SOURCE: Masimo

Masimo

October 29, 2014 16:05 ET

Masimo Reports Third Quarter 2014 Financial Results

IRVINE, CA--(Marketwired - Oct 29, 2014) - Masimo (NASDAQ: MASI)

Q3 2014 Highlights (compared to Q3 2013):

  • Product revenue rose 10% to $137.1 million
  • Total revenue, including royalties, rose 10% to $144.1 million
  • Masimo rainbow® revenue rose 10% to $13.2 million
  • SET® and rainbow® SET® units shipments were 42,600
  • Earnings per share was $0.27

Masimo (NASDAQ: MASI) today announced its financial results for the third quarter ended September 27, 2014.

Third quarter 2014 product revenues rose 10% to $137.1 million, compared to $124.5 million for the third quarter of fiscal year 2013, and total revenue, including royalties, rose 10% to $144.1 million, up from $131.4 million for the third quarter of fiscal year 2013.

The company's worldwide direct product revenue in the third quarter of 2014 rose by 9% compared to the same period in 2013 and represented 85% of product revenue. OEM sales, which accounted for 15% of product revenue, rose by 16% compared to the same period in 2013. Revenue from sales of Masimo rainbow products rose by 10% to $13.2 million in the third quarter of 2014, compared to $12.0 million in the prior year period.

Net income for the third quarter of 2014 was $14.9 million, or $0.27 per diluted share, compared to net income of $15.6 million, or $0.27 per diluted share, in the third quarter of 2013. During the third quarter of 2014, the company shipped approximately 42,600 SET® pulse oximetry and rainbow® Pulse CO-Oximetry™ units, excluding handheld units. Masimo estimates its worldwide installed base as of September 27, 2014 to be 1,289,000 units, up 9% from 1,180,000 units as of September 28, 2013.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, "We are happy with the acceleration in our year over year as well as our sequential quarterly SET® revenue growth. In fact, for the first time since 2010, our third quarter SET® and total product revenues exceeded the prior sequential second quarter levels. We are also encouraged by the sequential improvement in our product gross profit margins which are beginning to reflect the benefit of our value engineering program over the past two years."

As of September 27, 2014, Masimo's cash and cash equivalents were $119.0 million, compared to $95.5 million as of December 28, 2013. Additionally, during the first nine months of 2014, the company borrowed $125.0 million on its line of credit. During the third quarter, the company repurchased approximately 2.4 million shares of stock for $52.7 million, leading to repurchases of approximately 4.4 million shares of stock for $101.9 million through the third quarter of 2014, with approximately 0.6 million shares remaining in our original 6.0 million share repurchase program announced on February 14, 2013. In addition, the Board recently authorized the repurchase of up to an additional 3.0 million shares.

2014 Financial Guidance
Masimo is providing updated 2014 financial guidance. Masimo now expects fiscal 2014 total revenue to be approximately $585 million, including product revenue of approximately $556 million and royalty revenue of approximately $29 million. This represents a decline in the prior guidance for total 2014 revenues of approximately $588 million to $593 million, which included product revenues of $560 million to $565 million and royalty revenue of approximately $28 million. Despite the reduction in total product revenue and partially offsetting increase in royalty revenue guidance, Masimo expects fiscal 2014 GAAP earnings per diluted share to be approximately $1.28, within the prior range of $1.24 to $1.30. The 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 22235539. After the live webcast, the call will be available on Masimo's website through November 21, 2014. In addition, a telephonic replay of the call will be available through November 21, 2014. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (855) 859-2056 for international callers. Please use reservation code 22235539.

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 2014 total, product and royalty revenues and GAAP earnings per share; 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: 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)
 
             
    September 27,
 2014
    December 28,
 2013
 
ASSETS                
Current assets                
  Cash and cash equivalents   $ 118,988     $ 95,466  
  Accounts receivable, net of allowance for doubtful accounts     73,235       76,759  
  Royalties receivable     6,800       7,300  
  Inventories     62,834       56,813  
  Prepaid expenses     11,215       9,243  
  Prepaid income taxes     4,421       3,740  
  Deferred tax assets     16,698       19,636  
  Other current assets     5,429       2,841  
    Total current assets     299,620       271,798  
Deferred cost of goods sold     65,226       61,714  
Property and equipment, net     87,618       24,866  
Intangible assets, net     28,187       28,104  
Goodwill     21,752       22,793  
Deferred tax assets     22,513       22,565  
Other assets     7,552       6,822  
    Total assets   $ 532,468     $ 438,662  
LIABILITIES AND EQUITY                
Current liabilities                
  Accounts payable   $ 28,988     $ 28,004  
  Accrued compensation     30,287       29,486  
  Accrued liabilities     31,507       23,028  
  Income taxes payable     3,042       2,406  
  Deferred revenue     21,274       20,755  
  Line of credit and current portion of capital lease obligations     125,083       111  
    Total current liabilities     240,181       103,790  
  Deferred revenue     492       566  
  Capital lease obligations, net of current portion     148       225  
  Other liabilities     7,544       7,680  
    Total liabilities     248,365       112,261  
Commitments and contingencies                
Equity                
  Masimo Corporation stockholders' equity:                
    Common stock     52       57  
    Treasury stock     (185,325 )     (83,454 )
    Additional paid-in capital     283,577       273,129  
    Accumulated other comprehensive income     584       3,995  
    Retained earnings     184,039       132,742  
      Total Masimo Corporation stockholders' equity     282,927       326,469  
  Noncontrolling interest     1,176       (68 )
      Total equity     284,103       326,401  
      Total liabilities and equity   $ 532,468     $ 438,662  
                 
                 
                 
MASIMO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited) (in thousands, except per share amounts)
 
   
    Three Months Ended     Nine Months Ended  
    September 27,
 2014
    September 28,
 2013
    September 27,
 2014
    September 28,
 2013
 
Revenue:                                
  Product   $ 137,142     $ 124,522     $ 402,868     $ 382,725  
  Royalty     6,976       6,925       21,988       22,086  
Total revenue     144,118       131,447       424,856       404,811  
Cost of goods sold     47,894       43,968       143,236       136,519  
Gross profit     96,224       87,479       281,620       268,292  
Operating expenses:                                
  Selling, general and administrative     62,064       53,090       179,533       159,536  
  Research and development     14,213       13,646       41,552       41,692  
  Litigation award and defense costs     (2,321 )     --       (10,331 )     --  
Total operating expenses     73,956       66,736       210,754       201,228  
Operating income     22,268       20,743       70,866       67,064  
Non-operating expense     (566 )     (676 )     (43 )     (3,240 )
Income before provision for income taxes     21,702       20,067       70,823       63,824  
Provision for income taxes     5,568       4,581       18,246       17,288  
Net income including noncontrolling interest     16,134       15,486       52,577       46,536  
Net (income) loss attributable to the noncontrolling interest     (1,271 )     116       (1,280 )     2,532  
Net income attributable to Masimo Corporation stockholders   $ 14,863     $ 15,602     $ 51,297     $ 49,068  
                                 
Net income per share attributable to Masimo Corporation stockholders:                                
  Basic   $ 0.28     $ 0.28     $ 0.92     $ 0.86  
  Diluted   $ 0.27     $ 0.27     $ 0.91     $ 0.85  
                                 
Weighted-average shares used in per share calculations:                                
  Basic     53,988       56,501       55,521       56,727  
  Diluted     54,618       57,404       56,381       57,506  

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   Nine Months Ended
    September 27,
 2014
  September 28,
 2013
  September 27,
 2014
  September 28,
 2013
Cost of goods sold   $ 90   $ 83   $ 333   $ 324
Selling, general and administrative     2,220     2,228     6,308     7,197
Research and development     265     317     1,143     1,499
Total   $ 2,575   $ 2,628   $ 7,784   $ 9,020
                         
                         
                         
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited) (in thousands)
 
       
    Nine Months Ended  
    September 27,
 2014
    September 28,
 2013
 
Cash flows from operating activities:                
  Net income including noncontrolling interest   $ 52,577     $ 46,536  
  Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:                
    Depreciation and amortization     9,481       8,459  
    Share-based compensation     7,784       9,020  
    Loss on disposal of property and equipment     2       84  
    Provision for doubtful accounts     211       532  
    Provision for deferred income taxes     2,926       1,687  
    Income tax benefit from exercise of stock options granted prior to January 1, 2006     49       595  
    Excess tax deficit from share-based compensation arrangements     74       759  
    Changes in operating assets and liabilities:                
      Decrease (increase) in accounts receivable     3,198       (2,773 )
      Decrease in royalties receivable     500       330  
      Increase in inventories     (6,306 )     (12,074 )
      Increase in deferred cost of goods sold     (3,580 )     (9,100 )
      Increase in prepaid expenses     (1,928 )     (3,870 )
      Increase in prepaid income taxes     (685 )     (6,434 )
      (Decrease) increase in other assets     (3,365 )     1,777  
      (Decrease) increase in accounts payable     (1,609 )     11,091  
      Increase in accrued compensation     1,181       3,544  
      Increase (decrease) in accrued liabilities     5,446       (673 )
      Increase (decrease) in income taxes payable     558       (1,217 )
      Increase in deferred revenue     445       354  
      Decrease in other liabilities     (136 )     (417 )
Net cash provided by operating activities     66,823       48,210  
Cash flows from investing activities:                
  Purchases of property and equipment     (66,847 )     (6,910 )
  Increase in intangible assets     (2,779 )     (2,986 )
Net cash used in investing activities     (69,626 )     (9,896 )
Cash flows from financing activities:                
  Borrowings under line of credit, net of repayments     125,000       --  
  Debt issuance costs     (143 )     --  
  Repayments of capital lease obligations     (105 )     (112 )
  Proceeds from issuance of common stock     2,687       1,746  
  Excess tax deficit from share-based compensation arrangements     (74 )     (759 )
  Repurchases of common stock     (98,676 )     (19,790 )
  Repurchases of equity by noncontrolling interest, net of equity issued     (38 )     --  
Net cash provided by (used in) financing activities     28,651       (18,915 )
Effect of foreign currency exchange rates on cash     (2,326 )     764  
Net increase in cash and cash equivalents     23,522       20,163  
Cash and cash equivalents at beginning of period     95,466       71,554  
Cash and cash equivalents at end of period   $ 118,988     $ 91,717  
                 

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