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Masimo Corp. Reports Operating Results (10-Q)

November 02, 2012 | About:
10qk

10qk

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Masimo Corp. (MASI) filed Quarterly Report for the period ended 2012-09-29.

Masimo Corporation has a market cap of $1.22 billion; its shares were traded at around $22.45 with a P/E ratio of 21.2 and P/S ratio of 2.8. Masimo Corporation had an annual average earning growth of 6.7% over the past 5 years.

Highlight of Business Operations:

Revenue. Total revenue increased $15.1 million, or 14.4%, to $119.1 million for the three months ended September 29, 2012 from $104.0 million for the three months ended October 1, 2011. Product revenues increased $14.5 million, or 14.8%, to $112.1 million in the three months ended September 29, 2012 from $97.6 million in the three months ended October 1, 2011. 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 1,056,000 units at September 29, 2012, up from 950,000 units at October 1, 2011. Also, contributing to the increase in our product revenue was our rainbow® technology product revenues, which increased $3.2 million, or 41.3%, to $11.0 million in the three months ended September 29, 2012 from $7.8 million in the three months ended October 1, 2011. Product revenue of $112.1 million during the three months ended September 29, 2012 included $1.5 million and $0.9 million from the recently acquired Phasein and Masimo Semiconductor businesses, respectively. Revenue generated through our direct and distribution sales channels increased $12.6 million, or 15.2%, to $95.2 million for the three months ended September 29, 2012, compared to $82.6 million for the three months ended October 1, 2011. During the three months ended September 29, 2012, revenues from our OEM channel increased $1.9 million, or 12.9%, to $16.9 million from $15.0 million for the three months ended October 1, 2011. Included in this increase was $1.2 million from the recently acquired Phasein business. Our royalty revenue increased $0.6 million to $7.0 million in the three months ended September 29, 2012 from $6.4 million in the three months ended October 1, 2011.

Revenue. Total revenue increased $34.5 million, or 10.5%, to $361.1 million for the nine months ended September 29, 2012 from $326.6 million for the nine months ended October 1, 2011. Product revenues increased $37.8 million, or 12.6%, to $339.6 million in the nine months ended September 29, 2012 from $301.8 million in the nine months ended October 1, 2011. 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 1,056,000 units at September 29, 2012, up from 950,000 units at October 1, 2011. Contributing to the increase in our product revenue was our rainbow® technology product revenues, which increased $4.9 million, or 20.1%, to $29.2 million in the nine months ended September 29, 2012 from $24.3 million in the nine months ended October 1, 2011. Product revenue of $339.6 million during the nine months ended September 29, 2012 included $2.1 million and $1.5 million from the recently acquired Masimo Semiconductor and Phasein businesses, respectively. Revenue generated through our direct and distribution sales channels increased $36.7 million, or 14.6%, to $289.4 million for the nine months ended September 29, 2012, compared to $252.7 million for the nine months ended October 1, 2011. During the nine months ended September 29, 2012, revenues from our OEM channel increased $1.1 million, or 2.2%, to $50.2 million from $49.1 million in the nine months ended October 1, 2011. Included in this increase was $1.2 million from the recently acquired Phasein business.

Cost of Goods Sold. Cost of goods sold increased $15.9 million to $122.0 million in the nine months ended September 29, 2012 from $106.1 million in the nine months ended October 1, 2011. Our total gross margin decreased to 66.2% for the nine months ended September 29, 2012 from 67.5% for the nine months ended October 1, 2011. Excluding royalties, product gross margin declined to 64.1% for the nine months ended September 29, 2012 from 64.8% for the nine months ended October 1, 2011. This decline in product margin was primarily due to the incremental costs associated with the roll out of a new sensor technology, called X-Cal, and the impact of lower product margins associated with the recently acquired Masimo Semiconductor and Phasein businesses. These declines were partially offset by the selected inventory charge-offs related to product redesign and transition activities in 2011 that did not reoccur in 2012. Excluding Masimo Semiconductor and Phasein, our product gross margin would have been 64.9% for the nine months ended September 29, 2012. We incurred $3.8 million in Cercacor royalty expenses for both the nine months ended September 29, 2012 and October 1, 2011, which 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 63.0% and 63.6% for the nine months ended September 29, 2012 and October 1, 2011, respectively.

Selling, General and Administrative. Selling, general and administrative expenses increased $17.1 million, or 13.7%, to $142.4 million for the nine months ended September 29, 2012 from $125.3 million for the nine months ended October 1, 2011. Excluding Masimo Semiconductor and Phasein, selling, general and administrative expenses would have increased $15.6 million, or 12.4%, to $140.9 million for the nine months ended September 29, 2012. This increase was primarily due to a $8.8 million increase in payroll and related costs associated with increased staffing levels, and the costs associated with a bi-annual worldwide sales training meeting. In addition, total trade show and advertising expenses increased by $2.6 million, primarily due to additional trade shows attended, including a worldwide trade show in Q1 2012, which is only held once every four years. Also, professional fees increased by $1.3 million primarily due to additional consulting projects, legal fees increased $1.0 million due to increased litigation activity and software licensing expense increased $0.8 million, primarily due to the addition of sales management software tools. Included in total selling, general and administrative expenses are $1.8 million and $1.4 million of direct expenses incurred by Cercacor for the nine months ended September 29, 2012 and October 1, 2011, respectively.

Cash Flows from Operating Activities. Cash provided by operating activities was $57.0 million in the nine months ended September 29, 2012. The source of cash consisted primarily of net income including noncontrolling interest of $47.1 million, and non-cash activity for share-based compensation and depreciation and amortization of $11.0 million and $6.5 million, respectively. In addition, deferred revenue increased by $2.5 million due to the continued growth of our business. These sources of cash were partially offset by an increase in accounts receivable of $5.0 million due to growth of our business, an increase in prepaid expenses of $2.9 million due to the prepayment of income taxes and a decrease in accounts payable of $2.7 million, due to timing of payments.

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