Masimo (MASI) 7 May 242024 Q1 Earnings call transcript

Good afternoon, ladies and gentlemen, and welcome to Masimo's First Quarter 2024 Earnings Conference Call. The company's press release is available at www.masimo.com. [Operator Instructions] I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please go ahead.

Hello, everyone.

Chairman Chief Joe Financial are Vice and today and President Officer, me and Kiani; CEO, Executive Joining Micah Young. contain of fiscal will judgment call forward-looking reflect which This management's including certain XXXX our year regarding expectations financial performance. statements, current

and to results materially. are could differ that risks they cause uncertainties However, subject actual to

forecasts our with detail in in periodic filings could Risk to materially discussed factors cause that from are differ SEC. the results actual our projections and our

website. Investor of potential You will the This and will our in section of call separation of the separation. include potential Relations a find our discussion a a of financial impact also of these business preliminary the estimate consumer

any earnings financial calculated our generally GAAP. the will reviewing to such potential accounting consider potential the to However, consumer measures. and additional Please for the and refer evaluating presentation to are that and any solely potential generally estimate of method terms of We X factors with to and our relating information been its discussion certain a Also, of non-GAAP separation refer this still X informational finalized. financial are the of have illustrative approved include business. separation business consumer structure, in not in being is determined, and of call or accordance as purposes. The measures timing not evaluating for and accepted is consideration of under provided company principles separation these structure currently Slides the or

these the supplementary results that to performance non-GAAP budget, of results, financial non-GAAP transparency results. increase measure and of performance to business. management information Therefore, an measures believes business reflect ongoing measures on provide be of and most assess underlying measures these results GAAP Management directly non-GAAP way and indicator evaluate and these will to will the uses the performance. should with included The including are noted our comparable release financial company the recent financial XX-Q company's as our the basis earnings company's company's better the SEC, Investors financial our with to sees operating assesses be covering additional the same website. financial In today are the measures of we primarily enable Form these measures non-GAAP in such make addition investors otherwise. Reconciliation on within financial consider intended together a in measures unless today, filed the the GAAP to XX-K statements informed to most reports to information order investment decisions. our and all

we to the addition earnings quarterly the Joe issued section afternoon. I'll In now of Relations presentation release the supplement our today, to earnings call be will website covering Kiani. this we have within pass the content posted to a Investor

you First and for Good thank so XXXX Call. you much, Quarter us Eli. Masimo's for Thank Earnings afternoon, joining

more the the of For once After we robust it back and followed that able of seems quarter, that wake business the volatility forecast stabilized, results growth track. on again a accurately. COVID achieved and show during market are is to we our has period

range revenues were strong healthcare our of million orders Our sensor the $XXX the and guidance driven of end Europe. high U.S. at in by

market demonstrating million customers for share. in the in time had we hospital as contracting over gains achieved incremental continued We in quarter, first first record the ever, also from value $XXX contract true our

Our has Mexico Malaysia of margins. schedule success our gross yielded from manufacturing to moving ahead the improved of in bulk

the of great ahead of X/X now we over for first end increases Malaysia opportunities see that quarter, in of is further the production Given in sensor our as profitability.

our combination census non-GAAP first for more our in EPS quarter results based are for in guidance hospital care XXXX. positive health and We today a increasing with on revenues outlook

on care separate announced consumer we professional ago, the behest our months of X.X to working are care most we of As health health shareholders. from

made this Micah and call. details in and have will I on the the share about significant more separation, We later for structures proposed progress

that, detail guidance. pass With over provide I'll first on our more and in it XXXX our update an to review quarter results Micah to

Thank afternoon, Joe, everyone. good and you,

quarter, care revenue at consolidated faced of was year-over-year the which results comparison For end X% the our range $XXX our revenues encouraging first quarter. $XXX were business last Health year. represented this a difficult most These its guidance were million. and upper the versus given million, were decline

year-to-date range start to is second of which the and this those In On currency full rest year revenue service our we in X% a revenues to expect a during capital offsetting consumables guidance period. is equipment X% capital purchasing versus the basis the in COVID. constant many the growth. throughout normalize quarter, to year, implied in comparisons did on of reduction decline year XX% a and prior given other partially basis, revenues hospitals The X%, our expected extra grew and

a to expect Within but our of the grew service we year. pulse throughout consumables to normalize difficult and this consumables oximetry due growth revenues, remainder comparison, X% SET

Our of grew capnography XX% now comprise disposables half category. over and the

with products Additionally, share rainbow market and and evidence our decline our as continued can you of revenues due of consumable brain to shipments gains OX sensors share. an grew Offsetting in our gain monitoring hospitals. strong XX% this outside importantly, see to SedLine U.S. Most the contracting XX% the market timing growth was

incremental XX% X the shown unrecognized than past slides contributed over contract more to growth the new the As our appreciable value revenues This has of yielding has gains. in years, share in signed months. market quarter the contracts XX today, in over doubled our past

expect in constant a year. its meaningful care, this year most and relationships with decline million, business our year-over-year basis consistent we to period at was health contracts a systems experience competitors. our And gained a growth currency the in also is translate $XXX that into quarter. over to beyond. It meaningful time, our This these source of customers clear the tremendous growth of decades-long range were win demonstrates contracts we comparison faced on care Non-health from revenue prior difficult share. our success guidance any and this revenues represented us of this our have new and continuing to midpoint and hospital versus market which XX% Like

a premium macroeconomic for you If conditions, before our rates, weighing consumer consumer spending products. interest and began luxury business had including higher quarter strong first on last recall, heavily year

While comparisons we we to ease expect as remained over of course market the conditions year, challenging the expected.

Now the moving down P&L.

is XX% were XXXX, gross health care. the quarter we the benefits XX% end manufacturing range. by to Malaysia, of consolidated guidance of high favorable care efficiencies the non-health care our margin Notably, margin our combined and points consumables sensor XX%, The gross in a included moving XXX above points from margins basis of of For and XX in first improvement increased to non-GAAP gross reported margins and sequentially health improved service. mix operational health which with basis care attributable and

earnings For and first $X.XX our consolidated was for share $XX quarter. business, non-GAAP the per non-GAAP was million operating profit

to Moving of flow. We focus flow $XX Strong area generation cash to continues to million cash and quarter, key cash down a first of $XX be generated improved in million have the helped debt. significantly. operating pay which results of

growth health for X% guidance moved we implies behind comparisons X% X% for half second the growth and revenue past half. the the to year for With difficult quarter the business, our first of care X% the the have and us, to first

Our give growth. revenue outlook our continued us for confidence in revenue in strong hospital contracting contract and sizable unrecognized increases

year guidance. to our like provide on I'd an Now XXXX full update

projecting to range We a billion. are $X.XXX of now revenue consolidated $X.XXX billion

the billion health low million segment, our the For billion, $X.XXX an for now increase range. are revenues $XX projecting of which end care we of to reflects $X.XXX of

address is contracting most hospital like to indicator market the revenue Although and share XXXX. for important shipments driver gains for growth, I'd leading

mentioned have point equipment think the slowed hit I a COVID low that quarter's in on first of temporarily cycles quarter. and As have the replacement after call, demand robust last we the existing

to to the the quarter expect we shipments this However, to third and or of increase quarters in more year. XX,XXX XX,XXX fourth returned or see and second in more

For increase strong significant Gross in this million. the -- expansion our the earnings year. is the see P&L, for the of on health it quarter revenues we Based is through our factors as leverage. flows margin and a expect margin us $XXX one of how focus maintaining critical most first to gross are non-health area results projection care generating further segment, we million for $XXX to inventory for

to and lower efficiencies have our already of we manufacturing portion a realize We forward. costs to that sensor are large moving increased transitioned expect production announce to excited Malaysia and

As a reflect are increasing gross initiative. XX guidance midpoint on we the approximately by result, our margin at basis health important this progress our care to points

now gross margin segment. non-health a non-GAAP margin consolidated XX%, our which a for projecting of segment and are health XX.X% we care for our care XX% XX% margin reflects to XXXX, fiscal For

$XXX of margins, are these are gross $X.XX from to projecting the to at million commitment care highlighting range of of $X.XX, now Based strong prior projecting million. represents consolidated and non-GAAP and outlook strong $XXX -- and our range, operating Due assumptions, for increase non-GAAP a profit earnings health performance leverage we are of to guidance to we projecting now growth. our on both the we improved revenues ends operating EPS $X.XX an which

for our to Now second the turning outlook quarter.

We million share million for earnings million operating to presentation our details. the reference $XX non-GAAP website to further profit of and revenue $XXX $XX of are $XXX earnings of per projecting consolidated $X.XX on to Please $X.XX. Non-GAAP investor million.

expanding the anticipate accelerating outlook year. business throughout and health the we In summary, care the for improved, and has growth margins

backlog, contract should added We higher which year. this sensor new our produce large to many volumes have customers

to separate like business. of I'd on to with the update ongoing provide our Now evaluation consumer options you an

party. conclusions existing this working be objective the majority Board others, and of being business dividend would potential Masimo of in full the sale presented ultimate to businesses decision. and in at the separation form among a options The consumer The The result X that their stake assess considered, the issued in business stock the to key diligently new a a as to separation. deconsolidation of A financial statements. in of disadvantages or least third then spin-off are executive team any gather will information a to of is the our advantages pathways consumer for a the shareholders a for is

proposed operating structures big give margins Slide XXX earnings reaching the objective that resources on and margins completed appropriate X towards health separation of estimate value. impact is XX% XXX would our of be to improve and points XX% of outlined, we shareholder non-GAAP financial care Notably, is our a care to estimate of preliminary to operating separation capital basis long-term structure maximize a key assuming would Another This the presentation. both to health goal the We XX%. to achieve businesses a for by success for step reach as a business. long-term the provided

guidance. our results A XX and regulatory spin is cash be of in majority these stake to of pay shareholders currently quite to expense, months to at clearances. million Further, proceeds in those The could take different. to to transactions use types X if on X required for $XX depending debt to sale we timetables business approval which months proceeds of to down likely a following are expect the interest consumer take the in transaction separation to The Masimo, could reduce amounts time consuming board more receipt least X complete.

We're advancing months. few make and but to next progress quickly, expect rigorously evaluation significant the over the

we a provide -- make detailed decision. more final will a when We Board update with the investors makes will

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

you, Thank Micah.

consumer As improved is on before additional business. to the want But our Masimo questions, our track. year separation of take and we the few show, on your thoughts for results a good share I outlook back

the shareholders' Before perspectives. we to business, plans the separation to engage evaluate we listen of announced our carefully and our with consumer

enact consumer come While wishes have we we shareholders' for without have health professional we lives and materially better our up the and with the potential shareholder health greater are management value. believe vision a the Board building to greater care way confident have making and sacrificing together,

products With to fast-growing business the team this developing consumer including resourced business such innovate Masimo of powered the members, Hearables, market. consumer pursue to by consist freedom and the technology will on audio will continue and products, consumer health proposed consumer Masimo separation, some and appropriately as be

products monitoring care will providers care our costs including see and with patient health transformative and and health and hospital-at-home and everything to Professional we technologies our hospitals telehealth significant continue where reducing interest improving from outcomes models. else, retain remote

expect we incredibly businesses about Masimo business. health progress. we have will a earlier, both positive immediate for on I'm more further professional future As separation the toward sharing profitability details look our shared an concede as impact of about separation excited and care Micah the the make

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

[Operator Instructions] question Stifel. comes of Wise The the first line from Rick from

it heard of looking there? a But us it in of at Micah, me and I'm This things. your before. believe XX,XXX-unit installed not One, comments, first quarters I talked COVID-driven approximate Let understand getting should don't number. if demand buildup I I you I'm help number. In several there. and expected start you've think quarter, base. drivers, any And believe the happened of understand could. step-up us help is about concretely as already a the issue with -- bunch questions the why what we it, well? subsequent us the and more of

Yes. Absolutely. Thanks, Rick.

mentioned, XX,XXX quarter. So low hit point we a as you this

of or I the If you the recall those in will first mentioned to in to as year. before that in mentioned step the back expected the XX,XXX my fourth more back remarks see half call, expecting recovering quarter. a climbing and up we're now, prepared on back quarter Right point XX,XXX in that we low then more, I -- before or drivers

there's as year, What of a soft orders the expected well We direct slowdown slower to OEM replacement entered terms been we equipment. as happened year, that our existing in but out is Masimo-branded back forecast team the we saw coming a be would seeing of partners. we cycle based from that internal believe for it OEM what there. has our our on Last from our as recover from we're starting team then equipment

per including seeing That's and is demand our look The terms said, as of that's still at And the internally. the drivers like for very will add is I seeing on above back the kind it pullback in revenue, we're XX,XXX think on back the normalize good level, when forecast why heading is -- were to consumable the think of the revenue -- year, side. direction has OEM to pre-COVID. right remaining Masimo-branded expectations biggest really One is well. we we which utilization thing start equipment of And we're strong. quarters in But where I we're I good to driver. been other

as to Xx about of It's drivers that revenue it shipped and in see pre-COVID. That's move still we're a back added extra we know, forward. installed across driver above us per than driver our today revenue higher an is XXXX base the good higher, our We what seeing still installed thing that XXX,XXX. you As COVID. per we base, utilization the was consumable tick we're during the seeing And which great XX% amount consumable shipped very to tells increase we expect normal. is about

bit Yes, One, quarter other a turn Micah. I great that's you'll perspective, I'll guess a guide. hoping I'm X questions, the second if little could. talk about I

guide, aren't if above, to actually for the X% second X% new than stronger to Solid, then driver X% the on It a guided especially launching it admission might. but of growth one sounds we're quarter at little year, X% stabilizing. seeing higher the maybe expected, a the why seems you've more, have I Micah? business seeing have inpatient you're we the is like softer products the front, and optimistic I end I might And

both I We are and businesses question, see of prior. kind full them for we Good health typically look health this to to revenues of terms care kind of back XX.X% year Rick. care business, back of in XX.X%, have XXXX at about where been believe historically year. Yes. the When

stepped that well. has always historically in range. And and QX in as Somewhere down about QX XX.X%

really what contract in about year. for the with of confidence sitting kind aligned more year. is the guidance Right terms for the we're we much the What in feel we've And guide us good now, seen gives that don't where in is full seasonality to the of want still year. prudent in and be backlog, We've ourselves. and of thoughtful about get contract guidance. to but early it's We want we I quarter the like seen, And contracting. ahead the our in mentioned, increase strong

we're we're of And that's about strength But holding the today still why where very in the quarters. terms we back X are feeling of the good business.

are rest points -- the the beyond. year? Where How back this margin seems well P&L. one does and making have X/X clear over is for we could mean gross I implications especially your the add progress more. really about at year this of happen? in to I obviously, years, be that we? just that of feel I think expected. and the mean, It volume if And what I I the that to the Micah, positive, this like and next Talk as ahead self about as [ ask Malaysia, might basis I quickly mean, hundreds like you production could is comments, start few transferring suggested that On And I have ], stands of literally Malaysia, again, you're ramps, one to past could

you came Yes, taking beat We're absolutely. Malaysia, it at hold quarter. that than Well, the XX in if expected. Thank our faster points first we by we're increasing look better. you, at transition And about midpoint. Rick. our basis we guidance, We seeing to

I XX% and midyear think pass as at point, we're X/X. we by already we're estimating -- the

to the So we year. in I implied It's that ramp. expect guidance think our for

expect We we faster we we laid we've It if the presentation, in going earnings QX us really further in out I Malaysia take in especially it ramp the that basis continue gross margins. And driven into look out, our as transition up QX. expected. and think was slide a That's by to increase then exit mean, we to guidance. you shows then where can with that than to point XX give

you of we're sitting towards of it, XX.X%. improvement basis as goal margins. Today, it's our look at points we at XXX XX% drive If about long-term

still XX% margin We're up. I look at But would to product initiatives comfortable we to margin gross putting than to key reduce initiatives, that reach And on costs, even higher with our op the moving there teams are Malaysia. on out engineering work XX% the goal. long-term more XX% becoming we'll XX% get up we're that to focus efficient that and going goal. So XX%. a to to we to now, we're giving we continue think right it initiatives And transition imply continuing -- not X as initiatives, operating as have margin manufacturing

are really see expect the see also going that only lower labor putting efficiency. third going see but we then increased -- installed base there costs is Not we're and the leveraging we to equipment. to just we're And out to

sure sure COVID, make OEMs during And I'm of back to want a Rick it's drivers this, our lot. kind just I the come from point but of the OEMs. And come group gets, One majority ordered down. knows post-COVID,

I think capital dollars. true dearth to $XXX more tied converting of incremental million they're and suffering not mostly our from record That's hit We're why a are you're because we that. hospitals. more seeing

lot the drivers they're that a what normally doing. of not driving is up getting, we're And that

we because is the doing you TIs], been doing a doing we've OEMs if for driver couple a even that well. of years, weren't So way see [ lot less not are the of TIs

question The next from BTIG. line from Thibault the comes of Marie

from Congrats for year. separation, that additional XXX was that I we the operating to XXX to from another you higher ask right but think We very to that co moving audio in on with in for the about guide of to out separation margin bps nice were here adjustments. that here you uplift than factoring expected. there a XXX bit I was don't the I XX.X%, laid consumer bps XX.X% remain healthcare, the a higher the QX. see slides Nice wanted for the

margins improving, get pre-COVID, understand though of despite able help of level? to are at me those a pre-COVID. gross you're help some you adjustments were on where where understand And not how were are not what but they Can leverage at they us that even practical they sort

that I would additional uplift. understand love So to

profit operating kind million down, Consumer operating audio. I'll for of we're guidance business, When $XXX at revenue you, look mentioned audio. health our basically that consumer [ with X% margin. the care the you Thank Marie. backing profit there in start our about year, Yes. XX and you of break and million consumer Audio, of off ]

up health. margins, And team acquisition, expenses. margins the our and another then the from What that operating investment is wearable if products the basis point in and XX.X% did for that's carve-out healthcare to XX% when R&D this marketing segment we includes recall, XXX But put selling range. we of there, the the to really of expenses is, for taking of expenses for really points on XX.X% is, also about to from XXX focused you those moving a consumer improvement

to at Again, to $XX So the when on expect. can look have through and we the parameters well out. we're the get a Board estimating internally the still a a present lot because And broad what But I that's path to work said, that we million very we goal range, would land at range -- us that would before going we million the with we're of range carved range XX% like. XX.X%, term. what that that margin long like set look XX.X%, us $XX to

to that cash ways helpful we understand. operations, Are free we or Any cash acquisition, of really levels what numbers? with free to? to was Pre-Sound for could then That's those flow able should quarter from Masimo this down flow one I there the strengths generation. pay some flow commentary Okay. heard preliminary think of debt. into about some key being of of to cash United that think of estimate, the flow about to generating some that see the us this And return generation eventually cash about way back some

Yes, absolutely.

XX% the those at the have slide, expenses of in out carve-out non-GAAP do costs, now, still split. only million laid litigation also $XX look and got Apple of a But you assuming we're $XX we If million. not basis, for to and this, through get you we're but we to lot a work assuming the on

that under another, get $XX year $XX million $XX that out we call carved million million for assumption. but total that's or the it, So in

it working year, our move in litigation direction the also, been starting expense capital, what's weighing So receivable saw is and just now on increases cash also proxy flow right expenses been that to and during we're weighing season. what's the with accounts of in the net just has last the some just we management. on been and And some inventory

get So flow our I back goal. cash would long-term to we for track on expect that think

long-term is little we get think I up get time generation take to to time core from it to million term, care plus. long to goal business. will back where over see expect that Our that's But And health cash $XXX back a that there. flow the

The next of question from the Wells comes line from Chopra Vik Fargo.

Two for me.

I'll one. that helpful start present options? And first So the list with about was then that could you a Board I put out But lines? of Anything potential the Really to please. slide just the you impact follow-up, from a expect separation. time the when strategic share with wondering, about you

to What understand Vik, it the line? time hard very . was on was that that.

I'm on could apologize. about the a you list sorry. you anything I of can share present line wondering the was I Board if with time when just options?

some give we this various over to definitive line working we as we're a the We've We're we're out lot to as can -- as We've XX to we next fast things right as can't do laid far days. options a in working we some follow through time the on prepared of now, And got both progress -- the pacing got remarks. XX -- saw internally. at the expect make work to point, we've process. on but

field guidance, to growth. X% if apologies just I volumes in the -- have already And patient initially rotation calls. X% that in helpful. that that Very your Okay. or an around you on But seeing was what your impacts wondering mentioned in there update and and I out to jumping higher this if guidance? you're what before, assumed impact to I'm the has think you you

volumes came U.S. the we're and market there our what The early. -- on both sensor of hearing based out That in is are some sensor quarter in reported have really Europe. also Yes. strength from Yes. growth that the out

the Some see X% upside be could report right waiting but still high us. And now. we're others And that for helping for out, growth. census that's definitely if that have as continues, our shown year as to

from comes question the Research. next Polark of Mike The line Wolfe from

base or Question if Micah. the was for can rate? the first base provide year-on-year this the Wondering you driver disclosure growth what quarter, in the installed

apologize, driver I installed Again, in how have the I right now forecast. on we're the and viewing into me, contracting how our incremental and don't of Jason. the base really that's true front laser-focused we're right playing

don't is Can replacements the would new maybe in shipments, what at then net the the -- precision figure? I high you number, ask need that mix but of I versus Okay. a level, like driver XX,XXX

the replacements [indiscernible]. We typically On versus net new?

we what So I to shipments are is replacement, to our an think is minority true is rest you way it, market think market you shipments. And the look our of we hospitals think new probably best come sign switch to not a what here Mike, we We're is, is what when tell today, the about competitor business to do as and new. of tell lot Masimo. new from the that incremental that's that we up drivers the towards that the today, can share whatever that increasing share we our from in future the but

just margin the impact? and ramping that to just when Malaysia much curious, to the this margin. then it's but when kind the throughout to last year total what change you is XX to the bps is longer-term the year, want gross it's Mexico I gross transitioned, obviously from how about and bps, the XXX of and comment I optimized, ask topic, year heard bridge from, of -- I'm on second fully my mechanical Malaysia shift phasing a update. curious 'XX in For margin in follow-up think throughout the say, on I'm

basis raised we're that and year some we as Yes, guidance as you reflecting initial it impact, you for of this at in -- Mike, the or can for But that our that if going points. of of and look by and see in about terms year. estimating we're start benefit points be the transition, labor to be the be early more basis the of benefit should the per to direct XX is -- improvement XX

that have from manufacturing our rates drive efficiencies of turnover workforce. increased improved there as point, we to attrition, And the expect we in in

workforce stable more for much a workforce what more on we're be to based us so far. efficient it expect We seeing and

definitely XX see I us So over see out. plays of get we'll that once efficiencies. just we're above points from seeing. But improvement points be we're that that well start going all that expect probably XXX that that would to And the we basis can to how basis

so joining you look soon. to summer. us you. spring your much, for our a forward earnings everyone, our and We of for presenting call. Thank Have with you wonderful rest QX QX Thank very

participation, today's call. Ladies your and this you for Thank and may conference disconnect. concludes gentlemen, you now