Masimo
(Nasdaq: MASI)
announced preliminary second-quarter results that include a potentially significant reduction in sales guidance.
Full-year guidance for Masimo’s healthcare business, previously set at $1.45 billion at the low end, is expected to be slashed to $1.3 billion. The company also said yesterday that it is still evaluating the upper end of its guidance, which could land materially higher than the lower end. Masimo still targets its original guidance. It also expects to cut its non-healthcare guidance from $965 million to $995 million to $800 million to $850 million.
In addition, the company said it plans to take action to reduce costs in the second half of the year. It intends to share more details when it announces its complete financial results on Aug. 8.
The day after the announcement, MASI shares were down more than 4% to $112.6 apiece by the afternoon. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down slightly.
For now, Irvine, California-based Masimo expects its quarterly revenues to range between $453 million and $457 million. That includes between $280 million and $282 million in sales from its healthcare business. However, despite market share gains in the quarter thanks to new contracting, the company says healthcare revenues fell shy of expectations.
Why Masimo expects its sales guidance to fall
Masimo attributed dips to delayed large orders anticipated to occur in the quarter and single-patient use sensor sales declining. The company says it saw a lower-than-expected U.S. hospital inpatient census, which drives usage of single-use sensors.
Additionally, the company reported an elevated sensor inventory level at some customers due to discounting in prior quarters. The ending of that discounting, plus “the abnormally early end of the flu season,” could have played a role in sales dips.
In a news release, Masimo said it also saw fewer conversions of new customers contracted to switch compared to expectations. It attributed this to labor shortages in hospitals and the failure of OEM partners to provide the patient monitoring equipment needed to complete installations in a timely manner.
Continued increased hospital labor costs also strained hospital budgets, the company says. This lowered the demand for capital equipment in the second quarter.
Company remains confident
Despite its shortfall in the second quarter, Masimo said the fundamentals for both of its businesses remain strong. On the healthcare side, new hospital customers continue switching to Masimo technology “faster than ever,” the company said. This increases its share of the hospital market.
Masimo still drove record contracting in the first half of the year, both in the U.S. and worldwide. The company expects to report 11%-12% growth in unrecognized contract revenue compared to the second quarter of 2022.
“While we are disappointed in our revenue results this quarter, our hospital business is strong, as our growth in contracting shows,” said Masimo Chair and CEO Joe Kiani. “We do believe sensor utilization and sensor revenue growth rates will return to normal levels. We are also excited about the future for Radius VSM, Opioid Halo, Stork, PerL, W1, and our telemonitoring businesses, all of which are in full-scale launch, except for Stork, which is in limited market release.”
Masimo’s performance in the market remains one to watch as the company has undergone some changes at the top recently. Last month, shareholders voted to oust two members of the device developer’s board after a heated battle led by activist investor Politan Capital Management.
This could set up another proxy fight a year from now with Kiani on the hot seat. In the final weeks leading up to the vote, Masimo said it feared he’s the ultimate target.
Could Masimo divest Sound United?
Politan has been critical of Masimo’s decision last year to spend $1.025 billion to acquire Sound United and its high-end music and entertainment system brands. Kiani and his team argue that the deal will enable Masimo to turn millions of home entertainment systems into health hubs.
Masimo’s tough preliminary Q2 results could strengthen the case that the deal was actually a mistake.
Mike Matson, senior research analyst at Needham & Co., noted a slowdown in high-end audio purchases.
“We believe that while MASI’s healthcare challenges are mostly transitory, we believe that its non-healthcare challenges are longer-term. And we think that this strengthens the case for separating Sound United, which we still believe would create value,” Matson said in a report.
BTIG analysts Marie Thibault and Sam Eiber did not think the Masimo news signaled broader problems in medtech: “Importantly, we think most of these issues are specific to MASI and should not be viewed as a read-through for the broader medtech sector.”
Originally ran on July 18, 2023. Updated July 19 with the next-day stock price, comments from analysts. Executive Editor Chris Newmarker contributed to this report.
