Irvine, Calif.-based Masimo Corp. has agreed to buy the connected care assets of Nanthealth Inc., of Culver City, Calif., for a $47.25 million up-front cash payment. In addition, Masimo provided estimates for its full-year 2020 financial guidance, saying product revenue will increase to $1.035 billion, which reflects reported growth of 10.6% to 10.9%.
The transaction is expected to close in the first quarter of the year, subject to customary closing conditions. In addition, Masimo expects to fund the acquisition with existing cash on hand.
For its part, Nanthealth saw advantages in selling the assets. “Our decision to sell the connected care business enables us to focus on accelerating growth for our Navinet and Eviti SaaS [software as a service solutions], our data and molecular analytics capabilities, and pursue other strategically aligned goals,” said Patrick Soon-Shiong, Nanthealth chairman and CEO. “We believe Masimo has the best connectivity solutions, and we are delighted to have found the right home for our connected care business and our committed team of employees.” He added that he envisioned a smooth transition for customers of the business.
The portfolio includes the Dcx device connectivity, Vcx patient vitals software, Hbox connectivity hub and Shuttle interface cable.
Masimo’s shares were down Tuesday morning, but trended upward through the day, closing slightly below where it was Monday (NASDAQ:MASI, $164.03 − $0.97, 0.59%). Marie Thibault, of BTIG, wrote that “a combination of high expectations and slightly lighter operating margins forecasted for 2020 may have disappointed some investors.” She further noted that the company probably was being conservative, adding that beating and raising in 2020 would not be surprising.
Meanwhile, Nanthealth saw a bump in its stock (NASDAQ:NH, $1.26, $0.11, 9.57%).
Despite some investor concerns on the Masimo outlook for this year, Thibault saw promise with the Nanthealth deal. “MASI has plenty of cash on hand [,] and we see this positively as a small, synergistic deal that has potential to accelerate the company’s hospital automation efforts,” she added.
Looking at the numbers, boosting goals
During its November third-quarter earnings call, Nanthealth noted that connected care products were down 6% to $3.8 million from $4 million in the same period in 2018. “On a year-to-date basis, we are up 16% in revenue compared with the same period last year,” said Bob Petrou, Nanthealth CFO, at the time. “As we have mentioned before, revenue from this line item often varies from quarter-to-quarter due to the timing of completion of connected care implementations.”
Masimo envisions the acquisition from Nanthealth as boosting its goal to help health care facilities improve the continuum of care through hospital automation, connectivity and noninvasive monitoring technologies. The franchise allows for streamlined collection and storage of medical device data through a vendor-agnostic platform into the electronic health record or other clinical information systems.
At the same time, the company revealed select preliminary results for the full year ended Dec. 28, 2019. It is expecting that its product revenue for the full-year 2019 will range from $933 million to $936 million, reflecting reported growth of 12.4% to 12.8% and constant currency growth of 13.2% to 13.6%.
Masimo also predicted full-year 2019 GAAP earnings per share and non-GAAP earnings per share will exceed previously issued financial guidance of $3.37 and $3.18 per diluted share, respectively.
Masimo on M&A
During last month’s Evercore HealthCONx Conference, Todd Koning, Masimo’s senior vice president, finance, addressed M&A. “[W]e've really looked at a lot of different things. We got a pretty broad funnel. We look at things that are adjacent to our existing business. And you should think of us as not a monitoring company, but a monitoring company that's also a health care IT company, as well and a company that has solutions beyond just monitoring.”
To that end, the company said it will look to leverage its clinical footprint and signal processing expertise while being disciplined. From the financial side, the company would eye deals that can be accretive to its 8% to 10% long-term growth rate, support 30% operating margins, as well as deliver return on invested capital in five years.