Masimo Reports First Quarter 2014 Financial Results

The following excerpt is from the company's SEC filing.

 ■ Product revenue rose 3% to $132.2 million, net of a $2.6 million current quarter adjustment to our deferred revenue estimate for a certain U.S. distributor; absent this adjustment, product revenue rose 5% to $134.8 million ■ Total revenue, including royalties, rose 3% to $139.8 million; absent the same $2.6 million adjustment, total revenue, including royalties, rose 5% to $142.4 million ■ Masimo rainbow revenue rose 23% to $12.9 million ■ SET® and rainbow® SET® units shipments were 41,400 ■ Earnings per share rose 39% to $0.39 including a $0.09 gain related to an $8.0 million reversal of a prior period accrual

Irvine, California, April 30, 2014 - Masimo (NASDAQ: MASI) today announced its financial results for the first quarter ended March 29, 2014.

First quarter 2014 GAAP product revenues and total revenues, including royalties, were $132.2 million and $139.8 million, respectively, both increasing 3% over the prior year first quarter. Included within such revenues for the quarter was a $2.6 million adjustment related to a revision for deferred revenue related to inventory on-hand at one US distributor. Without this adjustment, first quarter 2014 product revenues rose 5% to $134.8 million, compared to $128.6 million for the first quarter of fiscal year 2013, and total revenue, including royalties, rose 5% to $142.4 million, up from $135.9 million for the first quarter of fiscal year 2013.

The company’s worldwide direct product revenue in the first quarter of 2014 rose by 3%, or 5% without the adjustment, compared to the same period in 2013 and represented 84% of product revenue with and without the adjustment. OEM sales, which accounted for 16% of product revenue, rose by 2% compared to the same period in 2013. Revenue from sales of Masimo rainbow products rose 23% to $12.9 million in the first quarter of 2014, compared to $10.5 million in the year-ago period.

Net income for the first quarter of 2014 was $22.6 million, or $0.39 per diluted share, compared to net income of $16.4 million, or $0.28 per diluted share, in the first quarter of 2013. Net income for the first quarter of 2014 included the reversal of a Q4 2013 arbitration and related legal expense accrual in the amount of $8.0 million, or $0.09 per share.

During the first quarter of 2014, the company shipped approximately 41,400 SET® pulse oximetry and rainbow® Pulse CO-Oximetry™ units, excluding handheld units, an increase of 5% compared to the same prior-year period. Masimo estimates its worldwide installed base as of March 29, 2014 to be 1,231,000 units, up 10% from 1,117,000 units as of March 30, 2013.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “Masimo began 2014 with continuing gains in market share and a 10% increase in our global installed base. In conjunction, with our 25th anniversary celebration, we plan to announce multiple new products in 2014, including innovative devices which will continue to help improve patient care and patient safety, while reducing cost of care. Our outlook remains positive as we drive towards our mission and financial objectives.”

As of March 29, 2014, Masimo’s cash and cash equivalents were $117.5 million, compared to $95.5 million as of December 28, 2013. The change reflects primarily net cash generated from operations.

Masimo today is providing updated 2014 financial guidance. Masimo now expects fiscal 2014 total revenue to be approximately $588 million to $598 million, including product revenue of approximately $560 million to $570 million and royalty revenue of approximately $28 million. In addition, Masimo now expects fiscal 2014 GAAP earnings per share to range between $1.24 and $1.33. Each of the components of Masimo's guidance set forth above is an estimate only and actual performance could differ.

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 31415337. After the live webcast, the call will be available on Masimo's website through May 30, 2014. In addition, a telephonic replay of the call will be available through May 14, 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 31415337.

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 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.

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 CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS(unaudited) (in thousands) March 29, 2014 December 28, 2013ASSETS   Current assets   Cash and cash equivalents$117,529 $95,466Accounts receivable, net of allowance for doubtful accounts 74,065 76,759Royalties receivable7,500 7,300Inventories55,538 56,813Prepaid expenses10,437 9,243Prepaid income taxes908 3,740Deferred tax assets16,718 19,636Other current assets3,986 2,841Total current assets286,681 271,798Deferred cost of goods sold64,401 61,714Property and equipment, net25,486 24,866Intangible assets, net28,169 28,104Goodwill22,847 22,793Deferred tax assets22,552 22,565Other assets8,517 6,822Total assets$458,653 $438,662LIABILITIES AND EQUITY   Current liabilities   Accounts payable$33,685 $28,004Accrued compensation22,487 29,486Accrued liabilities16,448 23,028Income taxes payable2,533 2,406Deferred revenue21,680 20,755Current portion of capital lease obligations102 111Total current liabilities96,935 103,790Deferred revenue569 566Capital lease obligations, less current portion156 225Other liabilities7,550 7,680Total liabilities105,210 112,261Commitments and contingencies    Equity   Masimo Corporation stockholders’ equity:   Common stock57 57Treasury stock(83,454) (83,454)Additional paid-in capital277,702 273,129Accumulated other comprehensive income4,014 3,995Retained earnings155,374 132,742Total Masimo Corporation stockholders’ equity353,693 326,469Noncontrolling interest(250) (68)Total equity353,443 326,401Total liabilities and equity$458,653 $438,662

MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME(unaudited) (in thousands, except per share amounts) Three Months Ended March 29, 2014 March 30, 2013Revenue:   Product$132,232 $128,635Royalty7,582 7,307Total revenue139,814 135,942Cost of goods sold47,513 46,361Gross profit92,301 89,581Operating expenses:   Selling, general and administrative56,122 52,273Research and development13,996 14,167       Litigation award and defense costs(8,010) —Total operating expenses62,108 66,440Operating income30,193 23,141Non-operating income (expense)200 (2,326)Income before provision for income taxes30,393 20,815Provision for income taxes7,902 4,413Net income including noncontrolling interest22,491 16,402Net loss attributable to the noncontrolling interest141 26Net income attributable to Masimo Corporation stockholders22,632 $16,428    Net income per share attributable to Masimo Corporation stockholders:   Basic$0.40 $0.29Diluted$0.39 $0.28    Weighted average shares used in per share calculations:   Basic56,705 57,240Diluted58,047 58,011

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):

MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited) (in thousands) Three Months Ended March 29, 2014 March 30, 2013Cash flows from operating activities:   Net income including noncontrolling interest$22,491 $16,402Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:   Depreciation and amortization3,043 2,783Share-based compensation2,601 3,413Loss on disposal of property and equipment2 78Provision for doubtful accounts232 142Provision for deferred income taxes2,926 —Income tax benefit from exercise of stock options granted prior to January 1, 200624 12Excess tax (benefit) deficit from share-based compensation arrangements(31) 164Changes in operating assets and liabilities:   (Increase) decrease in accounts receivable2,469 (72)Increase in royalties receivable(200) (70)(Increase) decrease in inventories1,288 (1,109)Increase in deferred cost of goods sold(2,687) (2,741)Increase in prepaid expenses(1,186) (425)Decrease in prepaid income taxes2,832 1,492(Increase) decrease in other assets(2,831) 1,128Increase in accounts payable5,676 3,874Decrease in accrued compensation(6,996) (3,405)Increase (decrease) in accrued liabilities(6,587) 341Increase in income taxes payable156 1,779Increase in deferred revenue929 1,102Increase (decrease) in other liabilities(130) 213Net cash provided by operating activities24,021 25,101Cash flows from investing activities:   Purchases of property and equipment(2,840) (1,839)Increase in intangible assets(886) (1,107)Net cash used in investing activities(3,726) (2,946)Cash flows from financing activities:   Repayments of capital lease obligations(77) (84)Proceeds from issuance of common stock1,918 463Excess tax benefit (deficit) from share-based compensation arrangements31 (164)Repurchases of common stock— (12,431)Repurchases of equity by noncontrolling interest(42) —Net cash provided by (used in) financing activities1,830 (12,216)Effect of foreign currency exchange rates on cash(62) 82Net increase in cash and cash equivalents22,063 10,021Cash and cash equivalents at beginning of period95,466 71,554Cash and cash equivalents at end of period$117,529 $81,575

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. Masimo Corporation next reports earnings on April 30, 2014.

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