Masimo Corporation Q1 FY2025 earnings call

Key Takeaways - Technology advantage is real with innovation enthusiasm in the organization. - Stellar team is enthusiastic about the path forward, believing in the mission and focused on delivering for patients. - Opportunities exist to improve business, particularly in commercial excellence and product launches. ### Quarterly Results - Healthcare revenue was $371 million, up 10% on constant currency basis. - Double-digit revenue growth and EPS growth over 50% demonstrated earnings power of core healthcare business. ### Significant Milestones - Announced divestment of Sound United consumer audio business to refocus on professional healthcare. - Lisa Hellmann joined as Chief Human Resources Officer. - Addressed website and system incident, with ongoing investigation but no expected impact on guidance. ### Strategic and Financial Goals - Seeking to invest in core healthcare to accelerate revenue growth beyond longstanding target. - Plan to upgrade existing sensors, leverage pulse oximetry leadership in advanced monitoring categories, and shift sales force structure to regionally focused generalist model. ### Tariffs - Dedicated time and resources to assess and plan for potential tariffs, with operations and finance teams quantifying impacts and developing mitigation plans.

For the first quarter, Masimo's healthcare revenue was $371 million, growing 10% on a constant currency basis. Consumable and service revenue grew 8%, while capital equipment and other revenue grew 32%. The timing of shipments related to a large tender contract renewal affected the mix of revenue between capital and consumable sales. Healthcare revenue of $371 million accounted for the core, with consumable and service revenue and capital equipment/other revenue making up the respective growth components.

Revenue - Fiscal 2025 revenue estimate remains $1,500 million to $1,530 million, reflecting 8% to 11% constant currency growth versus prior year. ### Operating Margin and EPS - Excluding tariffs, operating margin expected to be 28% to 28.5% (50 basis points increase at midpoint vs prior guidance) and EPS $5.30 to $5.60 (increase of $0.20 at midpoint vs prior guidance). - Including tariffs before mitigation, operating margin in range of 25.5% to 26.4% and EPS $4.80 to $5.15. - Tariffs have a significant impact, with projected $33 million to $37 million increase to cost of sales for fiscal 2025. ### Sound United Sale - Transaction reflects full fair market value, conducted through thorough process, expected to close by end of year subject to regulatory clearances, with proceeds prioritized for share repurchases.

• Uncertainty regarding tariffs and their impact on operating margin and earnings. - Potential impact of trade negotiations with China on tariff exposure. - Ongoing website and system incident with unknown long-term effects on business operations.

Q: Good afternoon. Hi Katie, hi Micah. And I'm not surprised that the entire organization has embraced Katie. It sounds like it's off to a great start. Exciting quarter, a lot to unpack. Just to start, let's start with the first quarter. Based on your commentary about the large tender in the quarter, Micah, can you give us a sense of how big was it? What impact did it have on revenues and margins and boards? How do we normalize and, therefore, think about the cadence and implications of the second quarter as we start to extrapolate forward?

A: Yeah, thanks, Fred. Yeah, if you kind of normalize for the quarter a little bit, I mean looking at it - a view without, when you exclude the large tender contract, the rest of our business is performing very well. We're seeing consumable and service growth of double digits. We're also seeing capital and other revenues growing high single digits, and that's when you kind of back out the timing of that large tender. And keep in mind, we still expect to recognize fully the revenue from that tender that we expected as we were coming into the year, but that's just going to occur over the next several quarters. So, that is more of a timing issue, but if you kind of strip that back out and look at it, the remainder of the business is performing very well. Also, our shipments, we're seeing very good demand early in the year. It's still very early to get ahead of ourselves with increase in the guidance range, or our expectations, I guess, for drivers for this year. But if you look at it without the tender and kind of normalize for that tender, we're still at or above the high end of our range on driver expectations for the quarter. So… Q: Hey, good afternoon guys. Congrats on a really strong core here to start the year. Apologies for any background noise, traveling here today. But wanted to see if you could first start just talking to us about what you are hearing from OEM partners with respect to hospital CapEx spending, hospital spending, patient monitoring, connected care. Judging by your results, your board numbers, I'm sure I know the answer, but I'd just love to hear any additional color there. And then I appreciate you don't want to get into the details of your investigation, but just if you can help us a bit at all with how you have the confidence here in saying you don't expect it to impact your guidance, and then I'll have one more follow-up.

A: Yeah, thanks Jason. So let me start out with the OEMs and the drivers. So we're very encouraged by the results we saw in Q1, very solid underlying demand, even when you strip out that timing that we talked about in the tender contract. You know again, we don't want to get ahead of ourselves, but I think the way to think about this is, we are a high-recurring revenue business. We only have about 10% to 15% of our revenues, give or take on how that kind of fluctuates, are tied to capital equipment and other revenues. So I think that's one way to look at this. We're not very highly dependent on capital. Two, the cost of our capital is a lower cost in terms of capital budgets for hospitals relative to some of the higher cost monitors and machines that are out there. So I think that's one way to really look at this. And like I said, there’s no – we're not seeing any signals of softness at this point in the year, and we're encouraged by where things are heading. We just don't want to get ahead of ourselves in terms of our guidance. We want to be thoughtful and prudent about that. On the second topic, currently we view the situation; we're doing everything we can in terms of working through our protocols. We've got strong protocols there. Based on what we know today, we have no evidence that there's any sensitive employee data or patient data that is impacted, and of course, we'll provide updates as required there. The other thing is, as we work through those protocols, we're encouraged by the progress we're making so far in bringing systems back up and running. And again, just want to reiterate that as we see it today, we do not believe this is impacting our guidance for the year.