Good morning, everyone. Welcome to the 43rd Annual J.P. Morgan Healthcare Conference. My name is Grace Cho, and I'm an associate on the J.P. Morgan Healthcare Investment Banking team. Our next presenting company is Masimo, and speaking on behalf of the company, we're pleased to have CEO Michelle Brennan. With that, I'll pass it on to Michelle.
Thank you, Grace. Good morning, and thank you for joining us on the last day of J.P. Morgan, so I really appreciate it, and I also want to take the time just to thank Grace and J.P. Morgan for inviting us to present today. As you heard, I am Michelle Brennan, and I am the interim CEO, and before I jump into the presentation, I just want to start by saying that I have been so impressed with the team at Masimo. You know, as a board member, I really got to know the management team, but as interim CEO, I've had the opportunity to get to know the team underneath the management team, and I've been very impressed with the strength that we have in talent, in engineering, and operations, as well as sales. More important, though, is getting to know this team.
I realized that they all knew that change had to happen for Masimo to continue to grow. And why that's important is because it gave us real buy-in as the board and the management team started to make changes. So I want to jump into the business. As you can see on this slide, we are really building off of a very strong base as the global leaders in non-invasive patient monitoring. And for 2024, we expect our total healthcare revenue to come in at about $1.4 billion. You can see we have broad geographic reach. We have deep market penetration because of our very strong 2.6 million installed base of Masimo technology and boards. We also are the primary provider of pulse oximetry for 10 out of 10 U.S. hospitals. And every single year, 200 million patients are monitored using Masimo SET technology.
It really is our differentiated technology in a market that has high barriers to entry, coupled with our recurring revenue model that allows us to sustain and grow our market leadership position. I think it's important for us to talk about where Masimo has been and where we're going, so up until 2022, we were very focused on our professional healthcare market, and we were investing substantially in innovation to become that market leader. We consistently delivered double-digit growth and an EBIT margin around 25%, and then when we bought Sound United in 2022 and we expanded our R&D teams, the whole organization's focus onto consumer applications, you can see the company started to lose focus, growth stalled, and margins deteriorated.
So now what we're doing is we're really working to refocus the organization on our unique capability to innovate in the professional healthcare market, to drive consistent growth, and to improve our margin. And we expect to see this year growth in the single or the high single-digit to low double-digit revenue growth, and we've set a goal for ourselves to achieve a best-in-class medtech margin profile. And we have made in 2024 great progress. So our, you know, as I've said before, our 2024 total healthcare revenue is coming in at about $1.4 billion, but that's 10% growth on a constant currency basis. We also see our consumables and our service revenue coming in around $1.25 billion, and our incremental value of new contracts is coming in to be greater than $410 million, which is another record year.
Besides focusing on innovation to drive growth, we've also been working really hard to improve our margins, and we have some different cost savings initiatives that we have started to work on, such as right-sizing our organization and also really looking at some of our markets and products that we believe really are not going to deliver meaningful revenue growth, and we're discontinuing those. You know, we also have some various other cost rationalization initiatives. So far, these initiatives have already given us significant operating leverage, and if you remember, in 2024, in November, we said that we believed our 2025 operating margin would be 26%, well, today we're increasing that, and we expect our 2025 margin to be at least 26.5%, and why we're confident to do that is we really see more opportunity to improve our margin profile.
We also have been looking at our organization and really wanting to create an organization that's more streamlined and effective. So we've really focused on pipeline prioritization, having fewer projects that are really focused on those big opportunities for growth in the market so we drive the highest growth. But we also have been looking at enhancing some of the key processes around our products, like our innovation process and our launch excellence process, where we are able to really drive the highest returns by getting better at launching new products. And lastly, we are quickly working to find the right home for our Sound United business.
If I move to the big picture, our priorities for 2025 and beyond are: one, to deliver best-in-class growth, two, to continue to drive innovation, three, really focusing on operational efficiency and margin improvement, and then fourth, really strategically aligning the organization to drive long-term growth. And I'm going to take a moment and talk about each one of those. So, you know, we have a long track record of delivering sustainable high single-digit to low double-digit revenue growth, and that's exactly where we want to be in 2025 and beyond. You know, our consumable and service revenue growth, or our model, really helps us where we take our huge, large, and growing installed base, which we view as a tailwind, and our recurring revenue model. And with that, we see that our consumable and service revenue provides 89% of our total healthcare revenue.
We see that as a tailwind that justifies this cost or growth expectation that we're putting on the market. Another tailwind we see is our practice of long-term customer contracting, which really gives us this stable floor and also great visibility. A third tailwind that we're seeing that will help us drive growth is we do see opportunity to expand into different care areas with new technology, and then lastly, we truly do have a technology and innovation edge in the marketplace, and you probably have heard us talk about being leading innovators, and I think this next slide really brings that point home. You know, we lead in pulse oximetry with our SET product. We also lead in hemodynamics with our Rainbow and LiDCO product line. What we expect to see is sustaining growth in these two categories.
With our NomoLine line of capnography and gas monitoring, we really expect to see acceleration because we offer a complete product portfolio, and we have patented technologies that have allowed us to enhance the accuracy, but also to extend that product lifecycle. When you come down and look at our NomoLine line or our SET line and O3 brain monitoring line, you know, we also expect to see accelerated growth there. We have a complete brain solution on one platform that delivers best-in-class performance as well as enhanced accuracy, and this is an area we are continuing to innovate in with new parameters and new capabilities. When we look at hospital automation and telemonitoring, we see that as one of our biggest growth opportunities. We have a very cost-efficient offering, and we have unmatched wearable capabilities.
When you put those together, it allows us to bring to market a one ecosystem platform where you can have connectivity, surveillance, visualization, and mobility all in the same place. This is not where we're stopping. We're going to continue to innovate, and we see real significant opportunity to keep penetrating deeper in that high acuity care space where we've played for such a long time with new parameters like DO2 on our hemodynamic platform. We've also been working to make sure that we can expand into the low acuity care area with our wearable and wireless technology, such as products like Radius VSM.
When it comes to that shift from hospital to home, where we think our strength will be is to center our strategy on really being able to monitor patients that are being discharged and recovering at home, as well as the chronically ill patients that are being monitored at home. I want to take a moment and shift focus to, now, our margin improvement initiatives, and I want to start by just saying, you know, we really are a growth-focused company, and margin is really our output, not our input to our efforts. We're going to continue to invest strongly in innovation so we can deliver that market-leading growth. However, we have seen significant opportunity to rationalize our facility footprint, to really streamline the office of the CEO, and to position our corporate overhead more appropriately to our structure and our strategy.
I've mentioned this before, but we also are being very disciplined on our pipeline prioritization, as well as stopping marketing spend on products that just are not going to deliver meaningful revenue. In addition, we really see an opportunity to increase our operational leverage as well as improve our gross margin by focusing on COGS and by being very disciplined in discontinuing programs or projects that are not aligned to our core business. We will reinvest some of the benefit that we see through this effort, but we also will, at the same time, have a portion of it flow through so that we continue to improve our EBIT margin.
We look forward to being able to talk to you more in-depth later this year on how these programs have really impacted, but we do feel very confident today, based on the actions that we've been taking in Q4 , to increase our operating margin to at least 26.5%. I'd like to summarize our top initiatives really for 2025. First, we're going to be highly disciplined on how we deploy our R&D resources so that our programs that they're working on really have real commercial viability. They're in very attractive markets, and they deliver the highest return. Second, we will go after reducing our COGS, and we're going to do this by expanding and optimizing our Malaysia facility, by reducing our product costs, and by leveraging our overhead expense. Third, we definitely will exit the consumer audio business. We're very pleased that process is well down the line.
We have many companies or multiple parties that are interested in this business, and we're going to let this kind of play through, and we'll update you when that's at an appropriate point. We have, as I've mentioned, been very focused on pipeline prioritization, and we will continue to discontinue any product or program that is not squarely in that primary healthcare or that professional healthcare market, and then we have been expanding our board with very highly capable individuals, and we're really pleased with the progress we're making on identifying the permanent CEO. I'd like to end by really sharing with you our 2024 preliminary financials and our 2025 guidance, so in 2024, you know, we see our total revenues coming in at approximately $2.1 billion, and as I've mentioned several times, we see total healthcare coming in at $1.4 billion.
We also see that our non-GAAP earnings per share is coming in at the high end of our range, at least for $4.10. As far as 2025 guidance goes, you know, we expect our total healthcare revenue to be in the range of $1.5-1.53 billion, and that is an 8-11% growth on a constant currency basis. We also, if we hit and when we hit at least 26.5%, we believe our non-GAAP operating profit will be in that range of $390-406 million. And then we do see that our non-GAAP earnings per share for 2025 will come in a range of $4.90-$5.10. So at Masimo, we're really excited about the opportunities we see in front of us to be able to accelerate top-line growth and also to improve our operating margin.
So I'm going to now join Blair, our COO, and Micah, our CFO, to answer any of your questions.
I can get started here. How will the company be different under the new board and management?
I think the biggest difference is that we are very focused that our core capability is the professional healthcare space and that we do not have any business being in the consumer channel at all. I think the other thing that you'll see is, as a board, we do see all the opportunity to grow this company, and we're going to continue to invest in innovation, but we're going to be disciplined about it. We're also going to put capabilities around those new launches so that we get returns quickly. I don't think beyond that the board will be very different because Masimo is a great company, and we didn't come in seeing a turnaround. We came in seeing, let's put some discipline, focus, and let's drive from the foundation that Masimo had.
Thanks. What will be the main sources of growth for the next three to five years?
I think, you know, we alluded to some of them in the presentation. On the short term, we definitely see an expansion into the general care floor with our Radius VSM product that we're looking to launch towards the second half of the year, as well as deeper penetration into the peri-op space with launches in our hemodynamics platform, and then a focus on that hospital-to-home segment, and that segment, like we said, is going to be really focused on patients post-operatively exiting to the home that need monitoring or chronic care management in the home. Looking beyond that, our focus at Masimo has always been on the consumable space, and we'll continue to expand our portfolio related to what we call wireless and wearable sensing technology. We see that as the future of monitoring, and we're going to be really heavily focused on that.
On the other end of the spectrum, we're going to be focused on decision support and AI, and we believe we can be delivering decision support to hospitals with a service model that competes with what we do on the disposable model that we have today in our recurring revenue, so that will be our focus in the future, and we see those growths in the future being beyond hopefully what we have today.
Do you see business development fitting into that picture?
Business development.
Yeah. So looking at business development, I mean, it's going to be something as far as a capital allocation area of focus for us in the future. Right now, we're trying to optimize what we've done in 2024 leading into 2025 in terms of really optimizing the business, driving the improved margins, continuing to deliver that top-line growth. And we want to make sure we stay focused on our core business and doing that. Once we work through optimizing, getting rid of some of these, exiting some of these businesses that are not performing or delivering the right return on investment, we will start to turn and look at bringing, you know, having a combination of organic and inorganic growth be part of the story moving forward. We don't need to do acquisitions.
You know, we expect that our core business is going to continue to deliver that high single-digit, low double-digit growth, but we want it to become a part of the story by tucking in technologies, and it'll be more tuck-in in nature. So we want to tuck those technologies into where we may have gaps in the portfolio or opportunities in the portfolio, whether it be in co-oximetry and hemodynamics, maybe filling out some technologies there. It could be filling out technologies within our hospital automation or telemonitoring. So really just working with the teams here, the board and leadership teams to try to figure out where we can augment that growth and what the right tuck-ins are. But we're not looking to do anything large at a large scale. It's not something that we need to do going forward, so.
Great. And I think you just touched upon this a little bit, but with greater interest in telemonitoring both in hospital and at home, will there be focus on expanding into ECG as well?
Yeah, I think we have already introduced some wearable products with our W1 product that does have ECG capability into it, and we plan to expand also with our VSM product on the general care floor and eventually at home with some ECG products. We do have a differentiator here. We're not going after the legacy ECG monitoring. We are going after some wearable devices that will reduce the burden on nursing, yet have the same capability as the high-end devices in the future.
Great. And is there potential for additional margin expansion beyond what's expected in 2025?
Yeah, so if we look at, let me step back and talk a little bit about how we've set up the year. So, you know, we've done, as Michelle mentioned, a lot of really right-sizing of corporate infrastructure, consolidating facilities, really getting after G&A costs and corporate overhead back office costs and optimizing that structure, and that's the work that we've done in 2024 leading into how we're guiding 2025. As Michelle mentioned, we also have right-sized some of the spending around marketing spend on projects or product lines that are not generating meaningful revenue. We have gone through a lot of work around R&D project and portfolio rationalization, and there's still some ongoing work there.
But all these things have really set us up to give us confidence coming into the year because we're also seeing, as you saw, you know, we expect at least to be at the high end of our guidance range on earnings per share for the year. A lot of that is really we're seeing the fruits of that effort to where now we're starting to see that come into the Q4 setting us up well for this year and 2025 and giving us the confidence to come out with guidance this early to say at least 26.5%. The other thing it does too is it gives us the opportunity to navigate.
We believe that this new administration is going to be overall business-friendly, but there may be things like tariffs or things that come up that we may have to navigate, and it gives us the ability to really navigate those things in a more confident way. Not only are we in Malaysia now and we're moving more manufacturing there, and that seems to be a little bit more out of the spotlight in terms of tariffs, and thank goodness we moved our manufacturing there, so it gives us flexibility to navigate any potential tariff in the future, and also just all the initiatives that we're doing today is laying that groundwork to help us navigate even further.
As we look beyond the really optimization right-sizing efforts that we're doing and look out into future years, this is, with the recurring model that we have, the razor-blade model. We've made a lot of investments in the countries that we want to go direct in. Those are investments of the past that we're able to leverage moving forward. This business model has a great ability to scale going forward. So we expect that margin progression and that margin story. We've always kind of said that, you know, 100 basis points of margin expansion. We still believe we have that capability to continue to expand beyond what we're optimizing today, so.
We'd also bank on growth. So, you know, we're looking to say that we're going to continue to drive that market-leading growth rate, and that will also help improve our margin profile.
Absolutely.
How are you guys planning on staying disciplined with your operating margins with all of the growth that's in plan?
So we have put in some processes that, you know, really in many cases, these processes were with Masimo before the acquisition of Sound United, and then they kind of got lost. So working with Blair and Micah, we are bringing back key processes around innovation, key processes around marketing, strategic marketing, and launch excellence, and putting in those controls that allow us to do stage gate reviews, make sure that our innovations are always backed by a business plan so that we can make good decisions and allocate our resources properly, but also really building the capabilities such as pricing and being able to say early on, what does this product need to lead in the market, and being able to build those studies or put in the right minimal viable product so that we go out the chute strong.
And that's really how we'll stay disciplined as we move forward. I don't think this is going to be difficult in the sense, you know, it is always difficult when you're making a change, but it is so refreshing to have walked in and see the team at Masimo really know these changes had to be made. And also when we came in and said, how will we improve margin or drive growth, they brought the strategy forward. These were things that they knew they wanted to do, and they just hadn't been able to do them. And that's really caused great buy-in, and it shows the culture sitting there is more disciplined culture than what was happening post Sound United.
I think Micah briefly touched upon this earlier, but how do you expect to prioritize capital allocation moving forward?
Yeah, let me hit on just broader than the M&A discussion. So we expect to prioritize share buybacks. That's going to come back into the fold as far as prioritizing that over any debt paydown over the next few years. Of course, that becomes, you know, what you're, you know, do we have the cash available to do that? Do we, you know, timing in the market and also other financial factors, interest rate environment versus, you know, where the share price is trading at. So there's a lot of factors that go into that, but that will be back at the top of our priority going forward. And like we said, you know, until we get to a point where we feel like we've really driven the optimization in the core, that's going to be our focus.
Then we will start to shift to look at where can inorganic growth and new technologies that may tuck into our core professional healthcare, and I mean core, going forward that can augment our growth rate as well. Again, like I said before, we don't need to do a lot of acquisition to deliver this long-range plan, but it could be an opportunity for us to augment that growth rate.
I know that the priority isn't with inorganic growth, but what are some key areas that you are looking into?
Yeah, I think it's the areas we talked about before. I think if you look at our mature markets, pulse oximetry, capnography, and gas, and brain monitoring, those are what I'd call a little bit more mature markets because they are a lot of that standard of care in hospitals. But where we differentiate ourselves in a big way too because of what we can do with Rainbow and now with hemodynamics, and we're the only player in the market that has those capabilities with bringing together oxygen content with hemodynamic or cardiac output from LiDCO, an acquisition we did years ago. So we can bring together a platform, but there may be things within that platform where we may look to bring in some tuck-in technologies over the years ahead.
There's also areas within hospital automation, how we're managing data through the hospital, advanced algorithms for decision support that Blair talked about, where maybe there's some things that we could tuck in there as well. And then the last piece would be going hospital to home or hospital at home. Are there things we can put in our health kit? We have great wearable technologies that we can discharge patients post-op and as well as long-term chronic disease management programs. But there's some things that we can tuck in there possibly in terms of technologies that'll make that platform even stronger. So that's where we would look. We're not looking to diversify again. That's not our goal, but we're looking to strengthen the core.
Great. As we come up on time, what are you looking most forward to as we head into 2025?
I think refocusing on the healthcare platform is something that we're definitely looking forward to. During the last few years, I think we've sidelined some opportunities that are very large opportunities, and getting back to that focus is going to be a big thing for us. The general care floor expansion, like we've mentioned, is going to be a big deal for us. I think, you know, we're doing a few things because we have the best technology when we're monitoring these patients. Going to the general care floor is difficult because nursing want automation there. They don't want to have a burden there. They want to reduce false alarms when they put monitoring on patients. And these patients are walkie-talkie patients, so they're difficult.
I believe we've had the solution where we can win with Masimo, where we can win not just economically for hospitals, but also for patient safety, and I hope we can do that this coming year, and the same goes with the introduction on the peri-op platform, combining our hemodynamics and cardiac output together. That insight is going to be differentiated for clinicians. Typically, they'd have to, you know, do a blood draw and wait and then combine that with a cardiac output to determine what is that oxygen delivery that is needed for that patient. We're going to be able to deliver that to them in real time, second by second, continuously, which will have an impact on the outcomes of these patients, and the same when we go home. The challenge at home is a big challenge for these post-operative patients.
And technology that can measure with the same accuracy you have in hospitals for these patients at home is going to be really important to achieve those outcomes. So for all three of those fronts that we're talking about for this year, it is going to make a patient impact, a clinical impact, and hopefully a financial impact for our customers.
I'm just really excited that we're going into 2025 clean. There's no disruption in front of us. We're back to being very focused on our core capability, and I can feel the momentum with the team, and that just is fantastic. It feels like a rebirth. It's great.
Yeah, I'll just add, I mean, the energy in the building, the culture. It feels everybody's got that energy coming back and coming back to life. And as we mentioned earlier, there's been, you know, attrition is actually down. People are ready to move forward to get focused on the core professional healthcare business. And that's probably what excites me the most. And hopefully, you know, at the corporate level, we can work through the exit of the consumer business and keep that distraction away from our core team and, you know, deliver a very strong 2025.
We don't talk a lot about the consumer audio business, but I will say they also feel very motivated, focused, and they're excited about finding what that new home is for them that really understands their business. I feel it in both teams. Yeah.
All right. Thank you for the great presentation.
Thank you.
Thank you.
Thank you very much.