MASIMO CORP Q1 FY2024 earnings call

• The business is back on track with healthcare revenues at the high end of guidance driven by strong sensor orders and record hospital contracting.
• Sensor manufacturing moved to Malaysia ahead of schedule, improving gross margins.
• Evaluating separation of consumer business, with preliminary financial impact estimate; potential spin-off or sale under consideration.
• Increased healthcare revenue guidance, adjusted non-GAAP EPS, and projected consolidated revenue range from $2.055 billion to $2.165 billion.
• Focus on gross margin expansion, targeting 30% operating margin long-term, with initiatives to reduce costs and increase efficiency.

Healthcare: Revenue was $340 million, at the high end of guidance, representing a 2% decline vs last year. Non-GAAP gross margin in healthcare was 62%, up 110 basis points sequentially. Non-healthcare: Revenue was $153 million, midpoint of guidance, with a 29% decline on constant currency vs prior year. Non-GAAP gross margin in non-healthcare was 29%.

• Consolidated revenue range: $2.055 billion to $2.165 billion.
• Healthcare revenue: $1.355 billion to $1.385 billion (increased low end by $10 million).
• Non-healthcare revenue: $700 million to $780 million (maintained).
• Non-GAAP EPS: $3.54 to $3.70 (increased by $0.10 at both ends).
• Second quarter guidance: Consolidated revenue $480 million to $510 million, non-GAAP operating profit $67 million to $72 million, non-GAAP EPS $0.73 to $0.79.

• Factors causing actual results to differ from projections, detailed in SEC filings.
• Uncertainties in potential separation of consumer business, including timing and terms.
• Macroeconomic conditions impacting non-healthcare business, like higher interest rates affecting consumer spending.

Q: About drivers and step-up in subsequent quarters.

A: Micah explained slower replacement cycle post-COVID, expecting shipments to increase to 55,000 or more in Q2 and 60,000 or more in Q3/Q4.

Q: About second quarter guide.

A: Aligned with seasonality, confident in full-year guidance due to strong contracting.

Q: About Malaysia and gross margin.

A: Transition to Malaysia faster than expected, driving 60 basis point increase in guidance, long-term goal of 30% operating margin.

Q: About cash flow and separation impact.

A: Carve-out costs and litigation expenses affecting cash flow, expecting free cash flow to return.

Q: About separation timeline and strategic options.

A: Working on options, expect progress in next 30-45 days.

Q: About installed base and driver mix.

A: Minority of drivers are new, majority are replacements, true incremental contracts driving growth.

Q: About Malaysia transition impact.

A: Initial 60 basis point improvement, long-term potential for more efficiency and cost reduction.