Masimo Corporation (MASI) reported third-quarter 2010 adjusted (excluding one-time marketing-related expenses) earnings per share of 28 cents, ahead of the Zacks Consensus Estimate of 25 cents while surpassing the year-ago result of 22 cents. Adjusted net income rose 29% year over year to $16.9 million.
Total revenue was $101 million, up 15.5% year over year, narrowly missing the Zacks Consensus Estimate of $102 million. The company dispatched 37,500 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units in the quarter, which surged 43.1% year over year. Masimo established a global installed base of 821,000 units at the end of the third quarter, up 17.8% year over year.
Product revenue increased 18.2% year over year to $88.8 million. Royalty, however, marginally dropped to $12.2 million from $12.3 million in the year-ago period.
Sales of Masimo’s Rainbow SET line of products almost doubled in the reported quarter. Revenue from Masimo Rainbow SET items reached $11.9 million, up 98.7% year over year.
Margin
Masimo reported third quarter gross margin of 70.9%, which was slightly lower than 71.2% achieved in the year-ago quarter. Reported operating margin dropped to 22.6% from 23.8% a year ago.
Balance Sheet
Cash, cash equivalents and short-term investments totaled $125.4 million, down 33.7% since the end of fiscal 2009 on account of dividend payment of $117.5 million, partly mitigated by the net proceeds from an antitrust lawsuit.
Outlook and Recommendation
Masimo is a market leader in the pulse oximetry monitoring equipment industry. It has successfully defended its intellectual property and continues forging new relationships with manufacturers.
The company’s product lines typically enjoy significant-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.
We are encouraged about the prospects of Masimo, 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, which may not be sustainable.
Further, adoption of even critical technologies may be slow to start with. We currently have a Neutral long-term recommendation on Masimo. The stock currently retains a Zacks #4 Rank, which translates into a short-term Sell recommendation.
MASIMO CORP (MASI): Free Stock Analysis Report
Zacks Investment Research
