MASIMO CORP Q4 FY2023 earnings call

• Exited 2023 with growing momentum from record contract wins in healthcare, FDA clearances for innovative products, and strong growth in hearables business.
• Healthcare had hospital contract wins more than doubled from four years ago in target markets, gaining market share. Received numerous FDA clearances in Q4 2023 for products like Oxygen Reserve Index (ORI), W1 watch, and Stork baby monitor.
• Non-healthcare segment is investing in the Masimo consumer brand, with hearables business growing 115% in 2023, and plans for product launches in 2024 to celebrate 35th anniversary.

For the fourth quarter of 2023, consolidated revenue was $549 million. Healthcare revenues were $340 million, near the upper end of the guidance range, with a 4% decline on a constant currency basis vs Q4 2022. Consumable and service revenues grew 1% partially offset by a 24% reduction in capital equipment and other revenues. Non-healthcare segment fourth quarter revenues were $209 million, down 23% on a constant currency basis vs prior year. For full year 2023, consolidated revenues exceeded $2 billion, with healthcare revenues at $1.28 billion and non-healthcare segment over $770 million. Q4 2023 non-GAAP gross margin was 50%, with healthcare at 61% and non-healthcare at 32%.

• 2024 consolidated revenue range: $2.045 billion to $2.165 billion.
• Healthcare segment revenues: $1.345 billion to $1.385 billion (6%-9% constant currency growth).
• Non-healthcare segment revenues: $700 million to $780 million (4% decline at midpoint constant currency).
• Projected consolidated non-GAAP gross margin 52%, with healthcare at 62% and non-healthcare at 33%-35%.
• Projected consolidated non-GAAP operating profit: $307 million to $322 million. Q1 2024 consolidated revenue: $476 million to $501 million.

• Litigation with Apple: Risks associated with ongoing legal expenses and potential outcomes affecting financials.
• Macroeconomic conditions: High interest rates and challenging consumer spending impacting non-healthcare segment.
• Capital equipment market: Uncertainties in the capital equipment market affecting healthcare revenue drivers.

Q: Wanted to understand what's included on the high and low end of the guidance ranges for both healthcare and non-healthcare, and Q1 cadence.

A: Micah Young explained healthcare low end assumes 0% census and weak capital environment, high end assumes 1% census growth and capital environment improvement; non-healthcare low end implies high teens decline in core audio, upper end mid-single-digit decline with hearables growth offsetting softness. Q1 seasonality historically about 21%.

Q: Drilled down on capital commentary, competitor behavior, and margin outlook.

A: Joe Kiani said getting over COVID capital purchase sugar high, not a capital business, competing well in markets; Micah Young discussed gross margin leverage path with Malaysia sensor manufacturing and equipment placements leverage.

Q: Asked about H1 hearing-enhancement product, market opportunity, pricing, and Medtronic separation impact.

A: Joe Kiani said H1 hearing aid expected in 2024, TAM $35B, pricing ~$1,500; not concerned about Medtronic separation as Masimo winning market share in key markets.

Q: Concerned about driver decel despite record contracting and new customers.

A: Micah Young said driver numbers more short-term, focus on incremental new business and contract wins, trough in Q1 then improving back to normalized levels.

Q: Clarified wearable and hearables segmentation, STORK and W1 revenue classification.

A: Joe Kiani explained wearables and hearables segmentation, Stork as healthcare wearable, hearing aid part of hearables.

Q: Asked about MightySat OTC launch and Apple litigation update.

A: Joe Kiani talked about MightySat OTC launch plans to address market opportunity; Apple litigation update on injunctions, pending cases in California and Delaware with uncertain trial timing.