Masimo Corp (MASI) 2025 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Masimo's second-quarter 2025 earnings conference call. The company's press release is available at www.masimo.com. (Operator Instructions)

I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please go ahead.

Thank you. Hello, everyone. Joining me today are CEO, Katie Szyman; and CFO, Micah Young. Before we begin, I'd like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC.

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 or adjusted 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.

It is important to note that the Sound United business is now being classified as held for sale and reported in discontinued operations. As a result, our non-GAAP financial measures have been updated to reflect the continuing operations of Masimo's healthcare business for both current and historical reporting periods.

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, earnings presentation, 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.

I'll now pass the call to Katie Szyman.

Thank you, Eli. Good afternoon, everyone. For the second quarter, our core healthcare business delivered strong growth in earnings performance. Revenue was $370 million and we achieved earnings per share of $1.33 with 600 basis points of operating margin expansion.

This exceptional performance reflects the continuation of the effective cost structure actions taken last year and is the result of hard work and strong execution across the entire organization. I have spoken repeatedly about the incredible talent and innovation we have at Masimo.

Building on that foundation, we've undertaken a thoughtful effort to expand our leadership team in key focus areas. First, we added the role of Chief Commercial Officer with Greg Meehan. Greg brings over 25 years of experience building and optimizing commercial organizations in the medical technology industry, where he delivered double-digit growth and improved profit margins by building high performance teams.

Second, we added a President of the Japan and Asia Pacific region, Dr. [Kamen] Wang. Kamen is an anesthesiologist and business development leader with over 30 years of experience overseeing growth-oriented sales and marketing organizations in the region.

Next we have a new Chief Marketing and Strategy Officer, Tim Benner. Tim has an impressive track record of overseeing the launch and commercialization of transformational therapies such as MitraClip, TAVR, and AI-based platforms for market leading companies. Tim joined us from Inari Medical, where he led global sales, global marketing, and market access across the company's category leading portfolio.

We also added an Executive Vice President of Quality and Regulatory, Linnette Torres. Linnette brings over 20 years of deep expertise in shaping global quality and regulatory compliance strategies, and most recently led these efforts at Integra LifeSciences.

Lastly, we have a new Chief Information Technology Officer, Giri Chodavarapu. Giri was an IT expert with a proven track record of driving large-scale digital transformations and developing tech-enabled products to support business growth and enhance enterprise cybersecurity. These hirings follow the earlier addition of our Chief Human Resource Officer, Lisa Hellmann, who led Human Resources at Hologic, a leading women's medical technology company.

All of these leaders share a deep commitment to the patient experience, and each of them is highly qualified to help us drive our next chapter of growth and innovation. It's a testament to the exceptional talent we already have, as well as our leading industry position that we have been able to attract such skills and dynamic additions to our team. With this new structure, we now have the key pillars in place to augment commercial and operating excellence to execute our growth strategy.

The prior responsibilities of our Chief Operating Officer have been redistributed across other roles, including the elevation of our engineering operations team leaders to my executive staff. Omar Ahmed has been promoted to Chief Technology and Innovation officer. Anand Sampath has been elevated to my staff as the Executive Vice President of Operations.

We do not anticipate further substantial additions to leadership, aside from the eventual appointment of a permanent general counsel. Now let me turn to our strategic and financial goals and what we are doing to achieve them. As we have stated, we are focused on investing in our core healthcare business to achieve our goals and accelerate our long-term revenue growth.

I'm excited about the opportunities we have to accomplish this goal, and we'd like to briefly recap our growth strategy. As I've mentioned before, we are focused on three waves of growth: elevating commercial excellence, accelerating intelligent monitoring, and innovating wearable technologies.

First, I'd like to address our focus on elevating commercial excellence globally. As I mentioned, we've added key leaders to bring a strong focus on commercial execution, including our new Chief Commercial Officer, our new leader in Japan and Asia Pacific, and our Chief Marketing and Strategy Officer.

These leaders are dedicated to driving growth across our portfolio. As described on our last earnings call, we strategically aligned our US sales force, moving from specialty teams centralized by product category to regionally led groups within our pulse oximetry infrastructure. We believe we have the best pulse oximetry sales force in the industry, and we want to leverage the strength of that team to pull through other categories and increase our market position across all categories long term.

Looking at categories such as capnography, brain monitoring, hemodynamics, and automation, those markets are worth somewhere between $1 billion and $2 billion and in aggregate are growing by high single digits.

Today, our market share is less than 20% in each of those segments. The sales team alignment allows us to increase the sales representation in each US region such that each region now has a dedicated representative for each of the specialties, which in turn should help us capture more pull through because we ideally would have the same large market share in those areas as we do in pulse oximetry.

In summary, we are leveraging our leadership position in pulse oximetry to broaden our impact on patients and to broaden our market presence across other advanced monitoring categories. Our goal is to achieve growth in those adjacent markets of 10% to 20%.

Now let's turn to our second wave of growth, accelerating the adoption of intelligent monitoring. In this area, we are working to upgrade our sensors and create next-gen monitors featuring advanced AI-based algorithms. We expect this will help us to continue to grow our market share while creating greater value as customers pay for the innovation we deliver.

In the past, our team developed incredibly advanced algorithms for the consumer market and we are now redeploying those innovations into sensors for use in hospitals. One example is our ability to detect cardiac dysfunction such as atrial fibrillation using just a pulse oximetry sensor. This will enable the detection of patients who are in distress earlier, and it will allow clinicians to take remedial action very quickly.

Our third wave of growth will come from innovating wearables longer term. We continue to evaluate our significant opportunities to change the way patients are monitored around the world. We have a strong portfolio of wearable technology and telemonitoring solutions that we are piloting today. There are numerous unmet patient needs that we are well positioned to address, and we have strong capabilities and momentum behind us to do so through further innovation of our wearable technologies and solutions.

The third wave of innovation will expand our long-term growth potential. In recent months, I've visited our employees and customers around the world. So far I've visited customers, regional offices, and our major manufacturing locations across the United States, Saudi Arabia, Mexicali, Japan, Korea, and Malaysia. In fact, I don't know where I wasn't this last quarter. In total, I've met more than 90% of our incredible team. I've been impressed by their passion for Masimo and the patients we serve, as well as their creativity and commitment to innovation. This commitment is what will drive our continued growth, and I have great confidence in the team's ability to execute on our strategic growth priorities.

Just a few words on tariffs. Our operations and finance teams have worked relentlessly to reduce our exposure to new tariffs by implementing highly effective mitigation measures. I'm very proud of our team and want to highlight that their efforts have played a big part in our ability to guide to a tariff impact that is more than 50% less than our original estimate.

Micah will expand on this more and provide updated guidance, but I do want to highlight that our updated EPS guidance now exceeds our original projections provided at the beginning of the year, before the tariff situation had even started.

Despite the impact of tariffs, we are projecting 24% to 30% EPS growth this year. I'd really like to thank our entire global team for delivering another excellent quarter. Our products and technologies continue to impact millions of patients around the world. I am honored to be a part of this team.

With that, I'll turn it over to Micah.

Thank you, Katie, and good afternoon, everyone. I want to begin by expressing how proud I am of our global team for their outstanding efforts this quarter. They successfully managed the challenges of the cybersecurity event, implemented measures that reduced our tariff burden by more than 50%, and continued to deliver strong results with revenue meeting expectations and EPS growing by 46%.

For the second quarter, healthcare revenue was $370 million, up 7.4% on the constant currency basis. Our consumable and service revenue grew 8.4% and our capital equipment and other revenue declined 2%.

As I mentioned earlier this year, we're observing a transition from capital lease to operating lease accounting under ASC 842. This shift created more than a 1 percentage point headwind for our total growth revenue growth and is the reason for the decrease in capital and other revenues.

Notably, revenues are on track to reach our full-year guidance as we are seeing more normal seasonality this year compared to last. We also shipped 63,100 technology boards and monitors this quarter, which is within our expected range.

Moving down the P&L, our gross margin of 62.9% improved 40 basis points year over year, driven by 90 basis points of operational improvement, partially offset by 50 basis points of tariff impact. Tariffs increased cost of sales by $2 million this quarter, which is in line with our expectations.

Our operating margin of 27.5% improved 600 basis points year over year, driven by 650 basis points of operational improvement, partially offset by 50 basis points of tariff impact. The cost structure optimization measures implemented in 2024 is clearly delivering margin benefits. Our non-GAAP earnings per share was $1.33, representing 46% growth versus the prior year.

In addition to our improved operating margin, we realized the lower tax rate in the quarters we are seeing greater profits from outside of the US, which carry a lower tax rate. Operating cash flow for the healthcare business was $62 million, which allow us to repay $38 million of debt and repurchase $14 million worth of common stock.

Now moving to our updated fiscal 2025 financial guidance. We're projecting revenue of $1,505 million to $1,535 million which reflects 8% to 11% growth on a constant currency basis. Excluding the impact of new tariffs, our updated guidance implies operating margins of 28.3% to 28.7%, reflecting a year-over-year improvement of 460 to 500 basis points.

Further, our updated guidance, excluding tariffs, implies earnings per share of $5.45 to $5.70, reflecting year over year growth of 30% to 36%. Including the impact of new tariffs, we are updating our guidance for operating margins to be in the range of 27% to 27.5%, representing an increase of 130 basis points at the midpoint versus prior guidance.

This is being driven by 25 basis points of operational improvement and 105 basis points of tariff expense reduction versus our prior assumptions. Further, we are updating our guidance for earnings per share, including shares to be in the range of $5.20 to $5.45, representing an increase of $0.35 at the midpoint versus prior guidance. This is driven by $0.12 of operational improvement and $0.23 of tariff expense deduction.

Our updated guidance now incorporates $17 million to $19 million of (technical difficulty) impact and new tariffs compared to our prior guidance of $33 million to $37 million. This represents a $17 million reduction in tariffs at the midpoint versus prior guidance, with over 60% of the reduction coming from our intensive efforts to mitigate the impact.

Breaking down our updated guidance range assumptions for tariffs, products manufactured in Mexico and not currently eligible for USMCA exemption now represents 2% of our total cost of sales, and we are assuming a 30% tariff rate. Products manufactured in Malaysia that are subject to US tariffs now represent 18% of our total (technical difficulty) sales, and we are assuming a 19% tariff rate.

Patient cables sourced in China represent 4% of our total cost of sales, and we are assuming a 59% tariff rate which combines the new tariff rate of 34% with the pre-existing section 301 tariff rate of 25%. And we are now including the potential impact of new tariffs on copper. Copper raw materials represent up to 4% of our total cost of sales, and we are assuming a tariff rate of 50%.

Although this is still a very fluid situation with all the changes in tariff rates and assumptions, it's important to note that the majority of the improvements in tariffs is being driven by our mitigation actions. These actions involve adjustments to our supply chain as well as an intensive administrative effort to qualify our products for exemption, including those under USMCA.

I'd like to take a moment to thank our operations and finance teams for their hard work implementing these mitigation plans. As shown in our earnings presentation material today, we've already executed a variety of actions that are contributing to more than a 50% reduction in the gross tariff impact we have estimated last quarter. We don't view our mitigation efforts as fully complete, and we have already identified additional medium-term mitigation measures to reduce the tariff burden even further over time.

Moving on to the cybersecurity related incident reported last quarter. In the second quarter, we incurred net expenses of approximately $4.5 million to recover and fortify our systems with the help from a team of outside experts. These expenses are excluded from our non-GAAP results as they are non-recurring in nature and expected to be recovered through our insurance policy.

Finally, the divestiture of Sound United announced last quarter remains on track to close by the end of the year, subject to obtaining necessary regulatory clearance. Regarding use of proceeds, we anticipate share repurchase will be our priority as we believe that we will be more accretive at our current share price.

Looking ahead, capital deployment strategies might involve a mix of share buybacks, debt reduction, and tuck-in acquisition of technologies that enhance our in-hospital monitoring capabilities. And as a reminder, our 2025 financial guidance does not reflect any benefit from the use of proceeds (technical difficulty).

In closing, our second-quarter result clearly highlight the exceptional earnings power of our healthcare business. Notably, we have more than compensated for the impact of tariffs this year as our revised EPS guidance now exceed the original projections coming into the year. Our global team has demonstrated consistent execution, successfully navigated challenges such as network outage and new tariffs while still delivering another outstanding quarter.

With that, we'll open the call to questions. Operator?

(Operator Instructions) Marie Thibault, BTIG.

Wanted to start here with the guidance update. Nice to see that nudged a bit higher. Micah, if you could tell us a little bit about how you're considering what the inputs into that guidance range, any details on kind of hospital census, the capital equipment environment. Any impact you saw from cybersecurity in the quarter, all the things that went into thinking about that guidance raise.

Yeah, thank you, Marie. Well, I think we see from the results of the quarter, we came in line with our expectations. We are seeing some benefits from foreign exchange that we are passing through this year and during the quarter, and we're holding to that 8% to 11% constant currency growth rate for the year. Really our assumptions for the full year haven't really changed.

And we're still assuming strong consumer growth for the full year, consumable service revenue. We're assuming capital sales growth kind of in that low single digit rate [area], and those were all those somethings that we had in the end of the year. Everything I think come pretty much in line.

I think the only thing is we -- if we are seeing some -- if you look at kind of the shift in 842 that was contemplated this year, we assume that headwinds coming into the year, end of the full year, and it's playing out as expected. So everything is really lining up for us right now and we feel good about where we land for the quarter and where we're tracking for the year.

Okay, very helpful. And then I guess I wanted to ask a little bit about the sales force alignment and the progress there. I understand it's obviously going to take a little bit of time, but any early feedback that you're seeing from that new structure and any timelines that we should think about in terms of seeing increased adoption of these advanced parameters?

Yeah, so thanks Marie for the question. I think really for us, having a dedicated specialty sales rep for each pulse ox sales territory and really for the major regions across the US is -- so far, the feedback has been really positive that we're having better follow through in each of the regions.

But because our business is tied to committed contracts and the changes only happen in the middle of Q2, it's too early for us right now to quantify changes in the growth outlook or to kind of know exactly when the impact is going to happen, but we would expect to see the impact more into 2026.

Jason Bednar, Piper Sandler.

Want to start with maybe the status of the relationship with Philips, big customer and partner of yours in the patient monitoring side. We're pretty deep into what was a 10-year contract that Masimo had with Philips. There was a recent announcement of one of your competitors regarding expanded and enhanced partnership with Philips that's raised some questions from investors just about your own standing with Philips.

So just given like kind of the platform today and with that preamble out there, what's the status of Masimo's relationship with Philips? What does the opportunity set for revenue growth within that Philips customer base look like over the next decade relative to the past decade? And can Philips still be growth accretive for Masimo?

Jason, yeah, thanks for the question. So as you know, the Philips agreement is still in place between Masimo and Philips, and over time, obviously we need to evolve that agreement. So personally I've been involved in a lot of meetings and conversations with Philips.

And even though we saw, as you said, a competitor press release about a relationship with Philips, the Masimo relationship with Philips remains very strong, and we are in conversations to continue that partnership well into the future, really two major market leaders working together. We see that as really important for us going forward strategically.

I personally have known the Philips organization for a long time in the industry for a long period of time, and so I'm personally engaging in the kind of conversations about a continued partnership. If you look over the last 10 years, to your point, we've seen a significant increase in the Masimo presence inside the Philips kind of installed base, and we would anticipate that that should continue.

All right, perfect. Thanks, Katie. And Michael, one for you. I think you mentioned still having some path on -- or having a path in front of you and just medium-term mitigation to further alleviate some of the pressures you're feeling this year on the tariff front. I know it's early, but do you have any early comments about how we should be thinking about the annual impact as we look ahead to '26 from tariffs like on a net basis?

Got a lot of moving parts here in the positive and negative columns. I think you're also confident about securing 100 basis points of [core] margin improvement each year. So just trying to make sure we're all appropriately calibrated as we look ahead to next year. Any comments you have there would be great.

Yeah, thank you, Jason. So this year, our guidance implies $17 million to $19 million of tariff impacts, and that's really some that hit us in Q2, but then kind of stepping up in the back half. If you look at the earnings presentation materials we put out there today, we put out the impact as you look at it on an annualized basis. And if you look at it before any mitigation, we were facing headwinds of about 390 to 550 basis points.

The changes in tariff policy and rate assumptions, that improved about 70 to 100 basis points. And then if you look at the mitigation actions we've implemented to date, and a lot of that I mentioned in my prepared remarks, where we adjust our supply chain, we qualified exemptions for products, a lot of administrative effort, that's delivering about 120 to 190 basis points of tariff reduction on an annualized basis.

So if you kind of look at it annualized after the mitigation actions we've implemented date, that puts us around 200 to 260 basis points of tariff impacting the cost of goods sold. And as you mentioned, we continue to work through medium-term mitigation efforts that we've identified to date. Those are opportunities that we'll be working through, and those that also contribute, we're estimating at this time about 100 to 110 basis points of improvement and cut it down nearly in half from where we are today.

So that will take some time to implement and we're still working through evaluating all those measures, but we're not giving up here. We're really trying to get after this. We've seen the success we've had in bringing that exposure down already and we are working relentlessly to mitigate this over time.

Michael Polark, Wolfe Research.

I have a question on the true incremental metric that is disclosed in the deck. It was down over 20% in the first quarter. It looks to be down year-on-year 40%; in the second quarter year-to-date off 33%.

So I'm interested in more color on why this metric is the way that it is, why might it get better from here. And I guess specifically I'll ask the sales force changes that are being made. Is that an item that's precluded bookings performance in the first half and maybe relieves in the back half. Any field here would be great. Thank you.

Yeah, thanks Mike. So the first half of the year, incremental value of the contracts is over $155 million. We're on track for another solid year for contracting, with a strong pipeline in the second half. As we talked about this before, it's highly dependent on the timing of large bills that come up for bid throughout each year.

And we're still seeing good increase too and other metrics like unrecognized contract revenues up 7% year over year. We are, of course, delivering chips [as] we saw very strong consumers in the quarter, and we're tracking well. We do have a good pipeline for the second half, and we plan to execute on the full year.

And I guess maybe just the only follow up then. The sales force change is not an influence that you would call out? It's more deal timing?

Yeah, definitely related to deal timing. I mean, it's all about when certain contract comes up for bid, and that can fluctuate quarter to quarter, year to year. So we feel we've got a very good pipeline ahead of us, and we're expecting actually very strong on the back end.

Rick Wise, Stifel.

Hi, Katie. Hi, Micah. Maybe to start off, you could give us a little more color on thinking about board shipments, obviously, seemed like a solid number. I think if I remember correctly, you talked about 240,000 to 260,000 for the year. And just if I'm doing the math right, I may not be, if that would imply, sort of based on first half numbers, a deceleration in second half. So anyway, how should we think about it? How should we think about the second half? Help set our expectations.

Yeah, so Rick, we're still kind of in that [260,000 to 265,000] is what we expect for the quarter this year. So that's kind of how you should think about it as we move into Q3 to Q4 is right in that range and we came in at just above the midpoint of the range where the upper part of the range for the second quarter.

Yeah, Rick. I can just say kind of coming in, that board shipments really vary depending on the OEMs, when they're ordering. It's just very seasonal, so it's hard to say that you can get a trend out of just a couple quarters. I mean, it's hard to predict. So I think the overall year is good to think on.

Yeah, and just a big picture question for you, Katie. You've come in, and done -- obviously, made some important additions and changes, and thank you for being so clear about these initiatives. And several people have asked about it, let me ask it this way, commercial excellence, this adjacent market share, the intelligent monitors.

How do we think about -- there's a lot of incremental sounding stuff in there in a good way. When do we really start -- when would you hope, when would you want us to hold you accountable for potential acceleration in top line, or however you want to say it, related to these initiatives. Thanks a lot.

Yeah. Thanks, Rick, great question. So as you know, we're going to be holding an investor conference in December of this year, and at that time we'll have a lot more details available for like what is the timing of some of these new products with intelligent monitoring, acceleration, et cetera.

So we know sort of the year, et cetera, right now, but we don't know the exact kind of quarter. And so we'll have a lot more clarity about that at that time and then we'll be able to give more updated guidance. So I understand how it's like, well, when will we see this upside, but I think it's going to take us a little bit more time to do some of that detailed planning. But I would for sure say by the investor conference we should be able to give you some clear expectations as we go into next year.

Vik Chopra, Wells Fargo.

Congrats on a nice quarter. The quick question for me is, can you provide an update on your progress with your hemodynamic monitoring technology? Do you still expect to launch in 2026? And maybe talk about your ability to compete in the market. Thanks.

Yeah, so thanks for the question. So on hemodynamics, we really expect to launch -- so we already have some pilots out there with the LiDCO technology that was acquired several years ago using a smart cable connecting to our monitors, our existing root monitor.

What you're hearing us talk about is that next year we'll be creating a new next-gen root monitor and that next-gen monitor will have kind of even better technology, if you will, with new screens, et cetera, related to hemodynamics. So you would see that coming out towards the back half of next year and we will continue to launch into using the smart cable onto our existing [roofer] piloting and for getting detailed patient feedback and customer feedback.

And so that's sort of the status. I don't know if that directly answered your question, but that's where we see us in the back half of next year with a kind of full product launch and with a dedicated team going after that.

Great, that's helpful. Just a quick follow up, if I could. Can you just let us know on the cyberattack, if you expect any impact in Q3? Are you back to normal operating levels? Thank you.

Yeah, thank you. So yeah, we're back fully operational. We did provide that update during the quarter, the second quarter. And of course as you saw, we finished right in line with where we're hoping to for the quarter. So it's a great recovery by the team.

We don't view any material impact on the quarter [of] the full year. And we're fully operational. All systems are running. So manufacturing's up, our order taking's up and also our ability to ship out of all of our distribution warehouses. So we're excited. We're very thankful for all the hard work by the global team and being able to meet the quarter and get us on track for a great year.

Yeah, I think the only other additional comment is that as we brought our systems back up, as anyone would do, we try to bring them up in a fortified way, so that we would be stronger, honestly, to prevent future attacks. And so we feel really good about that. And we got some amazing expert help to make that happen. And it was all kind of, as Micah mentioned before, within the context of the insurance. And so, in fact, I mean, it's never great to have a cyberattack, but I think it really helped us get stronger as an organization.

Matt Taylor, Jefferies.

I just wanted to ask you about any change in competitive dynamics. And your main competitor did call out on their last earnings call some pressures from generics and reprocessing, and I was wondering if you saw any of that increasing out in the marketplace.

Yeah, thanks for the question. So what we would say is that we have not experienced the same pressure. I mean, there's always reprocessed sensors kind of out there in the marketplace, so we did not see it have a significant impact on us in the quarter, and we just haven't seen any -- as much of an increase as we've seen as the competition was mentioning.

Maybe one follow up. So could you give us any color on some of the product lines outside of pulse ox, things like [Rainbow Capnography 03], any broad strokes in terms of how those are doing or anything new there?

Yeah, thank you, Matt. Yeah, so we'll get a more of a comprehensive update at the end of the year. But right now what we're seeing year to date, we're tracking very well on our growth rates there across our advanced [parameter] categories. Rainbow's tracking well. We're seeing good strong growth from capnography and brain monitoring, and they're thinking about it in in line with our long-range target growth rates in this category.

Mike Matson, Needham.

A few, I guess, for Mica. So third-quarter seasonality looks like consensus has got you sort of about flat, about $370 million. I know you don't give quarterly guidance, but just any color you can provide there in terms of what we should be expecting sequentially would be helpful.

Yes, thanks, Mike. If you look at -- you remember, if you recall in the last earnings call, I mentioned that, and even coming into the year with guidance, we expect normal seasonality this year. Last year was a little bit outside the norm where we saw strength and strong hospital admissions growth in the second and third quarters last year.

This year, we're seeing kind of that normal seasonality of the business which is becoming a little bit more predictable for us. But if you look at that, we expected the revenues to step down in Q2 and then step down further in C3 and then our seasonally strong Q4.

So that's kind of how we're seeing it play out this year. Keep in mind we do have an extra week of revenue in the fourth quarter. So if you adjust for that week, that's the best way to look at it and kind of back into that normal seasonality that we've laid out for the year.

Okay, got it. And then just with the guidance for both revenue and EPS, you raised the guide of the revenue range a little bit by like $5 million I think, but your constant currency growth is the same. I mean, the dollar is weakened quite a bit. I can't remember if you're hedging on the top line or something or -- just maybe talk about what you're expecting for currency impact both to revenue and to your earnings or EPS for the year.

Absolutely. So we're maintaining a range of 8% to 11% constant currency growth and basically passing through the benefits of more favorable exchange rates on our reported revenue (technical difficulty). So that's how we're thinking about the guide. So we raised the reported revenues by $5 million at [those] end of the range and held our constant currency [guide].

Okay. So how much of the -- what's the net currency benefit, I guess, to revenue? The $5 million or --

The $5 million. Yes (multiple speakers) how we're seeing it play out, yes.

And then I guess that's just not really material in terms of the bottom line.

It's contributing. It does drop through a little bit above our overall operating margin rate, so [it is in the] bottom.

Jayson Bedford, Raymond James.

So maybe just a few clean-up questions here. Katie, you mentioned that the goal to improve share in your advanced parameters, capnography, brain monitoring. In which of these markets do you think you have the best opportunity to gain share? And can you just -- can you gain share with just more sales force focus or do you need a new product story tied to these expected share gains?

Yeah, thanks for the question. Great question. So we would say that we have fantastic technologies. If you look at over the last five to seven years, we've acquired some great technologies in those spaces. So I would say it's a combination. So we're going to have betters sales force focus and alignment.

And then the second thing is you'll start to see us come out with some next-gen sensors that will play into those spaces as well as the next-gen monitors that will come out in the next couple of years that will actually help to supplement that. So it's not going to be like overnight, but you're going to see it kind of gradually increasing. But we do believe that we have fantastic technology in that category. It's just that we kind of come -- have come later into those markets. And so we don't have as much of a stock and install base across the board, especially on some of the OEM manufacturers' presence.

So that's another thing that we're kind of working on as well. And so I would say if you look at the across the space, we're pretty excited. The way that we sort of listed those adjacent markets would be kind of our order of excitement is the way I think about it.

Okay, that's helpful. Micah, somewhat related to an earlier question, just unrecognized contract revenue. It looks like it was down sequentially for the second straight quarter. I guess the easy question is why, but is there a timing dynamic as well tied to that?

Yeah, there is. So we saw the consumable revenues up about 6% sequentially between Q1 and Q2, which we expected. And that was all tied to where we're recognizing now the large OUS tender word. So we're seeing that the mix of the consumer capital kind of normalizing in Q2. And. that's what that is. It's recognizing the revenue on that contract, so that would be a positive for us this quarter.

Okay. Okay, and then last question somewhat uninteresting. Lower tax rate in 2Q. I haven't gone through all of the guidance here, but what is the assumed tax rate for the year tied to the new EPS guidance?

Yeah. So for the full year, at the midpoint of our guidance range we're about around 23.8% at the midpoint.

There are no further questions at this time. I will now turn the call back to Katie Szymanfor closing remarks. Please go ahead.

So first of all, thanks to everybody for joining the call today and for your interest in Masimo. We look forward to joining you again on our next earnings call next quarter. Thanks, everyone.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please to disconnect your lines.