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Masimo Reports Third Quarter 2011 Financial Results

10/25/2011

Q3 2011 Highlights (compared to Q3 2010):
- Total revenue, including royalties, rose 3% to $104.0 million
- Product revenue rose 10% to $97.6 million
- 33,400 Masimo SET® and Masimo rainbow® SET units were shipped, increasing worldwide installed base by 16%
- Masimo rainbow revenue declined 35% to $7.8 million versus Q3 2010 when the company received an approximately $4 million order from the U.S. Marine Corps
- GAAP EPS was $0.24 versus $0.27 in the prior period, which included $0.01 in one-time expenses

IRVINE, Calif., Oct. 25, 2011 /PRNewswire via COMTEX/ -- Masimo (NASDAQ: MASI) today announced its financial results for the third quarter ended October 1, 2011.

Masimo's total third quarter revenue, including royalties, rose 3% to $104.0 million, compared to $101.0 million for 2010's third quarter. The company's third quarter product revenue rose 10% to $97.6 million, compared to $88.8 million for the third quarter of 2010. For the third quarter of 2011, the company's worldwide end-user business grew 18%, while OEM sales were down 20%. Revenue from Masimo rainbow products declined 35% to $7.8 million in the quarter, compared to $11.9 million for the third quarter of 2010 when Masimo received an approximately $4 million rainbow order from the U.S. Marine Corps.

Net income for the third quarter was $14.8 million, or $0.24 per diluted share, compared to reported net income of $16.4 million, or $0.27 per diluted share, in the third quarter of 2010, which included $0.01 per diluted share in one-time expenses.

During the third quarter, the company shipped approximately 33,400 Masimo SET pulse oximetry and Masimo rainbow SET Pulse CO-Oximetry units, excluding handheld units, down 11% compared to approximately 37,500 in the same prior year period. Masimo estimates its worldwide installed base as of October 1, 2011 to be 950,000 units, up 16% from 821,000 units as of October 2, 2010.

As of October 1, 2011, cash and cash equivalents were $143.2 million, compared to $88.3 million as of January 1, 2011.

Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, "Masimo product revenue grew 10% in the period as strong SET performance was partially offset by declines in rainbow and OEM revenue. The 18% rise in our end-user, or direct, business was fueled by strong performance from our U.S. acute care business and even stronger performance from our international business. While we are disappointed with total rainbow revenue in the quarter, we remain confident in the power of rainbow parameters such as SpHb and RAM, which experienced strong year-over-year adhesive sensor unit and revenue growth in the quarter. We expect rainbow to not only help improve the quality and cost of patient care, but to be a catalyst for Masimo's revenue growth over the long term."

Revised Financial Guidance

Masimo now expects fiscal 2011 total revenue to be between $436 million and $439 million, including product revenue between $404 million and $407 million, and royalty revenue between $31.5 million and $32.5 million. Included within the revised 2011 product revenue range is a rainbow revenue expectation of $33 million to $35 million. The company now expects fiscal 2011 GAAP earnings per share to be between $1.04 and $1.06. Each of the components of Masimo's guidance set forth above is an estimate only and actual performance could differ.

Previously, the company's guidance was for fiscal 2011 total revenue to be between $446 million and $463 million, including product revenue at the lower end of the $415 million to $430 million range, and royalty revenue between $31 million and $33 million. Included within the previous product revenue range was a rainbow revenue expectation at the lower end of the $40 million to $50 million range. The company previously expected fiscal 2011 GAAP earnings per share to be at the lower end of the $1.17 and $1.25 range.

Conference Call

Masimo will hold a conference call today at 1:30 p.m. PT (4:30 p.m. ET) to discuss the results. 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 18542610. After the live webcast, the call will be available on Masimo's website through November 25, 2011. In addition, a telephonic replay of the call will be available through November 8, 2011. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (855) 859-2056 for international callers. Please use reservation code 18542610.

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 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 rainbow® SET Pulse CO-Oximetry(TM) technology, allowing noninvasive and continuous monitoring of blood constituents that previously required invasive procedures, including total hemoglobin (SpHb®), oxygen content (SpOC(TM)), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), and Pleth Variability Index (PVI®), in addition to SpO2, pulse rate, and perfusion index (PI). In 2008, Masimo introduced Patient SafetyNet(TM), a remote monitoring and wireless clinician notification system designed to help hospitals avoid preventable deaths and injuries associated with failure to rescue events. In 2009, Masimo introduced rainbow Acoustic Monitoring(TM), the first-ever noninvasive and continuous monitoring of acoustic respiration rate (RRa(TM)). Masimo's rainbow SET technology platform offers a breakthrough in patient safety by helping clinicians detect life-threatening conditions and helping guide treatment options. In 2010, Masimo acquired SEDLine®, a pioneer in the development of innovative brain function monitoring technology and devices. Masimo SET and Masimo rainbow SET technologies can also be found in over 100 multiparameter patient monitors from over 50 medical device manufacturers around the world. 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

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 and business generally; our revised expectations for total revenue, royalty revenue and product revenue, including rainbow revenue, and GAAP earnings per share for the full fiscal year 2011; expectations regarding our ability to design and deliver innovative new noninvasive technologies; and global 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 impact of the decline in the worldwide 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 most recent periodic reports filed with the Securities and Exchange Commission ("SEC"), 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.

Investor Contact: Sheree Aronson


Media Contact: Dana Banks

Vice President, Investor Relations, Masimo Corporation


Manager, Public Relations, Masimo Corporation

(949) 297-7043


(949) 297-7348

saronson@masimo.com


dbanks@masimo.com

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, Rainbow Acoustic Monitoring, RRa, Radical-7, Rad-87, Rad-57, Rad-8, Rad-5, Pulse CO-Oximetry, Pulse CO-Oximeter, and SEDLine are trademarks or registered trademarks of Masimo Corporation.

MASIMO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)














October 1,


January 1,


2011


2011

ASSETS






Current assets






Cash and cash equivalents

$

143,192


$

88,305

Accounts receivable, net of allowance for doubtful accounts


53,526



49,694

Royalties receivable


6,736



12,000

Inventories


45,523



45,028

Prepaid expenses


13,362



7,887

Deferred tax assets


12,588



12,555

Other current assets


1,703



2,136

Total current assets


276,630



217,605

Deferred cost of goods sold


51,508



47,184

Property and equipment, net


15,096



15,951

Intangible assets, net


10,992



10,497

Deferred tax assets


12,542



12,560

Other assets


7,336



6,438

Total assets

$

374,104


$

310,235







LIABILITIES AND EQUITY






Current liabilities






Accounts payable

$

20,006


$

22,150

Accrued compensation


18,421



21,074

Accrued liabilities


10,764



9,832

Income taxes payable


1,923



722

Deferred revenue


14,876



16,369

Current portion of capital lease obligations


48



50

Total current liabilities


66,038



70,197

Deferred revenue


1,120



1,554

Capital lease obligations, less current portion


87



122

Other liabilities


9,488



8,323

Total liabilities


76,733



80,196







Equity






Masimo Corporation stockholders' equity:






Common stock


60



59

Treasury stock


(1,209)



(1,209)

Additional paid-in capital


239,218



222,206

Accumulated other comprehensive income


1,294



925

Retained earnings


55,544



5,664

Total Masimo Corporation stockholders' equity


294,907



227,645

Noncontrolling interest


2,464



2,394

Total equity


297,371



230,039

Total liabilities and equity

$

374,104


$

310,235

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited, in thousands, except per share amounts)





























Three Months Ended


Nine Months Ended



October 1,


October 2,


October 1,


October 2,



2011


2010


2011


2010














Revenue:













Product


$

97,639


$

88,823


$

301,771


$

262,647

Royalty



6,401



12,165



24,876



37,186

Total revenue



104,040



100,988



326,647



299,833

Cost of goods sold



35,601



29,376



106,125



88,379

Gross profit



68,439



71,612



220,522



211,454

Operating expenses:













Selling, general and administrative



40,134



39,547



125,275



129,862

Research and development



9,372



9,227



28,793



27,688

Antitrust litigation proceeds



--



--



--



(30,728)

Total operating expenses



49,506



48,774



154,068



126,822

Operating income



18,933



22,838



66,454



84,632

Non-operating income (expense)



(240)



1,232



482



1,194

Income before provision for income taxes



18,693



24,070



66,936



85,826

Provision for income taxes



3,869



7,376



17,049



29,052

Net income including noncontrolling interests



14,824



16,694



49,887



56,774

Net (income) loss attributable to the noncontrolling interests



5



(275)



(7)



642

Net income attributable to Masimo Corporation


$

14,829


$

16,419


$

49,880


$

57,416














Net income per share attributable to Masimo Corporation stockholders:













Basic


$

0.25


$

0.28


$

0.83


$

0.98

Diluted


$

0.24


$

0.27


$

0.82


$

0.95














Weighted average shares used in per share calculations:













Basic



59,971



58,866



59,804



58,644

Diluted



61,086



60,572



61,082



60,527














Cash dividend declared per share


$

--


$

--


$

--


$

2.00



























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 above (in thousands):
















Three Months Ended


Nine Months Ended



October 1,


October 2,


October 1,


October 2,



2011


2010


2011


2010














Cost of goods sold


$

138


$

140


$

419


$

351

Selling, general and administrative



1,912



1,778



7,559



6,514

Research and development



543



651



2,189



2,022

Total


$

2,593


$

2,569


$

10,167


$

8,887

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

















Nine Months Ended



October 1,


October 2,



2011


2010

Cash flows from operating activities:







Net income including noncontrolling interests


$

49,887


$

56,774

Adjustments to reconcile net income including noncontrolling interests







to net cash provided by operating activities:







Depreciation and amortization



5,608



4,755

Share-based compensation



10,167



8,887

Provision for doubtful accounts



184



129

Provision for obsolete inventory



1,879



448

Provision for warranty costs



1,919



1,790

Provision for deferred income taxes



--



133

Income tax benefit from exercise of stock options granted prior to







January 1, 2006



1,290



2,072

Excess tax benefit from share-based payment arrangements



(58)



(494)

Changes in operating assets and liabilities:







Increase in accounts receivable



(4,016)



(10,561)

Decrease in royalties receivable



5,264



--

Increase in inventories



(2,374)



(12,290)

Increase in deferred cost of goods sold



(4,321)



(7,201)

(Increase) decrease in prepaid expenses



(5,459)



522

Increase in other assets



(436)



(2,675)

Increase (decrease) in accounts payable



(2,146)



7,189

Increase (decrease) in accrued compensation



(2,744)



1,650

Decrease in accrued liabilities



(1,001)



(734)

Increase in income taxes payable



1,249



1,036

Increase (decrease) in deferred revenue



(1,927)



1,691

Increase in other liabilities



1,101



677

Net cash provided by operating activities



54,066



53,798








Cash flows from investing activities:







Purchase of short-term investments



--



(75,986)

Proceeds from sale and maturities of short-term investments



--



132,975

Purchases of property and equipment



(3,508)



(5,942)

Increase in intangible assets



(1,719)



(1,381)

Net cash provided by (used in) investing activities



(5,227)



49,666








Cash flows from financing activities:







Repayments of capital lease obligations



(37)



(43)

Proceeds from issuance of common stock



5,568



6,277

Excess tax benefit from share-based payment arrangements



58



494

Dividends paid



--



(117,506)

Net cash provided by (used in) financing activities



5,589



(110,778)

Effect of foreign currency exchange rates on cash



459



667

Net increase (decrease) in cash and cash equivalents



54,887



(6,647)

Cash and cash equivalents at beginning of period



88,305



132,054

Cash and cash equivalents at end of period


$

143,192


$

125,407

SOURCE Masimo Corporation

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