Masimo - Earnings Call - Q2 2025
August 5, 2025
Transcript
Speaker 7
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. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please go ahead.
Speaker 2
Thank you. Hello, everyone. Joining me today are President of Healthcare 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.
Speaker 4
Thank you, Eli, and 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 action 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, Cayman Wang. Cayman 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 Beno. 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 Menari 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, Lynette Torres. Lynette brings over 20 years of deep expertise in shaping global quality and regulatory compliance strategies and most recently led these efforts at Integra Life Sciences. Lastly, we have a new Chief Information Technology Officer, Giri Chodavarapu.
Giri is 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 Hellman, 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 U.S. 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. To date, 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 U.S. 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. This third wave of innovation will expand our long-term growth potential. In recent months, I 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.
Speaker 0
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 incident, 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 a 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% point headwind for our total 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 was within our expected range. Moving down to 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 are 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 margins, we realized a lower tax rate in the quarter as we are seeing greater profits from outside of the U.S., which carry a lower tax rate. Operating cash flow for the healthcare business was $62 million, which allowed us to repay $38 million in debt and repurchase $14 million worth of common stock. Now moving to our updated fiscal 2025 financial guidance, we are 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 assumption. Further, we are updating our guidance for earnings per share, including tariffs 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 reduction. Our updated guidance now incorporates $17 million to $19 million of impact from 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 a USMCA exemption now represent 2% of our total cost of sales, and we are assuming a 30% tariff rate. Products manufactured in Malaysia that are subject to U.S. tariff now represent 18% of our total cost of 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%. 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 15%. Although this is still a very fluid situation with all the changing tariff rates and assumptions, it's important to note that a 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 the 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-returning 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 it 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 acquisitions of technologies that enhance our in-hospital monitoring capabilities. As a reminder, our 2025 financial guidance does not reflect any benefit from the use of proceeds from the sale of Sound United. In closing, our second quarter results 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 exceeds our original projections coming into the year. Our global team has demonstrated consistent execution, successfully navigating challenges such as the network outage and new tariffs while still delivering another outstanding quarter. With that, we'll open the call to questions. Operating.
Speaker 7
Thank you. Ladies and gentlemen, we will now begin the question and answer session. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Maria Tebow of BTIG. Please go ahead.
Hi, good afternoon. Thanks for taking the questions. 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, you know, 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.
Speaker 0
Thank you, Marie. As you can see from the results for 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. We're holding the next 8% to 11% constant currency growth range for the year. Really, our assumptions for the full year haven't really changed. We're still assuming strong consumable growth for the full year, consumable service revenue. We're assuming capital sales growth, kind of in that low single digit range. Those were all those assumptions that we had coming into the end of the year. Everything's come pretty much in line.
I think the only thing is, if you look at the kind of the shift in 842 that was contemplated this year, we assumed a headwind coming into the year, end of the full year, and it's playing out as expected. Everything's really lining up for us right now, and we feel good about where we went this quarter and will look forward to the end.
Okay, very helpful. 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?
Speaker 4
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 U.S. is, so far, the feedback has been really positive that we're having better follow-through in each of the regions. 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. We would expect to see the impact more into 2026.
Okay, very helpful. Thank you so much, Katie.
Speaker 0
Thank you, Marie.
Speaker 4
Thanks, Marie.
Speaker 7
Your next question comes from the line of Jason Bednar of Piper Sandler. Please go ahead.
Hey, good afternoon, everyone. I want to start with maybe the status of the relationship with Philips, a big customer and partner of yours in the patient monitoring side. We're pretty deep into what was a 10-year contract Masimo had with Philips. There was a recent announcement from one of your competitors regarding an expanded and enhanced partnership with Philips that's raised some questions from investors just about your own standing with Philips. Just given like kind of the platform today and with that preamble out there, you know, what's the status of Masimo's relationship with Philips? What is the opportunity set for revenue growth within that Philips customer base look like over the next decade relative to the past decade? You know, can Philips still be growth accretive for Masimo?
Speaker 4
Jason, yeah, thanks for the question. As you know, the Philips agreement is still in place between Masimo and Philips. Over time, obviously, we need to evolve that agreement. Personally, I've been involved in a lot of meetings and conversations with Philips. Even though we saw, as you said, a competitive press release about our relationship with Philips, the Masimo relationship with Philips remains very strong. 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. 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. We would anticipate that that should continue.
All right, perfect. Thanks, Katie. Micah, one for you. I think you mentioned, you know, 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 2026 from tariff, 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. 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.
Speaker 0
Yeah, thank you, Jason. This year, our guidance implies $17 million to $19 million of tariff impact. That's really, you know, 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. If you look at it before any mitigation, we were facing headwinds of about 390 to 550 basis points. The change in the tariff policy and rate assumptions improved about 70 to 100 basis points. If you look at the mitigation actions we've implemented to date, 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. If you kind of look at it annualized after the mitigation actions we've implemented to date, that puts us around 200 to 260 basis points of tariff impact to cost of goods sold. As you mentioned, we are continuing to work through medium-term mitigation efforts that we've identified to date. Those are opportunities that we'll be working through. Those could 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. That will take some time to implement, and we're still working through evaluating all those measures. You know, 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.
We are working relentlessly to mitigate this over time.
All right, thank you.
You're welcome.
Speaker 7
Your next question comes from the line of Michael Polark of Wolfe Research. Please go ahead.
Hey, good afternoon. 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%. I'm interested in more color on why this metric is the way that it is. Why might it get better from here? I guess specifically, I'll ask these 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 feel here would be great. Thank you.
Speaker 0
Yeah, thanks, Mike. The first half of the year, incremental value of new 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've talked about this before, it's highly dependent on the timing of large deals that come up for bid throughout each year. We're still seeing good increase too. Other metrics like unrecognized contract revenue is up 7% year over year. We are, of course, delivering shipments we sold, very strong consumer leading 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.
I guess maybe just the only follow-up then is the sales force changes not an influence that you would call out. It's more deal timing.
Yeah, yeah.
Yeah, definitely.
It's definitely related to deal timing. I mean, it's all about when certain contracts come up for bid. That can fluctuate from quarter to quarter, year to year. We feel we've got a very good pipeline ahead of us, and we're expecting to execute very strong in the back half.
Okay, thank you.
Thank you.
Speaker 7
Your next question comes from the line of Rick Fishel of Stifel. Please go ahead.
Good afternoon, everybody. Hi, Katie. Hi, Micah. Maybe to start off, you could give us a little more color on thinking about Driver shipments. Obviously, it seems like a solid number. I think if I remember correctly, you talked about 240,000 to 60,000 for the year. And you know, just if I'm doing the math right, I may not be, that would imply, based on first half numbers, a deceleration in the second half. How should we think about it? How should we think about the second half to help set our expectations?
Speaker 0
Yeah, Rick, we're still kind of in that 60,000 to 65,000 is what we expect per quarter this year. That's kind of how you should think about it as we move into Q3 and Q4. It's right in that range. We came in at just above the midpoint of the range where we have to call the range for the second quarter.
Speaker 4
Yeah, Rick, I can just say coming in that Driver shipments really vary depending on the OEMs, when they're ordering. It's just very seasonal. It's hard to say that you can get a trend out of just a couple of quarters. I mean, it's hard to predict. I think the overall year is good to bank on.
Yeah. Just a big picture question for you, Katie. You've come in and, you know, done, obviously, made some important additions and changes. Thank you for being so clear about these initiatives. Several people have asked about it. Let me ask it this way. You know, 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 a potential acceleration in top line or however you want to say it related to these initiatives? Thanks a lot.
Yeah, thanks, Rick. Great question. As you know, we're going to be holding an investor conference in December of this year. At that time, we'll have a lot more details available for what is the timing of some of these new products with intelligent monitoring acceleration, etc. We know sort of the year, etc. right now, but we don't know the exact kind of quarter. We'll have a lot more clarity about that at that time, and then we'll be able to give more updated guidance. I understand how it's like, well, when will we see this upside? I think it's going to take us a little bit more time to do some of that detailed planning. 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.
Great. Thanks so much.
Thank you.
Speaker 7
Your next question comes from the line of Vik Chopra of Wells Fargo. Please go ahead.
Hey, good afternoon, and congrats on a nice quarter. Maybe a quick question for me is, can you provide an update on your progress with your new hemodynamic monitoring technology? Do you still expect to launch in 2026 and maybe talk about your ability to compete in the market? Thanks.
Speaker 4
Yeah, thanks for the question. On hemodynamics, we really expect to launch, 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. That next-gen monitor will have even better technology, if you will, with new screens, etc., related to hemodynamics. You would see that coming out towards the back half of next year. We will continue to launch into using the smart cable onto our existing Root for piloting and for getting detailed patient feedback and customer feedback. 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 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 cybersecurity incident if you expect any impact in Q3? Are you back to normal operating levels? Thank you.
Speaker 0
Thank you, Vic. We're back fully operational. We did provide that update during the quarter, the second quarter. As you saw, we finished right in line with where we were hoping to for the quarter. It was a great recovery by the team. We don't view any material impact on the quarter or the full year. We're fully operational. All systems are running. Manufacturing's up, our order taking's up, and also our ability to ship out of all of our distribution warehouses. 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.
Speaker 4
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 kind of be stronger, honestly, to prevent future attacks. We feel really good about that. We got some amazing expert help to make that happen. It was all, as Micah mentioned before, within the context of the insurance. In fact, I mean, it's never great to have a cyber attack, but I think it really helped us get stronger as an organization.
Speaker 7
Your next question comes from the line of Matt Taylor of Jefferies. Please go ahead.
Speaker 0
Hi, thanks for taking the question. I just wanted to ask you about any change in competitive dynamics. Your main competitor did call out on their last earnings call some pressures from generics and reprocessing. I was wondering if you saw any of that increasing out in the marketplace.
Speaker 4
Thank you for the question. What we would say is that we have not experienced the same pressure. I mean, there's always reprocessed sensors out there in the marketplace, but we did not see it have a significant impact on us in the quarter. We just haven't seen as much of an increase as we've seen as the competition was mentioning.
Could you give us any color on some of the product lines outside of pulse ox, things like Rainbow consumables, capnography disposables, O3, any broad strokes in terms of how those are doing or anything new there?
Speaker 0
Thank you, Matt. We'll give a more comprehensive update at the end of the year. Right now, what we've seen 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. They're thinking about it in line with our long-range target growth rates for those categories.
Great. Thank you so much, Micah.
You're welcome. Thank you.
Speaker 4
Thanks, Matt.
Speaker 7
Your next question comes from the line of Mike Matson of Needham. Please go ahead.
Yeah, thanks. A few, I guess, for Micah. The third quarter seasonality looks like consensus has gotten sort of about flat, about $370 million. You know, 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.
Speaker 0
Yes. Yes. Thanks, Mike. If you look at, if you remember, if you recall on the last earnings call, I mentioned that, you know, 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 strong strength and, you know, 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. If you look at that, we expected revenue to step down in Q2 and then step down further in Q3 and then a seasonally strong Q4. That's kind of how we're seeing it play out this year. Keep in mind, you do have an extra week of revenue in the fourth quarter.
If you adjust for that week, that's the best way to look at it and kind of, you know, back into that normal seasonality that we've laid out for the year.
Okay, got it. With the guidance for both revenue and EPS, you raised the revenue range a little bit by $5 million, I think. Your constant currency growth is the same. The dollar's weakened quite a bit. I can't remember if you're hedging on the top line or something, or maybe talk about what you're expecting for currency impact, both to revenue and to your earnings or EPS for the year.
Absolutely. We're maintaining our range of 8% to 11% constant currency growth and basically passing through the benefits of more favorable exchange rates on our reported revenues this year. That's how we're thinking about the guide. We raised the reported revenues by $5 million, that goes into the rent, and held our constant currency guidance.
Okay. How much of the, what's the net currency benefit to revenue? The $5 million, or?
It's the $5 million, yes.
Okay. All right.
That's basically how we're seeing it play out, yes.
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 dropping through the bottom line.
Okay. Got it. Thanks.
Thank you.
Speaker 7
There are no further questions at this time. With that, I will turn the call back to Katie Szyman for closing remarks. Please go ahead.
Speaker 2
Operator, I think we may still have one more question in the queue. Can you double-check that, please?
Speaker 7
That is duly noted. My apologies. Our next question comes from the line of Jason Bednar of Jefferies. Please go ahead.
Good afternoon. Thanks, Eli. I owe you a beer for that.
All right.
Maybe just a few clean-up questions here. Katie, you mentioned 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? Can you gain share with just more salesforce focus, or do you need a new product story tied to these expected share gains?
Speaker 4
Yeah, thanks for the question. Great question. 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. I would say it's a combination. We're going to have better Salesforce focus and alignment. 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. It's not going to be like overnight, but you're going to see it kind of gradually increasing. We do believe that we have fantastic technology in that category.
It's just that we kind of have come later into those markets, and we don't have as much of a stock and install base across the board, especially on some of the OEM manufacturers' presence. That's another thing that we're kind of working on as well. 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 to think about it.
Okay. 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?
Speaker 0
Yeah, there is. We saw the consumable revenues up about 6% sequentially from Q1 to Q2, which we expected. That was all tied to where we're recognizing now the large OUS tender work. We're seeing that the mix of the consumable and capital kind of normalizing in Q2. That's what that is. It's the recognizing of revenue on that track. That was a big problem for us this quarter.
Okay. Okay. 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?
For the full year, at the midpoint of our guidance range, we're about 23.8% at the midpoint.
Okay. Thank you.
Great. Thank you.
Speaker 7
There are no further questions at this time. I will now turn the call back to Katie Szyman for closing remarks. Please go ahead.
Speaker 4
Thank you 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.
Speaker 7
Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.