MASI

Masimo Corporation (MASI)

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Masimo Corporation (MASI)

Q4 2009 Earnings Call Transcript

February 16, 2010 4:30 pm ET

Executives

Sheree Aronson – VP, IR

Joe Kiani – Chairman & CEO

Mark de Raad – EVP of Finance & CFO

Analysts

Bill Quirk – Piper Jaffray

Tao Levy – Deutsche Bank

Sara Michelmore – Cowen

Peter Lawson – Thomas Weisel

Joanne Wuensch – BMO Capital Markets

Matthew Dodds – Citi

Brian Weinstein – William Blair

Spencer Nam – Summer Street Research

Matt Dolan – Roth Capital

John Putnam – Capstone Investments

Constantine [ph] – Treasure PotsNet [ph]

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the Masimo Corporation fourth quarter and full-year 2009 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 speakers’ 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 are 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 Masimo’s actual results to materially differ 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. I am happy to report a strong finish for 2009. Our core SET business is delivering sustainable growth, the pulse oximetry business is a solid performer, generating double-digit revenue growth and market share gains that demonstrate continued strong demand for our proprietary technology, including expanding interest in our Patient SafetyNet General Floor monitory systems.

Rainbow’s potential is beginning to take shape. Driving sales increases in a numbers of hospitals adopting the technology and new attractive reimbursement guidelines underscore the clinical and economic benefits of our Rainbow platform, which will be further enhanced in 2010 with introduction of new products.

Our business model is resilient. Year-over-year improvements across a range of sales and operational metrics in 2009 show the fundamental strength of our business model even in tough economic times. For example, in 2009, our total product revenues grew 16% and our end-user direct business grew 20%.

We are investing in our future. At approximately 11% of product sales, our R&D spend reflects our commitment to pursue new breakthroughs with the potential to improve patient care and transform the marketplace. Our multi-year initiative to expand our global sales organization and structure in on track and designed to create future operational leverage.

Our balance sheet is clean and we are generating cash. We finished 2009 with essentially no debt and $189 million in cash and short term investments, representing a 20% rise over year-end 2008 and demonstrating favorable cash flow trends.

While the economy is still bad and healthcare spending remains below historical levels, we are seeing hospitals move forward in converting to Masimo with licensing and sensor agreements that were previously on hold. Activity also appears to be picking up slightly in the OEM channel. Although well documented uncertainties remain regarding the pace of economic recovery, the future of healthcare reform and other factors influencing our market over the near term, all in all we are encouraged by the continuing sign we are seeing in the marketplace.

While it is tougher for all companies to operate in difficult times, opportunities always exist for those with the best solutions for customers. Masimo is clearly one of those unique companies. In a few minutes I will review our strategy and progress in more detail, but first Mark will walk through our financial performance and 2010 guidance. Mark?

Mark de Raad

Thank you, Joe, and good afternoon everybody. For the fourth quarter of 2009 Masimo reported total revenues of $92.6 million, including product revenues of $80.5 million and royalty revenues of approximately $12.1 million. This represented 11% growth in total revenues and 12% growth in product revenues compared to the same prior last year. Favorable year-over-year foreign currency exchange rates added approximately $1.2 million to fourth quarter 2009 revenues compared to the last year.

As Joe mentioned, our growth in product revenues was driven primarily by Masimo SET revenues, which rose 12% to $74.7 million in the fourth quarter as we continued to extend our reach into more hospitals worldwide.

Fourth quarter 2009 SET product revenues also included approximately $4.3 million in previously deferred revenues, which were recognized due the delivery of equipment. This compares to approximately $1.6 million in deferred revenues we recognized in the fourth quarter of last year, which related to the establishment of vendor-specific objective evidence of a product tied a long-term sensor agreement.

Fourth quarter 2009 revenues generated from our end user or direct business, which includes sales through our just-in-time distributors, were up 15% to $64.7 million, and represented 80% of total product revenues. OEM revenues made up the remaining 20% at $15.8 million. This reflects a slight mix shift from the prior year period when direct revenues were 78% and OEM revenues were 22%. Moreover, it illustrates our view that OEMs continue to feel the effects of lower hospital CapEx spending in the fourth quarter, although, as Joe noted, we believe the situation to continuing to improve.

Fourth quarter Rainbow revenues totaled $5.8 million, up 23% compared to the same prior last year reflecting significantly increased year-over-year demand for our Rainbow licensed parameters and sensors offset slightly by continued pressure on Rad-57 sales due to OEM SpCO and SpMet licensed parameter sales and continued constraints on state and municipal EMS spending. Also, recall that in the year-ago Q4 2008 period, we benefited from a large initial order of Rainbow MX boards.

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