the quarterly cadence throughout the year, that would help me understand, particularly on the non-healthcare side, if you can..

Absolutely. Yeah. So Marie, for the -- start with the healthcare business, the $1.345 billion to $1.385 billion. If you look at the low end of the range, we'll start there, that assumes 0% census as far as any contribution from inpatient admissions. And it also assumes the weak capital environment that we're seeing.

We're seeing good strength in our consumables products, but the capital has continued to be a very difficult environment for us as well as others.

If you look at the higher end of the range, that assumes more of closer to a 1% census growth, and it also assumes that we see improvement in -- coming from a lot of the installations that we expect throughout the year as we continue to gain new customers and win new customers.

And it also assumes that we're going to have some improvement in the capital environment at the high end of the range. We also have stripped out any large orders, so those would be upside to the guidance for this year. Those were completely stripped out of that range.

If I turn to the non-healthcare business, probably the best way to describe that is we expect the hearables growth to continue, that we expect to be at least 50% growth off of this year after a very strong growth last year.

So that implies that the range of $700 million to $780 million, at the low end of the range, it would imply high teens decline in the core audio business and the upper end of the range, it would imply a mid-single-digit decline in the upper end of that range.

So again, the hearables strength in that business has now become over 10% of the revenues for non-healthcare, continues to grow, offsetting softness in the quarter..

Okay. So that hearables strength is disguising a bit some of the softness you're expecting in consumer. And then as a follow-up on that the Q1 cadence for consumer maybe a little bit lighter than we were looking for.

Can you help us understand kind of the seasonality of that business, as you understand it today?.

Yes. So, we went back and looked historically, with the team and just tried to understand kind of their seasonality prior to the acquisition and kind of back in more normalized years and that seasonality is about 21%. It can hover between 21% and 22% of revenues for the full year. That guidance is in that zone for Q1.

And typically, one-third of the revenue is coming in Q4 with a stronger holiday season. So, that's how we're thinking about both businesses kind of getting back onto that normal seasonality.

And again, we're growing the we're getting into new channels, in new markets with the hearables so that's going to continue to be growth throughout the year that gives us more confidence in that guidance range for non-healthcare..

Okay. That's really helpful, Micah. If I can ask a question here for more detail on the healthcare side, I want to understand what you're seeing today on the hospital census on some of the dynamics you've discussed in the past like the shift to ambulatory, surgical centers and patients reusing sensors.

What are kind of the latest that you're seeing on some of those trends that we know impacted results last year?.

Yes. I think what we're seeing now and I think that that's what's being seen out there in the broader market is, those inpatient trends and census trends are probably around that 1% to 2% kind of hovering in that zone. So if that continues that will be a positive for us in 2024.

And then in terms of just sensor utilization for the business, we see that back and stabilized. We think that the -- any inventory destocking is behind us and that gives us confidence. It's why we came out early in January to provide that guidance as we start to see those trends heading in the right direction in the second half of the year..

All right. Very good to hear. Thanks for taking the questions. .

You’re welcome..

Our next question comes from the line of Mike Polark with Wolfe Research. Please go ahead..

Good afternoon. Thank you for taking the question. I want to drill down on this capital commentary Micah. And Joe, you just mentioned maybe kind of a little choppy soft.

Is this -- what's going on here? Is this still working through kind of the exceptional capital placements you had during COVID, and we're coming off of that sugar high and there's just time for that to work its way through? Is there something else? And I guess, I'll lead you here obviously, as you probably know one of your competitors -- your key competitors decided to keep the monitoring business and they called out a change in competitive position as a reason for choosing that.

Have you seen any different behavior out of your key competitor? And do you agree with their assessment about the landscape?.

Yes. Let me maybe try to address that high level then maybe Micah, if you have anything to add. So first of all yes, I think we're getting over the sugar high of capital purchases during COVID. The good thing, we're not a capital business because it would be really rough. For some companies you've seen it. It's really stopped them in their tracks.

But the good news is, for us because we're getting so much of our growth from new conversions, from new hospitals switching to Masimo and for us to almost exclusively keep all of our customers, the only time we've lost any is when they were purchased by a larger system that was our competitor's account.

So for those reasons, our outlook is very positive regardless of the capital. And then as far as our a competitor, I heard that they're saying they're keeping monitoring because it's competitive. They're probably competing well in our leftovers because in the markets that we're targeting, we are winning.

That's really strongly the order of magnitude more than we lose. So yes there are markets that we're not focusing on. And those are the low-end markets where the countries can't afford the kind of performance, and technologies that we have.

But in Americas, US, Canada in Europe, Japan, Korea, Middle East we are just taking market share in about 2x the rate of our normal. So, while I don't know what they're doing, I'm glad they're full on our leftovers..

Helpful. Follow-up on margin, nice to see the guide kind of smooth out here at 15%. Obviously, a lot of puts and takes in there. The incentive comp reset is a limiting factor year-on-year.

The question is beyond 2024 kind of, how do you feel about margin? What's the direction of it? Do you feel like margin expansion is a core part of the algorithm as you kind of restart the growth here? And specifically on Mexico to Malaysia, kind of how impactful is that, I'm curious, for any quantification and timing of that benefit? Thank you so much..

Yeah. Thanks, Mike. Great question. Gross margin leverage is a key area for us as well as just overall operating margin leverage over the coming years. We still want to drive -- and I'll really hit on the healthcare side here. Our focus is to get up -- back up in the high 60s margin again.

We've got a very good path to get to the mid-60s just with things we're doing in Malaysia, with some of the key product cost-reduction efforts that we're undertaking right now and the focus by our engineering and manufacturing teams.

We also will see leverage in our equipment placements that where we're -- we have a heavy amount of equipment placements right now due to all these customer conversions that we have that will leverage over time. So, between those things, we feel good about getting up in that mid-60s margin over the next few years.

And then we just got to continue that path and leverage the business and get back up into the high 60s. So that's going to be a great lever for us as we move forward and really deliver additional growth in earnings as well..

Operator, next question, please..

Yes. Our next question comes from the line of Mike Matson with Needham & Company. Please go ahead..

Yeah. Thanks. So I wanted to ask one. Joe, you mentioned you were launching the H1 hearing-enhancement product this year. And I know that's an area you kind of talked about sort of indirectly being interested in, but you haven't really mentioned much specifics around products or timing. So it sounds kind of interesting to me.

So I was just wondering if you could provide any more detail around that, maybe the kind of market opportunity and so forth..

Sure. Thank you. Yeah, I think as I've mentioned before, one of the reasons we acquired Sound United was for their audio engineers as we were planning to get into the hearing aid market for low to moderate hearing loss.

So with the help of that team, the help of the neuro team in Australia and our own engineering team here in Irvine, we are developing what I hope will be a revolutionary hearing aid. And we call that H1 for now, that might stick as the final name. But I think H1 should be available for sale this year..

Okay.

And do you have any feel for the TAM or pricing or anything like that at this point?.

Yeah. My understanding, the TAM is $35 billion roughly. And our pricing is probably going to be around $1,500 in that area. That's what we're planning. Now, we -- to sell that over the counter, which now we can with the new regulatory guidelines that have been changed, we still have to get FDA clearance.

So we're going to have to submit the H1 for FDA approval for sale in the US but many countries will be able to sell it under our CE Mark..

Okay. Got it. And then just on the -- all the contract wins are obviously positive. Just wondering, to what degree has kind of the uncertainty around your primary competitor, Medtronic, separation and now kind of retention of their monitoring business? Is that -- do you think that contributed to customer willingness to kind of switch to Masimo or….

I don't think so. I think what really changed our market share of gains was COVID. I think when pulse oximetry and its accuracy really meant a lot, people started thinking, well why am I not using Masimo? And on top of that we created the Radius PPG, which is a tetherless wearable monitor that change things.

We created the COVID system for patients at home remotely monitoring them at the hospital. All of that just made us really the company to go to for pulse oximetry. I think that's one of the reason. If you look at 2019 we were doing about $170 million in TI through incrementals and now we're doing about $400 million.

So, yes, we don't think it had anything to do with the spinoff or not. We really think it's -- just finally make people think why are we resisting it. As you know already no other pulse oximetry has been shown to have a positive clinical outcome despite the fact that they became ubiquitous before we even entered the market.

But ever since Masimo SET pulse has been introduced because it works accurately during motion at low perfusion because it works on dark as well as light-pigmented patients during other challenges the studies have been incredible with blindness in the neonatal ICU has dropped detection of CCHD is not possible with newborns.

And people on opioids are not dying from overdose on the general floors after their surgeries. So -- and all of that by the way comes with reduced costs. We calculate that on average a 250-bed hospital can save about $4 million to $5 million a year by switching to Masimo.

That really makes our pulse oximetry sensor prices irrelevant because we could charge 5x more and we'd still be showing cost savings to the hospital. So the competitive advantage we have is really big. And I think customers during COVID finally decided to take advantage of this..

Okay. Great. Thanks. Bye..

Sorry for the long answer but I just want you to understand this isn't just two companies competing with similar technologies. There's a huge difference. And that's why we're winning continuously and it has become even bigger in the past few years..

Our next question comes from the line of Jason Bednar with Piper Sandler. Please go ahead..

Thanks. Good afternoon. Thanks for taking the questions. Joe, Micah I wanted to start with that driver number. Definitely lighter than our model. I think they're probably lighter than where most estimates were sitting here. I think the lowest absolute figure you've had since the first quarter of 2018. I guess we can look at these two ways.

You put up good results in spite of those driver sales being lower. You're tapping into that large installed base really driving better utilization. So maybe the driver figure means less today than what it has historically. But I guess the alternative here is that drivers have fallen for four consecutive quarters.

And I guess I'm just having a hard time reconciling this against like that record contract that we continue to hear about.

So I guess the question here is whether investors need to be concerned with the driver decel? And then what's the outlook for this line as we look ahead? Drivers grow in 2024 does this need to decline further? Any help there would be great..

Yes. Thanks, Jason. Yes I am less concerned about the driver numbers. We think this is more short-term in nature. The focus for us is -- and what we really focus on internally is that the incremental new business and contract wins. And that's what's giving us the confidence with our outlook.

We are coming off of transition from years where there's a lot of monitoring those put by the bedside. And we think that the replacement cycles of existing equipment have slowed temporarily.

We believe that it will kind of trough -- our expectation is the trough in Q1 and then it starts to improve back up to more normalized levels as we exit this year. So we think it's going to start heading the right direction based on our internal estimates and that's less of a concern for us.

Our concern is really getting after new business converting customers to Masimo technologies and placing the equipment in there and return for those recurring sensor revenues that's going to continue to help us grow in the outlook that we've provided for this year..

I guess Micah what's the disconnect between record contracting, which – and new customers, which theoretically they need drivers to consume the sensors? Why isn't that translating into a better driver number and we're seeing this driver number decel?.

Let me maybe take this. So 20 years ago, every driver was a new driver for us and it was growing our sensor business. Today, given that we have a significant market share the new – every new driver is not a new driver that you see. It's replacing an existing Masimo socket. So that's why that is not as important.

Now the second part of your question is what's the disconnect? Well it doesn't take as many drivers for us to secure these big TIs, $400 million worth of them because it's basically we put the number of sockets that they need that have to be replaced to get that sensor contract.

So that's why this is not a one-for-one to see a doubling of our contract wins with a doubling of our driver volumes..

Okay. Okay. I'll probably follow up a little bit on some of this. But just maybe here I do want to ask one more maybe tough one here so maybe I'll apologize upfront. But there's definitely a lot of interest here on this topic just with the latest developments with the Board.

Joe from your public commentary still sounds like there's maybe some difficulties in the Board room to put that maybe gently. The announced departure here recently of a Board member, you didn't fill any of those vacated committee positions with Board members that were elected during last year's shareholder vote cycle.

Maybe help us through what the latest discussions have been regarding the business strategy with your Board members that were elected last year whether there's been any progress made on finding common ground between your position and where currently stands? And then if you'll comment I think a lot of investors would be interested to hear your thoughts with respect to the kind of the upcoming shareholder vote that we're all looking ahead to this summer..

Well first of all, I won't lie, it's been a rough start with the new Board members. But we're managing. Things are getting better. We're getting along better. We're finding more common ground. And yes, we're sorry to see Adam Mikkelson leave but Adam had served exceptionally well.

But he had a lot of personal things he had to attend to including twins that were just recently born. We wish him well. He's going to miss all the fun here. But we intend to replace Adam, but we're going to find hopefully someone that is well suited for that position.

And the new Board members from the ones that the shareholders voted in the activists, which are Quentin and Michelle, who do sit on our committees, audit, comp, governance; but also the new Board members Bob Chapek and Rolf Classon, they sit on many committees now.

So look, before the election, we had Board members that have been here for five to maybe 15 years that was me I guess 35 years. But now I think we only have one Board member left that has a tenure of more than one year. So the rest of them have been here now for just from a few weeks to a few months..

Okay. Thank you..

Our next question comes from the line of Jayson Bedford from Raymond James. Please go ahead..

I am sorry. This is Eric on for Jason today. Just a couple of clarifying questions.

When you're thinking about the wearables and hearables and STORK, I'm just trying to figure out is STORK going to be reported under the healthcare revenue segment and wearables will be non-healthcare? And I guess where does W1 fit in that?.

Well, I'm glad you asked that because I want to make sure you understand our definitions on how we segment. First of all yes, there's a healthcare segment and a consumer segment. So something like Stork with prescription is certainly going to be under healthcare. But it doesn't mean that it's not considered a wearable.

So our wearable definition is all of our sensors that attach to the body and do not have a cable connection to it for continuous monitoring. It started off with Radius-7 and then Radius PPG, Radius VSM, W1, Radius T. So those are definition of the wearables. And Stork by the way is a wearable.

As far as other products that will enter the wearable category, it will be hopefully Freedom and the Freedom band. And then there's a whole host of wearables we're working on for other measurement modalities. And on the hearables, it's the headphones both in ear and outer ear.

And it will include not just our regular hearables that we have today but the hearing aid as well..

And sorry just to make sure I understand.

Anything that's wearables that's healthcare revenue and then the hearables is in the non-healthcare revenue? Just want to know just for -- looking at the growth?.

No, the hearing aid will be considered healthcare but it will be part of the hearables. Just like Radius PPG is the healthcare product but it's part of the wearables..

Okay. And just one other follow-up. I'm specifically looking at stork and W1. I know earlier last year you talked about -- obviously there was a little bit more delay in getting the FDA approval than we had all hoped for but you had mentioned an expectation of about a 1% revenue contribution in 2023.

Is that -- I assume that didn't hit that number but is that a number for 2024 to look towards?.

Well, I don't know what all of our wearables did but I think Stork did about $2 million of revenue last year. And while it is great that by the year-end we got FDA clearance for Rx that wasn't long enough to really take advantage of it last year.

But also we still don't have FDA clearance for OTC and until we get that it will impact our STORK business, because we can't alert parents to alarms for SpO2 and pulse rate without a prescription. So once we get the OTC clearance then we'll be able to alert parents even without a prescription for SpO2 and pulse rate dangers.

Right now we can only alert them on temperature dangers and for those who've gotten the prescription for Stork, they can get alerted for SpO2 pulse rate as well. .

Okay. Thanks a lot..

Thank you. I think we have time for one more question..

Okay. And our last question comes from the line of Vik Chopra from Wells Fargo. Please go ahead..

Hi. This is Dino Weinstock on for Vik Chopra. So you recently received a 510(k) approval for an over-the-counter version of MightySat, the fingertip pulse oximeter.

Could you talk about how your launch plans for MightySat might address the market opportunity?.

Yes. Thanks for asking it. We just got that clearance in Q1 that's why it wasn't part of my statements for last year. But yes, we're really excited about that, because right now people can't differentiate between a fingertip pulse oximeter that they can rely on and ones that they can't. So were competing with $20 products at a $200 price tag.

So, a lot of people think, well, why should I buy the $200 product? And now that we have FDA clearance as a medical product, for MightySat OTC, we have plans to hopefully make it available across all the major pharmacies. And obviously, online, you can buy it right now online. But the real I think push will be in the pharmacies.

So I know at one point, when we were expecting to FDA clearance sooner than we got it, there was a major pharmacy system that wanted to provide it. And so we're just picking up that conversation again. And hopefully in 2024, we will successfully deploy MightySat to all the major pharmacies..

Thank you. That's helpful.

And then on the status of the Apple litigation is there any update you could provide?.

Well, we were happy that we got our injunction as a patent owner and a company that makes products that are competing in that space. That's ultimately what we wanted. We hope in the future to broaden our injunction hopefully, beyond just SpO2 as well as beyond the US and hopefully get our damages for the infringement.

So those cases are pending and we hope to have a trade secret case and patent case in California this year. The court in California, just ruled that they're still pausing our patent cases in California because Apple is doing a hail Mary with a federal court to try to have them hear over here what they lost.

Assuming they lose that, which we think they will hopefully, we'll have the patent and the trade secret case together here in California before the year-end. And in Delaware, we are making great progress. It's gone a lot faster than we expected. We do have a new federal judge. Magistrate, has become the judge in that case. She has a very busy schedule.

So while we thought for sure we're going to be in trial in Delaware in 2024, we're not certain of that at this point. We might but we might not. It might push to 2025..

Thank you. .

Thank you so much everyone for your time. We appreciate it. We feel like we're back. We're looking forward to reporting to you our Q1 results soon. And hopefully, it's going to be a great year. Thank you so much..

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