Masimo Corporation Reports Second Quarter 2014 Financial Results

IRVINE, CA--(Marketwired - August 07, 2014) -

Masimo (NASDAQ: MASI)

Q2 2014 Highlights (compared to Q2 2013):

• Product revenue rose 3% to $133.5 million
• Total revenue, including royalties, rose 3% to $140.9 million
• Masimo rainbow® revenue was level at $11.6 million
• SET® and rainbow® SET® unit shipments were 43,400
• Earnings per share was $0.24, including a $0.03 charge for a charitable contribution that was announced in May 2014

Masimo (NASDAQ: MASI) today announced its financial results for the second quarter ended June 28, 2014.

Second quarter 2014 product revenues rose 3% to $133.5 million, compared to $129.6 million for the second quarter of fiscal year 2013, and total revenue, including royalties, rose 3% to $140.9 million, up from $137.4 million for the second quarter of fiscal year 2013.

The company’s worldwide direct product revenue in the second quarter of 2014 rose by 5% compared to the same period in 2013 and represented 85% of product revenue. OEM sales, which accounted for 15% of product revenue, declined by 6% compared to the same period in 2013. Revenue from sales of Masimo rainbow products was level at $11.6 million in the second quarter of 2014, compared to $11.5 million in the year-ago period.

Net income for the second quarter of 2014 was $13.8 million, or $0.24 per diluted share, compared to net income of $17.0 million, or $0.30 per diluted share, in the second quarter of 2013. Net income for the second quarter of 2014 included an expense of $2.5 million, or $0.03 per share, for the previously announced contribution to the Masimo Foundation.

During the second quarter of 2014, the company shipped approximately 43,400 SET® pulse oximetry and rainbow® Pulse CO-Oximetry™ units, excluding handheld units, an increase of 2% compared to the same prior-year period. Masimo estimates its worldwide installed base as of June 28, 2014 to be 1,260,000 units, up 10% from 1,148,000 units as of June 29, 2013.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “Although our results for the second quarter were below our original Q2 expectations, it will not have a substantial impact on our full year financial guidance given that some rainbow® orders, including a large international rainbow® order, was shifted from Q2 into Q3. Also, I am happy to report that in June, Masimo received FDA clearance for the full featured Root™ patient monitor, which includes IRIS™ connectivity hub and MOC-9™ for additional measurements, and our Nomoline™ capnography and anesthetic agent ISA side-stream monitors, again demonstrating our ability to innovate new technologies that can help advance patient care.”

As of June 28, 2014, Masimo’s cash and cash equivalents were $97.1 million, compared to $95.5 million as of December 28, 2013. During first half of 2014, the company borrowed $75.0 million on its line of credit. This additional cash, along with net cash generated from operations, was used to repurchase approximately 2.0 million shares of stock for $49.2 million and to acquire the company’s new worldwide headquarters building for approximately $56.0 million.

2014 Financial Guidance

Masimo is providing updated 2014 financial guidance. Masimo now expects fiscal 2014 total revenue to be approximately $588 million to $593 million, including product revenue of approximately $560 million to $565 million and royalty revenue of approximately $28 million. In addition, Masimo now expects fiscal 2014 GAAP earnings per diluted share to range between $1.24 and $1.30. 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 77154954. After the live webcast, the call will be available on Masimo’s website through September 5, 2014. In addition, a telephonic replay of the call will be available through August 22, 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 77154954.

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, rainbow and royalty revenues and GAAP earnings per share; our plan to announce multiple new products in 2014; 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) June 28, December 28, 2014 2013 ------------ ------------ ASSETS Current assets Cash and cash equivalents $ 97,092 $ 95,466 Accounts receivable, net of allowance for doubtful accounts 75,263 76,759 Royalties receivable 7,400 7,300 Inventories 58,284 56,813 Prepaid expenses 9,755 9,243 Prepaid income taxes 3,391 3,740 Deferred tax assets 16,713 19,636 Other current assets 4,135 2,841 ------------ ------------ Total current assets 272,033 271,798 Deferred cost of goods sold 64,124 61,714 Property and equipment, net 82,429 24,866 Intangible assets, net 28,357 28,104 Goodwill 22,260 22,793 Deferred tax assets 22,543 22,565 Other assets 7,012 6,822 ------------ ------------ Total assets $ 498,758 $ 438,662 ============ ============ LIABILITIES AND EQUITY Current liabilities Accounts payable $ 29,104 $ 28,004 Accrued compensation 23,612 29,486 Accrued liabilities 18,610 23,028 Income taxes payable 816 2,406 Deferred revenue 24,129 20,755 Line of credit and current portion of capital lease obligations 75,091 111 ------------ ------------ Total current liabilities 171,362 103,790 Deferred revenue 530 566 Capital lease obligations, net of current portion 150 225 Other liabilities 7,326 7,680 ------------ ------------ Total liabilities 179,368 112,261 Commitments and contingencies Equity Masimo Corporation stockholders’ equity: Common stock 55 57 Treasury stock (132,606) (83,454) Additional paid-in capital 280,576 273,129 Accumulated other comprehensive income 2,285 3,995 Retained earnings 169,176 132,742 ------------ ------------ Total Masimo Corporation stockholders’ equity 319,486 326,469 Noncontrolling interest (96) (68) ------------ ------------ Total equity 319,390 326,401 ------------ ------------ Total liabilities and equity $ 498,758 $ 438,662 ============ ============ MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands, except per share amounts) Three Months Ended Six Months Ended -------------------- -------------------- June 28, June 29, June 28, June 29, 2014 2013 2014 2013 --------- --------- --------- --------- Revenue: Product $ 133,493 $ 129,568 $ 265,725 $ 258,203 Royalty 7,430 7,854 15,012 15,161 --------- --------- --------- --------- Total revenue 140,923 137,422 280,737 273,364 Cost of goods sold 47,828 46,190 95,341 92,551 --------- --------- --------- --------- Gross profit 93,095 91,232 185,396 180,813 Operating expenses: Selling, general and administrative 61,347 54,173 117,469 106,446 Research and development 13,343 13,879 27,339 28,046 Litigation award and defense costs -- -- (8,010) -- --------- --------- --------- --------- Total operating expenses 74,690 68,052 136,798 134,492 --------- --------- --------- --------- Operating income 18,405 23,180 48,598 46,321 Non-operating income (expense) 323 (238) 523 (2,564) --------- --------- --------- --------- Income before provision for income taxes 18,728 22,942 49,121 43,757 Provision for income taxes 4,776 8,294 12,678 12,707 --------- --------- --------- --------- Net income including noncontrolling interest 13,952 14,648 36,443 31,050 Net (income) loss attributable to the noncontrolling interest (150) 2,390 (9) 2,416 --------- --------- --------- --------- Net income attributable to Masimo Corporation stockholders $ 13,802 $ 17,038 $ 36,434 $ 33,466 ========= ========= ========= ========= Net income per share attributable to Masimo Corporation stockholders: Basic $ 0.25 $ 0.30 $ 0.65 $ 0.59 ========= ========= ========= ========= Diluted $ 0.24 $ 0.30 $ 0.63 $ 0.58 ========= ========= ========= ========= Weighted-average shares used in per share calculations: Basic 55,876 56,440 56,290 56,840 ========= ========= ========= ========= Diluted 56,818 57,204 57,403 57,607 ========= ========= ========= ========= 

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 Six Months Ended ------------------- ------------------- June 28, June 29, June 28, June 29, 2014 2013 2014 2013 --------- --------- --------- --------- Cost of goods sold $ 133 $ 139 $ 242 $ 240 Selling, general and administrative 2,000 2,359 4,088 4,969 Research and development 475 479 878 1,181 --------- --------- --------- --------- Total $ 2,608 $ 2,977 $ 5,208 $ 6,390 ========= ========= ========= ========= MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Six Months Ended ----------------------- June 28, June 29, 2014 2013 ---------- ---------- Cash flows from operating activities: Net income including noncontrolling interest $ 36,443 $ 31,050 Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities: Depreciation and amortization 6,113 5,600 Share-based compensation 5,208 6,390 Loss on disposal of property and equipment 2 78 Provision for doubtful accounts 183 314 Provision for deferred income taxes 2,926 1,687 Income tax benefit from exercise of stock options granted prior to January 1, 2006 44 436 Excess tax deficit from share-based compensation arrangements 15 504 Changes in operating assets and liabilities: Decrease in accounts receivable 1,233 569 (Increase) decrease in royalties receivable (100) 130 Increase in inventories (1,616) (8,420) Increase in deferred cost of goods sold (2,424) (5,718) Increase in prepaid expenses (547) (1,092) Decrease (increase) in prepaid income taxes 348 (3,383) (Increase) decrease in other assets (1,495) 1,160 Increase in accounts payable 1,177 4,644 Decrease in accrued compensation (5,731) (793) Decrease in accrued liabilities (4,365) (723) Decrease in income taxes payable (1,605) (1,261) Increase in deferred revenue 3,339 1,000 (Decrease) increase in other liabilities (354) 231 ---------- ---------- Net cash provided by operating activities 38,794 32,403 ---------- ---------- Cash flows from investing activities: Purchases of property and equipment (62,062) (3,936) Increase in intangible assets (1,901) (2,154) ---------- ---------- Net cash used in investing activities (63,963) (6,090) ---------- ---------- Cash flows from financing activities: Borrowings under line of credit, net of repayments 75,000 -- Repayments of capital lease obligations (95) (96) Proceeds from issuance of common stock 2,209 897 Excess tax deficit from share-based compensation arrangements (15) (504) Repurchases of common stock (49,152) (19,790) Repurchases of equity by noncontrolling interest, net of equity issued (38) -- ---------- ---------- Net cash provided by (used in) financing activities 27,909 (19,493) ---------- ---------- Effect of foreign currency exchange rates on cash (1,114) (301) ---------- ---------- Net increase in cash and cash equivalents 1,626 6,519 Cash and cash equivalents at beginning of period 95,466 71,554 ---------- ---------- Cash and cash equivalents at end of period $ 97,092 $ 78,073 ========== ==========