Masimo Corporation (MASI)
reported 3Q13 earnings after market close on October 30th 2013,
posting great results from the perspective of both the financial end and the
health of their product line.
From an operational and client
standpoint, MASI has gained quite the traction in the past three months. New
implementations of technologies into their operational business model is giving
MASI a more effective and efficient workplace. In conjunction with new
operational capabilities, MASI has also added new customers with major clinics
and hospital, including U.S-based hospital St Joseph Health, a large hospital
system with 14 major hospitals, and over 4,000 patient beds. But what is more
impressive: their ability to retain clients, resulting in a recurring stream of
revenue. As new clinical studies post more and more positive results, practical
product use, and cost efficiency, MASI retention of clientele is improving.
Positive clinical value from
their Signal Extraction Technology (SET) and rainbow SET products proved that
the product was a good addition to their portfolio and it continues to
strengthen their potential for future revenue generation. Market share gains
are driven by the innovation for a company, which is something MASI does not
lack. Driver, including rainbow product sales and new shipments of products,
are rising substantially. Compared to the same quarter last year, they posted a
33% y-o-y drive growth, attributed mostly to new pulse oximetry contracts, and
installation of products in general wards.
On a segmented basis, product
revenue was up 11.1% to $124.5MM, weakened by nearly 2% due to a weakened yen,
reducing product revenue by $1.8MM. Rainbow product saw another quarter of
growing figures, posting a 9.0% growth in 3Q to $12MM, due to “higher
instrument and board” revenues, and increased acceptance of original equipment
manufacturers (OEM). Direct business, which comprises of 85% of total product
revenue and OEM sales, which comprises of 15% of total product revenue, both
grew by 12% and 7%, respectively.
On a consolidated basis, total
revenue for 3Q grew by 10.4% to $131.4MM vs. $119.0MM last year, falling short
of our estimate of $133.8MM and Street estimates of $132.5MM. Gross margin
expanded 80 bps to 66.6%, due mostly to a smaller portion of royalty payments
attributed to total revenue. R&D expenses increased 13% y-o-y, mostly
attributed to new engineering staff and product development. Net income for the
quarter was $15.6MM, a growth of 13.1% vs. last year. EPS on a non-GAAP basis were
posted at $0.27, a 14.6% growth, in-line with my estimates, and besting street
estimates of $0.26.
Due to a positive quarter, EPS for
FY13 is being restated to $1.16, from $1.14. All other estimates remain the
same, including full revenue and a goal of $50MM attributed to the rainbow product
line. It is important to note the new “breakthrough open architecture monitor
and connectivity platform” known as Root. It is an information-hub that is
integrated into all products that can easily display figures on a screen for
easy reading.
Despite the positive news, MASI
shares fell. Nothing struck me as “negative” news in their transcript or press
release. When researching deeper, the reasoning behind the fall in share price
was due to a 20% increase in short sellers. Finally, the company is beginning to
rebound in price.
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