Q4 2024 Masimo Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to Massimo's fourth quarter and full year 2024 earnings conference call.
The company's press release is available at www.massimo.com. At this time, all lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. And I'm pleased to introduce Eli Kammerman, Massimo's Vice President of Business Development and Investor Relations. You may begin.
Speaker Change: Hello everyone. Joining me today are CEO Katie Zyman and CFO Micah Young.
Speaker Change: This call will contain forward-looking statements which reflect management's current judgment, including certain of our expectations regarding fiscal year 2025 financial performance.
Speaker Change: However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC.
Speaker Change: This call may also include a discussion of the potential sale of our consumer business. The company is currently evaluating the impact of a sale of its consumer business, and the timing and terms of any such potential sale are still under consideration and have not been determined, approved, or finalized.
Speaker Change: Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures.
Speaker Change: In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results.
Speaker Change: The company believes that these non-gap financial measures increase transparency and better reflect the underlying financial performance of the business.
Speaker Change: Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release and supplementary financial information on our website.
Speaker Change: Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent form 10-K and 10-Q, in order to make informed investment decisions.
Speaker Change: In addition to the earnings release issued today, we have posted a quarterly earnings presentation within the Investor Relations section of our website to supplement the content we will be covering this afternoon. I'll now pass the call to Katie Zyman.
Katie Zyman: Thank you, Eli. I couldn't be more excited to join you today for my first earnings call as Chief Executive Officer.
Speaker Change: As many of you know, my new role was announced in January, but I only officially began on February 12th, less than two weeks ago. That said, I want to touch on a few things before handing the call to Micah.
Speaker Change: First, I'd like to briefly discuss why I took the role at Massimo, and then I will give a few of my first impressions from the time I have been here.
Speaker Change: First, Massimo's mission is about patient impact. I wanted to be a part of helping Massimo continue to grow and deliver improved outcomes for hundreds of millions of patients throughout the world.
Speaker Change: Actually I had a personal experience some years ago that demonstrated to me exactly how critical the products Massimo provides to patients can be. The short version of the story is that when my youngest daughter was about nine months old she contracted near-fatal pneumonia.
Speaker Change: I spent four days in the hospital staring at her Massimo Pulse Ox values non-stop, praying they would go above 90 and stop alarming. Finally on the fourth day, her Pulse Ox rose above 90 and climbed back to 98-99 and we got to bring her home to our family.
Speaker Change: So, I know firsthand what Maximo's mission means to patients and their families.
Second, I have always respected Massimo as a technology leader.
Speaker Change: with its history of bringing meaningful innovations and products to market. The opportunity to continue the innovation-focused culture at Massimo as we refocus on our core professional healthcare market is extremely exciting to me.
Speaker Change: Third, I was attracted by Massimo's talent. The leadership team and bench strength here are excellent. I really appreciate how warmly I've been welcomed starting with Micah, Bilal, Michelle Brennan, and the entire team.
Speaker Change: There is a true family feel at Massimo and a pride in the work that I believe will be integral to us achieving our financial and strategic goals in the years to come.
Speaker Change: Finally, I believe I can help Massimo further achieve his terrific potential.
Speaker Change: I've spent 30 years in the med tech space, including 10 years focused on advanced patient monitoring.
Speaker Change: I had a track record of delivering industry leading profitable growth while improving patient outcomes. And I'm excited to devote myself personally to Massimo's mission.
Now I'd like to briefly discuss my impressions so far.
Speaker Change: In all of my discussions, one consistent theme has been the significant opportunity we have before us.
Speaker Change: As a refocused organization, it is clear to me that there are numerous unmet market needs we are well positioned to address.
Speaker Change: and that we have strong momentum behind us to do so.
Speaker Change: At Massimo, we have an opportunity to change the way patients are monitored around the world.
Speaker Change: I fundamentally believe that all patients who are in the hospital should be monitored continuously all the time. And today, most are only monitored intermittently unless they are in the ICU. That is simply not enough.
Speaker Change: I also want to reiterate how impressed I have been by all of our people. Exceptional innovation requires exceptional talent, and we are in a strong position across our engineering, operations, sales, and all of our teams.
Speaker Change: To cultivate our talent, I'm committed to building programs that will actively engage, develop, and empower our current and future leaders. These programs will enable the organization to scale and they will support our long-term growth.
Speaker Change: Lastly, my initial discussions with customers have reinforced how close our relationships with them are.
Speaker Change: We are the clear leader in our core categories for a reason. And I look forward to getting a chance to interface more with our customers and to partner with them to improve our products and services in the future.
Speaker Change: In closing, I'd like to recognize the entire team for just a fantastic quarter, and I'd especially like to thank Michelle Brennan, who has done an exceptional job as interim CEO. I'm thrilled to be taking on the CEO role at a time when the company has such positive momentum and exciting opportunities ahead.
With that, I will pass it over to Micah.
Micah Young: Thank you, Katie. I'm excited to partner with you as we embark on the next chapter for Massimo, with a relentless focus on our core healthcare business, to drive continued innovation, profitable growth, and long-term shareholder value.
Micah Young: We finished the year with solid performance across both business segments as the healthcare and consumer teams were laser focused on delivering strong results within their in-markets.
Micah Young: For the fourth quarter of 2024, our consolidated revenues were $601 million, representing 9% growth on a constant currency basis.
Micah Young: Healthcare revenues grew 9% to reach $368 million and we shipped 65,000 technology boards and monitors during the quarter, which was at the high end of our expected range.
Non-healthcare revenues grew 11% to reach $232 million.
Micah Young: For the third quarter, our consolidated gross margin was 52%, which included gross margins of 63% for healthcare and 35% for non-healthcare.
Micah Young: Healthcare gross margins improved 190 basis points year over year as we continue to realize the benefits of manufacturing our high-volume sensors in Malaysia.
Micah Young: in combination with increased operational efficiencies and a favorable product mix related to more sales coming from consumables versus equipment.
Micah Young: For our consolidated business, operating profit was $134 million, representing 46% growth versus the prior year period.
Micah Young: Our operating margin of 22.4% improved 570 basis points year-over-year and rose 640 basis points sequentially.
Micah Young: These improvements were directly attributable to the additional leverage we realized from our seasonally strongest period, as well as the actions we've taken to optimize our cost structure with a greater focus on our core healthcare business.
Micah Young: Our non-gap net earnings per share was $1.80, representing 44% growth versus the prior year quarter.
Micah Young: which included a non-cash impairment charge to Goodwill and Intangibles for Sound United in combination with other non-cash asset write-downs for the healthcare business related to the actions we've completed in the fourth quarter to improve our cost structure.
Micah Young: As I mentioned on our last earnings call, the management team in partnership with the board went through a very thorough process to review our R&D projects and product portfolio in addition to the actions we have taken to optimize the cost structure.
Micah Young: As a result of our Project Portfolio Review, we will be focusing on fewer projects and allocating resources to those areas that will drive the greatest return.
Micah Young: With regards to optimizing our cost structure, we have right-sized corporate overhead costs, reduced marketing expenses associated with products that were not generating meaningful revenue,
Micah Young: rationalized our facility footprint and reduced costs in other areas unrelated to our top-line growth.
Micah Young: Although we will continue to explore new opportunities to optimize our healthcare business moving forward, the large asset write-downs associated with our strategic realignment efforts in the fourth quarter are now behind us.
Micah Young: and we expect to see increased earnings in cash flow in 2025 and beyond.
Micah Young: To summarize our fourth quarter performance, we delivered health care revenue growth of 9%, consolidated operating margin improvement of 570 basis points, and non-GAAP earnings per share growth of 44%. As a result of our strong earnings performance, we generated $50 million in operating cash flow for the quarter.
Micah Young: For fiscal 2024, our consolidated revenues were $2,094,000,000, which included health care revenues of $1,395,000,000 and non-health care revenues of $699,000,000.
Micah Young: On a consolidated basis, our gross margins were 53%, operating margins were 17%, and non-GAAP earnings per share were $4.40.
Micah Young: For the healthcare business, revenues grew 10% for the year as we realized substantial growth in our consumable and service revenues, partially offset by a decline in capital equipment and other revenues.
Micah Young: Within our consumable and service revenues, we delivered strong performance across our major product platforms with pulse oximetry, co-oximetry and hemodynamics, capnography and gas, and brain monitoring all exceeding their respective growth targets.
Micah Young: Within our capital equipment and other revenues, a large part of the decline was due to a change in accounting rules that started in fiscal 2022 and has progressively shifted a portion of our contract equipment revenue from capital leases to operating leases.
Micah Young: As a result, this equipment revenue is no longer accelerated upon shipment and is now being recognized over the term of the contract.
Micah Young: We expect this to be less of a headwind in 2025 and beyond.
Micah Young: We also shipped nearly 235,000 technology boards and monitors which exceeded our expectations coming into the year.
Micah Young: More importantly, we had a record year in terms of gaining share through customer contracts as our incremental value of new contracts was $432 million. As a reminder, we believe incremental new contracts are the best leading indicator for our revenue growth.
Micah Young: To summarize, our full-year performance, we delivered healthcare revenue growth of 10%, consolidated operating margin improvement of 170 basis points, and non-GAAP earnings per share growth of 16%.
Micah Young: As a result of our strong earnings performance, we generated $196 million in operating cash flow for the year.
Micah Young: Now I want to lay out the initial framework for our fiscal 2025 financial guidance.
Micah Young: First, starting in 2025, the Sound United business will be classified as held-for-sale and moved into discontinued operations.
Micah Young: As a result, we will be removing this business from our non-GAAP financials and no longer providing guidance for the non-healthcare segment.
Micah Young: Second, our guidance does not include any use of proceeds from a sale of San United, any potential benefits from new tax policies,
Micah Young: and any potential impact of new tariffs on our business, which could be material.
Micah Young: For example, our products sourced from Mexico and potentially subject to U.S. terrorists represent approximately 25% of our healthcare cost of goods sold.
Micah Young: While the implementation of tariffs remains a dynamic and uncertain situation and it is worth noting that medical devices have historically received exemptions from increased tariffs
Micah Young: We have taken the necessary steps to have appropriate contingency plans in place and will continue to reassess and modify our plans as the situation merits.
Micah Young: Third, our guidance incorporates the financial impact of one additional calendar week for the healthcare business, which occurs every five or six years based on our fiscal calendar.
Micah Young: The incremental revenue from the one additional week is mostly offset by product line removals, the impacts of ASC 842 lease accounting, and other factors.
Micah Young: Based on our 2025 guidance framework, we are projecting healthcare revenue of $1,500,000,000 to $1,530,000,000, representing approximately 8% to 10% reported growth and 8% to 11% constant currency growth.
Micah Young: We expect to ship 240,000 to 260,000 technology boards and instruments this year.
Micah Young: and as a result of our strong fourth quarter performance combined with the benefits we're seeing from our cost improvement initiatives.
Micah Young: We are increasing our non-GAAP operating profit range to $413 million to $428 million, representing 27.5% to 28% operating margins.
Micah Young: In turn, we are also increasing our non-GAAP EPS guidance to a range of $5.10 to $5.40, representing approximately 22% to 29% growth compared to our fiscal 20-4 results, excluding Sound United.
Micah Young: With regards to divesting Sound United, we are in the later stages of the process.
Micah Young: We will not be commenting further on it during this call, but we do reiterate that we remain pleased with the level of interest and our general expectations around timing remain unchanged.
Micah Young: In closing, 2024 was a great year for Massimo as we achieved a record level for incremental new contracts and realized a substantial increase in our unrecognized contract revenues, which provides good visibility for growth as we continue to ship products to our hospital customers for those contracts.
Micah Young: I'm also excited about the actions we've taken to improve our cost structure and refocus on our core healthcare business.
Micah Young: which produced stronger than expected earnings and cash flow performance in the fourth quarter and has set the stage to optimize our earnings power in 2025 and beyond. With that, we'll open the call to questions. Operator?
Micah Young: Thank you. We will now begin the question and answer session.
Speaker Change: If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Micah Young: If you would like to withdraw your question, simply press star 1 a second time.
Micah Young: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Again, it is star one if you would like to join the queue. And your first question comes from the line of Marie Thibault with BTIG. Your line is open.
Marie Thibault: Hi, good evening. Thanks for taking the questions and congrats on a very nice quarter. And Katie, nice to be working with you again. Welcome. I wanted to start here and ask a little bit about the operating margin guidance. In particular, that definitely stood out to us. It's higher than the 26 and a half that you talked about earlier this year. And I just want to understand what's changed? What has become incrementally more positive? Have you been able to find new cost savings?
All three of us on that, certainly very impressive.
Thanks, Marie.
Yeah, let me comment on the margin expansion. So
Marie Thibault: As you know from earlier this year and late last year we talked about operating margins about 26 and a half percent. We're now taking those to 27 and a half percent at 28 percent for the range.
for 2025.
Marie Thibault: What's really behind that is we were still going through some of the R&D project and portfolio review late last year.
Marie Thibault: As you saw, we had very strong fourth quarter results, and we started seeing some of those margin improvement initiatives taking hold.
even earlier than expected.
Marie Thibault: and we exited very strong with with some of the cost structure improvement we've made and we completed those those that rationalization of those projects so
Marie Thibault: So, that gave us the confidence to come into this new guidance and update the guidance to reflect increased margins. If you look at kind of where that's coming from, it's...
Marie Thibault: Year over year, if you kind of normalize for where we landed with the healthcare business, we landed around 23.7% operating margins in 2024 when you exclude Sound United.
And that's about a 400 basis point improvement, and about...
Marie Thibault: Half of that improvement is coming from the project and portfolio rationalization.
Marie Thibault: About a third of that is coming from corporate costs and facilities consolidation that we've done.
Marie Thibault: and then the remainder is really due to the consumer health marketing spend that was reduced as well. So that's the key drivers behind that going into 2025.
Marie Thibault: Okay, very helpful. Maybe I can ask a follow-up here about
Marie Thibault: hospital census, flu activity, some of the market share take commentary you gave us. What's being assumed in 2025 guidance in terms of hospital census? What are you seeing so far with flu activity and...
Marie Thibault: You know, what's being assumed in terms of market share gains. Thanks for taking the questions.
Marie Thibault: Absolutely. Yeah, so in terms of, we'll start out with census and kind of how we're thinking about that and inpatient admissions growth for the year. We're assuming in our guidance it's a range of, on a constant currency growth, 8 to 11 percent for the year.
and really the
Marie Thibault: The range is really due to how we're thinking about our consumables growth, consumable and service growth for the year.
Marie Thibault: It's, of course, dependent on, you know, how well Census performs on both ends of that range. So, if you look at that, we're implying in our guidance about low single-digit growth, you know, in terms of Census and inpatient mission growth.
And that's what gets you that range.
Marie Thibault: two really strong years, last several years have been very strong in terms of contracting and gaining share on those contracts.
Marie Thibault: And that sets us up well, you know, for growth as we move into 2025. And it's given us that confidence as we're thinking about the range that we've provided.
Marie Thibault: You know, we tend to see that carry into 2025 from 2024 as we're installing under those contracts and that starts to build revenue throughout the year.
Speaker Change: And your next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.
Thank you.
Good afternoon. Thanks for taking the questions.
Speaker Change: Katie, I'll echo the comments. I'm looking forward to working with you. You do have the unique position where you're coming in here to Massimo and inheriting both 25 guidance
Speaker Change: and an LRP that was set before you arrived versus like having it hand and influencing that outlook. So maybe you can talk about how you envision applying your skill set and deploying resources.
Speaker Change: to execute against or better than that financial framework. And if you could add on just how you see things like Massimo's product pipeline, just your experience from critical care and continue to drive sustainable above market growth here at Massimo.
Thank you very much.
Yeah, so, sorry, Jason. Thanks for the question. Excuse me.
Speaker Change: So first of all, related to the guidance and kind of the plan that's already in place, I mean,
Speaker Change: and Bilal and the team did just a fantastic job if you look at the last quarter in executing and really focusing the company back to health care and really to true patient monitoring which is what I think is really the most exciting space for us.
Speaker Change: And you know, you think in the big two weeks that I've been here, that, honestly, Micah and Bilal know this business really well, and they're the ones that put together the plan. So have a lot of confidence in the plan that was put together, and the ability to drive profitable growth going forward.
Speaker Change: I think the area that I'm going to be focused on for the next quarter is really trying to understand better how to expand our leadership position and in our core markets.
Speaker Change: And then second, just like focusing on the healthcare innovation, we just this company has great technology and great innovation. And now that we've narrowed it down to the the healthcare healthcare space.
Speaker Change: I'll be working with the team to just build out like how do we actually execute on commercial excellence on so many of the great innovations that we have.
Speaker Change: And then finally, just the team here is just amazing. And so getting a chance to build on the strong talent, understand what they see as the future opportunities is really where I'm going to be working. Coming from my background in patient monitoring, to be honest, I think really every patient that goes into a hospital,
Speaker Change: should be monitored, and right now they're not. And so I just see us trying to work together to figure out how to expand.
Speaker Change: especially non-invasive monitoring to more and more areas throughout the hospital, so really excited to partner with the team on that and confident that the plan that they put together is going to be doable even in the context of trying to expand the growth.
Micah Young: Excellent, very helpful. Micah, I wanted to come back to the tariff comments you were making. I think you mentioned some contingency plans that you have in place.
Micah Young: Can you elaborate here a little bit? Are you able to flex manufacturing even higher in Malaysia if tariffs were to go into place in Mexico?
Micah Young: or can you service a disproportionate amount of your U.S. business from Malaysia? Or, you know, are there exemptions that, sorry, if there aren't exemptions that are possible, do you have any contractual ability to pass through higher costs?
that would arise from tariffs.
Speaker Change: Yeah, thanks, Jason. So, as I mentioned before, it's a dynamic situation. We've seen things move around and shift in the plans that have been discussed already this year and, and it's going to depend on, you know, which, you know,
Micah Young: which products the government determines that are subject to tariffs, what those rates will be, the timing. But the one thing that's good for us is we've expanded our global manufacturing footprint, which now includes Malaysia.
Micah Young: as you alluded to, that gives us more flexibility to shift more and more products over to Malaysia. As I mentioned before, we're
Micah Young: are cables, accessories, lower volume sensors that we have an opportunity to evaluate and continue to move over. And those are some of the contingency plans we've been working through in case we need to execute some of those plans.
Micah Young: still early to determine, you know, the magnitude of what we can move, but, you know, that gives us much more flexibility than we had several years ago before we entered into Malaysia.
In terms of pricing, you know,
Micah Young: We're always, we're going to continue to evaluate and it's exciting to have Katie come on board, too, to also bring her background with pricing in this space. So, you know, that'll be part of the things that we consider in those contingency plans moving forward, but it's still pretty early.
Okay, understood. Thank you.
Rick Wise: And your next question comes from the line of Rick Wise with Stiefel. Your line is open.
Hi Katie, hi Micah.
Speaker Change: I'm thrilled to have you on board Katie. Let me start off with a question for you and I know it's early to ask a question like this but as you know given your unique perspective and knowledge of the hemodynamic monitoring product technology space
Massimo, Balala, Micah spoke of it.
Speaker Change: and the Massimo Project in very excited terms a couple of months ago at the Stiefel Healthcare Conference.
Speaker Change: Is this a big opportunity? Are you, it's early to ask, but are you intrigued, excited? Are they on some new path that could be a new opportunity for Massimo?
Speaker Change: Yeah, so thanks a lot, Rick. I mean, first of all, I'm right now just laser focused on Massimo and the great opportunities for growth we have here and just kind of learning.
the core markets at Massimo Compeachon.
I mean, when you think about hemodynamics...
Speaker Change: There is just a huge amount of patients that are not treated today, so I don't think it's a matter of thinking about it only in terms of like, how does hemodynamics look versus other people in the space, but really just about how do we find ways to treat more patients. And so I do think broadly monitoring more patients and in all areas, but in particular also in hemodynamics, there's just an opportunity to monitor more and more patients out there.
Speaker Change: And so that's the way I'm thinking about it right now.
Speaker Change: Gotcha, thanks. And Micah, maybe you could help us think through...
Speaker Change: The quarterly flow, particularly the first quarter, is to get us all set up right.
Speaker Change: 8% to 10%, 8% to 11% guidance, is this unusually back-enloaded year or fairly radibly spaced? Help us think through that.
Speaker Change: Yeah, thank you, Rick. So the best way to put it, I think the one unique item that sticks out would be is, you know, we have an extra week. We have 53 weeks in our fiscal calendar this year, which I mentioned.
Speaker Change: You know, that occurs every five or six years based on our calendar. So there's one extra week that's in the fourth quarter. If you kind of back that out of the fourth quarter and use normal seasonality, that's kind of how we're looking at the year. It's based on our historical seasonality.
Speaker Change: And if you kind of go back and look at that, you know, you see...
The first...
Speaker Change: You know, three quarters or somewhere, give or take 24.5% of revenues, and then the fourth quarter is about 26.5%. So, I think you just have to adjust out the extra week, and that's contributing about one percentage point, and then to the full year, probably four points on the fourth quarter.
Speaker Change: and then you start to apply the normal seasonality. I think that's probably the most unique thing in the guidance for the year.
Speaker Change: and the first quarter Micah just to make sure I'm understanding correctly how would you frame you know I obviously I assume sequentially lower in dollar terms but you know can you give us any color there?
Speaker Change: Yeah I think like I said if you if you kind of pull that extra week out of the fourth quarter and then apply about a 24 and a half percent which is kind of our historical seasonality for the first quarter.
Speaker Change: I think that'll get you somewhere in the zone, and you can kind of triangulate that with even the kind of year-over-year growth rates as well, just to make sure those are pretty consistent throughout the year. That's great. I appreciate it. Thank you.
Speaker Change: And your next question comes from the line of Michael Pollark with Wolf Research. Your line is open.
Michael Pollark: Good afternoon, welcome Katie. I have two, I was thrown for a little bit of a loop when your competitor announced a high single-digit decline in their Pulse Ox business with recent updates.
Speaker Change: Restoratory has been strong of late. Maybe it was a little soft year-on-year. Earlier in 4Q, you posted high single-digit growth.
Speaker Change: How would you true that up for us? What dynamics do you think might be at play?
Speaker Change: Yeah, so if you look at what we're seeing in the business, number one, our contracting over the last couple of years has been very strong in terms of gaining share on contracts. Number two, the respiratory-related illnesses that are tied to hospitalizations.
Speaker Change: Those, you know, spiked in late December, a little later than the prior, you know, flu and respiratory season.
Speaker Change: But they've held pretty elevated, you know, through the early weeks of February. So we've seen it, like I said, it's a steep ramp late in the year, last year.
Speaker Change: in December, and that's remained pretty strong all the way through the first few weeks of February and above the prior season. So that's kind of what we're seeing right now.
Speaker Change: Question, follow-up question on the cost initiatives. Has there been any redeployment of some of the saves and the pieces of strength? I mean, I understand what has been trimmed, but I guess what I'm driving to is what I see in the margin is like a net benefit. Have you played offense elsewhere? If so, where? Thank you.
Speaker Change: Yeah, so I'm not sure what you're referring to on the net benefit, but...
and others. Thank you. Thank you.
Speaker Change: Yes, I think you know you got to keep in mind that all the initiatives we went through last year
Speaker Change: A lot of those came from reducing corporate overhead costs, we were consolidating facilities.
Speaker Change: You know, we were eliminating spend on marketing for product lines that were not generating meaningful revenue or returns.
Speaker Change: We're laser focused back on the core business. We want to drive those projects and investments going forward that are going to give us the best return on those investments. And I think
Speaker Change: That's what you're seeing is a much more refocused organization that's
Speaker Change: Margin's been the output, not the input of those efforts. And I think you saw the strong earnings power of the business in Q4. And that's where we believe that's gonna continue into 2025. And it gives us a good entry point into the year.
Speaker Change: And your next question comes from the line of Vic Chopra with Wells Fargo. Your line is open.
Speaker Change: Hey, good afternoon, and thanks for taking the questions, Katie. Nice to be working with you. Maybe just talk about some of your key priorities over the next three months, and then I had a follow-up, please.
Thank you. Bye.
Micah Young: So thanks for the question. So, as I mentioned before, really, where I'm focused is trying to develop more of the long term growth strategy. So, as Micah mentioned, we have done a lot of planning and a lot of
Micah Young: refocusing back on health care. And now what we've got to do is figure out how within the health care space we can build a long-range plan that's going to accelerate our growth over time.
Micah Young: So looking at the innovation projects that are in the pipeline, working with the R&D teams and trying to understand where we have opportunities, and then working with the upstream marketing team. So I'm spending a lot of time on that.
Micah Young: The second thing is really working with the leaders and getting to know the team. And then the last thing, and probably most importantly, is getting a chance to go out and visit customers and get feedback directly from our customers, from some of our partners in the space.
Micah Young: It's just an amazing kind of space to be able to have a chance to interact externally as well.
Micah Young: And so my priority really for this quarter is to work with the team, start to build that long-range focus.
Micah Young: and then listen and learn as much as I can. I didn't come in here with like some big agenda, really wanna take everything that I know and really get a chance to listen to all these inputs and then start to build that long range growth plan.
Great, thank you. And maybe one for Micah.
Speaker Change: You know, you raised your operating margin guidance for the year from when you previously pre-announced your earnings. I'm just wondering if that operating margin upside is a pull forward of the future cost outs. You know, I think you gave a long-term target initially of about 30%. Is that a pull forward or does that change the long-term operating margin target? Thank you.
Katie Zyman: Yeah, Micah, I'm not going to comment really on the long term right now because we do need to work with Katie on those new plans on how we're thinking about, you know, the next three to five years. And I don't want to get ahead of that, that process.
Katie Zyman: But what I can tell you, though, is this business does have good leverage capability to it. I mean, we, you know, we do believe we can continue to leverage and drive operating margin expansion. You know, we've got
Katie Zyman: probably the biggest opportunity and where a lot will be focused around will be gross margin expansion from going forward because we think there's a lot of
potential there in the years ahead so
Don't want to get ahead of our next...
Katie Zyman: Investor Day, but you know we we do see great operating leverage and earnings power in this business and
Katie Zyman: and as we partner with Katie on really focus on, you know, innovation-driven growth going forward. That also gives us the ability to leverage and drive great earnings power in the future. So I think that's where we'll kind of leave it for today.
and John O'Connor. Thank you. Thank you.
Thank you.
Thank you.
Speaker Change: And your next question comes from the line of Mike Mattson with Needham. Your line is open.
Yeah, thanks for taking my questions.
Speaker Change: I guess, you know, I didn't hear a lot about hospital automation, so I was wondering if you could give us an update there. Is that still a focus or is that something that you sort of de-emphasize as part of the strategic review that you did?
Sorry, can you repeat that?
My question is about possible automation and whether we're still...
Speaker Change: expanding in that area. Yeah so Mike if you know I didn't mention that on the list of product lines because we were talking about our you know some of our major product platforms but
Speaker Change: automation has been very good growth for us. And in fact, you know, our long range plan target there has been over 20% 20% plus growth. And we, we saw that not only in the full year growth, but also in the in the second half of the year, as well as the fourth quarter. So we've seen strong growth in our
Speaker Change: automation category and platform and we're going to continue to expand in that area going forward and continue to invest there, so We've got a great opportunity with one of the largest device libraries. We're going to connect so many different devices and hospitals and and be able to
Speaker Change: manage and leverage that data that we get coming off the patients and and being able to take that data and help clinicians with decision support and I think that's a great opportunity for us as we look out in the future.
Speaker Change: I can just add a comment to that, just coming from the outside, that the investment that Massimo has made the last 10 years in hospital automation and really being an integral partner with hospitals for connectivity, I mean, you're starting to see it pay off, but it's so critical to the future of healthcare, right? It's almost like you can't...
Speaker Change: It's almost like an ante for poker, like you can't sort of be in the space without also having a solution there, so.
Speaker Change: Okay, got it. And then just in terms of the Apple litigation, I was wondering if you could give us an update there. Is that something that...
Speaker Change: you're going to continue to pursue? Is there potential for some sort of settlement there? Or is that something that would be kind of moved into the, you know, consumer health business that's, you know, separated from the company?
Yeah, so...
Speaker Change: With regards to Apple, you know, we're happy with the progress we've been making. Apple is right now, you know, most recently they've appealed the decision with the IPC.
Speaker Change: on the exclusion order for Apple Watches with Paul Soximetry. And now, you know, the second step was we're waiting on the judge's decision on the retrial of the trade secret theft case that was in California.
Speaker Change: And really the third piece of it is looking at the trial dates. They haven't been set for the two different patent infringement trials, one in Delaware, one in California, and that's where we're the plaintiff asserting multiple patents against Apple.
Speaker Change: That's really, you know, the status of where things sit with Apple right now, and I think we want to kind of leave it to that and not really comment further on the Apple litigation at this time.
Yeah, I understand, but that would reside within the...
Speaker Change: part, you know, the Massimo healthcare business that's, you know, staying is, you know, Massimo, not the parts that are being separated, right? Okay. Yes. All right. All right, Mike. Yes that will will continue to To move along with that and that'll be continue to be part of the healthcare business
Okay, thanks.
Speaker Change: Thank you. And there are no further questions at this time.
Speaker Change: Okay, so just want to say as the new CEO and just for my first call, I want to say thank you all for joining the call today and special thanks to Micah and Eli for leading the call this quarter, doing a great job. Personally, I'm very excited about the year ahead and the opportunity we have at Massimo to improve patient outcomes by taking monitoring into new areas.
Speaker Change: I look forward to speaking to all of you guys again next quarter, and we'll see you then. Thanks, everyone. Thank you.
Speaker Change: And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.