Friday, February 21, 2014

Masimo 2013 Financial Results

Masimo Corp is global leader in non-invasive patient monitoring technologies. Their major products fall under their SET series, a breakthrough in pulse oximetry that can detect life threatening events and their Rainbow SET series, which is a noninvasive monitoring platform enabling the assessment of multiple blood constituents and physiologic parameters that previously required invasive or complicated procedures. On February 13th, Masimo reported earnings for fourth quarter and year ended December 28th, 2013.

Fourth quarter had an 8% increase in total revenues to $142.4 million with an equal 8% rise in product revenues to $134.7 million. Masimo rainbow revenue rose to 34% to $14.8 million and SET and Rainbow shipments were $42,000.

For 2014, Masimo had an 11% rise in total revenues to $547.2 million and equal 11% rise in product revenues to $517.4 million. Rainbow revenues rose 21% to $14.8 million and combined SET and Rainbow shipments were 42,000.

Despite positive full year results, Q4 revenues missed expectations. Q4 saw net income of $9.3 million compared to $15.0 million in Q4 2012. Net income for the fourth quarter included $4.6 million in charges for inventory write-downs. Masimo also payed out $8 million in various charges related to an arbitration award ruling.

The award ruling led to a $5.4 million payout to two former sales employees who claimed to being forced to sell faulty devices, which consequently created an intolerable work environment. Masimo who insisted on going through an arbitrator will be asking a federal court to overturn the decision.

Masimo’s stock price has seen a 10% dip over the past week. The poor performance in share price can mainly be attributed to soft 4th quarter results. There has also been growing skepticism in Masimo’s recent expansion in India given the late uncertainty in emerging markets.

Management expects revenues in 2014 to fall between $578 and $598 million. As a current global leader in non-invasive patient monitoring technologies Masimo’s target growth in their current products as well as the success within their pipeline will tell the story moving forward.

In Masimo’s earnings call CEO Joe Kiani addressed questions regarding target revenues for the Rainbow sensors. Rainbow revenues for 2013 reached $14.8 million, which are expected to hit $60 million by the end of 2014. Kiani reported this was a conservative estimate in absence of some disaster occurring that should be met with large orders of SpCO expected towards the end of this year.

In 2013, Masimo had their eye on three potential acquisitions in which Kiani has responded that the company still has their eye on two of the candidates. It is important to note that these acquisitions if they take place would be smaller “tuck-in” types, comparable to previous acquisitions such as PHASEIN, SedLine, and Masimo Semiconductor.

In 2014 I expect to see moderate growth in Masimo’s SET and Rainbow devices and a positive response to Masimo’s new CE Marking of O3 regional oximetry for the Root patient monitoring and connectivity platform. The CE Marking O3 for the root enables monitoring of tissue oxygenation saturation and arterial blood oxygenation. Having just been announced in January of this year the O3’s addition to the root could be key in driving sales for that platform. Moving forward I remain with concerns due to Masimo’s expansion into India. In the earnings call CEO Joe Kiani restated his confidence regarding continued growth within the US. However, expansions into emerging markets, which may continue down a path of volatility should raise investor awareness. Currently I have a neutral position on Masimo. It’s recommended to pay close attention quarterly targets for the Rainbow SET devices and new product and pipeline announcements soon to take place this year.

-Jerome O'Grady
Healthcare analyst

No comments: