This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Good afternoon, ladies and gentlemen, and welcome to Massimo's third quarter 2023 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. After the speaker's remarks, there will be a question and answer session. I'm pleased to introduce Eli Kammerman, Massimo's Vice President of Business Development and Investor Relations.
spk00: Thank you. Hello, everyone. Joining me today are Chairman and CEO Joe Chiani and Executive Vice President and Chief Financial Officer Micah Young. This call will contain forward-looking statements which reflect management's current judgment, including certain of our expectations regarding fiscal year 2023 financial performance. 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. You will find these in the investor relations section of our website. 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. 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. Management uses non-GAAP measures to budget, evaluate, and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis, unless noted otherwise. Further, we will also be referencing pro forma financial measures, which include historical results for Sound United prior to the acquisition date of April 11, 2022. In our presentation today, we will once again be referring to this business as our non-healthcare segment. 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. 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. 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 Joe Chiani.
spk03: Thank you, Eli. Good afternoon and thank you for joining us for Massimo's third quarter 2023 earnings call. Our performance for the third quarter was within our guidance range communicated last quarter and was highlighted by record market share gains in hospitals with a record level of new customer contracts for our set pulse oximetry and other solutions. That said, Our healthcare business is navigating a clear transition away from COVID-era conditions. Despite sequential improvements from the second quarter, sensor utilization remains below prior trend, and hospital budget pressures have continued to slow the pace of equipment installations. This is keeping sensor utilization below our expectations for the second half of the year. As we continue to gather more data on hospital utilization of our sensors, we are beginning to see that customer behavior and sensor purchasing patterns are transitioning back to the pre-pandemic growth trend line we saw from 2017 to 2019. Michael will have more to say about these observations later in the call, but together with our record contracting performance this year to date, This data reinforces our conviction and the underlying long-term growth rate for our healthcare business. On the consumer side, we continue to realize strong growth for hearables, which remains a key focus area for us. The rapid uptake of our hearables products is helping to partially offset the challenging consumer environment that our premier audio brands are facing for audio components and home entertainment systems. I will share updates on some of our exciting new products and opportunities later in the call, but now I will ask Micah to review our third quarter results in more detail and provide an update on our 2023 financial guidance. Thank you, Joe.
spk04: For the third quarter, we achieved consolidated revenue of $479 million and non-GAAP earnings per share of 63 cents. Our performance for the third quarter was within our guidance range communicated last quarter, with revenue at the low end of the range and earnings at the high end of the range. For our healthcare segment, third quarter revenues were $308 million, reflecting a 6% year-over-year decline. As with the last quarter, the decline was driven by lower sensor utilization, which continues to suppress growth from our record level of new customer conversions. In addition, the elevated backlog of new equipment installations by our OEM partners and constrained capital budgets at hospitals also impacted sales. We shipped over 63,000 drivers during the quarter, which was in line with the second quarter level. During the third quarter, we saw a slower than expected pace of recovery and sensor utilization. Further, the pace of equipment installations from new hospital conversions remained slower than expected, leading us to reduce our guidance for the healthcare business for the year. Despite these near-term headwinds, we did see a 10% sequential increase in revenue in what is normally our seasonally slowest quarter, due in part to a rebound in sensor orders from customers who have been working down inventory. This dynamic bolsters our confidence that customer behavior and sensor purchasing patterns are returning to pre-pandemic trends. As we move past the difficult comparisons, we expect sensor purchasing patterns to shift back to the growth trend line we saw from 2017 to 2019 and believe our healthcare business will resume annual growth from our updated guidance level for 2023. Let me take a few minutes to share some additional data that informs our perspective. As you can see in our supplemental slides for today's results, when you step back and look at the longer-term growth trends, we are seeing healthy on-trend line performance from our products on a year-to-date basis. From 2017 to 2023, Our average annual growth rate for total consumables revenue is 10%, which is in line with the pre-COVID growth rate. Further, the average annual growth rate for rainbow and hemodynamics revenue is 20%, and the average annual growth rates for our brain monitoring and capnography and gas revenues are 27% and 16%, respectively. This longer timeframe makes the distortions of the COVID years clearer, and together with the recent rebound in purchasing from our customers who previously had elevated inventories supports our belief that the business is tracking well with its pre-COVID growth rate and that our targeted long-term growth rate remains achievable. Our strong performance in converting new customers also reinforces our optimism about our long-term growth trajectory. We achieved another record-breaking level of new hospital contracts in the third quarter. These new contracts include sensor cells for new customers that reflect our continued market share gains. In fact, our unrecognized contract revenues for the third quarter increased 16% over the prior year period and was up 4% sequentially from the prior quarter to reach $1.4 billion. For our non-healthcare segment, third quarter revenues were $171 million, representing a year-over-year decline of 24% on a constant currency basis. A difficult environment for consumer discretionary purchases is adversely affecting the market for high-end audio systems. With non-healthcare overall, while non-healthcare overall is suffering from the negative macro environment, we again realize strong growth for our hearables category, which increased by more than 130% year over year, and now represents 10% of segment sales. The positive momentum in hearables has helped to partially offset the macro conditions weighing on the market for high-end audio systems. Now moving down the P&L. For the third quarter of 2023, we realized consolidated non-GAAP gross margin of 50%. This includes gross margins of 60% for our healthcare business and 33% for our non-healthcare business. As we saw in the second quarter, gross margins were again affected by the deleveraging impact of lower sales on our fixed overhead costs and an unfavorable segment and product mix. For our consolidated business, our non-GAAP operating profit was $57 million versus $81 million in the prior year. as decreased profits from lower revenues were partially offset by the benefits realized from reducing operating expenses, including performance-based compensation. And our non-GAAP earnings were 63 cents per diluted share versus $1 per share in the year-ago period. Despite the year-over-year decline in our third quarter results, our record levels of hospital contracting and continued traction in high growth categories are positive signals for sustainable growth over the long term. In addition, we are partially offsetting lower revenues in 2023 with the expense control measures we have implemented. Now I'd like to provide an update on our 2023 financial guidance. For the fourth quarter, we are projecting consolidated revenue of $526 to $576 million, with healthcare revenue of $320 to $345 million, and non-healthcare revenue of $206 to $231 million. Further, we are projecting non-GAAP operating profit of $65 to $79 million and non-GAAP EPS of $0.74 to $0.94. For the full year, we are projecting consolidated revenues of $2 billion, $25 million to $2 billion, $75 million. For our healthcare segment, we are projecting revenues of $1 billion, $255 million to $1 billion, $280 million, which now includes $6 million of year-over-year currency headwinds. This represents a 3 to 5% reduction from our prior guidance on a constant currency basis. For the non-healthcare segment, our full-year revenue guidance is now $770 to $795 million, which now includes $9 million of year-over-year currency headwinds. This represents a 2 to 5% reduction from our prior guidance on a constant currency basis. We've incrementally reduced fourth quarter revenue guidance to reflect software demand. Our guidance range also reflects a seasonal sales step up typically seen in the fourth quarter. We are now projecting non-GAAP operating profit of $256 to $270 million compared to prior guidance of $296 to $312 million. At the midpoint, we are lowering our operating profit guidance by $41 million. This is comprised of a $51 million impact from lower revenues. a $9 million impact from incremental currency headwinds, and a $3 million impact from increased litigation costs. We expect to partially offset these headwinds with $22 million in cost reductions. Excluding the incremental currency headwinds, our revised operating profit guidance represents a 10% reduction from our prior guidance at the midpoint. Lastly, we are now projecting non-GAAP EPS of $2.85 to $3.05, down from our prior guidance of $3.35 to $3.55. In summary, although this has been a challenging post-COVID transition year for our business, we believe there are many reasons to be positive about our long-term outlook. Over the last quarter, we have gained a better understanding of the transition in customer behavior and ordering patterns. We've had consistent success in winning new customers over the last three years, and Joe will share more about the exciting potential of recent FDA clearances and upcoming new product launches to extend that track record. Our market share for patient monitoring in hospitals is steadily rising as we win new customer contracts at a record pace. We believe a return to long-term growth rate targets for our healthcare segment will be more visible next year as we complete the transition back to pre-COVID trends. With that, I'll turn the call back to Joe.
spk03: Thank you, Micah. As you just mentioned, our innovative new products are driving our record contract wins and sustaining our ability to grow over the long term. Massimo has built a track record of achievements over the past 30 years that is unsurpassed in the field of patient monitoring. We're extending these accomplishments with a combination of innovation and responsiveness to patient needs that enables us to create high-value products that truly make a difference. A great example is one of our fastest growing products, our oxygen reserve index parameter. The oxygen reserve index parameter, ORI, has accounted for over 20% of our worldwide sales of rainbow products year to date. Despite the fact that it has not been available in the US We just received FDA clearance for ORI last month and are launching it in the U.S. this quarter. I'm excited about the prospects for ORI in the U.S. because it has clear and well-established clinical benefits and is the first non-invasive technology for analysis that are currently done through invasive procedures. ORI has great utility for detecting moderate hyperoxia ORI is useful for determining when to stop the intubation involving a difficult airway, provide additional supplemental oxygen, and attempt the intubation again prior to surgery. ORI is also useful to avoid over-oxygenating patients in the ICU and other places where oxygen is prescribed. We expect to realize similar traction for ORI in the U.S. as we have overseas. which should boost rainbow revenues over time. For context, the US market typically accounts for two-thirds of our global healthcare product sales. In conjunction with the US clearance of ORI, we have introduced our four LED rainbow sensor. In some countries where the four LED rainbow sensors have been available, many customers have switched from our two LED set sensors to our four LED rainbow set sensors. We also have combined SPHB with Lidco cardiac output monitoring to provide for the first time indication of oxygen delivery of patients to care providers. Both ORI and oxygen delivery were received incredibly well at the American Society of Anesthesiologists conference in October and we expect both to help improve patient care and drive our rainbow sensor revenues. Building on our precision measurements, hospital automation solutions, and telemonitoring platforms, Massimo is empowering clinicians with Halo, our AI-powered clinical decision support tools designed to drive transformation from episodic and reactive care models to care enriched by continuous and predictive insights. Deterioration prediction tools will proactively prompt clinicians, helping them make more informed decisions and navigate their clinical pathways more effectively. Our AI-powered clinical decision support tools are helping clinicians improve care across a multitude of disciplines, including respiratory care, cardiovascular care, and neurology and brain health. And soon, Halo will help clinicians improve care in infectious disease treatment, hemodynamics, and hand hygiene compliance. In consumer health, we launched our Stork Baby Monitor in late August in both brick-and-mortar and online retailers, including Target, Best Buy, Amazon, and BabyList.com. We are wrapping up distribution and will be in 250 outlets by year end, with plans to quadruple that in 2024. And in consumer audio, the Denon Pearl Pro earbuds continue to see strong demand as we head into the holiday season. In telemonitoring, we continue to wait for FDA clearance of W1. In countries where we have been able to offer W1, for hospital-to-home telemonitoring, we have seen strong interest in using the W1 in telehealth programs, making us believe that the availability of W1 will improve patient care in the U.S. and advance our hospital-to-home strategy. Finally, I want to comment briefly on the landmark ITC victory we won over Apple. The decision validates our ongoing efforts to hold Apple accountable for unlawfully misappropriating our intellectual properties. Just as importantly, it advances our mission to improve lives by protecting the incentives to innovate and ensuring that products that really work are able to compete on a level playing field. To conclude today's comments, we are encouraged by the stabilization of sensor orders and record new hospital cost customer wins, which reflect the superiority of our products and give us confidence in the long-term growth trajectory for our healthcare business. We have a healthy portfolio of new and rapidly growing products and are excited about the potential contributions they can make, not just to our business, but to people's health and reducing the cost of care. We remain dedicated to pursuing our mission to improve life, improve patient outcomes, reduce the cost of care, and take noninvasive monitoring to new sites and applications. With that, we'll open the call to questions. Operator?
spk02: Thank you. If you would like to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from the line of Rick Wise with CIFL. Rick, please go ahead.
spk08: Good afternoon, everybody. Apologize for the background noise. I'm at an airport. Let me start talking about the water stabilization that you're seeing. I just want to be clear in my mind, how, where are inventories now, from your perspective, relative to the last time you spoke to us three months ago. And when you're talking about this order stabilization, is this something that you've seen throughout the quarter or you've felt that for the last month? Or is it something you're just starting to see now as you head into the fourth quarter?
spk03: Well, Rick, even though we have a really good relationship with our customers, they don't share their inventory levels with us. So what we consider as order stabilization is the increase we're seeing in sensor purchases. And that has continued through today. Michael, do you want to add anything to that?
spk04: Yeah. So, Rick, we've been monitoring. We've got another three months of data points here to look at purchasing patterns. We've been monitoring it very closely. The trends are encouraging. They're heading the right direction. I think the slope of that recovery we thought was a bit, you know, a steeper recovery and that we'd return back and that's why we're lowering guidance for the year. In terms of where we are today and what we've seen through the first five weeks of this quarter, the trends are heading in the right direction. We are seeing things stabilizing to more kind of that pre-COVID utilization trend. And things are recovering. It's just not the pace of recovery that we expected, you know, with the data that we were looking at in the last quarter.
spk08: And Mike, I know how conservatively you approach things and I'm sure you thought in giving us the prior guidance range for the year that you were being thoughtful about the low end and the high end of the range. Why are you feeling today in giving this new range that you've, now you're getting it right or why should we hope you're getting it right? Is it because of this pickup in orders? Is it just that straightforward?
spk04: Yeah, I think it's multiple things. I mean, first of all, you know, we've gained market share through a strong contract, and that continues. So that's encouraging. You know, we haven't kept pace with the, you know, in terms of equipment installations with the gains we've had on contract, and we're still, you know, behind on getting those caught up. But, you know, we still have strong – numbers in terms of installations that are going to help us grow not only in Q4, but grow into Q4, but also as we move into next year. The biggest thing that we see, though, right now is, like I said, we've been monitoring those weekly revenue trends. We've got another three months of data points. And especially when you look at October, we've got a lot more clarity today than we did last quarter. Like you mentioned, we gave you the best guidance range we could with the data we had at the time. Now that we've got another quarter of data, we believe that we have a very, you know, we're back to providing a high confidence guidance range, you know, as we move into Q4.
spk08: And just last for me, what's, I mean, I apologize for asking, but I have to ask about the year ahead. Thinking about 2024, Micah, if you've got the right picture right now, it seems to me, one, you've got relatively easy comps, two, back to trend line-based business growth, and you're launching all these new products. Can you sort of help us think through? I'm not asking for guidance today, but just we have to come up with numbers. How would you frame a reasonable starting place for us to help you set the stage for or start to set the stage for expectations for the year ahead. Thank you very much.
spk04: Yeah, absolutely. So, Rick, I mean, we'll share more details on our expectations for 2024 on the year-end call. But as I mentioned before, and even in my prepared remarks, based on the underlying trends we're seeing in the business with the new customer conversions, we expect a return to annual growth next year. And, you know, there will be some some comps that change in the first half. I mean, we've got some tougher comps in the first quarter, easier comps in the second quarter, and those comps start to normalize in the back half. So, you know, we expect a return to growth. You know, we'll have to work through and finalize our plans for next year, but we believe we're back on that growth trend heading into next year.
spk00: Thank you.
spk03: Next caller, please.
spk02: Your next question comes from the line of Matt Taylor with Jefferies. Matt, please go ahead.
spk05: Hey, thanks for taking the question. So I guess I wanted to try to work through some of the disconnect between what you're talking about with sensor utilization, but obviously your contract when showing the backlog and the growth there, and helping us understand how those things come together to actually recognize revenue next year and grow strongly over this new baseline. So that's the setup for the question. But the real question is, A, are you seeing any success with some of the actions that you've taken to activate folks to actually get installations in to then recognize sensor revenue so that we can see that rev rec going forward? And when do you think you can call this new trend a real trend? It seems like a bit of a divergence from last couple quarters in terms of how people are using sensors. And I guess what more do you need to know to know whether that's durable or, you know, it's kind of a short-term change?
spk03: Well, we have seen more of our installations, just not at the level that we had hoped by this time. We also did go back to the ambulatory surgery centers that are seeing more surgeries now than before. and have been successful in getting many of them to switch to single patient use sensors. As I indicated before, we believe roughly 70, 80% of the ambulatory surgery centers use Massimo. So they've just been historically using reusables. So we think we can hopefully make that change because it's better for everyone, especially the patients. So yeah, we, We believe as we look into 2024, we believe the worst is behind us. We believe even if trends and census growth doesn't occur, we believe it should be stable. And because of our increase in market share, we should be growing anyway. And that's why I think, Micah, in his prepared remarks stated that we think we'll be seeing normal growth next year.
spk05: Gotcha. And maybe as a follow-up, that's a separate question. Congrats on the IPC win. Can you help us understand what this could actually mean in some different scenarios for you going forward? Assuming that does get finalized and there is an injunction, you know, you'll have some leverage, but what can you do with that in the context of some of the other I guess battles that you're going to have with Apple going forward.
spk03: I think the most important and maybe most consequential result that a patent holder looks for is an injunction. So if indeed the injunction goes into place, I think we'll be benefited no matter what. Um, if we can't come to a deal with Apple where we can work together, for the benefit of their customers, we will do better as a result of having a monopoly over our intellectual property while that monopoly lasts, which isn't that long. It's got maybe five more years left in it. So we think it's very positive, and we hope to share good news regarding either one moment in time or hopefully many moments in time in the future.
spk05: Great. Thanks, Joe.
spk02: Thank you. Our next question comes from the line of Jason Bednar with Piper Sandler. Jason, go ahead.
spk07: Hey, good afternoon. Thanks for taking my questions, guys. Joe and Mike, I want to pick up a bit on Rick's question looking at 2024 And really ask about some of the commentary in your release today, some of your remarks, really focusing on the element where you're setting the stage for a strong 2024. Not just revenue, as Rick asked, but what about EPS as well, as we consider some of those variable comp items normalizing higher next year? I think you're also shifting some manufacturing out of Mexico over to Malaysia. Mike, I don't know if you want to comment on what we should think about for duplicative costs or what that means for gross margins next year. I'm just trying to understand, you know, does that 24 strength extend not just to revenue growing, but also EPS growing year over year?
spk04: Yeah. So, Jason, let me kind of step through that. You know, terms of we talked about the revenue growth you know we're getting a lot more confidence going into next year to turn return to annual growth on the year barring some of those comps throughout the year but if you look at where we're at today the opportunity we have in front of us is to drive gross margins and that's been something we're very focused on as we exit this year and move into next year and we've got several initiatives around that including shifting more and more volume to Malaysia and some other cost reduction initiatives that we have for certain products. The other thing is our consumable growth that we're seeing now and carrying into next year, even though capital continues to be suppressed, we shouldn't see some good mixed benefits that flow through in gross margins as we move into 2024. In terms of your comments on or question around operating expenses, I think where we expect to get the margin improvement is going to be mostly through gross margin. We're trying to do everything we can to offset the add back of variable comp to try to deliver good bottom line EPS growth. We still have a lot to work through through our planning process that we're going to be wrapping up in December and as we exit the year and provide guidance early next year, but we're trying to take the right expense actions. We've been taking that through the last two quarters to try to offset that ad back on variable expenses. I think I referred to last quarter that we had around $74 million or so of variable comp ad back coming back into the P&L. But we've also been very diligent on getting after expenses to try to offset some of that, but where you'll see a more outweighed benefit will be through gross margins than it will in OPEX.
spk07: Okay. So maybe to put a finer point, I mean, do margins expand, EPS grow next year? And then the follow-up would be kind of a separate topic here. You know, when we think about sensor utilization and trying to model that forward, you know, coupled with the massive amount of boards that we've seen placed or installed over the past few years during the pandemic and immediately after the pandemic, what's the right utilization level we should be considering as board use normalizes? And I guess as I think through those driver shipments over the past few years, you're covering a lot of general ward beds that you weren't covering before. They have lower utilization per driver, presumably. So does the average consumption per driver actually need to be lower than the 2017 to 2019 trend you're quoting? I guess I'm just trying to figure out You know, kind of how Rick was, like, how do we model forward, you know, considering that we're looking at a different Massimo today than we were in, like, 2018 or 2019?
spk04: Yeah, so, Jason, I would say that, you know, through some of the COVID years, we saw a step up in terms of the revenue per driver. I think we're seeing it settle back into kind of the utilization phase. from 2019, but we also believe that we'll be able to grow that and improve the revenue per driver back again going forward. So I think we're seeing a settle back in to kind of what we were seeing back in 2019. But again, as we start to drive additional revenues from these new customer conversions, we've got a lot of equipment installations we've done that we're not fully leveraging at this point. So we should see improvements moving forward.
spk03: And as we mentioned earlier on the call, with the launch of the four LED rainbow sensor, which will carry about a 50% premium to our standard two LED set sensor that many customers are whole house switching to. And hopefully with more sales of rainbow hemoglobin sensor, not just to track hemoglobin, but to allow for measurement of oxygen delivery with our cardiac output monitor, We think, as Mike has said, while the volume of sensors per socket per year might be the same as it used to be in 2019, the revenue per socket will be greater.
spk09: Okay. I'll hop back in queue, guys. Thank you.
spk02: Your next question comes in the line of Marie Thibault with BTIG. Marie, please go ahead.
spk01: Good evening. Thanks for taking the questions. I wanted to check in on one of the headwinds that you had discussed earlier this year. I think it was, you know, you had a number of large orders that didn't come through on the time that you'd hoped. Where are we with those? Did we see any of those recognized in the quarter or could we see those in Q4? And then as part of that, can you help me understand exactly why the equipment installation backlog has gotten so bad with the OEMs? short on labor? Is it just sort of too much workload? Is it something the hospitals are telling them? Any more detail on that?
spk03: Sure, Marie. So first of all, I just want to say on the hospital installations, the OEMs are loosening and giving us the pieces we need for the installation, but the hospital's nursing shortage, staff shortage is delaying some of our installations. I think your first question was on large orders. Yeah, I've already forgotten about those. Yeah, the large orders did not come in again in Q3, and we're not projecting them in our Q4 numbers. We haven't lost them. They're still there, but it's getting frustrating as quarter after quarter we anticipate them and they don't come in. So, no, they did not come in.
spk01: Okay, and just to be clear, are they included in Q4 guide?
spk03: they're not included in the Q4 guidance, no.
spk01: Okay, that's really helpful. Thank you for that. And then one kind of high-level question, you know, we've seen a competitor of yours in the headlines for potential spin-out of the business unit or possibly an acquisition. Are you seeing any impact at this point in the field? I know that, you know, there's kind of been ongoing discussions, but curious if that's helping with market share at all.
spk03: Well, Marie, we have been getting market share against the Nelcor division of Medtronic for, I think, a couple of decades, and nothing has changed. And sometimes I hear them saying something to the contrary, and it is not true. As far as their transition or spinoff, I've heard rumors that the buyer can't get the money together to buy them. So I don't know even if it's happening. But assuming it happens, we think it should be positive for us and not negative.
spk01: Okay, very interesting. Thank you for it.
spk03: Thank you. Thank you.
spk02: Our next question comes from the line of Michael Pilar with Wolf Research. Michael, please go ahead.
spk06: Thank you. Another one of the call-outs from last quarter was excess inventory at certain customers. Micah, it sounded like in your prepared remark that you're seeing order patterns there return towards normal. And I know the visibility on your end is not super high, but can you say confidently now that you feel like the channel is feeling more correct and that these customers that had excess might no longer? Any other color that you can provide on that topic would be great.
spk04: Yeah, Mike. So from the ordering patterns that I see of the customers, I feel like we've got the worst behind us. Can I predict every customer and how they manage inventories in this tight environment with capital budgets and constrained operating budgets and how they utilize their sensors and their inventories? It's not easy to do that. But I can say that where things are trending, I'm a lot more encouraged this quarter than I was last quarter just because we had limited data points. And I think it gives us the confidence for this new guidance range. Last quarter, like I mentioned, we just did not have as much of a view as what I would have liked. And now that we do, and the trends are continuing to step up and improve sequentially, it's given us the confidence that we're through the worst of it. And I think now we're encouraged that we can get back to growth. So, yeah, I feel much better at this moment.
spk06: And then to follow up for Joe, perhaps just kind of a fresh reflection on Sound United. Is it, you know, relative to your expectations, how do you feel about it? Is it proving a distraction? Is it creating opportunities? Do you think it's still positioned to deliver the opportunities that you saw in it as you the consumer products closer to prime time. Just how you're feeling about running that business today would be great. Thank you.
spk03: Thank you. As we announced when we announced we were going to acquire Sound United, I said, give us three years, and if in three years it's not working, we'll get rid of it. Since then, it has been constantly... reminding us that what a good thing we did to acquire it. Because one, it has allowed our healthcare business to stay focused on the healthcare business as we make this attempt for consumer health, which isn't something that I think we could ever ignore because health is moving to the home. Healthcare is moving to the home. And so it's something we had to do, but I didn't want to lose focus in our normal hospital business. Secondly, the other positive is that the management team, the employees, they're excited about the consumer health products that we're getting into. And we did not hear from them, hey, leave us alone. We just want to sell speakers and AVRs. On the contrary, they're excited about being part of Massimo, helping people live better lives. In addition, our focus on their business has put them in the segment where the market is growing, where they have a good reason to be there, which is the hearables that has grown over 100% since a year ago. And last but not least, the launch of Stork into the stores, we wouldn't have known who to call, where to start. And hearing some of the stories we heard firsthand and how those were done, it would have taken us years to figure that stuff out. So no, I more than ever believe in it. There's some important products that have to get rolled out, like Freedom. Obviously, that was the biggest reason. The Hearables was the second reason. And Stork, which was the third. So please hang in there. I really think this is the right thing for Massimo. I really think it's the right thing for people and for even payers. It's going to help Ben the cost curve of the hospital and patient care.
spk09: Operator, next question, please.
spk02: All right. Your final question comes from the line of Jason Bedford with Raymond James. Jason, please go ahead.
spk09: Good afternoon. Maybe just a few cleanup questions here. Just on sensor utilization, you've mentioned normalization post-COVID a few times during the script here. It didn't feel like COVID was much of a factor last year. So why don't you think you experienced lower utilization in sensors last year?
spk03: Well, I think, first of all, there are certain provisions that went into effect with insurers that pushed patient care from the hospitals to surgery centers. Secondly, as our sales force was, I think, trying to react to a lower census that was occurring, they did certain volume orders by discounting our sensors to some large customers. So that, I think, helped continue our growth during that period. When I became aware of it, I stopped it because the sensor, we're a razor blade business, and providing discounts on sensors just did not make sense to me. But from what I'm seeing out there, like everyone saw during COVID, we saw tremendous growth. We normally have grown $100 million a year. During COVID, we grew $200 million the first year of it. The next year, we still grew over $100 million. And now we're kind of catching up with that bonus of growth. And we're hopefully at a point where things should be as bad as it gets with purchasing patterns of sensors. And because of our increase in market share, we should see growth next year regardless.
spk09: Okay. And you have pretty good visibility. You've mentioned market share a few times. You have pretty good visibility that these are competitive wins?
spk03: Absolutely. Our whole business for the last 1998 has been to target hospitals that don't have Massimo and fully convert them to Massimo. If you look at the graph that Michael put out there today, You can see kind of where we were for the first nine months of the year for the past several years. And we've seen incredible record growth in COVID 2020, 2021, 2022. And this year, it's more than ever. So it is definitely a market share gain. It's definitely competitive wins. And I can't remember when we lost a customer. So it's not like we're winning some or we're losing some. The numbers we're giving you is what we believe to be the normalized wins and losses in terms of new incremental business.
spk09: Okay. Was there a contribution from Stork? And if not, maybe you can just kind of reframe the potential revenue contribution here.
spk03: I think it was minor, but yes, there was. Micah, do you want to speak to that?
spk04: Yeah, so Jason, we've launched Stork in late August. Sales today have been modest. We're continuing to build out the distribution of Stork with expansion of retailers over the next year. I think we mentioned in prepared remarks that I think we're in 250 stores with Target. That's going to expand significantly over the course of the next year. We're also in Best Buy and Amazon retail as well. So sell to date have been modest, but we're still excited about this product and believe it'll achieve great success, especially when we get the regulatory clearance and we're able to really differentiate this product in the marketplace.
spk09: Okay. And then just maybe lastly, I may have missed it, but your thoughts on expanding the board?
spk03: Yeah. Actually, today we did an 8K. We're happy to announce that Mr. Ralph Clawson will be joining our board.
spk09: Okay, so you've added one. Is it just one or are you adding two?
spk03: We're going to add at least one more, but we are working through it. The nominating committee has changed. The chair of the nominating committee is new. We have new members and they're vocal and we're trying to We're trying our best to manage a process in the midst of all of it, but we're eager to add more.
spk09: Okay. Thank you.
spk03: Thank you very much. I think that was our last call. We appreciate your time and look forward to good days where we're back to, I think, meeting, beating, and raising. So thank you.
spk02: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.
Disclaimer