More Hard Times for Masimo

The road just keeps on getting rougher for Masimo’s management team. Just a few weeks shy of a proxy battle with Politan Capital Management, the company is now reporting preliminary quarterly revenue coming in nearly $100 million below expectations. As a result, Masimo saw a significant drop in shares on Tuesday.

The Irvine, CA-based company’s full-year guidance for its healthcare business was previously set at about $1.45 billion and is now set to be dropped to $1.3 billion.

A more in-depth breakdown of the numbers shows that 2Q23 revenue is expected to be $453-$457 million vs. consensus of $553 million), with Healthcare revenue of $280 million to $282 million (vs. a consensus of $347 million and Consumer revenue of $173 million to $175 million vs. consensus: $205.3).

Masimo said healthcare revenue was lower than expected because of several factors which include sliding timelines for several significant OUS tender orders, slower new customer conversions due to hospital labor shortages and OEM delays, fewer sensor sales due to lower hospital inpatient census, and higher sensor inventory levels at some customers given prior discounting and a quicker end to the flu season, and lower capital equipment demand as hospital budgets remain constrained.

In a news release Masimo’s chairman and CEO, Joe Kiani pointed out some bright spots in the preliminary earnings.

“While we are disappointed in our revenue results this quarter, our hospital business is strong, as our growth in contracting shows,” Kiani said in a release. “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 said it plans to discuss its complete 2Q23 financial results and provide updated fiscal year 2023 financial guidance after the market closes on Tuesday, Aug. 8.

“We acknowledge a loss of management credibility and think the stock price, down 25% aftermarket, may take months to regain footing,” Marie Thibault, an analyst with BTIG wrote in research notes.”

Hard Times, Indeed      

In June, citing "poor governance" and a "collapse in valuation," Politan Capital Management, a 9% shareholder of Masimo waged and was successful in getting Michelle Brennan and Quentin Koffey elected to the board.

This could set up another proxy fight a year from now, which could put Kiani’s role as CEO in a precarious position. Kiani founded Masimo in 1989.

Investors sharply questioned Masimo’s $1.025 billion acquisition of Sound United, a consumer tech company with a portfolio of headphones and speakers as well as a software platform to connect devices in the home to the cloud.

Kiani defended the acquisition, noting that Masimo could leverage Sound United’s expertise across consumer channels to the accelerate distribution of the combined company’s expanding portfolio of consumer-facing healthcare products.