Masimo(MASI)2024-05-08 01:40Financial Data and Key Metrics - Consolidated revenue for Q1 2024 was 340 million, representing a 2% decline YoY [50] - Non-GAAP operating profit for Q1 was 0.77 [34] - Operating cash flow for Q1 was 28 million of debt [34] - Full-year 2024 revenue guidance updated to 2.165 billion, with healthcare segment revenue projected at 1.385 billion [28] - Non-GAAP gross margin guidance for 2024 increased to 52%, with healthcare gross margin at 62.4% and non-healthcare at 32%-33% [35] Business Line Data and Key Metrics - Healthcare segment saw strong sensor orders in the US and Europe, with record contracting from hospital customers, achieving over 153 million, a 29% decline YoY on a constant currency basis, impacted by macroeconomic conditions [52] - SET pulse oximetry consumables grew 2%, capnography disposables grew 27%, and brain monitoring sensors grew 17% in Q1 [51] - Transition of sensor manufacturing to Malaysia is ahead of schedule, with 2/3 of production already moved, contributing to improved gross margins [31][49] Market Data and Key Metrics - Driver shipments hit a low point of 50,000 in Q1 but are expected to increase to 55,000 in Q2 and 60,000 in the back half of 2024 [23][28] - Consumable revenue per driver remains higher than pre-COVID levels, indicating strong utilization of the installed base [20] - Hospital census growth is reported at up to 3%, which could provide upside for the year [67] Company Strategy and Industry Competition - The company is evaluating the separation of its consumer business, with potential options including a spin-off or sale of a majority stake [36][39] - The separation is expected to improve healthcare non-GAAP operating margins by 220 to 380 basis points, moving closer to the long-term goal of 30% [29] - The transition to Malaysia is expected to drive gross margin improvements, with an initial 60 basis points improvement in 2024 and potential for over 100 basis points in the long term [9][63] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the healthcare business, citing strong contracting and market share gains, with expectations for accelerating growth and expanding margins [72] - The company is focused on reducing product costs, improving manufacturing efficiency, and leveraging the installed base to drive profitability [22][64] - Management expects the separation of the consumer business to provide both businesses with the appropriate capital structures and resources for long-term success [29][43] Other Important Information - The company provided a preliminary estimate of carve-out costs for the separation, ranging from 51 million, with 50% of Apple litigation expenses also expected to be split [3][5] - The timeline for the separation process is expected to progress significantly over the next 30 to 45 days, with a final decision to be made by the Board [37][81] Q&A Session Summary Question: Drivers and COVID-driven demand - Management explained the low point in driver shipments in Q1, attributing it to a slower replacement cycle and soft OEM orders, but expects a recovery to 55,000 in Q2 and 60,000 in the back half of 2024 [23][28] - The majority of driver shipments come from OEMs, which saw a significant pullback post-COVID, but the company is offsetting this with strong true incremental growth from hospital conversions [65] Question: Gross margin improvements from Malaysia transition - The transition to Malaysia is ahead of schedule, with 2/3 of production already moved, contributing to a 60 basis points improvement in gross margin guidance for 2024 [9][14] - Long-term, the company expects over 100 basis points of improvement from increased efficiencies and lower labor costs in Malaysia [9][63] Question: Operating margin uplift from consumer audio separation - The separation is expected to improve healthcare operating margins by 220 to 380 basis points, driven by the carve-out of R&D and selling/marketing expenses related to consumer health products [59] Question: Timeline for separation options - Management is working through internal processes and expects to make significant progress on the separation options within the next 30 to 45 days [81] Question: Cash flow and debt reduction - The company generated 28 million of debt, and expects to continue improving cash flow generation [34][79]