Masimo Corporation (MASI) reported fourth-quarter and fiscal 2010 adjusted (excluding one-time expenses) earnings per share of 29 cents and $1.03, respectively, beating the corresponding Zacks Consensus Estimates of 26 cents and $1.02, and surpassing the year-ago earnings of 23 cents and 88 cents.
Reported net income rose 14.6% year over year to $16.1 million (or 26 cents per share) after taking into account a 2 cent per share one-time marketing and associated expense, which the company had announced after receiving $30.8 million from its antitrust lawsuit against Covidien (COV).
Revenues for the quarter were $105.6 million, up 14% year over year, narrowly beating the Zacks Consensus Estimate of $105 million. For fiscal 2010, sales rose 16.1% to $405.4 million again squeaking past the Zacks Consensus Estimate of $405 million.
During the fourth quarter, the company dispatched 41,800 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, which surged 37.5% year over year. Masimo established a global installed base of 855,000 units at the end of the fourth quarter, up 18% year over year.
Product revenues increased 16.6% year over year to $93.8 million. Royalty, however, dropped marginally to $11.8 million. Revenue from Masimo Rainbow SET items reached $8.4 million, up 44.4% year over year.
Margin
Masimo had fourth quarter gross margin of 70.2%, which was slightly lower than 71.0% achieved in the year-ago quarter. Operating margin dropped to 20.4% from 23.1% in the prior-year period.
Balance Sheet
Cash, cash equivalents and short-term investments totaled $88.3 million, down 53.3% since the end of fiscal 2009, mainly on account of special dividend payments of $117.5 million and $44.5 million, on March 31 and December 21, 2010, respectively, partly mitigated by the net proceeds from the antitrust lawsuit.
Recent Developments
Masimo and Covidien recently announced that they modified their pre-existing settlement agreement that has been in vogue since January 2006. Under the new terms, the latter will pay Masimo a 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.
Outlook
Masimo forecasts revenues, for fiscal 2011, between $446 million and $463 million, which include product revenue in the range of $415 million to $430 million and royalty in the neighborhood of $31 million to $33 million. The company expects earnings (on a reported basis) per share of about $1.17 and $1.25.
Masimo is a market leader in the pulse oximetry monitoring equipment industry. It has successfully defended its intellectual property and continues to forge new relationships with manufacturers.
The company’s product lines typically enjoy significant large-sized markets. Its SET technology, for low perfusion pulse oximetry, continues to be the source of the bulk of the company’s revenue. However, Masimo has successfully brought to market newer technologies such as the Rainbow SET, total hemoglobin and, recently, the hand-held hemoglobin monitor, Pronto-7.
The prospects for Masimo are encouraging, given the sizeable market opportunity, adoption in non-critical areas of the hospital and growing barriers to entry. However, competition is intense and the company partly depends upon its OEM partners for sales as well as royalty. Further, adoption of even critical technologies may be slow to start with.
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