Masimo at BofA Healthcare Conference: Strategic Realignment for Growth

On Tuesday, 13 May 2025, Masimo Corporation (NASDAQ:MASI) participated in the BofA Securities 2025 Healthcare Conference. During the conference call, CFO Michael Young outlined the company’s strategic realignment, focusing on core growth areas and cost optimization. While Masimo’s financial outlook remains optimistic, challenges such as cybersecurity issues and tariffs were acknowledged.

Key Takeaways

• Masimo aims for 7% to 10% top-line growth and a 30% operating margin in its long-term plan.
• Q1 revenue aligned with expectations, driven by a large tender order.
• Cybersecurity incidents were addressed but are not expected to impact annual guidance.
• Tariff mitigation strategies include pricing adjustments and manufacturing shifts.
• The company is prioritizing share repurchases and debt paydown, with ongoing litigation against Apple.

Financial Results

• Q1 revenue met expectations, with capital growth at 32% due to a significant tender order.
• Consumable growth was double-digit, adjusted for the tender order timing.
• Operating margins for Q1 were at 28.8%, with a target of 28-28.5% for the year.
• The flu season contributed 0.5% to 1% of Q1 growth.

Operational Updates

• New CEO Katie is focusing on commercial excellence and leveraging AI.
• Efforts are underway to restore critical systems post-cyber incident, with strong order demand.
• The company expects steady demand throughout the year.

Future Outlook

• Masimo projects 7-10% top-line growth with a focus on high-profit margins.
• The company plans to expand operating margins to 30% over the long term.
• Tariff reductions could enhance the financial outlook significantly.
• Share buybacks are prioritized for capital deployment, with an extra revenue week in Q4.

Q&A Highlights

• The Apple litigation involves ongoing appeals and pending patent infringement decisions.
• Masimo is awaiting a decision on the trade secret theft case against Apple.
• Patent infringement cases are scheduled in California for November, with the Delaware case pending.

In conclusion, Masimo’s strategic focus on core growth areas and cost optimization positions the company for future success. For a detailed account, refer to the full transcript below.

Full transcript - BofA Securities 2025 Healthcare Conference:

Travis Steed, BofA Medical Device Analyst, BofA: Good afternoon, everybody. Travis Steed, the BofA Medical Device Analyst. And next stop on the medical device track, we have Masimo. So Michael Young, CFO, and Michael Dufry, head of P and A, is that right? Yes.

Okay, welcome, thank you. I guess, just opening up kind of big picture, it’s kind of a turning point right now for Massey. It’s got a new CEO change and some things selling the sound business. What’s kind of the vision kind of going forward here, I think, at this turning point for Massey and just

Michael Young, CFO, Masimo: kind of

Travis Steed, BofA Medical Device Analyst, BofA: how you see the business shaping

Michael Young, CFO, Masimo: Yeah, thanks, Travis. So, you know, in the fourth quarter last year, we did a lot of realignment of the business, really trying to realign, optimize the cost structure, but also really focus back on our core, kind of our core areas of growth. And that’s all within the four walls of the hospital. Looking at, of course, set pulse oximetry is our flagship that represents over 70% of our revenues.

You know, getting more and more focus around rainbow hemodynamics, that’s another big area of growth for us. As well as brain monitoring, capnography and gas monitoring, all the key monitoring platforms we have. And then automation. How do we continue to automate workflows in the hospital, manage data throughout the hospital? And that’s our core business.

I mean, that’s the focus we wanted to get back to. We took a little detour into consumer health, and now we’re refocusing back on the core, and that’s really what drives our growth algorithm. When we talk about our long range plan, we expect to grow seven to 10% top line growth with good operating margin, high profitable growth, and we’re aspiring to reach 30% operating margins over our long range plan. So just getting back the focus there, that’s the biggest change. And we’ve got new leadership with Katie coming on.

She brings a wealth of experience with working with the, leading the Edwards critical care business. And we’re already seeing some of that with some of the focus she has on commercial excellence, how we’re really focusing on launching products in a more meaningful way, and again, concentrating on those core areas of the business.

Travis Steed, BofA Medical Device Analyst, BofA: Would kind of double click on Katie joining, how’s it been working with her since she’s joined and the things she’s focused on, what do you think she’s going to bring to the business, and when are investors going get to spend more time with Katie?

Michael Young, CFO, Masimo: Yeah, so Katie will be out with me on the road for the next, I mean, I think we’re planning to go out all through May, June, so we’ll be out there with road shows, visiting different conferences. That’ll be coming. A lot of her time right now is being spent with a lot of the sales teams, both in The US as well as international. She’s traveling, seeing a lot of different sites. And the focus with her right now has been, again, it’s on commercial excellence, launching products, focusing on, she brings a lot of experience in the area of AI, and how we’re, you know, we’ve been doing a lot of development around advanced algorithms for decision support in hospitals, and that development’s had, we’ve done that development over the last five, ten years, and it’s really, she brings another view on how we can monetize that, how we can launch those products with AI capabilities, that’s another area of focus for her.

Travis Steed, BofA Medical Device Analyst, BofA: Great. I wanted to touch on Q1. Revenue was more or less in line with expectations, but the composition was a little different. I’m just trying to clarify what happened versus the capital, which was stronger this quarter. And then I’ll touch on consumables next.

Michael Young, CFO, Masimo: Yeah, so our capital growth this quarter, I mean, came into the year expecting capital growth of flat to mid single digit growth. Modestly improving environment from what we experienced the last few years. And then, consumable growth, we always expect that to be kind of that high single digit, low double digit growth rate. And that’s kind of been the guidance coming into the year. Q1, we saw capital growth of 32%.

A lot of that was a contribution from just the configuration of a tender order that we had. It’s the same customer, it’s a customer we’ve had for many years. It’s a large OUS public health system, but it’s under tender contracts, and those can be very lumpy. So we received an order for, a large order of capital in the quarter. The consumable orders have been, you know, are always lumpy through from quarter to quarter.

We didn’t receive a full order on that in Q1. But if you adjust for that and look at kind of the underlying growth in the business, saw double digit consumables growth. So it was a strong quarter. We expect the timing of that. We’ll see the delivery of the consumables in the next three quarters under that contract, and that’s all intact for the full year.

But the capital is delivered upfront, which is not a bad thing because the more drivers we put out there, more it’s consuming sensors and driving utilization at those hospitals. So it’s more of a timing issue. We’ll see capital that demands pretty strong and pretty steady right now. If you were, if you kind of pull out that, that the large tender and the capital with that, we still had, you know, delivered drivers well above our range of 60,000 to 65,000 drivers that we placed into the field each quarter. So, very strong capital demand so far.

We don’t want to get ahead of ourselves though this early in the year, so we’re being cautious to raise that guidance on our drivers and our capital this early, but so far we’re off to a good

Travis Steed, BofA Medical Device Analyst, BofA: start. And is the expectation, will that come out of Q2 at all on the

Michael Young, CFO, Masimo: capital side? We don’t expect that. I mean, expect pretty steady demand throughout the year, kind of in that 60,000 to $65,000 range.

Travis Steed, BofA Medical Device Analyst, BofA: And then flu, elevated in Q1. Any kind of benefit on the flu side of things?

Michael Young, CFO, Masimo: Yeah, flu, I mean, started to really, I guess the respiratory season started to ramp up in December, stayed pretty strong through February, so it was solid flu season in terms of, you know, we saw elevated volumes there. But usually you don’t get a full impact of flu in the first quarter, it’s usually only a couple months’ worth. So flu can contribute, a strong flu season can contribute a point of growth over a three month period. If you look at Q1, probably anywhere between a half a point to maybe a point contribution.

Travis Steed, BofA Medical Device Analyst, BofA: Okay. The cyber incident that you called out on the last call, what’s the latest there? Are systems kind of back up and running at this point?

Michael Young, CFO, Masimo: Yeah, so this is day by day making good progress, bringing systems up. We’re focused on prioritizing critical systems. As I mentioned on the earnings call, where we sit today, we don’t see it impacting our guidance for the year. There’s some near term disruption and we’re trying to get back, you know, to the optimal levels. And that’s where we’re working through right now with our teams, getting, like I said, critical systems up, making sure operations are up.

But we have been operating below optimal levels. So we’re going to be playing catch up here as we bring those systems online.

Travis Steed, BofA Medical Device Analyst, BofA: Is the expectation that you might see Q2 impacting recovers in Q3, that’s why there’s no full

Michael Young, CFO, Masimo: year impact? It’s still too early to tell, but we feel good about the, you know, where orders are and where we are for the year, which is why we didn’t change anything with guidance or pull off of guidance. And, you know, we’ll know a lot more in the coming weeks in terms of, you know, can we catch up and try to minimize any impact for

Travis Steed, BofA Medical Device Analyst, BofA: the quarter. Anything that kind of help to assure us that, you know, there won’t be an impact in the quarter? I think prior situations, there have been some short term impacts.

Michael Young, CFO, Masimo: Yeah. I think, you know, looking with where we are with getting critical systems back up, I think we’re, every day is getting better, we’re getting better line of sight into getting it up and operational. So, you know, there’s companies that have faced this where, you know, it’s been weeks or months, and I think it’s a different situation based on what we’re seeing so far. But again, I haven’t been through this before, so we’re kind of navigating it day by day.

Travis Steed, BofA Medical Device Analyst, BofA: How do you think about the cost impact on the expense side?

Michael Young, CFO, Masimo: On cost impact, mean, we’re quantifying it as we go. We do have insurance that will cover a large portion of any impact. You know, we look at this as one time in nature, so it wouldn’t impact. It’s more of, you know, it’d be removed from adjusted out our earnings for the quarter. But again, we’re trying to minimize that cost impact as much as we can.

Okay.

Travis Steed, BofA Medical Device Analyst, BofA: When you think about Q2 and the full year guidance, anything else to call out on Q2, normal seasonality, just thinking about sequencing throughout the year?

Michael Young, CFO, Masimo: Yeah, we look at this year as normal seasonality. The only thing different this year is we do have an extra week of revenue in the fourth quarter. Every based on our financial close calendar, have an extra week every five or six years. This year happens to be that year. So if you back out, call it one point of revenue for the year out of the fourth quarter and kind of normalize seasonality.

Typically we have about 24.5% of our revenues in the first three quarters, give or take, and then we have 26.5 in Q4 because the seasonality of the business is stronger. Respiratory season, flu season usually impacts us as well as surgeries in

Travis Steed, BofA Medical Device Analyst, BofA: the fourth quarter. And capital for the remainder of the year is still strong. Know ’24 was a challenging year, so.

Michael Young, CFO, Masimo: Yeah, I mean, we’re still implied in our guidance is that flat to mid single digits. If we see capital continue the way it did in Q1, that could be a source of, or a tailwind for us this year. Okay.

Travis Steed, BofA Medical Device Analyst, BofA: So, an average revenue per board, I think low single digit growth in Q1, is that the kind of the fair way to think about it

Michael Young, CFO, Masimo: going Yeah, our installed base grew, it was up 3% in Q1. If you look at our consumable revenue per driver, I think it was up about five points in the quarter. Again, that was softer just because of the timing of that tender order. So we look at the full year being kind of 3%, two % to 3% installed base growth with 5% to 7% consumable growth per driver.

Travis Steed, BofA Medical Device Analyst, BofA: Okay.

Michael Young, CFO, Masimo: And

Travis Steed, BofA Medical Device Analyst, BofA: then tariffs, you you called out $35,000,000 in 2025. How do we think about the impact of the China bill over the weekend?

Michael Young, CFO, Masimo: Yeah, so if you look at China, we source our patient cables from there. A lot of the raw materials, well as subcomponent assembly that comes through on those patient cables. About 5% of our cost of goods is basically the raw materials and cables out of China. So, it’s roughly 20,000,000 or so a year. If you look at it, rate, it looks like the tariff rates coming down 115%.

So, you can kind of do the math on that and see that that’s going to, it’s half of the impact of our of our of our tariff exposure. So, that sticks, could be a meaningful reduction in what we guided to for the year.

Travis Steed, BofA Medical Device Analyst, BofA: And how are you thinking about reinvesting that versus letting it flow through?

Michael Young, CFO, Masimo: We let it flow through. Okay. Yeah, we’re continuing to drive margin expansion this year. We guided 28%, twenty eight point five % operating margins, we look at this really trying to continue to drive that in the core business. And if tariffs start, the pressure starts to come off on the tariff and exposure starts to reduce, then we’ll let that flow through.

Travis Steed, BofA Medical Device Analyst, BofA: So if I adjust for China and kind of get a new ’25 impact, taking that Q4 run rate and analyzing it kind of a good way to think about the gross impact in ’26?

Michael Young, CFO, Masimo: I think on a gross impact, but of course, as I mentioned on the call, I wouldn’t annual I think it’s too early to annualize, especially with the rates moving around with trade negotiations happening, well as we have a lot of mitigation plans we’re working through right now. Some are no regret actions that we’re taking that we would do regardless of kind of where things shake out on the tariff side. So that’s stuff that will, it’ll come more in focus over the next probably ninety days as far as those action plans and we’ll communicate that. We expect to communicate more of that on the next earnings call. So, but it’s too early annualize into next year.

Travis Steed, BofA Medical Device Analyst, BofA: Okay, and then the mitigation stuff, like what are some of the strategies that more like pricing or shipping manufacturing?

Michael Young, CFO, Masimo: Yeah, mean, we’re looking at everything from, you know, pricing levers where, you know, of course, we’re a heavy contracting business where we enter into five to seven year contracts with customers, give or take, and those contracting cycles take time to work through, and they’re long contracts. So, you may have 20 of your contracts come up in one year, and we’ll see what we can do to start to mitigate some through pricing.

Travis Steed, BofA Medical Device Analyst, BofA: In

Michael Young, CFO, Masimo: terms of cost mitigation, we’re working through last quarter. Our exposure in Mexico was about 25% of our cost of goods were were subject to tariffs. We brought that down to 10% now. A lot of that work was just qualifying under USMCA exemption, doing all the paperwork, working with legal, teams to to try to to get through that. And all of our sensors, consumables that are down at the manufacturer out of Mexico are now under USMCA exemption.

The last piece is just the instruments, so we’re working through to see how those would potentially qualify. That’ll be some things we’ll work on in the coming months. We’re also evaluating sensor manufacturing, seeing what we can do there. We’ve got some mitigation plans we’re working through there to see if we can impact that. The longest process that would take us is really around the patient cables out China.

So that one’s kind of longer term, call it twelve, twenty four months to try to move things out of there.

Travis Steed, BofA Medical Device Analyst, BofA: Okay, and I know Malaysia’s kind of a big part of your gross margin expansion plans. Does the tariffs change your strategy there, moving more back to Mexico or anything like that?

Michael Young, CFO, Masimo: Yeah, mean, we’re looking at it on a, we’re doing the math. Mean, one hand, you’ve got Malaysia where you’ve got a 35% lower labor cost component to manufacture there. But then on the other hand, you’ve got a tariff that could be, you know, if it goes reciprocal and moves back to that 24%, that’s on the whole cost of the finished good versus just the labor component. So there’s gonna be some math we’re gonna do to to evaluate if if tariffs go back higher. You know, there could be potential where we may end up moving some back to Mexico, but again, we wanna continue to benefit from, you know, the operations that we’ve seen in Malaysia.

It’s been, that was a great move for us as a company in terms of lowering costs, but also becoming more operationally efficient. And we’re trying to do mitigation strategies that can hopefully avoid having to bring anything back. But if those don’t work out, may have to consider some products.

Travis Steed, BofA Medical Device Analyst, BofA: That makes sense. Margins have been a bright spot for you guys beyond Malaysia. When you think about some of the growth margin drivers beyond Malaysia, how are you thinking about progress on gross margin over the next few years?

Michael Young, CFO, Masimo: Yeah, well, still have sensors that we sell. We have a lower cost sensor and it’s very high quality, but it’s called an RD sensor. We manufacture what’s called a link sensor. We’ve been shifting more and more to RD, which has helped us to drive margin expansion. We took a lot of costs out of that.

It was a project we worked on years ago. That’s continuously giving us a benefit mix there. We also have engineering teams that are very focused on taking costs out of products each and every That’s always been a good lever for us. We’ve seen good leverage out of leveraging our installed base. We have over 2,600,000 monitors and boards that are out in the field that are consuming sensors, and that’s a high cost of the installed base to put out there.

And every year, we’re continuing to leverage that with more consumable revenue coming off those drivers. So, there’s a lot of different levers we have in gross margins still, we’re, the goal is to get up, you know, the long range plan is to get up closer to 66%. We’re not giving up on ultimately getting to 70%, but I think, you know, COVID going through that with the inflationary costs that we saw during COVID, it set us back off that target a little bit.

Travis Steed, BofA Medical Device Analyst, BofA: The OpEx in Q1, is this kind of the new lower baseline?

Michael Young, CFO, Masimo: Yeah, so Q1, you know, we delivered operating margins of 28.8%. I think, like I said, we’re guiding 28%, twenty eight point five %. We’re trying to balance to where we’ve done a lot of optimizing of the cost structure in the fourth quarter last year. You saw the benefits of that in Q1 and how we’re guiding this year. I think year over year we’re improving margins by over 400 basis points on the full year.

But we’re also trying to balance investment. We want to continue to invest for top line double digit growth and continue to deliver over the long term. So that’s a balance for us. I would say that we’ve come down in Q1. There’s some timing of investment we’ve made, you know, in terms of sales and marketing that’s going to hit more in Q2 and through the rest of the year, so that’s kind of how we’re balancing and trying to continuously deliver on margins as well.

Travis Steed, BofA Medical Device Analyst, BofA: Does tariffs change your outlook from the 30% operating margin goal? Can you still get there with tariffs?

Michael Young, CFO, Masimo: Well, feel good without tariffs. We’re tracking very well without tariffs. The longer out, with our long range plan of trying to continue to drive margin expansion, I mean, it’s gonna give us time to get a lot of those mitigation actions in place. Know, we’ll have time to respond over the longer term, but it’s a challenge in the near term. I mean, it’s just a very fluid dynamic environment and it’s hard to speculate and tell you today that, you know, we can get to 30% by X date.

But we’re feeling very confident in the core business, when you kind of back out the tariffs and look at where we’re tracking.

Travis Steed, BofA Medical Device Analyst, BofA: Okay, that’s fair. And then on tax, tax rate was a few hundred basis points lower before it sounded like it was the tax rate kind of go back to that point now?

Michael Young, CFO, Masimo: Yeah, we’ve already, we’ve lowered it a little bit more this year as we came into the year. Think we were guiding closer to 25%. We’re getting down, I think our latest guidance has us around 24.5%. What’s impacted us from where we were back in 2019, you know, if you go back five years ago and well before San United, we were setting probably around 22% for a few years. Pillar two has been an impact on us because, you know, we’ve been setting in our OUS business, we’ve offshored IP to put us in the best, most tax advantaged structure outside The US.

So we have a very low tax rate structure. Know, the pillar two though started to lift that above where we were and everything’s minimum 15%. So that had an impact on on us, in terms of our tax rate. But if you look over the long term, I mean, with where we’re set up and and with that, the tax structure we have in place today, the more profitable we become in terms of mix of profits that are outside The US, the lower the tax rate can go. So there’s opportunity to leverage that as we become more profitable

Travis Steed, BofA Medical Device Analyst, BofA: outside The US. Makes sense. And capital deployment, you said share repurchases is kind of what you’re going be doing with the Sound United proceeds. What about going forward, and how are you thinking about capital deployment? Is it still buybacks at this point?

Michael Young, CFO, Masimo: Yeah, mean we always evaluate kind of where share price is relative to where interest rates are. You know, if you kind of do that math in the near term, it’s probably pretty close to neutral, but, you know, we believe in the business and we think that, you know, earnings power is going be a lot greater in the next two to three years. So, you know, we’d probably lean more and prioritize share buybacks. And we’ll probably balance it. It’ll be a combination of share buyback, debt pay down.

We also want to improve our liquidity, continue to improve liquidity. That’ll set us up in a good spot too as we start to look at tuck in technologies that we want for our core business going forward and how we deploy capital. But we’re always doing the math, making sure that we’re optimizing capital deployment, but we’re definitely leaning more in on share buybacks right now.

Travis Steed, BofA Medical Device Analyst, BofA: So it sounds like even with tariffs, the plan is to grow earnings from there.

Michael Young, CFO, Masimo: That’s right. Yeah, we want to continue to invest for that double digit top line growth and try to deliver strong earnings growth that outpaces that

Travis Steed, BofA Medical Device Analyst, BofA: top line. So the plans for

Michael Young, CFO, Masimo: earnings growth next year, sounds like? That’s the goal. Again, it’s early to talk about next year just with all the environment with tariffs

Travis Steed, BofA Medical Device Analyst, BofA: right now. Yeah, that makes sense. Any updates provide on the Apple litigation next steps and milestones that you’re looking for?

Michael Young, CFO, Masimo: Yeah, so, going back to where it started with the ITC case, we got an injunction on the Apple Watch with using our pulse oximetry. Apple’s continued to appeal that, and going through the appeal process. In terms of the trade secret theft case against Apple, that was tried last year. We still haven’t heard a final decision. It was a bench trial with a judge.

We’re still awaiting the decision on that. And then the last piece is really the the two big cases for us, is the patent infringement cases. One’s gonna be in Delaware, one’s in California. The one in California will be in November. The Delaware case has not been scheduled yet.

So I think that’s, you know, we’re excited to move into this next phase in terms of the patent infringement cases. Those are going be important to us.

Travis Steed, BofA Medical Device Analyst, BofA: Okay. And kind of a similar question on the jail litigation?

Michael Young, CFO, Masimo: Yeah, I mean, don’t have a lot to comment on litigation, employment litigation there. Not really that involved with it. Okay,

Travis Steed, BofA Medical Device Analyst, BofA: that’s fair. Had to ask. All right. Anything else that you think is important to talk about at this point that I didn’t ask?

Michael Young, CFO, Masimo: No, think we’re excited to kick off the year as a very strong start to the year. I know there was a little noise with the tenders, but we feel that we’re in very good position for this year to deliver the guidance as we came into the year. You know, fundamentally, we’re as strong as ever. Margin expansion story is intact. A lot of the cost actions we took were really things that need to be done, and to really optimize the business as we move forward, and help us to continue to grow.

And we can, by optimizing margin, we can reinvest more back into the business to drive growth, and I think we’re set up very well as we move forward.

Travis Steed, BofA Medical Device Analyst, BofA: Great. Thank you. And that’s all the questions I have. All right. Thank you, Travis.

Thank you.

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