Masimo Reports Fourth Quarter 2017 Financial Results
Published: Feb 27, 2018
Fourth Quarter 2017 Results:
Fourth quarter total revenue, including royalty and other revenue, increased 22.9% to $225.2 million, up from $183.2 million for the fourth quarter of 2016. Product revenues for the fourth quarter of 2017 increased 13.4% to $199.2 million, compared to $175.7 million for the fourth quarter of 2016.
The Company’s worldwide direct product revenue, which accounted for 87.1% of total product revenue, increased by 13.5% to $173.4 million in the fourth quarter of 2017 compared to $152.8 million for the fourth quarter of 2016. OEM sales, which accounted for 12.9% of total product revenue, increased 12.6% to $25.8 million in the fourth quarter of 2017 compared to $22.9 million for the fourth quarter of 2016. Revenue from sales of Masimo rainbow® products increased 42.5% to $24.0 million in the fourth quarter of 2017 compared to $16.9 million for the fourth quarter of 2016.
GAAP net income for the fourth quarter of 2017 was $0.4 million, or $0.01 per diluted share, compared to GAAP net income of $215.3 million, or $3.97 per diluted share, in the fourth quarter of 2016. Included in the fourth quarter 2017 earnings per share was a non-recurring charge of $43.5 million, or $0.78 per diluted share, related to the Tax Cuts and Jobs Act of 2017 (2017 Tax Act) that was signed into law on December 22, 2017. The fourth quarter 2016 earnings per share included a non-recurring gain of $270.0 million, or $3.43 per diluted share, related to the Philips Settlement Agreement. On a non-GAAP basis, the Company reported fourth quarter net income of $40.0 million, or $0.72 per diluted share, compared to net income of $24.6 million, or $0.45 per diluted share, in the fourth quarter of 2016.
During the fourth quarter of 2017, the Company shipped approximately 54,100 SET® pulse oximeters and rainbow SET™ Pulse CO-Oximeters®, excluding handheld and finger oximeters. Masimo estimates its worldwide installed base of oximeters to be 1,591,000 units as of December 30, 2017, up 5.8% from 1,504,000 units as of December 31, 2016.
As of December 30, 2017, total cash and cash equivalents were $315.3 million compared to $306.0 million as of December 31, 2016. During 2017, the Company repurchased approximately 0.8 million shares of common stock at a total cost of $68.3 million.
Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “Our fourth quarter and full year 2017 results clearly illustrate the strength of our technology and hence, our business as we once again exceeded expectations for product revenues and earnings. We realized another record high for shipments of our SET® Pulse Oximeters which reached 54,100 for the quarter and exceeded 200,000 for the year, a significant milestone for the Company. We anticipate rising adoption of our technologies as more care providers appreciate the value they provide for patients.”
2018 Financial Guidance
The Company provided the following estimates for its full year 2018 guidance:
- Total revenue, including royalty and other revenue, of $836 million;
- Product revenue increasing 9% to $808 million compared to $741 million for 2017;
- GAAP diluted earnings per share of $2.90, an increase of approximately 23% compared to $2.36 for 2017; and
- Non-GAAP diluted earnings per share of $2.80, an increase of approximately 14% compared to $2.45 for 2017.
Supplementary Non-GAAP Financial Information
For additional non-GAAP financial details, please visit the Investor Relations section of the Company’s website at www.masimo.com to access Supplementary Financial Information.
Non-GAAP Financial Measures
The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results or that these items are not indicative of the Company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies.
The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) non-GAAP net income, (ii) non-GAAP diluted earnings per share, (iii) non-GAAP gross profit, (iv) non-GAAP operating income and (v) adjusted EBITDA. These non-GAAP financial measures may also assist investors in making comparisons of the Company’s core operating results with those of other companies. Management believes non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA are important measures in the evaluation of the Company’s performance and uses these measures to better understand and evaluate our business.
The non-GAAP financial measures reflect adjustments for the following items, as well as the related income tax effects thereof:
Acquisition-related costs, including depreciation and amortization.
Depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods.
Litigation damages, awards and settlements.
In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds; most recently in connection with our November 2016 settlement agreement with Koninklijke Philips N.V. We believe that exclusion of these expenses and gains is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or infrequent in nature.
Excess tax benefits from stock-based compensation.
Accounting Standard Update No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of ASU 2016-09 can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees.
Tax impacts that may not be representative of the ongoing results of our core operations.
The 2017 Tax Act was signed into law in December 2017, and became effective January 1, 2018. The 2017 Tax Act included a number of changes to existing U.S. federal tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%, a one-time transition tax on the “deemed repatriation” of cumulative undistributed foreign earnings as of December 31, 2017 and changes in the prospective taxation of the foreign operations of U.S. multinational companies. We believe that exclusion of the tax charges related to the 2017 Tax Act is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that this tax charge is unrelated to our core business and non-recurring in nature.
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 9789137. After the live webcast, the call will be available on Masimo’s website through March 27, 2018. In addition, a telephonic replay of the call will be available through March 6, 2018. The replay dial-in numbers are (855) 859-2056 for domestic callers and +1 (404) 537-3406 for international callers. Please use reservation code 9789137.