8-K: Masimo Reports Mixed Q1 2024 Results, Announces Consumer Business Separation

Masimo's first quarter results show a mixed performance with healthcare revenue at the high end of guidance, while the company plans to separate its consumer business.

Summary

• Masimo Corporation announced its financial results for the first quarter ended March 30, 2024, with consolidated revenue of $492.8 million.
• Healthcare revenue reached $339.6 million, while non-healthcare revenue was $153.2 million.
• The company reported a GAAP net income per diluted share of $0.35 and a non-GAAP net income per diluted share of $0.77.
• Shipments of noninvasive technology boards and instruments, excluding handheld and fingertip pulse oximeters, totaled 50,400.
• Masimo's GAAP operating income was $34.0 million, and non-GAAP operating income was $67.9 million.
• The company is increasing its guidance for healthcare revenues and non-GAAP EPS for 2024 based on the first quarter results and a more positive outlook.
• Masimo is actively pursuing a separation of its consumer business at the request of the majority of its shareholders.
• The company has provided second quarter 2024 revenue guidance of $480 to $510 million and full-year 2024 revenue guidance of $2,055 to $2,165 million.
• Non-GAAP measures now exclude all expenses related to the ongoing litigation with Apple, not just the U.S. International Trade Commission litigation.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to strong healthcare revenue and increased guidance, but tempered by the decline in non-healthcare revenue and the complexities of the planned business separation. The company is taking steps to improve profitability and focus on its core business.

Positives

• Healthcare revenues were at the high end of the company's guidance range, driven by strong sensor orders in the U.S. and Europe.
• The transition of sensor manufacturing from Mexico to Malaysia resulted in improved gross margins ahead of schedule for healthcare.
• The company is increasing its guidance for healthcare revenues and non-GAAP EPS for 2024.
• Management is actively working on the separation of the consumer business, which is expected to improve the profitability of the healthcare business.
• The company has a strong installed base and is leveraging it to improve profitability.

Negatives

• Non-healthcare revenue decreased by 29.8% compared to the same quarter last year.
• Consolidated GAAP operating income was $34.0 million, down from $38.0 million in the same quarter last year.
• GAAP net income decreased to $18.9 million from $21.3 million in the same quarter last year.
• The company experienced a decrease in cash flow from operating activities compared to the same quarter last year.
• The consumer audio business is experiencing a downturn with a -10% CAGR from 2021 to 2024.

Risks

• The company is dependent on Masimo SET and Masimo rainbow SET products and technologies for a substantial portion of its revenue.
• There is a risk of intellectual property claims from competitors.
• The markets in which Masimo operates are highly competitive.
• The company faces the risk of not being able to continue developing innovative products and technologies.
• There is a risk of not successfully integrating Sound United's brands into the business.
• The company faces the risk of not being able to address and expand into new markets.
• There is a risk of a lack of acceptance of current or future products and technologies.
• The company faces the risk of not obtaining regulatory approval for current and future products and technologies.
• There is a risk that the international realignment will not produce anticipated operational and financial benefits.
• The company faces the risk of losing customers and not being able to retain and recruit senior management.
• There is a risk of product liability claims exposure.
• The company faces the risk of not obtaining expected returns from intangible assets.
• There is a risk of not maintaining the brand.
• The company faces the risk of ongoing litigation and related matters.
• There is a risk that the separation of the consumer business may not be completed or may not achieve its intended benefits.
• The company faces the risk of disruption, changes to business relationships, disputes, litigation, or unanticipated costs in connection with the separation of the consumer business.
• There is a risk of negative effects on the market price of Masimo's securities due to the announcement or pendency of the separation.
• The company faces the risk of evolving legal, regulatory, and tax regimes.
• There is a risk of changes in general economic and/or industry-specific conditions.
• The company faces the risk of actions by third parties, including government agencies.

Future Outlook

Masimo has increased its guidance for healthcare revenues and non-GAAP EPS for 2024 and is actively pursuing a separation of its consumer business, which is expected to improve the profitability of the healthcare business. The company has provided revenue guidance for Q2 2024 and full-year 2024.

Management Comments

• Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, 'Its good to see that our business is reaching a steady state after a period of robust growth during Covid and the wake of volatility that followed.'
• Joe Kiani stated that healthcare revenues were at the high end of their guidance range, driven by strong sensor orders in the U.S. and Europe.
• Joe Kiani noted that the move of sensor manufacturing to Malaysia yielded improved gross margins ahead of schedule for healthcare.
• Joe Kiani expressed hope that the separation of the consumer business would create two businesses that can each achieve great results and improve life.

Industry Context

This announcement comes as the healthcare industry is seeing a rebound in patient volumes, while the consumer audio market is experiencing weakness. Masimo's move to separate its consumer business reflects a strategic shift to focus on its core healthcare technology business, which is a trend seen in other diversified technology companies.

Comparison to Industry Standards

• Masimo's healthcare revenue performance is strong compared to some medical device companies, particularly in sensor technology, with growth driven by US and European markets.
• The company's non-healthcare segment, particularly consumer audio, is facing challenges similar to other companies in the consumer electronics sector, which is experiencing a downturn.
• The move to separate the consumer business is similar to actions taken by other diversified technology companies to streamline operations and focus on core competencies.
• Masimo's non-GAAP adjustments to exclude all Apple litigation expenses is a unique approach, as most companies only exclude specific litigation costs, making direct comparisons difficult.
• The company's long-term goal of 30% non-GAAP operating margin for the professional healthcare business is ambitious but achievable with the planned separation and cost-cutting initiatives.

Legal Proceedings

• Masimo is engaged in various legal proceedings against Apple, and the company has updated its non-GAAP financial measures to exclude all expenses related to this litigation.

Stakeholder Impact

• Shareholders may see increased value from the separation of the consumer business and the improved profitability of the healthcare business.
• Employees may experience changes due to the business separation.
• Customers of the healthcare business may benefit from the company's increased focus on its core technology.
• Customers of the consumer business may experience changes as a result of the separation.
• Suppliers and creditors may be impacted by the changes in the company's structure.

Next Steps

• Management will finalize the proposed structure and options for the separation of the consumer business for the board of directors to review.
• The company will continue to execute its strategy to improve profitability in the healthcare business.
• Masimo will host a conference call to review the financial results and updated outlook.

Key Dates

Keywords

Masimo, Healthcare, Non-healthcare, Pulse Oximetry, Consumer Audio, Financial Results, Revenue, Operating Income, Net Income, EPS, Guidance, Separation, Litigation, Apple, Non-GAAP