Masimo Corporation Reports Fourth Quarter And Full Year 2014 Financial Results

IRVINE, CA--(Marketwired - February 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, December 28, 2015 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, December 28, January 3, December 28, 2015 2013 2015 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, December 28, January 3, December 28, 2015 2013 2015 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, December 28, 2015 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 =========== ============