SOURCE: Masimo

Masimo

February 17, 2015 16:05 ET

Masimo Reports Fourth Quarter and Full Year 2014 Financial Results

IRVINE, CA--(Marketwired - Feb 17, 2015) - Masimo (NASDAQ: MASI)

Q4 2014 Highlights (compared to Q4 2013):

  • Product revenue rose 14% to $153.9 million
  • Total revenue, including royalties, rose 14% to $161.8 million
  • Masimo rainbow®  revenue declined 4% to $14.1 million
  • SET® and rainbow® SET® unit shipments were 44,100
  • Earnings per share was $0.40 versus $0.16 in the year-ago period 

FY 2014 Highlights (compared to 2013):

  • Product revenue rose 8% to $556.8 million
  • Total revenue, including royalties, rose 7% to $586.6 million
  • Masimo rainbow®  revenue rose by 6% to $51.8 million
  • SET® and rainbow® SET® unit shipments were 171,000
  • Earnings per share was $1.30 versus $1.02 in the year-ago period 

Masimo (NASDAQ: MASI) today announced its financial results for the fiscal fourth quarter and full fiscal year ended January 3, 2015.

Fourth quarter 2014 product revenues rose 14% to $153.9 million, compared to $134.7 million for the fourth quarter of fiscal year 2013, and total revenue, including royalties, rose 14% to $161.8 million, up from $142.4 million for the fourth quarter of fiscal year 2013. The unfavorable effect of foreign currency movements adversely impacted fourth quarter product revenues by approximately $3.4 million. 

The company's worldwide direct product revenue in the fourth quarter of 2014 rose by 14% compared to the same period in 2013 and represented 86% of total product revenue. OEM sales, which accounted for 14% of total product revenue, rose by 18% compared to the same period in 2013. Revenue from sales of Masimo rainbow® products declined by 4% to $14.1 million in the fourth quarter of 2014, compared to $14.8 million in the prior year period.

Net income for the fourth quarter of 2014 was $21.2 million, or $0.40 per diluted share, compared to net income of $9.3 million, or $0.16 per diluted share, in the fourth quarter of 2013. Fourth quarter 2013 results were negatively impacted by $0.15 per diluted share charges related to selected inventory and equipment write-downs, as well as an arbitration award ruling that was subsequently vacated on appeal and reversed in the first quarter of 2014. During the fourth quarter of 2014, the company shipped approximately 44,100 SET® pulse oximetry and rainbow® Pulse CO-Oximetry units, excluding handheld units. Masimo estimates its worldwide installed base as of January 3, 2015 to be 1,313,000 units, up 9% from 1,205,000 units as of December 28, 2013.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, "We are happy that the fourth quarter product revenue growth reflected a continuation of the recovery in our core business that began in the third quarter. I am also happy that our value engineering efforts are, as we expected, continuing to result in higher sequential gross profit margins. Both of these factors, coupled with our continued focus on overall operating expense control, have begun to show the operating leverage opportunity that exists within our business model." 

As of January 3, 2015, Masimo's cash and cash equivalents were $134.5 million, compared to $95.5 million as of December 28, 2013. During the fourth quarter, the company repurchased 27,659 shares of stock for $0.6 million, resulting in total 2014 stock repurchases of approximately 4.5 million shares for $102.5 million.

2015 Financial Guidance
Masimo today is providing 2015 financial guidance. Due to the significant movement in foreign exchange rates over the last four months, and the assumption that those rates will continue throughout 2015, Masimo is, for the first time, providing an estimate of the impact of these foreign exchange rates on its 2015 GAAP financial guidance. Masimo expects fiscal 2015 GAAP total revenues to be approximately $605 million. Masimo expects fiscal 2015 GAAP total product revenues to be $577 million, including an estimated $20 million revenue reduction due to unfavorable 2015 foreign exchange rate assumptions impacting product revenues compared to 2014 actual foreign exchange rates. In addition, Masimo expects approximately $28 million in fiscal 2015 royalty revenues. Masimo also expects fiscal 2015 GAAP earnings per diluted share of approximately $1.30, including an estimated $0.15 reduction due to the more unfavorable 2015 foreign exchange rate assumptions impacting revenues, cost of sales and operating expenses compared to the 2014 actual foreign exchange rates. Masimo will provide additional financial information during the conference call today. Each of the components of Masimo's guidance set forth above is an estimate only and actual performance could differ.

Conference Call
Masimo will hold a conference call today at 1:30 p.m. PT (4:30 p.m. ET) to discuss the results. A live webcast of the call will be available online from the investor relations page of the company's website at www.masimo.com. The dial-in numbers are (888) 520-7182 for domestic callers and +1 (706) 758-3929 for international callers. The reservation code for both dial-in numbers is 76075657. After the live webcast, the call will be available on Masimo's website through March 10, 2015. In addition, a telephonic replay of the call will be available through March 3, 2015. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (855) 859-2056 for international callers. Please use reservation code 76075657.

About Masimo
Masimo (NASDAQ: MASI) is the global leader in innovative noninvasive monitoring technologies that significantly improve patient care-helping solve "unsolvable" problems. In 1995, the company debuted Measure-Through-Motion and Low-Perfusion pulse oximetry, known as Masimo SET®, which virtually eliminated false alarms and increased pulse oximetry's ability to detect life-threatening events. More than 100 independent and objective studies have shown that Masimo SET® outperforms other pulse oximetry technologies, even under the most challenging clinical conditions, including patient motion and low peripheral perfusion. In 2005, Masimo introduced rainbow SET® Pulse CO-Oximetry technology, allowing noninvasive and continuous monitoring of blood constituents that previously could only be measured invasively, including total hemoglobin (SpHb®), oxygen content (SpOC), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), and Pleth Variability Index (PVI®), in addition to SpO2, pulse rate, and perfusion index (PI). Additional information about Masimo and its products may be found at www.masimo.com.

Forward-Looking Statements
All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expectations for full fiscal year 2015 total, product and royalty revenues and GAAP earnings per share; estimates regarding the impact of foreign exchange rates on our financial performance for full fiscal year 2015; statements regarding the recovery in our core business; statements regarding higher sequential gross profit margins and expense control; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management's current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: actual foreign currency exchange rates in fiscal year 2015; our dependence on Masimo SET® and Masimo rainbow® SET® products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors' assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; and other factors discussed in the "Risk Factors" section of our most recent periodic reports filed with the Securities and Exchange Commission ("SEC"), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC's website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Masimo, SET, Signal Extraction Technology, Improving Patient Outcome and Reducing Cost of Care... by Taking Noninvasive Monitoring to New Sites and Applications, rainbow, SpHb, SpOC, SpCO, SpMet, PVI are trademarks or registered trademarks of Masimo Corporation.

   
MASIMO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) (in thousands)
 
   
    January 3,
 2015
    December 28,
 2013
 
ASSETS                
Current assets                
  Cash and cash equivalents   $ 134,453     $ 95,466  
  Accounts receivable, net of allowance for doubtful accounts     71,017       76,759  
  Inventories     69,718       56,813  
  Prepaid income taxes     417       3,740  
  Other current assets     21,471       19,384  
  Deferred income taxes, current     18,065       19,636  
      Total current assets     315,141       271,798  
Deferred cost of goods sold     67,485       61,714  
Property and equipment, net     101,952       24,866  
Intangible assets, net     27,771       28,104  
Goodwill     20,979       22,793  
Deferred income taxes, noncurrent     24,193       22,565  
Other assets     7,485       6,822  
      Total assets   $ 565,006     $ 438,662  
LIABILITIES AND EQUITY                
Current liabilities                
  Accounts payable   $ 38,045     $ 28,004  
  Accrued compensation     33,600       29,486  
  Accrued liabilities     24,541       23,028  
  Income taxes payable     6,562       2,406  
  Deferred revenue     21,067       20,755  
  Current portion of capital lease obligations     79       111  
      Total current liabilities     123,894       103,790  
Deferred revenue     453       566  
Long term debt     125,145       225  
Other liabilities     7,773       7,680  
      Total liabilities     257,265       112,261  
Commitments and contingencies                
Equity                
  Masimo Corporation stockholders' equity:                
    Common stock     52       57  
    Treasury stock     (185,906 )     (83,454 )
    Additional paid-in capital     288,686       273,129  
    Accumulated other comprehensive (loss) income     (2,093 )     3,995  
    Retained earnings     205,260       132,742  
      Total Masimo Corporation stockholders' equity     305,999       326,469  
  Noncontrolling interest     1,742       (68 )
      Total equity     307,741       326,401  
      Total liabilities and equity   $ 565,006     $ 438,662  
                       
                       
   
MASIMO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited) (in thousands, except per share amounts)
 
   
    Three Months Ended     Twelve Months Ended  
    January 3,
 2015
  December 28,
 2013
    January 3,
 2015
    December 28,
 2013
 
Revenue:                              
  Product   $ 153,897   $ 134,704     $ 556,764     $ 517,429  
  Royalty     7,891     7,731       29,879       29,816  
Total revenue     161,788     142,435       586,643       547,245  
Cost of goods sold     52,629     51,899       195,864       188,418  
Gross profit     109,159     90,536       390,779       358,827  
Operating expenses:                              
  Selling, general and administrative     61,483     55,933       241,016       215,469  
  Research and development     15,029     13,940       56,581       55,631  
  Litigation award and defense costs     --     8,010       (10,331 )     8,010  
Total operating expenses     76,512     77,883       287,266       279,110  
Operating income     32,647     12,653       103,513       79,717  
Non-operating expense     1,429     751       1,472       3,991  
Income before provision for income taxes     31,218     11,902       102,041       75,726  
Provision for income taxes     9,432     2,717       27,678       20,005  
Net income including noncontrolling interest     21,786     9,185       74,363       55,721  
Net income (loss) attributable to noncontrolling interest     565     (128 )     1,845       (2,660 )
Net income attributable to Masimo Corporation stockholders   $ 21,221   $ 9,313     $ 72,518     $ 58,381  
                               
Net income per share attributable to Masimo Corporation stockholders:                              
  Basic   $ 0.40   $ 0.16     $ 1.33     $ 1.03  
  Diluted   $ 0.40   $ 0.16     $ 1.30     $ 1.02  
                               
Weighted-average shares used in per share calculations:                              
  Basic     52,438     56,678       54,708       56,690  
  Diluted     53,142     57,824       55,571       57,480  
                                 
                                 

The following table presents details of the share-based compensation expense that is included in each functional line item in the condensed consolidated statements of income (in thousands):

         
    Three Months Ended   Twelve Months Ended
    January 3,
 2015
  December 28,
 2013
  January 3,
 2015
  December 28,
 2013
Cost of goods sold   $ 103   $ 30   $ 436   $ 354
Selling, general and administrative     2,498     2,210     8,812     9,407
Research and development     614     414     1,757     1,913
Total   $ 3,215   $ 2,654   $ 11,005   $ 11,674
                         
                         
   
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
 
   
    Year ended  
    January 3,
 2015
    December 28,
 2013
 
Cash flows from operating activities:                
  Net income including noncontrolling interest   $ 74,363     $ 55,721  
  Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:                
    Depreciation and amortization     12,818       11,421  
    Share-based compensation     11,005       11,674  
    Loss on disposal of property and equipment     368       249  
    Provision for doubtful accounts     583       728  
    Benefit from deferred income taxes     (320 )     (8,613 )
    Income tax benefit from exercise of stock options granted prior to January 1, 2006     264       693  
    Excess tax deficit from share-based compensation arrangements     396       1,308  
      Changes in operating assets and liabilities:                
      Decrease (increase) in accounts receivable     4,862       (9,576 )
      Increase in inventories     (13,434 )     (9,453 )
      Increase in deferred cost of goods sold     (5,888 )     (9,594 )
      Decrease (increase) in prepaid income taxes     3,316       (1,660 )
      Increase in other assets     (2,619 )     (756 )
      (Decrease) increase in accounts payable     (1,375 )     1,238  
      Increase in accrued compensation     4,948       4,557  
      Increase in accrued liabilities     1,837       6,406  
      Increase (decrease) in income taxes payable     3,909       (381 )
      Increase in deferred revenue     199       1,467  
      Increase (decrease) in other liabilities     227       (842 )
Net cash provided by operating activities     95,459       54,587  
Cash flows from investing activities:                
  Purchases of property and equipment     (75,061 )     (9,360 )
  Increase in intangible assets     (3,353 )     (3,926 )
Net cash used in investing activities     (78,414 )     (13,286 )
Cash flows from financing activities:                
  Borrowings under revolving line of credit     125,000       --  
  Debt issuance costs     (436 )     --  
  Repayments on capital lease obligations     (111 )     (132 )
  Proceeds from issuance of common stock     4,680       3,289  
  Excess tax deficit from share-based compensation arrangements     (396 )     (1,308 )
  Repurchases of common stock     (102,453 )     (19,790 )
  Repurchases of equity by noncontrolling interest, net of equity issued     (38 )     --  
Net cash provided by (used in) financing activities     26,246       (17,941 )
Effect of foreign currency exchange rates on cash     (4,304 )     552  
Net increase in cash and cash equivalents     38,987       23,912  
Cash and cash equivalents at beginning of period     95,466       71,554  
Cash and cash equivalents at end of period   $ 134,453     $ 95,466  
                 
                 

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