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Masimo Reports Second Quarter 2014 Financial Results

Companies mentioned in this article: Masimo

IRVINE, CA -- (Marketwired) -- 08/07/14 -- 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
                                                    ==========   ==========


Contact:

Investor Contact:
Eli Kammerman
(949) 297-7077
ekammerman@masimo.com

Media Contact:
Mike Drummond
(949) 297-7434
mdrummond@masimo.com