MASI

Masimo Corporation (MASI)

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Masimo Corporation (MASI)

Q1 2010 Earnings Call

May 4, 2010 4:30 p.m. ET

Executives

Sheree Aronson - Vice President, Investor Relations

Joe Kiani - Executive Vice President,

Mark de Raad - EVP of Finance & CFO

Analysts

Bill Piper - Piper Jaffray

Imran Zafar - Deutsche Bank

Sara Michelmore - Cowen and Company

Matthew Dodds - Citi Group

Peter Lawson - Thomas Weisel

Joanne Wuensch - BMO Capital Markets

Brian Weinstein - William Blair

Spencer Nam - Summer Street Research

Matt Dolan - Roth Capital

Larry Keusch - Morgan, Keegan

John Putnam - Capstone Investments

Greg Brash - Sidoti & Company

Presentation

Operator

Welcome to the Masimo Corporation First Quarter 2010 Earnings Conference Call. The Company’s press release is available at www.masimo.com. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions).

I am now pleased to introduce Sheree Aronson, Masimo Vice President of Investor Relations.

Sheree Aronson

Good afternoon. Joining me our Chairman and CEO, Joe Kiani and Executive Vice President, and CFO Mark de Raad who will each make prepared remarks, and then take as many of your questions as time permits.

Please not this call contains forward-looking statements. While these forward-looking statements reflect Masimo’s best current judgment, they are subject to risks and uncertainties that could cause our actual results to vary. Risk factors that could cause our actual results to differ materially from our forecast are discussed in detail in our filings with the SEC. You’ll find these in the Investor Relations section of our website.

With that, I will pass the call to Joe Kiani.

Joe Kiani

Thank you, Sheree and thank you, ladies and gentlemen for joining us today. Masimo delivered strong first quarter results with total revenues up 15%. Product revenues also rose 15% including a 71% increase in Rainbow revenues.

We also achieved a solid 34% increase in shipments of Masimo SET and Masimo Rainbow SET units. These results prove once again the superiority of our technology and strength of our mission, which is to improve patient outcomes on reduced to cost of care by taking non-evasive monitoring to new sites and applications.

Our first quarter progress can be summed up by four key points. First, our core SET business outplays both market and competitive growth with a 13% year-over-year rise in revenues. This performance signals additional revenue share gains by Masimo. Coupled with strong OEM board and Radical-7 and Rad-87 shipments, it makes clear that hospitals are increasingly turning to maximize SET Pulse CO-Oximetry not only for deployment in acute care, but also in the general floor where our patients safety that monitoring system connects care give us to patients resulting in improved patient safety and reduced cost.

Second, our Rainbow platform continued to advance with year-over-year sales up 71%. The experience growth in both licensing and sensor revenues and in general are happy with the progress in all Rainbow categories, doing the exception of our RAD-57 revenues, which were down slightly due to catabolization by our OEMs specifically in Medtronic Physio-Control and ZOLL defibrillators with Rainbow and continued DMS market weakness tied to local and municipal budget.

Importantly, in DMS market, our year-over-year exceeded. Year-over-year Rainbow SPCO and SpMet unit sales grew by over 75%. Unfortunately because of our license fees are significantly lower down standalone Rad-57 unit ASP, total revenues were slightly down year-over-year.

During the quarter, we also prepared for the launch of two new Rainbow products. Rainbow Accoustic Monitoring Respiratory Monitor and pronto hemoglobin spot check device. We remain enthusiastic about the long-term prospects of Rainbow and expect sequential and year-over-year growth for the balance of 2010.

So, we continue to invest in our future. Our first quarter R&D spends equaled to 11% of product sales again this quarter as we pushed forward on our new product roadmap. Also we move closer to completing a multi-year initiative to expand our global sales organization and structure.

We believe that our robust 44% price in international revenues, 37% in constant currency in the first quarter is testament to the value of these initiatives. Thinking more broadly waits to benefit patients in care givers and make a positive long-term impact on the strength and vitality of the healthcare market. We also established the Masimo Foundation for Ethics, Innovation and Competition in Healthcare.

Lastly, our strong financial position allowed us to return significant capital to stockholders. On March 31, 2010 we paid out $117 million and $500,000 to stockholders through a special $2 per share dividend, which is our second dividend in the past four years.

This dividend reflects our healthy balance sheet, expectation for continued positive cash flow and confidence in future growth. Despite the dividend payment, we finished the quarter with $112 million in cash and short-term investments and no debt.

Overall, the healthcare market remains challenging, but as our first quarter results illustrate we are seeing positive signs as more and more hospitals engage in contract discussions and appear more willing to upgrade to Masimo technology. We believe the superior performance of our core SET technology and the broad clinical advantages of our Rainbow platform combined to form a powerful message for hospitals.

That we can help them, deliver better care at lower cost. I’ll provide an update to our strategy and highlight some of the new opportunities we see for Masimo in more detail in a few minutes, but first Mark will review our first quarter financial results. Mark?

Mark de Raad

Thank you, Joe and good afternoon everyone. First quarter 2010 total revenues rose 15.5%, compared to the same prior year period to $98.8 million. This included 15.3% rise in product revenues to $85.9 million and a 17.3% increase in royalty revenues to $12.9 million.

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