Masimo Reports Third Quarter 2008 Financial Results

October 27, 2008

Record results mark 21st consecutive quarter of revenue growth

Q3 2008 Highlights:

  • Product revenues increased 29% to a record $66.0 million
  • Direct (Non-OEM) Business revenues increased by 48%
  • Shipped 30,700 new pulse oximeters and Pulse CO-Oximeters

IRVINE, Calif., Oct. 27 /PRNewswire-FirstCall/ -- Masimo Corporation (Nasdaq: MASI), the inventor of Pulse CO-Oximetry and Measure-Through Motion and Low Perfusion pulse oximetry, today announced its financial results for the 2008 third fiscal quarter.

For the third quarter of 2008, Masimo reported product revenues of $66.0 million representing a 29% increase over $51.1 million for the third quarter of 2007. Including royalty revenues, Masimo reported total 2008 third quarter revenues of $78.1 million compared to $64.4 million for the third quarter of 2007. Net income for the 2008 third quarter was $13.1 million or $0.22 per common share compared to $6.9 million or $0.16 per common share for the third quarter of 2007.

During the third quarter of 2008, Masimo also reported that it shipped 30,700 Masimo SET and Masimo Rainbow SET oximetry units, excluding handheld units, compared to 30,800 units in the same prior year quarter. For the first nine months of 2008, Masimo has shipped 88,400 new units representing an annualized increase of 25% over the estimated 470,000 Masimo units in the market as of December 2007 and has now increased its total worldwide net installed base to 540,000 units.

In the third quarter of 2008, revenues from Masimo Rainbow SET products increased by 85% from the same prior year quarter to $3.0 million. For the first nine months of 2008, revenues from Masimo Rainbow SET products were $8.7 million, an increase of 71% compared to the first nine months of 2007.

Joe E. Kiani, Chairman and Chief Executive Officer of Masimo, said, "We are happy with the continued strength in our core pulse oximetry business and growth in Rainbow SET product revenues. Our business model, which is based on innovation and recurring revenue from our installed base, is showing resilience in a difficult economic environment."

As of September 27, 2008, cash and cash equivalents totaled $122.6 million, an increase from December 29, 2007 of $96.7 million. As previously announced, during the 2008 first fiscal quarter, Masimo repaid in full a $26.7 million debt obligation, the majority of which was established in early fiscal 2007.

Financial Guidance

Based on the information available as of October 27, 2008, relating to the results of the first nine months of fiscal year 2008, Masimo now expects its total fiscal year 2008 product revenues to be approximately $256 million and total revenues, including royalties, to be approximately $303 million. These figures are up from the previously released guidance of $253 million and $300 million, respectively. Masimo also now expects earnings per common share for fiscal year 2008 to be approximately $0.71 per share, up from the previously released guidance of $0.64 per share.

Conference Call

Masimo will hold a conference call today at 2:00 p.m. PT (5:00 p.m. ET) to discuss the results. The dial-in numbers are (800) 399-7902 for domestic callers and (706) 634-0949 for international callers. The reservation number for both dial-in numbers is 68032269. A live web cast of the conference call will be available online from the "Investor Relations" page of the Company's corporate web site at http://www.masimo.com. After the live web cast, the call will remain available on Masimo's website through November 27, 2008. In addition, a telephonic replay of the call will be available until November 9, 2008. The replay dial-in numbers are (800) 642-1687 for domestic callers and (706) 645-9291 for international callers. Please use reservation code 68032269. Our financial guidance will be limited to the statements made in this press release.

About Masimo

Masimo (Nasdaq: MASI) develops innovative 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 demonstrate Masimo SET provides the most reliable SpO2 and pulse rate measurements even under the most challenging clinical conditions, including patient motion and low peripheral perfusion. In 2005, Masimo introduced Masimo Rainbow SET, a breakthrough noninvasive blood constituent monitoring platform that can measure many blood constituents that previously required invasive procedures. Rainbow SET continuously and noninvasively measures total hemoglobin (SpHb(TM)), oxygen content (SpOC(TM)), carboxyhemoglobin (SpCO(R)), methemoglobin (SpMet(R)), and PVI(TM), in addition to oxyhemoglobin (SpO2), pulse rate (PR), and perfusion index (PI), allowing early detection and treatment of potentially life-threatening conditions. Founded in 1989, Masimo has the mission of "Improving Patient Outcomes and Reducing Cost of Care by Taking Noninvasive Monitoring to New Sites and Applications." Additional information about Masimo and its products may be found at http://www.masimo.com.

Forward-Looking Statements

This press release includes 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 financial condition, results of operations, prospects and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies; and expectations for total revenues, including royalties, product revenues and GAAP earnings per share for the full fiscal year 2008. 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 reliance on Masimo SET and related 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; the failure to continue developing innovative products and technologies; the lack of acceptance of any new products and technologies of ours; obtaining regulatory approval of our current and future products and technologies, including the recently announced total hemoglobin measurement; 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 impact of the decline in the U.S. credit markets on us and our customers; the amount and type of equity awards that we may grant to employees and service providers in the future; and other factors discussed in the "Risk Factors" section of our Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008 filed with the Securities and Exchange Commission on August 5, 2008. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. All forward-looking statements included in this press release are expressly qualified in their entirety by the foregoing cautionary statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update, amend or clarify these forward-looking statements or the risk factors contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2008, whether as a result of new information, future events or otherwise, except as may be required under the applicable securities laws.

Masimo, SET, Signal Extraction Technology, Improving Outcomes and Reducing Cost of Care by Taking Noninvasive Monitoring to New Sites and Applications, Rainbow, SpHb, SpCO, SpMet, PVI, Pulse CO-Oximetry and Pulse CO-Oximeter are trademarks or registered trademarks of Masimo Corporation.

                               MASIMO CORPORATION
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)


                                                  December 29,   September 27,
                                                      2007             2008
                                                                   (Unaudited)
    ASSETS
    Current assets
      Cash and cash equivalents                      $96,733         $122,603
      Accounts receivable, net of allowance
       for doubtful accounts                          26,970           29,511
      Royalties receivable                            13,866           11,375
      Inventories                                     23,110           29,261
      Prepaid expenses                                 7,084            7,998
      Deferred tax assets                             14,334           14,334
      Other current assets                             1,543              873
        Total current assets                         183,640          215,955
    Deferred cost of goods sold                       26,249           27,031
    Property and equipment, net                       11,164           12,816
    Deferred tax assets                                5,332            5,332
    Intangible assets, net                             5,589            7,289
    Other assets                                       3,537            2,809
        Total assets                                $235,511         $271,232

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Accounts payable                               $14,640          $14,510
      Accrued compensation                            12,409           13,404
      Accrued liabilities                              6,394            6,105
      Deferred revenue                                16,827           18,606
      Current portion of long-term debt               11,539              548
        Total current liabilities                     61,809           53,173
    Long-term debt, less current portion              19,502              202
    Other liabilities                                  4,134            4,048
        Total liabilities                             85,445           57,423

    Commitments and contingencies
    Stockholders' equity
      Common stock                                        55               57
      Treasury stock                                  (1,209)          (1,209)
      Additional paid-in capital                     143,297          174,245
      Accumulated other comprehensive loss            (1,034)            (698)
      Retained earnings                                8,957           41,414
        Total stockholders' equity                   150,066          213,809
        Total liabilities and stockholders'
         equity                                     $235,511         $271,232



                               MASIMO CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                  (in thousands, except per share information)
                                   (unaudited)


                                        Three Months Ended   Nine Months Ended
                                       September September September September
                                            29,      27,      29,        27,
                                           2007     2008     2007       2008
    Revenue:
      Product                            $51,122  $66,001  $144,513  $187,524
      Royalty and license fee             13,254   12,131    42,497    36,484
    Total revenue                         64,376   78,132   187,010   224,008
    Cost of goods sold                    18,809   22,393    53,630    64,917
    Gross profit                          45,567   55,739   133,380   159,091
    Operating expenses:
      Research and development             6,540    6,020    17,455    18,298
      Selling, general and
       administrative                     21,594   29,167    64,575    89,062
      Antitrust litigation                   508       46       982       491
    Total operating expenses              28,642   35,233    83,012   107,851
    Operating income                      16,925   20,506    50,368    51,240
    Non-operating income (expense):
      Interest income                        726      545     1,270     2,129
      Interest expense                      (719)     (19)   (1,831)     (722)
      Other                                  559     (413)      770      (235)
    Total non-operating income (expense)     566      113       209     1,172
    Income before provision for income
     taxes                                17,491   20,619    50,577    52,412
    Provision for income taxes             6,941    7,554    20,377    19,955
    Net income                            10,550   13,065    30,200    32,457
    Accretion of preferred stock            (925)    -       (4,837)     -
    Undistributed income attributable to
     preferred stockholders               (2,739)    -      (13,526)     -
    Net income attributable to common
     stockholders                         $6,886  $13,065   $11,837   $32,457

    Net income per common share:
      Basic                                $0.18    $0.23     $0.49     $0.58

      Diluted                              $0.16    $0.22     $0.40     $0.54



    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 income above (in thousands):

                                        Three Months Ended   Nine Months Ended
                                       September September September September
                                            29,      27,      29,        27,
                                           2007     2008     2007       2008

    Cost of goods sold                     $56       $55     $134       $159
    Research and development               191       608      466      1,627
    Selling, general and administrative   $697    $1,328   $1,992     $3,952



                               MASIMO CORPORATION
             Reconciliation of GAAP to Non-GAAP Earnings per Share
                                  (unaudited)


    The following tables provide a comparison of our earnings per share
    calculated under Emerging Issues Task Force Issue No. 03-6, or EITF 03-6,
    "Participating Securities and the Two-Class Method under FASB Statement
    No. 128", and Statement of Financial Accounting Standards No. 128, or
    SFAS 128, "Earnings per Share", in accordance with GAAP and the non-GAAP
    if-converted method based solely upon SFAS 128. The non-GAAP
    if-converted method assumes conversion of all shares of our preferred
    stock into common stock as of December 31, 2006.

    Upon closing of our initial public offering on August 13, 2007, all of
    the outstanding convertible preferred shares were converted into common
    shares. Therefore, subsequent to this stock conversion, we use the
    if-converted method under SFAS 128 to calculate earnings per share.

    We believe that the following non-GAAP earnings per share information for
    the three and nine months ended September 29, 2007 is relevant and useful
    information that can be used by analysts, investors and other interested
    parties to assess our performance on a comparable basis to the three and
    nine months ended September 27, 2008 and future reported earnings per
    share. Accordingly, we are disclosing this unaudited information to
    permit additional analysis of our performance (in thousands, except share
    data):


                                                        2007
                                        As Reported             Non-GAAP
                                   Three        Three     Three        Three
                                   Months       Months    Months       Months
                                   Ended        Ended     Ended        Ended
                                  September   September  September   September
                                     29,          29,       29,          29,
                                    2007         2007      2007         2007
    Net income attributable to
     common stockholders:
        Net income - two class
         method (1)                $4,985     $24,871
        Accretion of preferred
         stock                       (925)     (4,837)
        Income attributable to
         preferred stockholders    (2,739)    (13,526)
        Net income attributable
         to common stockholders    $1,321      $6,508

    Basic net income per
     common share:
        Weighted average common
         shares outstanding -
         two class method      16,704,285  16,654,586

        Basic earnings per
         share during which
         two classes of equity
         securities were
         outstanding                $0.08       $0.39

        Net income for period
         during which single
         class of equity
         securities was
         outstanding (1)           $5,565      $5,329     $10,550     $30,200

        Weighted average
         common shares
         outstanding -
         single class (2)      54,630,610  54,630,610  53,064,738  51,860,652

        Basic net income
         per share during
         which single class
         of equity securities
         was outstanding            $0.10       $0.10

    Basic net income per
     common share                   $0.18       $0.49       $0.20       $0.58

    Diluted net income per
     common share:
        Weighted average
         common shares
         outstanding - two
         class method          16,704,285  16,654,586
        Diluted common
         share equivalent:
         stock options          4,221,224   4,078,314
                               20,925,509  20,732,900
        Diluted earnings
         per share for
         period during
         which two classes
         of equity securities
         were outstanding           $0.06       $0.31

        Net income for period
         during which single
         class of equity
         securities was
         outstanding (1)           $5,565      $5,329     $10,550     $30,200

        Weighted average
         common shares
         outstanding -
         single class (2)      54,630,610  54,630,610  53,064,738  51,860,652

        Diluted common share
         equivalent: stock
         options                4,747,848   4,747,848   4,527,282   4,231,074
                               59,378,458  59,378,458  57,592,020  56,091,726

      Diluted net income per
       share for period during
       which single class of
       equity securities was
       outstanding                  $0.10       $0.09

    Diluted net income per
     common share                   $0.16       $0.40       $0.18       $0.54



                                                                   2008
                                                                As Reported
                                                             Three      Three
                                                            Months     Months
                                                            Ended      Ended
                                                          September  September
                                                              27,         27,
                                                             2008        2008

    Net income attributable to common stockholders:
        Net income - two class  method (1)
        Accretion of preferred stock
        Income attributable to preferred stockholders
        Net income attributable to common stockholders

    Basic net income per common share:
        Weighted average common shares
         outstanding - two class method

        Basic earnings per share during which
         two classes of equity securities
         were outstanding

        Net income for period during which
         single class of equity securities
         was outstanding (1)                              $13,065     $32,457

        Weighted average common shares
         outstanding - single class (2)                56,774,983  56,016,978

        Basic net income per share during
         which single class of equity
         securities was outstanding

    Basic net income per common share                       $0.23       $0.58

    Diluted net income per common share:
        Weighted average common shares
         outstanding - two class method
        Diluted common share equivalent:
         stock options

        Diluted earnings per share for period
         during which two classes of equity
         securities were outstanding

        Net income for period during which
         single class of equity securities
         was outstanding (1)                              $13,065     $32,457

        Weighted average common shares
         outstanding - single class (2)                56,774,983  56,016,978
        Diluted common share equivalent:
         stock options                                  3,601,755   4,159,815
                                                       60,376,738  60,176,793

    Diluted net income per share for
     period during which single class of
     equity securities was outstanding

    Diluted net income per common share                     $0.22       $0.54


    (1) Net income for the three months ended September 29, 2007 was
        allocated between the periods during which two classes of equity
        securities were outstanding and during which a single class of equity
        securities was outstanding based on the respective number of days. The
        convertible preferred stock was converted into common stock on
        August 13, 2007, the closing date of the Company's initial public
        offering. For the three months ended September 29, 2007, two classes
        of equity securities were outstanding for 43 days and a single class
        of equity securities was outstanding for 48 days, or 47.3% and 52.7%
        of the total days in the reporting period, respectively. For the nine
        months ended September 29, 2007, two classes of equity securities were
        outstanding for 224 days and a single class of equity securities was
        outstanding for 48 days, or 82.4% and 17.6% of the total days in the
        reporting period, respectively.

    (2) Weighted average shares outstanding used to compute basic net income
        per share after conversion of convertible preferred stock; one class
        of common shares was outstanding for the period from August 13, 2007
        to September 29, 2007.

SOURCE Masimo Corporation

CONTACT: Investors, Mark P. de Raad, Executive Vice President and Chief Financial Officer, +1-949-297-7080, mderaad@masimo.com, or Media, Dana Banks, Manager, Public Relations, +1-949-297-7348, dbanks@masimo.com, both of Masimo Corporation

Web site: http://www.masimo.com