MASIMO CORP Q2 FY2024 earnings call

• Healthcare revenues rose sequentially and grew 23% y-o-y, with strong hospital conversion contracts ($134 million in incremental value, 28% increase y-o-y).
• Gross margins improved, with healthcare gross margin at 62.5% due to sensor manufacturing relocation to Malaysia and operational efficiencies.
• Confidence in increasing full-year healthcare revenues and earnings based on strong conversions, installations, and hospital census.
• Consideration of separating the consumer business, with preliminary terms from a potential JV partner and evaluation of all strategic options for separation.

Healthcare revenues were $344 million in the second quarter, representing a 23% growth versus last year. Consumable and service revenues grew 29%, with set pulse oximetry, capnography, and brain monitoring consumables up 35%, 35%, and 19% respectively, while rainbow consumable revenues declined 5%. Non-healthcare revenues were $152 million, an 11% decline versus the prior year, affected by weak luxury consumer purchases and housing market slowness. Healthcare gross margin was 62.5%, improving 240 basis points year over year and 20 basis points sequentially, driven by sensor manufacturing relocation to Malaysia and operational efficiencies. Non-healthcare gross margin was 35%.

• Third quarter 2024: Consolidated revenue projected $495M-$515M, non-GAAP EPS $0.81-$0.86 (8%-15% earnings growth). Healthcare revenue projected $335M-$345M (9%-12% growth).
• Full-year 2024: Consolidated revenue range $2.85B-$2.135B, healthcare revenue $1.385B-$1.405B, non-GAAP EPS $3.80-$4.00. Projected consolidated non-GAAP gross margin 53%, healthcare gross margin 62.5%, non-healthcare 34%.

• Uncertainties with the potential separation of the consumer business, as the JV partner's execution is not entirely in Masimo's control.
• Risks related to the Apple litigation, including ongoing legal proceedings and potential actions by Apple to circumvent injunctions.

Q: Concerns about repeat of last year's issues and sustainability of improvements.

A: Backlog is strong, census is strong, and hospital conversions are rapid, providing confidence in sustainability.

Q: Update on JV partner situation and inbound interest.

A: JV partner asked for extension to August 15 to get more partners, Masimo will report once JV partner's decision is known, and all options for separation are being considered.

Q: Consumer outlook and confidence in sequential sales improvement.

A: Consumer sales growth expected from hearables, typically shipped in Q4, expecting strong Q4.

Q: Oxygen Reserve Index progress in U.S.

A: Adoption of Rainbow with Oxygen Reserve Index is going well, expected to drive Rainbow business growth in the second half.

Q: Apple litigation status.

A: Trade secret trial in November, patent trial later; Apple's Delaware litigation to go to trial late October; Masimo's patent and antitrust case to go to trial next year; customs and border activity related to injunction also being monitored.