Masimo Corp. (MASI) filed Quarterly Report for the period ended 2009-10-03.
Masimo develops innovative monitoring technologies that significantly improve patient care -- helping solve `unsolvable` problems. The company debuted Read-Through Motion and Low Perfusion pulse oximetry known as SET and with it substantially reduced false alarms and increased pulse oximetry's ability to detect life-threatening events. Our Masimo SET platform has significantly addressed many of the previous technology limitations has substantially contributed to improved patient outcomes and has been referred to by several industry sources as the gold standard in pulse oximetry. Masimo has introduced Masimo Rainbow SET Pulse CO-Oximetry which for the first time noninvasively monitors the level of carbon monoxide and methemoglobin in the blood allowing early detection and treatment of potentially life-threatening conditions. Masimo has the mission of `Improving Patient Outcomes and Reducing Cost of Care by Taking Noninvasive Monitoring to New Sites and Applications.` Masimo Corp. has a market cap of $1.57 billion; its shares were traded at around $27.19 with a P/E ratio of 30.2 and P/S ratio of 5.1.
Highlight of Business Operations:
Product revenues increased $9.0 million, or 13.6%, to $75.1 million in the three months ended October 3, 2009 from $66.1 million for the three months ended September 27, 2008. This increase was primarily due to higher consumable sales resulting from an increase in our installed base of circuit boards and pulse oximeters, which we estimate totaled 621,000 units at October 3, 2009 up from an estimated 540,000 units at September 27, 2008. Contributing to the increase in our product revenue was our Rainbow technology product revenues which increased $3.0 million, or 98.0%, to $6.0 million in the three months ended October 3, 2009, from $3.0 million in the three months ended September 27, 2008. Revenue generated through our direct and distribution sales channels increased $8.1 million, or 15.6%, to $60.1 million for the three months ended October 3, 2009 compared to $52.0 million for the three months ended September 27, 2008. During the three months ended October 3, 2009, revenues from our OEM channel increased $900,000, or 6.4%, to $15.0 million from $14.1 million in the three months ended September 27, 2008. During the three months ended October 3, 2009, $3.4 million of previously deferred revenue was recognized, related to the expiration of requirements under two agreements to deliver elements for which VSOE of fair value was not established. During the three months ended September 27, 2008, $2.6 million of previously deferred revenue was recognized, including $1.9 million related to an agreement in which VSOE of fair value was established for an undelivered element as a result of a contract amendment and $683,000 related to the collection of cash for excess sensor sales which had been deferred due to uncertainty over collectability.
Our royalty revenue increased $288,000 to $12.3 million in the three months ended October 3, 2009 from $12.0 million in the three months ended September 27, 2008. For the three months ended October 3, 2009 and September 27, 2008, our reported Covidien royalties were based upon an estimate of Covidien’s U.S. pulse oximeter sales for that period and the contractual royalty rate as prescribed by the 2006 settlement agreement.
Cost of Goods Sold. Cost of goods sold increased $2.8 million to $25.2 million in the three months ended October 3, 2009 from $22.4 million in the three months ended September 27, 2008. Our total gross margin decreased to 71.2% for the three months ended October 3, 2009 from 71.3% for the three months ended September 27, 2008. Excluding royalties, product gross margin increased by 0.4% to 66.5% for the three months ended October 3, 2009, from 66.1% for the three months ended September 27, 2008. This increase was primarily due to increased sales of Rainbow related products and manufacturing efficiencies related to higher production volumes. We incurred $1.0 million and $875,000 in Masimo Labs’ royalty expenses for the three months ended October 3, 2009 and September 27, 2008, respectively, which, in accordance with ASC Topic 810, have been eliminated in our condensed consolidated financial results for the periods presented. Had these royalty expenses not been eliminated, our reported product gross profit margin would have been 65.1% and 64.8% for the three months ended October 3, 2009 and September 27, 2008, respectively.
Research and Development. Research and development expenses increased $1.7 million, or 28.6%, to $7.7 million for the three months ended October 3, 2009, from $6.0 million for the three months ended September 27, 2008. The increase is due to additional engineering supplies of $587,000 for clinical trials research related to new product development during the three months ended October 3, 2009 compared to September 27, 2008. In addition, payroll and payroll related costs increased by $407,000 due to increased research and development staffing levels. Also contributing to the increase was a credit of $400,000 related to capitalized software development costs recorded during the three months ended September 27, 2008, compared to $0 during the three months ended October 3, 2009. Share based compensation expense related to ASC Topic 718, “Compensation – Stock Compensation”, which is included in payroll and payroll related costs, was $645,000 and $608,000 for the three months ended October 3, 2009 and September 27, 2008, respectively. Included in these total research and development expenses are $62,000 and $727,000 of engineering expenses incurred by Masimo Labs for the three months ended October 3, 2009 and September 27, 2008, respectively. Masimo Labs engineering expenses were lower for the three months ended October 3, 2009 due to additional production work being performed by Masimo Labs and reimbursed by Masimo Corporation.
Selling, General and Administrative. Selling, general and administrative expenses increased $4.3 million, or 14.8% to $33.5 million for the three months ended October 3, 2009 from $29.2 million in the three months ended September 27, 2008. The increase was primarily due to a $3.8 million increase in payroll and payroll related costs consistent with an increase in staffing levels. Share based compensation expense related to ASC Topic 718 which is included in payroll and payroll related costs, was $1.7 million and $1.3 million for the three months ended October 3, 2009 and September 27, 2008, respectively. Included in these total selling, general and administrative expenses are $380,000 and $293,000 of direct expenses incurred by Masimo Labs for the three months ended October 3, 2009 and September 27, 2008, respectively.
Non-Operating Income (expense). Non-operating income was $295,000 for the three months ended October 3, 2009, compared to $113,000 for the three months ended September 27, 2008. This increase in income was primarily due to foreign exchange gains of $743,000 which was offset by a decline in interest income of $497,000, resulting from the significant decline in year over year interest rates, which, in turn, has lowered our interest income. Changes in foreign exchange rates, primarily due to the weakening of the U.S. dollar as compared to the Euro and Japanese yen during the quarter ended October 3, 2009 resulted in a currency transaction and translation gain of $290,000, as compared to a currency loss of $453,000 during the three months ended September 27, 2008.
MASI is in the portfolios of Ron Baron of Baron Funds.
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