Masimo Corporation (MASI) posted first-quarter fiscal 2011 earnings per share of 30 cents, beating the Zacks Consensus Estimates of 29 cents and surpassing the year-ago adjusted earnings of 24 cents.
The year-ago quarter’s figure excludes $30.1 million (or 20 cents a share), a one-time gain related to an antitrust lawsuit win over Covidien (COV). Profit slid 32.6% year over year to $18 million after taking into account the gain.
Revenues
Revenues for the quarter soared 14% year over year to $113 million, ahead of the Zacks Consensus Estimate of $111 million, buoyed by higher product revenues which shot up 18% to a record $101.6 million. Product sales were boosted by higher revenues from sensors.
Revenues from Masimo Signal Extraction Technology (“SET”) pulse co-oximetry products climbed 17% to $94.1 million while Rainbow products sales cruised 39% year over year to $7.4 million. Royalty revenues, however, slipped 11% to $11.5 million, due to a change in royalty rate under the company’s agreement with Covidien.
Masimo and Covidien had modified their existing agreement (signed in Jan 2006) in early 2011. Under the new terms, Masimo is entitled to book royalty of 7.75% for its pulse oximetry products sold in the U.S., for a period of 3 years, starting from March 15, 2011.
During the quarter, the company dispatched 43,100 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, up 16% year over year, representing a new quarterly record. The company’s global installed base climbed 18% year over year to 890,000 units at the end of the first quarter.
Margins
Gross margin fell to 68% from 70.4% achieved in the year-ago quarter owing to higher cost of sales and lower royalty revenues. Operating margin dropped to 22.5% from 41.3% a year-ago as the prior-year quarter’s results were benefited by the proceeds from the antitrust lawsuit.
Balance Sheet
The company ended the quarter with cash, cash equivalents and short-term investments of $105.6 million, down 5.8% year over year. Total debt declined 28% year over year to roughly $0.16 million.
Outlook
Masimo has not provided any updated guidance for fiscal 2011 during its first quarter call. The company, in February, provided full year revenue and earnings guidance. It expects revenues between $446 million and $463 million (including product sales in the band of $415 million to $430 million and royalty in the range of $31 million to $33 million) for the year.
Moreover, earnings per share (on a reported basis) were projected in the range of $1.17 and $1.25. The current Zacks Consensus Estimates for revenues and earnings per share for 2011 are $456 million and $1.21, respectively.
Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.
Shipments have been growing at a steady rate fueled by new contracts. Moreover, the renewal of the royalty agreement with Covidien provides additional impetus.
However, competition is intense and Masimo partly depends upon its OEM partners for sales as well as royalty. Currently, we have a Neutral rating on the stock.
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