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Masimo Corp (MASI) (Q1 2024) Earnings Call Transcript Highlights: Navigating Challenges and ...

GuruFocus Research
·4 min read

  • Consolidated Revenue: $493 million for Q1 2024.

  • Health Care Revenue: $340 million, at the upper end of guidance, 2% decline year-over-year.

  • Non-Health Care Revenue: $153 million, 29% decline on a constant currency basis year-over-year.

  • Non-GAAP Gross Margin: Consolidated at 52%, Health Care at 62%, Non-Health Care at 29%.

  • Non-GAAP Operating Profit: $68 million for Q1 2024.

  • Non-GAAP Earnings Per Share (EPS): $0.77 for Q1 2024.

  • Operating Cash Flow: $46 million, with $28 million used to pay down debt.

  • Full Year 2024 Revenue Guidance: Consolidated between $2.055 billion to $2.165 billion.

  • Full Year 2024 Non-GAAP EPS Guidance: Increased to $3.54 to $3.70.

  • Q2 2024 Revenue Projection: $480 million to $510 million.

  • Q2 2024 Non-GAAP Operating Profit: $67 million to $72 million.

  • Q2 2024 Non-GAAP EPS: $0.73 to $0.79.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Masimo Corp (NASDAQ:MASI) reported healthcare revenues of $340 million, at the high end of their guidance range, driven by strong sensor orders in the U.S. and Europe.

  • Record contracting with hospital customers, achieving over $100 million in true incremental contract value in Q1, indicating continued market share gains.

  • Successful relocation of manufacturing to Malaysia from Mexico, improving gross margins significantly.

  • Increased guidance for healthcare revenues and non-GAAP EPS based on positive Q1 results and a more optimistic outlook for hospital census in 2024.

  • Strong cash flow generation in Q1, with $46 million in operating cash helping to pay down $28 million of debt.

Negative Points

  • Healthcare revenues showed a 2% decline year-over-year, although this was within the challenging comparison period.

  • Non-healthcare revenues declined by 29% on a constant currency basis year-over-year, reflecting ongoing macroeconomic challenges impacting consumer spending.

  • The potential separation of the consumer business adds uncertainty, with the structure, timing, and terms still under consideration.

  • A decline in rainbow consumable revenues by 11% due to timing of shipments outside the U.S.

  • Despite improvements, the non-healthcare gross margin remains low at 29%, indicating ongoing challenges in achieving profitability in this segment.

Q & A Highlights

Q: Can you help us understand the unexpected low driver shipment number in Q1 and your confidence in the step-up in subsequent quarters? A: (Micah Young, EVP & CFO) - The low point of 50,000 drivers this quarter was anticipated due to a slower replacement cycle post-COVID, particularly from OEM partners. We project an increase to 55,000 drivers in Q2 and over 60,000 in later quarters based on internal forecasts from our OEM and direct teams. The demand for Masimo-branded equipment remains strong, and we expect consumable revenue per driver to increase moving forward.

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Q: Why is the Q2 guidance seemingly conservative given the stabilization in the business and optimistic projections for driver shipments? A: (Micah Young, EVP & CFO) - The guidance aligns with historical seasonality patterns where Q2 typically sees a slight decrease. While we are confident in our business strength, reflected by robust contracting and backlog, we aim to maintain prudent guidance throughout the year.

Q: Could you discuss the progress and implications of transferring production to Malaysia? A: (Micah Young, EVP & CFO) - The transition to Malaysia is ahead of schedule with two-thirds of our sensor production already moved, contributing to a forecasted 60 basis point increase in gross margin. This shift is expected to significantly enhance efficiency and reduce costs, contributing to our long-term goal of a 30% operating margin.

Q: What are the expected financial impacts of the proposed separation of the consumer business? A: (Micah Young, EVP & CFO) - Post-separation, we anticipate improvements in healthcare non-GAAP operating margins by 220 to 380 basis points, reaching 23% to 25%. This adjustment includes a carve-out of expenses tied to consumer health R&D and marketing, setting a strong path towards our 30% margin goal.

Q: What is the timeline for presenting strategic options for the consumer business separation to the Board? A: (Micah Young, EVP & CFO) - We are progressing as quickly as possible internally and expect significant advancements in the next 30 to 45 days. However, a definitive timeline for Board presentation is not yet established.

Q: How does the current hospital admission growth impact your projections and guidance? A: (Micah Young, EVP & CFO) - Early reports suggest hospital census growth as high as 3%, which is aiding our sensor volume growth in the U.S. and Europe. Continued growth in hospital admissions could provide upside potential for our yearly projections.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.