Masimo
(Nasdaq: MASI)
shares fell this morning after the company shared second-quarter results that included reduced 2023 guidance.
Shares of MASI were down more than 2% at $117.11 apiece. MassDevice’s MedTech 100 Index — which includes stocks of the world’s largest medical device companies — was down slightly.
The guidance cut comes as no surprise after the company startled Wall Street with preliminary results forecasting this last month. The new full-year guidance for Masimo’s healthcare business, previously set at $1.45 billion at the low end, dropped to $1.3 billion.
Masimo set the high end at $1.35 billion. It also cut non-healthcare sales guidance from $965 million to $995 million to $800 million to $850 million. Masimo projects full-year consolidated revenue to land between $2.1 billion and $2.2 billion.
“Second quarter 2023 was a tale of two realities,” said Joe Kiani, Masimo chair and CEO. “Our healthcare revenues and earnings declined sequentially and annually, but we gained new hospital customers at a record level, despite strong results in the prior three years, and retained existing hospital customers. We are disappointed with our results this quarter.”
The updated guidance assumes a failure to return to expected levels for Masimo’s inpatient volumes, he said. Additionally, Kiani said Masimo doesn’t expect to receive some of the large new orders it hoped for with its W1 watch, the Rad-G and the Rad-97.
“I want to emphasize that because of our growth in market share the past few years, and our innovative new products, we remain optimistic about Masimo’s future,” Kiani added.
Additionally, Masimo shared with analysts that it intends to reduce expenses by $117 million. BTIG’s Marie Thibault and Sam Eiber say some of the cuts are related to performance-based compensation and could return in future periods.
“We acknowledge [Masimo] must show results to get back into investors’ good graces,” they wrote. “We remain constructive because of the underlying demand for core monitoring and the possibility of near-term improvements.”
The reasons behind the slashed guidance at Masimo
In announcing its preliminary results in July, Masimo attributed sales declines to delayed large orders anticipated to occur in the quarter. It also cited single-patient use sensor sales going down. The company says it saw a lower-than-expected U.S. hospital inpatient census, which drives single-use sensor adoption.
Masimo also 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.
Analysts also suggested a potential divestiture on the horizon in response to Masimo’s preliminary results. Needham’s Mike Matson pointed to lower high-end audio purchases, potentially signaling a move toward separating Sound United, which Masimo bought for more than $1 billion last year.
The rest of the Q2 results
The Irvine, California-based company posted profits of $15.7 million. That equals 30¢ per share on sales of $455.3 million for the three months ended July 1, 2023.
Masimo recorded a 13.3% bottom-line slide on a sales decline of 19.5%.
Adjusted to exclude one-time items, earnings per share totaled 62¢. That landed 6¢ ahead of the Wall Street projections made after Masimo released its preliminary results. However, it fell well short of the 95¢ previously forecast by analysts.
Sales came in level with the expectations on Wall Street.
Thibault and Eiber maintained their “Buy” rating for Masimo, saying they like the company’s expanding installed base and underlying healthcare demand.
“The long-range targets map a sustainable outlook that appropriately balances revenue growth and spending, though we think recent timing shifts in installations and orders could continue to make quarterly revenue lumpy and harder to predict,” the analysts said.”
Masimo remains optimistic about the future
Despite its disappointing second quarter, Masimo previously 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’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.
