Masimo beats the Street in Q1 ahead of proxy fight; CEO discusses Apple mistrial
09 May 2023
Patent InfringementFinancial Statement
Investors reacted by sending MASI shares up 1% to $186.50 apiece in after-hours trading today. MassDevice‘s MedTech 100 Index, which includes stocks of the world’s largest medical device companies, was down slightly.
The Irvine, California–based company earned $21.3 million, or 39¢ per diluted share, off $565.0 million in revenue for the quarter that ended March 31, 2023.
Adjusted to exclude one-time items, Masimo had a Q1 EPS of 87¢. The result came in 4¢ ahead of the predictions of Wall Street analysts, who expected earnings per share of 83¢ and $557.85 million in revenue.
“Our strong performance this quarter reflects our long track record of innovation in our professional healthcare business, our thoughtful stewardship of our established luxury and premium consumer audio brands, and our progress marrying the two to build a trusted, clinically proven consumer health business,” Masimo Chair and CEO Joe Kiani said in a news release.
For full-year 2023, Masimo maintained its prior guidance of $2.415–2.460 billion in revenue and adjusted EPS of $4.70–4.80. The Wall Street consensus is $2.44 billion in revenue and adjusted EPS of $4.75.
On today’s earnings call for investors and analysts, Kiani concluded his prepared remarks with an appeal for support at Masimo’s annual meeting on June 26, 2023.
“We intend to grow Masimo by making a real difference in people’s lives in hospitals and home, but we can’t do that without the dedication and commitment of our team and support of our shareholders,” he said. “For the first time since we took Masimo public in 2007, we will be engaged in a proxy contest. We encourage all of our shareholders to vote. The outcome will be consequential for our company’s mission strategy and guiding principles, which have been incredibly important to our success.”
In the question and answer session that followed, Kiani offered his perspective on the recent mistrial in Masimo’s smartwatch trade secret litigation with Apple.
Apple said it planned to seek dismissal of the remaining claims and that it “deeply respects intellectual property and innovation and does not take or use confidential information from other companies.”
Kiani said Masimo has spent $55 million and counting on legal costs in its fight with Apple, which spans five separate cases.
“It started off with the patent and trade secret lawsuit we filed here in Orange County which got split into two: a trade secret case and a patent case that’s supposed to resume post PTAB rulings and appellate court decisions. Then we filed the ITC case with the International Trade Commission to stop the importation of foreign manufactured products and infringed patents. Then Apple sued us in Delaware for patent infringement and we countersued them in Delaware for patent infringement, antitrust and unfair competition.”
Masimo won the first stage of the ITC case and is expecting a ruling from the commission in the middle of July, Kiani said.
“Assuming it’s favorable and President Biden doesn’t stop it, we could see the exclusion of the Apple watch with pulse oximetry in September timeframe,” he said.
Of the trade secret case in Orange County, Kiani characterized the evidence as “incredibly strong.”
“The evidence came in and showed in 2012, Apple decided to make a watch. They quickly decided the most important feature of that watch would be health sensing with pulse oximetry. They realized they did not know how to do pulse oximetry, so they started a project called Rover to look at all the companies in the world that do pulse oximetry. Quickly, they decided Masimo and Cercacor were the two standout pulse oximetry companies.”
Apple hired Marcelo Lamego, a research scientist who worked at Masimo and later became chief technical officer at Cercacor, as well as Michael O’Reilly, who was Masimo’s chief medical officer and EVP for medical affairs. Kiani said Apple would ultimately recruit 20 to 30 people away from Masimo.
Apple “thought Masimo would be a great acquisition, not just because of our technology and our people, but because I could take over their healthcare business,” Kiani said. “And they also were shot down. This all came in front of the jury. Tim Cook said, ‘We don’t do acquisitions like this.’ And then they looked at doing maybe a joint development with us while still recruiting our people, although the head of [business development] kept warning them, this is not good karma.”
Kiani also said the jury saw evidence that Apple launched the pulse oximiter in 2020 “knowing that it wasn’t good enough to get FDA clearance.”
“But because of the COVID chaos, they called it, they thought SpO2 would help them gain market share from Fitbit [and] they launched it, Kiani said. “Probably the worst thing is about 100 million people now have pulse oxes in the back of their watch that doesn’t really work. Their goal was to just get two measurements on 90% of the people each day, and they fell short of that. They got 37% of the time, two measurements each day. So all of that stuff was in front of the jury. They saw how they took several of our trade secrets.”
Kiani said Masimo plans to appeal the mistrial, and he said reporting that the jurors were split 6-1 in Apple’s favor was inaccurate.
“Right before the jury went to deliberate, the judge — I think, believing we had a jury that was going to go all the way with us — took away our business trade secret case, which we disagreed with, but we’re going to have to wait for appeal on that,” Kiani said. “But despite all of that, unfortunately the jury hung up. Though it’s been reported that it was six to one, I can’t get into more details on that, but it wasn’t like that.
“In life, you don’t get many do-overs,” Kiani said, concluding an unusually lengthy discussion of legal matters from a CEO. “We’re going to get [a] do-over, so we will be retrying this case and hopefully — given how good the case came and how everyone assumed it would go — we expect next time we’ll get very different results.”
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