Masimo Corporation Q3 FY2024 earnings call

• Strategic review of consumer business: Board engaged advisors to evaluate strategic alternatives, with updates to be provided when appropriate.
• Product portfolio and R&D: Focusing on fewer projects addressing big market opportunities with clear unmet needs, reducing spending not contributing to long-term growth.
• Leadership: Board expanded to eight directors, adding Tim Scannell and Wendy Lane; CEO succession process ongoing with Korn Ferry assisting.
• Margin improvement: Focused on refocusing the organization to drive long-term growth while improving margins, with actions to rightsize costs and allocate resources to high-return projects.

For the third quarter, healthcare revenues were $343 million, representing 12% growth, with a non-GAAP gross margin of 62.9%. Non-healthcare revenues were $161 million, a 6% decline, with a non-GAAP gross margin of 34.6%. For the full year 2024, consolidated revenue is projected to be $2,075 million to $2,105 million. The healthcare segment is projected to have revenues of $1,390 million to $1,400 million (9% to 10% growth), and the non-healthcare segment is projected to have revenues of $685 million to $705 million (a decrease from prior guidance). The consolidated non-GAAP gross margin is expected to be 53%, with a non-GAAP operating margin range of 15.7% to 16%, and non-GAAP EPS of $3.95 to $4.10.

• Fourth quarter 2024: Consolidated revenue projected $581 million to $611 million, non-GAAP EPS $1.35 to $1.50; healthcare revenue $363 million to $373 million, driver shipments 60,000 to 65,000; non-healthcare revenue $218 million to $238 million.
• Full-year 2024: Consolidated revenue $2,075 million to $2,105 million; healthcare revenue $1,390 million to $1,400 million (9% to 10% growth); non-healthcare revenue $685 million to $705 million (decrease from prior guidance); non-GAAP gross margin 53%, operating margin 15.7% to 16%, EPS $3.95 to $4.10.

• Litigation: Uncertainty related to the California bench trial for theft and trade secret involving Apple.
• Consumer business separation: Uncertainty in the structure, timing, and terms of the potential separation of the consumer business.
• Macroeconomic factors: Potential impact of weakening environment for luxury consumer purchases and housing market on the non-healthcare segment.

Q: Vik Chopra asked about guidance confidence and end-market outlook.

A: Micah Young responded that confidence in guidance is based on strong healthcare business opportunities, including rainbow platform and brain monitoring, with census and flu season impacting the range; non-healthcare business is stabilizing with new product introductions expected to drive growth.

Q: Michael Matson asked about Malaysian production and consumer divestiture.

A: Micah Young responded that majority of high-volume sensors are manufactured in Malaysia, with further plans to move other products like disposables and capnography cannulas; regarding consumer divestiture, if moved to discontinued operations, healthcare margins and financials should be modeled separately.

Q: Jayson Bedford asked about capital and revenue per driver.

A: Bilal Muhsin and Micah Young responded that capital spending on OEM side is stabilizing, with price for drivers stable to positive due to CPI clauses and GPO contracting; revenue per driver is driven by multiple platforms and product utilization.