MASI

Masimo Corporation (MASI)

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Masimo Corporation (MASI)

Q3 2010 Earnings Call Transcript

November 2, 2010 4:30 pm ET

Executives

Sheree Aronson – VP, IR

Joe Kiani – Chairman, CEO and Acting Chief Technology Officer

Mark de Raad – CFO, EVP and Corporate Secretary

Analysts

Bill Quirk – Piper Jaffray

Sara Michelmore – Cowen

Matthew Dodds – Citigroup

Jack [ph] – BMO Capital Markets

Brian Weinstein – William Blair

Matt Dolan – Roth Capital Partners

Larry Keusch – Morgan, Keegan

John Putnam – Capstone Investments

Presentation

Operator

Good afternoon, ladies and gentlemen and welcome to the Masimo Corporation third 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 speakers' remarks, there will be a Q&A session. (Operator Instructions) At this time, I’m pleased to introduce Sheree Aronson, Masimo Vice President of Investor Relations.

Sheree Aronson

Good afternoon everyone. Joining me are Chairman and CEO, Joe Kiani, and Executive Vice President of Finance and CFO, Mark de Raad, who will each make remarks and then take your questions. This call contains forward-looking statements which reflect Masimo's best current judgment. However, they are subject to risk and uncertainties that could cause actual results to vary. Risk factors that could cause our actual results to differ materially from our forecast are discussed in detail in our SEC filings. You'll find these in the investor relations section of our website. With that, I'll pass the call to Joe Kiani.

Joe Kiani

Good afternoon, ladies and gentlemen and thank you for joining us today. We are happy to report another solid quarter to our shareholders. I believe our results as well as other key developments in the quarter reveal the strength of our technology and mission.

Here are some highlights. First, total revenue was up nearly 16% and topped $100 million for the second consecutive quarter. Product revenue growth drove performance with sales up by 18%, reflecting double-digit gains both in the U.S. and internationally and across both our direct and OEM channels.

Our core SET revenue outpaced market growth rates again this quarter as more hospitals and clinicians demanded the Masimo SET performance. What's more, our innovation prowess were key to landing several major long-term contracts with new customers in recent months, including Banner Health and Kaiser Permanente, which should contribute to our future growth in many ways.

Second, our Rainbow platform was a standout performer as revenue approached $12 million, nearly double the year-ago figure. With Rainbow, we are revolutionizing patient care with breakthrough non-invasive measurements including total hemoglobin, carboxyhemoglobin, methemoglobin, PVI and acoustic respiration rate. These latest sales figures signal increasing demand for all of them.

We also continue to build a body of third-party evidence regarding Rainbow's accuracy, clinical utility and cost saving benefits, including numerous studies released at the recent American Society of Anesthesiologists meeting. Post-market clinical research is, of course, a critical element in driving new technology adoption. And we are happy that so much clinical attention is being directed to our new technologies.

Third, we continue to place drivers into the market at a faster rate, with the new unit shipments up 43% to 37,500. A combination of factors are influencing our recent surge in new unit shipments, including continued demand for our technology by clinicians, resulting in an increasing share of OEM partners' total board shipments and new contract bookings. And what we may also think may be a continued pent-up demand following below normal levels of sales for our OEMs in 2009.

And finally, we achieved GAAP EPS of $0.27 a share and adjusted EPS of $0.28, up 23% and 27% respectively over the year ago period. This EPS performance reflects our third quarter top line growth, record-breaking rainbow sales and modest gross margin expansion as well as a non-operating gain related to foreign currency translations and some tax benefits which Mark will discuss in more detail.

I'll talk more about the quarter in a few minutes but first Mark will provide you the detailed financial overview.

Mark de Raad

Thank you, Joe and good afternoon everybody. As Joe indicated, total revenue rose nearly 16% to $101 million versus $87.4 million in the year ago period. This was driven by an 18% year-over-year rise in product revenue to $88.8 million. The impact on Q3 2010 revenues from foreign exchange was relatively insignificant, resulting in only a $50,000 increase over the prior year.

Masimo SET revenue grew by 11% to $76.9 million. It is important to note that in the year ago quarter, we included approximately $3.4 million in previously deferred SET revenue, which we recognize as a result of the elimination of obligations to provide upgrades under two long-term sensor agreements. If you remove the impact of this deferred revenue adjustment from the year ago quarter, our third quarter SET revenue was up more than 16%.

At $11.9 million, our third quarter Rainbow revenue grew 99% year-over-year. A significant contributor was a 4 million Rad-57 shipment to the U.S. Marine Corps. This represents the culmination of over a year's worth of effort by our U.S. sales organization and is indicative of the new market opportunities we see for Rainbow technologies.

While we anticipate more U.S. military orders in the future, they will likely be sporadic and therefore tough to predict. Rainbow licensing and consumable revenues were up nicely in the quarter. Importantly, we saw a significant rise in SpHb ReSposable sensor sales again this quarter, which is another positive indicator of growing SpHb utilization.

Read the rest of this transcript for free on seekingalpha.com