If ever there was a case study of a company having the right products at the right time, medical device maker Masimo Corp. could be the subject.
The Irvine-based company (Nasdaq: MASI) makes devices called Signal Extraction Technology (SET) pulse oximetry that help doctors and nurses remotely monitor the blood, oxygen and other key metrics of patients, including those now dealing with the coronavirus.
“Thirty-one years of inventing and improving SET pulse oximetry and making systems for remote monitoring affordable and easily deployable prepared us for this moment in history,” Chief Executive Joe Kiani said during the company’s first quarter conference call last week.
“Hospitals can now monitor and manage their patients remotely anywhere in any bed, including their own beds at home.”
While hundreds of other companies reported declining revenue in the first quarter, Masimo said its first quarter sales climbed 17% to $269.6 million. That number is higher than the typical 12% range it has been reporting in recent quarters.
Its share price has climbed 46% since March 21 to about $216 and an $11.7 billion market cap as of late last week, the fifth highest of a publicly traded company based in Orange County.
The first-quarter results mirror what Kiani told the Business Journal during an interview in late February, when he said the company was getting calls from countries around the world for its products.
Popular Products
Products like its Radius PPG tetherless wireless sensor proved popular when hospitals lacked adequate protective gear, Kiani told analysts on the April 28 call.
“Many hospitals moved their patient monitoring equipment outside of the patient’s room and into the hallway, avoiding the need for caregivers to enter a patient’s room to read the values on the monitor,” Kiani said.
“This change reduced clinicians’ exposure to infectious patients and reduces risks for healthcare staff, while also extending supplies of protective masks and gowns.”
Masimo’s devices traditionally have been geared toward hospitals. In the past year, Masimo was developing an inexpensive version for home use to help monitor patients using opioids.
Once the pandemic struck, company executives decided to use such devices to help victims in their homes. It asked the Food and Drug Administration, which responded within two hours even though the key person was on vacation at that time, Kiani said.
Within a week, the FDA permitted Masimo to market the product, called Masimo SafetyNet. It allows physicians to direct patients with mild-to-moderate COVID-19 symptoms to return home.
“By implementing Masimo SafetyNet, hospitals can save their scarce beds for the more severe cases of COVID, preserving capacity while safely watching over the patients they have sent home or elsewhere,” Kiani told analysts.
Since the full market release in mid-April, 76 hospitals have deployed Masimo SafetyNet and over 650 hospitals are in the pipeline to do so. The company hosted a webinar on SafetyNet where 2,000 clinicians representing 1,200 institutions in 70 countries participated.
“We’ve never had a more successful product rollout,” Kiani said.
Great Q1
The first-quarter report had leading indicators that showed how well the quarter went. Its non-GAAP gross margin increased 360 basis points to 69%, aided by sensor revenue that has substantially higher margins, and positive results from its prior cost reductions. Its non-GAAP operating margin increased to 26.3%, up from 24% a year ago.
The company shipped 72,000 circuit boards used for its devices in the first quarter, above its typical 60,000. Demand continued to rise in April, the first month of its second quarter, as worldwide sales orders including backlog are up approximately 87% versus last year.
This year, the company expects to ship 550,000 circuit boards, or more than double its typical annual output. It already has 151,000 boards on order in the second quarter.
For all the good results, the company’s executives warned investors and analysts not to extrapolate the performance of the first four months into the remainder of 2020.
Like many other companies, Masimo withdrew its annual guidance, citing possible interruptions in manufacturing and potential reduction in future demand if there was overbuying.
The company is planning to invest more in its wireless sensors and remote monitoring technologies.
“These products are being embraced by hospitals during this global pandemic as they see the value of keeping some patients at home in order to reduce disease transmission risk, manage limited supplies of protective equipment and keep beds available for the more severe cases of COVID-19,” Chief Financial Officer Micah Young said.
About the worst problem for the company in the prior quarter was the Federal Reserve cutting interest rates by 1.5 percentage points. As a result, Masimo expects to generate $6 million in non-operating income this year, down from a prior prediction of $12 million. It has about $656 million in cash and short-term equivalents.
“If we could have it our way, we wouldn’t have this pandemic, no matter how it’s positively impacted our trajectory,” Kiani said. “Overall, it’s a net big negative. However, this pandemic really changed the definition of telehealth from a cardiac-based or diabetes-based thinking to a respiratory-based thinking.
“And our customers tell us there’s nobody out there that has what we have. We are the only product they can trust. We are the only real product—everything else, it’s wafer wear. And that is reflective of how fast people are taking up this technology.”
