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Masimo Reports Second Quarter 2016 Financial Results

08/03/16

Q2 2016 Highlights (compared to Q2 2015):

  • Total revenue, including royalties, rose 10.9% to $172.6 million
  • Product revenue rose 11.5% to $164.6 million
  • Masimo rainbow® revenue rose 10.6% to $14.9 million
  • 45,300 SET® and rainbow® SET® oximeters were shipped
  • GAAP net income of $30.0 million, or $0.57 per diluted share versus $19.4 million, or $0.36 per diluted share in the year-ago period

IRVINE, Calif.--(BUSINESS WIRE)--Aug. 3, 2016-- Masimo (NASDAQ: MASI) today announced its financial results for the second quarter ended July 2, 2016.

Second quarter 2016 product revenues rose 11.5% to $164.6 million, compared to $147.6 million for the second quarter of fiscal year 2015, and total revenue, including royalties, rose 10.9% to $172.6 million, up from $155.7 million for the second quarter of fiscal year 2015.

The company’s worldwide direct product revenue in the second quarter of 2016 rose by 12.7% compared to the same period in 2015 and represented 85.6% of product revenue. OEM sales, which accounted for 14.4% of product revenue, rose by 5.1% to $23.7 million in the second quarter of 2016 compared to the same period in 2015. Revenue from sales of Masimo rainbow® products rose by 10.6% to $14.9 million in the second quarter of 2016, compared to the same period in 2015.

GAAP net income for the second quarter of 2016 was $30.0 million, or $0.57 per diluted share, compared to GAAP net income of $19.4 million, or $0.36 per diluted share, in the second quarter of 2015. Included in the second quarter 2016 earnings per share was $0.08 per diluted share related to the impact of the new stock option gain accounting rule, ASU 2016-09. During the second quarter of 2016, the company shipped 45,300 SET® Pulse Oximeters and rainbow SET Pulse CO-Oximeters, excluding handheld units. Masimo estimates its worldwide installed base as of July 2, 2016 to be 1,459,000 units, up 7.1% from 1,362,000 units as of July 4, 2015.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “We are happy with the stronger than anticipated fiscal second quarter sales growth which was the result of better than expected US and OUS sensor revenues. In addition, higher than projected gross profit margins and a continuation of our control over operating expenses have allowed us to deliver better than expected operating income. As a result, we are once again increasing our full year 2016 financial guidance.”

As of July 2, 2016, total cash and cash investments were $116.1 million compared to $132.3 million as of January 2, 2016. During the six month period ended July 2, 2016, the company generated $56.7 million in cash from operations and received $19.0 million in proceeds from stock option exercises. During the same six month period, the company repurchased 1.5 million shares at total cost of $63.4 million and made $10.0 million in repayments on the company’s line-of-credit.

2016 Financial Guidance

Masimo today is updating its 2016 financial guidance. Masimo now expects fiscal 2016 total revenues to be approximately $689 million, up from $677 million. Total fiscal 2016 product revenues are now expected to be approximately $658 million, up from $647 million, while royalty revenues are now expected to be $31 million, up from $30 million. Masimo now also expects its fiscal 2016 GAAP earnings per diluted share to be $2.01, up from $1.83. 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 52627919. After the live webcast, the call will be available on Masimo’s website through August 17, 2016. In addition, a telephonic replay of the call will be available through August 31, 2016. The replay dial-in numbers are (855) 859-2056 for domestic callers and +1 (404) 537-3406 for international callers. Please use reservation code 52627919.

About Masimo

Masimo (NASDAQ: MASI) is a global leader in innovative noninvasive monitoring technologies. Our mission is to improve patient outcomes and reduce the cost of care by taking noninvasive monitoring to new sites and applications. In 1995, the company debuted Masimo SET® Measure-through Motion and Low Perfusion pulse oximetry, which has been shown in multiple studies to significantly reduce false alarms and accurately monitor for true alarms. Masimo SET® is estimated to be used on more than 100 million patients in leading hospitals and other healthcare settings around the world. In 2005, Masimo introduced rainbow® 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 more recently, Pleth Variability Index (PVI®) and Oxygen Reserve Index (ORI), in addition to SpO2, pulse rate and perfusion index (PI). In 2014, Masimo introduced Root®, an intuitive patient monitoring and connectivity platform with the Masimo Open Connect (MOC-9) interface. Masimo is also taking an active leadership role in mHealth with products such as the Radius-7 wearable patient monitor and the MightySat fingertip pulse oximeter. 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 2016 total, product and royalty revenues and GAAP earnings per diluted share; demand for our products; anticipated revenue and earnings growth; 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 and ORI are trademarks or registered trademarks of Masimo Corporation

 
MASIMO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
 
  July 2,
2016
  January 2,
2016
ASSETS
Current assets
Cash and cash equivalents $ 116,055 $ 132,317
Accounts receivable, net of allowance for doubtful accounts 84,805 80,960
Inventories 62,312 62,038
Prepaid income taxes 9,803 2,404
Other current assets 22,995   21,423  
Total current assets 295,970 299,142
Deferred cost of goods sold 73,362 71,718
Property and equipment, net 133,037 132,466
Intangible assets, net 28,264 27,556
Goodwill 20,384 20,394
Deferred tax assets 39,410 44,320
Other assets 12,256   6,139  
Total assets $ 602,683   $ 601,735  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 30,710 $ 25,865
Accrued compensation 33,956 38,415
Accrued liabilities 26,781 44,222
Income taxes payable 2,304 2,777
Deferred revenue 26,622 21,280
Current portion of capital lease obligations 75   74  
Total current liabilities 120,448 132,633
Deferred revenue 219 298
Long term debt 175,001 185,071
Other liabilities 11,866   8,021  
Total liabilities 307,534 326,023
Commitments and contingencies
Equity
Masimo Corporation stockholders’ equity:
Common stock 49 50
Treasury stock (404,276 ) (340,873 )
Additional paid-in capital 357,766 332,417
Accumulated other comprehensive loss (4,549 ) (4,739 )
Retained earnings 346,159   288,560  
Total Masimo Corporation stockholders’ equity 295,149 275,415
Noncontrolling interest   297  
Total equity 295,149   275,712  
Total liabilities and equity $ 602,683   $ 601,735  
 
 
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
 
  Three Months Ended   Six Months Ended
July 2,
2016
  July 4,
2015
July 2,
2016
  July 4,
2015
Revenue:
Product $ 164,607 $ 147,612 $ 327,897 $ 294,969
Royalty 8,029   8,114   15,906   15,294  
Total revenue 172,636 155,726 343,803 310,263
Cost of goods sold 57,501   52,825   114,455   104,257  
Gross profit 115,135 102,901 229,348 206,006
Operating expenses:
Selling, general and administrative 63,888 61,666 126,399 122,465
Research and development 14,818   13,394   29,183   28,323  
Total operating expenses 78,706   75,060   155,582   150,788  
Operating income 36,429 27,841 73,766 55,218
Non-operating income (expense) 471   (1,125 ) 969   (972 )
Income before provision for income taxes 36,900 26,716 74,735 54,246
Provision for income taxes 6,877   8,020   17,135   15,728  
Net income including noncontrolling interest 30,023 18,696 57,600 38,518
Net loss attributable to the noncontrolling interest   655     1,356  
Net income attributable to Masimo Corporation stockholders $ 30,023   $ 19,351   $ 57,600   $ 39,874  
 
Net income per share attributable to Masimo Corporation stockholders:
Basic $ 0.61   $ 0.38   $ 1.17   $ 0.77  
Diluted $ 0.57   $ 0.36   $ 1.10   $ 0.74  
 
Weighted-average shares used in per share calculations:
Basic 49,256   51,300   49,340   51,993  

Diluted

52,703   53,675   52,404   53,908  
 

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

 
Three Months Ended Six Months Ended
July 2,
2016
July 4,
2015
July 2,
2016
July 4,
2015
Cost of goods sold $ 56 $ 70 $ 147 $ 191
Selling, general and administrative 2,527 2,019 4,774 4,067
Research and development 594   446   1,283   1,171  
Total $ 3,177   $ 2,535   $ 6,204   $ 5,429  
 
 
MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
  Six Months Ended
July 2,
2016
  July 4,
2015
Cash flows from operating activities:
Net income including noncontrolling interest $ 57,600 $ 38,518
Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:
Depreciation and amortization 8,132 7,697
Stock-based compensation 6,204 5,429
Loss on disposal of property, equipment and intangibles 401 252
Gain on deconsolidation of variable interest entity (273 )
Provision for doubtful accounts (51 ) 162
Provision for deferred income taxes 5,001
Changes in operating assets and liabilities:
Increase in accounts receivable (3,739 ) (3,121 )
Increase in inventories (297 ) (2,060 )
(Increase) decrease in deferred cost of goods sold (1,566 ) 1,987
Increase in prepaid income taxes (7,462 ) (5,852 )
Increase in other assets (6,596 ) (4,892 )
Increase (decrease) in accounts payable 8,084 (7,378 )
Decrease in accounts payable to related party (1,092 )
Decrease in accrued compensation (3,937 ) (4,271 )
(Decrease) increase in accrued liabilities (12,534 ) 3,805
Decrease in income tax payable (322 ) (2,147 )
Increase in deferred revenue 5,263 836
Increase (decrease) in other liabilities 3,875   (342 )
Net cash provided by operating activities 56,691   28,623  
Cash flows from investing activities:
Purchases of property and equipment, net (10,734 ) (24,672 )
Increase in intangible assets (1,349 ) (2,589 )
Reduction in cash resulting from deconsolidation of variable interest entity (763 )  
Net cash used in investing activities (12,846 ) (27,261 )
Cash flows from financing activities:
Borrowings under line of credit 45,000 65,000
Repayments on line of credit (55,000 ) (12,500 )
Debt issuance costs (621 )
Repayments of capital lease obligations (69 ) (77 )
Proceeds from issuance of common stock 18,997 15,178
Payroll tax withholdings on behalf of employees for stock options (472 )
Repurchases of common stock (68,218 ) (81,700 )
Issuance of equity by noncontrolling interest, net of equity issued   3  
Net cash used in financing activities (59,911 ) (14,568 )
Effect of foreign currency exchange rates on cash (196 ) (1,850 )
Net decrease in cash and cash equivalents (16,262 ) (15,056 )
Cash and cash equivalents at beginning of period 132,317   134,453  
Cash and cash equivalents at end of period $ 116,055   $ 119,397  
 

Source: Masimo

Masimo
Investor Contact:
Eli Kammerman, (949) 297-7077
ekammerman@masimo.com
or
Media Contact:
Irene Paigah, (858) 859-7001
irenep@masimo.com