Masimo
(NASDAQ: MASI)
announced that its board will consider a number of options to split from its consumer business, undoing a more than $1 billion acquisition from two years ago.
“The options being considered, among others, are a spin-off of the consumer business in the form of this new stock issued to existing shareholders as a dividend or the sale of at least a majority stake in the consumer business to a third party. A key objective is that any separation would result in a full deconsolidation of the 2 businesses in our financial statements,” CFO Micah Young told analysts yesterday evening during the company’s Q1 earnings call, transcribed by Seeking Alpha.
A spinoff would take about 12 months to complete, while selling a majority stake would take four to six months, according to Micah. Any cash proceeds for Masimo would pay down debt and reduce interest expense.
Masimo’s 2022 acquisition of Sound United — maker of high-end audio speakers and home theater systems — has been a tough sell with investors, fueling a fight with an activist investor who secured two Masimo board seats last year. Company leaders announced in March that they would move forward with a separation.
“While we believe the consumer health and professional health care have greater potential together, the board and management are confident we have come up with a way to enact our shareholders’ wishes without materially sacrificing the vision we have for making lives better and building greater shareholder value,” CEO Joe Kiani said during the earnings call.
“With the proposed separation, the consumer business will consist of consumer health products such as [the Masimo Freedom watch] and consumer audio products, including hearables. … Professional health care will retain everything else, including our telehealth and remote patient monitoring products, where we continue to see significant interest from hospitals and health care providers.”
The update on the separation plans came at the same time that Masimo reported Street-beating financial results, upping some of its full-year guidance.
Investors, however, appear to have wanted more. By the middle of the following day, MASI shares were down more than 14% to $116.53 apiece. MassDevice’s MedTech 100 Index was down nearly 1%.
Masimo beat The Street in Q1
Masimo earned $18.9 million, or 35¢ per share, off of $492.8 million in revenue for the quarter that ended March 20, 2024. The results represented a nearly 13% bottom-line slide and nearly 15% top-line slide compared with Q1 2023.
Adjusted to exclude one-time items, Masimo’s EPS was 77¢. The result was 8¢ ahead of the Wall Street consensus of 69¢ EPS and $487.55 million in revenue.
“For the quarter, we achieved results that show our business is back on track. After a period of robust growth during COVID and the wake of volatility that followed, it seems the market has stabilized, and we are once again able to forecast more accurately,” Kiani said.
Masimo increased the bottom end of its full-year revenue guidance to $2.055–2.165 billion and boosted adjusted EPS guidance to $3.54–3.70.
Overall, analysts appeared positive about the report, though they noted that shipments of boards to OEMs were below consensus in the first quarter. “As we have written before, we are not preoccupied with this metric since hospitals can extend the life of the existing installed base, and the revenue per socket (a utilization measure) is of more interest to us as MASI offers higher-priced, more advanced monitoring parameters,” said BTIG’s Marie Thibault Sam Eiber, who said Masimo was “checking the boxes.”
Needham & Co. senior research analyst Mike Matson maintained his Hold rating: “Sensor utilization has stabilized in the Healthcare business, but sales are still being hurt by decreased capital equipment demand. And the Consumer business continues to be impacted by a slump in consumer spending on audio equipment.”
