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Masimo Reports Second Quarter 2015 Financial ResultsMasimo (NASDAQ: MASI) today announced its financial results for the second quarter ended July 4, 2015. Second quarter 2015 product revenues rose 10.6% to $147.6 million, compared to $133.5 million for the second quarter of fiscal year 2014, and total revenue, including royalties, rose 10.5% to $155.7 million, up from $140.9 million for the second quarter of fiscal year 2014. The unfavorable effect of foreign currency movements reduced second quarter product revenues by approximately $5.5 million. The company's worldwide direct product revenue in the second quarter of 2015 rose by 10.4% compared to the same period in 2014 and represented 84.7% of product revenue. OEM sales, which accounted for 15.3% of product revenue, rose by 11.5% to $22.5 million in the second quarter of 2015 compared to the same period in 2014. Revenue from sales of Masimo rainbow® products rose by 16.3% to $13.5 million in the second quarter of 2015, compared to the same period in 2014. GAAP net income for the second quarter of 2015 was $19.4 million, or $0.36 per diluted share, compared to GAAP net income of $13.8 million, or $0.24 per diluted share, in the second quarter of 2014. Non-GAAP net income for the second quarter was $23.1 million, or $0.43 per diluted share, versus non-GAAP net income of $14.1 million or $0.25 per diluted share in the year-ago period. During the second quarter of 2015, the company shipped a record 44,300 SET® pulse oximetry and rainbow® Pulse CO-Oximetry™ units, excluding handheld units. Masimo estimates its worldwide installed base as of July 4, 2015 to be 1,362,000 units, up 8.1% from 1,260,000 units as of June 28, 2014. Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, "Our second quarter results reflect the continued demand for our SET® Pulse Oximetry technology and our emerging rainbow® SET® Pulse CO-Oximetry technology. The years of building a solid foundation of technologies and products that save and improve lives, along with a build out of our infrastructure to best serve our customers, should allow us to continue to deliver positive returns for our shareholders." During the six month period ended July 4, 2015, the company generated $28.3 million in cash from operations and at July 4, 2015, total cash and cash investments were $119.4 million compared to $134.5 million as of January 3, 2015. Also, during the six month period July 4, 2015, the company repurchased approximately 2.4 million shares of stock for $81.6 million, including 2.1 million shares in the quarter ended July 4, 2015 for $73.4 million. 2015 Financial Guidance Masimo today is updating its 2015 financial guidance. Masimo now expects fiscal 2015 total revenues to be approximately $621 million, up from $608 million. Total fiscal 2015 product revenues are now expected to be approximately $592 million, up from $580 million and total fiscal 2015 royalty revenues are now projected to be approximately $29 million, up from $28 million. Masimo now also expects its fiscal 2015 GAAP earnings per diluted share to be $1.43, up from $1.33 and expects non-GAAP earnings per diluted share to be approximately $1.61. Masimo will provide additional financial information during the conference call today. Each of the components of Masimo's guidance set forth above is an estimate only and actual performance could differ. Conference Call Masimo will hold a conference call today at 1:30 p.m. PT (4:30 p.m. ET) to discuss the results. A live webcast of the call will be available online from the investor relations page of the company's website at www.masimo.com. The dial-in numbers are (888) 520-7182 for domestic callers and +1 (706) 758-3929 for international callers. The reservation code for both dial-in numbers is 84990153. After the live webcast, the call will be available on Masimo's website through September 1, 2015. In addition, a telephonic replay of the call will be available through August 18, 2015. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (855) 859-2056 for international callers. Please use reservation code 84990153. About Masimo Masimo (NASDAQ: MASI) is the global leader in innovative noninvasive monitoring technologies that significantly improve patient care-helping solve "unsolvable" problems. In 1995, the company debuted Measure-Through Motion and Low Perfusion pulse oximetry, known as Masimo SET®, which virtually eliminated false alarms and increased pulse oximetry's ability to detect life-threatening events. More than 100 independent and objective studies have shown that Masimo SET® outperforms other pulse oximetry technologies, even under the most challenging clinical conditions, including patient motion and low peripheral perfusion. In 2005, Masimo introduced rainbow SET® Pulse CO-Oximetry technology, allowing noninvasive and continuous monitoring of blood constituents that previously could only be measured invasively, including total hemoglobin (SpHb®), oxygen content (SpOC™), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), and Pleth Variability Index (PVI®), in addition to SpO2, pulse rate, and perfusion index (PI). Additional information about Masimo and its products may be found at www.masimo.com. Forward-Looking Statements All statements other than statements of historical facts included in this press release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expectations for full fiscal year 2015 total and product revenues and GAAP and non-GAAP earnings per diluted share; demand for our products; anticipated revenue and earnings growth; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management's current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET® and Masimo rainbow® SET® products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors' assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; and other factors discussed in the "Risk Factors" section of our most recent periodic reports filed with the Securities and Exchange Commission ("SEC"), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC's website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Masimo, SET, Signal Extraction Technology, Improving Patient Outcome and Reducing Cost of Care... by Taking Noninvasive Monitoring to New Sites and Applications, rainbow, SpHb, SpOC, SpCO, SpMet, PVI are trademarks or registered trademarks of Masimo Corporation
The following table presents details of the share-based compensation expense that is included in each functional line item in the condensed consolidated statements of income (in thousands):
Non-GAAP Financial Measures The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial measures presented exclude the items summarized in the above table that are more fully described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results and that these items are not indicative of the company's on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the company's business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the company may be different from the non-GAAP financial measures used by other companies. The company has presented the following non-GAAP measures on a basis consistent with its historical presentation, to assist investors in understanding the company's core net operating results on an on-going basis: (i) non-GAAP product revenue, (ii) non-GAAP gross profit, (iii) non-GAAP operating expenses, (iv) non-GAAP non-operating income (expense); (vi) non-GAAP net income attributable to Masimo Corporation stockholders, and (vii) non-GAAP net income per diluted share attributable to Masimo Corporation stockholders. These non-GAAP financial measures may also assist investors in making comparisons of the company's core operating results with those of other companies. Management believes non-GAAP product revenue, non-GAAP gross profit, non-GAAP net income attributable to Masimo Corporation stockholders and non-GAAP net income per diluted share attributable to Masimo Corporation stockholders are important measures in the evaluation of the Company's performance and uses these measures to better understand and evaluate our business. The non-GAAP financial measures reflect adjustments for the following items, as well as the related income tax effects thereof: Constant currency F/X adjustments. Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. Similarly, certain of our product costs and operating expenses, and the related balance sheet payables and accruals, are denominated in foreign currencies other than the U.S. Dollar. These foreign currency revenues, costs and expenses, receivables, payables and accruals, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues, costs and expenses, receivables, payables and accruals by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and these related constant currency and other foreign exchange adjustments will continue to occur in future periods. Amortization of acquisition-related intangibles. Amortization of intangibles generally represents costs incurred by an acquired company or other third party to build value prior to our acquisition of the intangible assets. As such, it is effectively part of the transaction costs of the acquisition rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating its historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Amortization of intangibles will recur in future periods. Litigation awards, damages and defense costs. In connection with litigation proceedings arising in the course of our business, we have previously recorded expenses as a defendant in such proceedings in the form of damages and directly-related legal fees, as well as reversals of such damages and directly-related legal fee expenses upon a court vacating a prior award against us. In addition, we have also previously recorded recoveries of damages and directly-related legal fees as a plaintiff in litigation proceedings. We believe that exclusion of these expenses, expense reversals and recoveries is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses, expense reversals and recoveries are generally unrelated to our core business and/or infrequent in nature. Lease termination exit costs. The effects of lease termination exits costs are excluded resulting from the purchase of the New Hampshire manufacturing facility that Masimo previous leased. Reconciliations between the GAAP and non-GAAP amounts for each financial statement line item are as follows:
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