Masimo Reports Second Quarter 2018 Financial Results and Announces Board Authorization of a New Stock Repurchase Program
IRVINE, Calif.--(BUSINESS WIRE)--Aug 1, 2018--Masimo (NASDAQ: MASI) today announced its financial results for the second quarter ended June 30, 2018.
Second Quarter 2018 Results:
Second quarter 2018 total revenue, including royalty and other revenue, was $211.6 million. Product revenues for the second quarter 2018 increased 12.4% to $202.0 million, or 11.2% on a constant currency basis.
During the second quarter of 2018, the Company shipped approximately 58,700 noninvasive technology boards and monitors.
The Company’s worldwide direct product revenue, which accounted for 85.4% of total product revenue, increased to $172.5 million in the second quarter 2018. OEM sales, which accounted for 14.6% of total product revenue, increased to $29.5 million for the second quarter 2018.
For the second quarter 2018, GAAP net income was $43.9 million or $0.79 per diluted share. Non-GAAP net income was $41.0 million, or $0.73 per diluted share.
Total cash and cash equivalents increased by $60.1 million during the quarter to $429.6 million, as of June 30, 2018.
As a result of the strong performance in the second quarter, Masimo is raising its guidance for fiscal year 2018. The Company now expects product revenues of $822 million, which reflects reported growth of 11.3% and constant currency growth of 10.8%. Masimo is also raising its GAAP EPS guidance to $3.07 and its non-GAAP EPS guidance to $2.90.
Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “Our second quarter results reflect the broad-based success we are realizing for our innovative technologies and systems solutions to optimize patient care. We had a record quarter for shipments of our technology boards and monitors, at 58,700, a clear illustration of the rising demand for our high-value products. We are once again raising guidance for revenue and earnings in 2018 as we continue to grow our customer base and expand our product portfolio.”
Furthermore, today, Masimo is also announcing the Board’s authorization of a new stock repurchase program (2018 Repurchase Program), whereby the Company may purchase up to 5.0 million shares of its common stock over a period of up to three years. The 2018 Repurchase Program will be effective upon the expiration of the current stock repurchase program on September 11, 2018. The 2018 Repurchase Program may be carried out at the discretion of a committee comprised of the Company’s Chief Executive Officer and Chief Financial Officer through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.
2018 Financial Guidance
The Company provided the following updated estimates for its full year 2018 guidance:
1 Updated guidance provided August 1, 2018. Prior guidance provided May 2, 2018.Total revenue, including royalty and other revenue, increasing to $850 million; Product revenue increasing to $822 million; which reflects reported growth of 11.3% and constant currency growth of 10.8%; GAAP diluted earnings per share increasing to $3.07; Non-GAAP diluted earnings per share increasing to $2.90; and The Company expects foreign currency movements to favorably impact 2018 revenues by approximately $4 million, compared with our prior expectations of approximately $7 million.
Impact of Adoption of New Revenue Accounting Standard:
During the first quarter of 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2014-09, Revenue (Topic 606): Revenue from Contracts with Customers (ASU 2014-09). The new revenue recognition standard requires the Company to make numerous assumptions that are based upon historical trends and management judgment. These assumptions may change over time and may have a material impact on our revenue recognition, guidance and results of operations. In accordance with the full retrospective method of adoption, the Company has adjusted certain amounts previously reported in its unaudited condensed consolidated financial statements to comply with the new standard, as indicated by the notation, “As Adjusted”. For additional information with respect to the impact of the adoption of this new accounting standard and reconciliations to the prior reported amounts, please reference Note 2 to our condensed consolidated financial statements that will be included in Part I, Item 1 of our Quarterly Report on Form 10-Q (Form 10-Q) for the quarter ended June 30, 2018 once filed with the Securities and Exchange Commission (SEC) and Exhibit 99.3 that was included in our Current Report on Form 8-K that was filed with the SEC today.
Supplementary Non-GAAP Financial Information
For additional non-GAAP financial details, please visit the Investor Relations section of the Company’s website at www.masimo.com to access Supplementary Financial Information.
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. GAAP. The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes 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 to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) non-GAAP product revenue growth %, (ii) non-GAAP net income, (iii) non-GAAP diluted earnings per share, (iv) non-GAAP gross profit, (v) non-GAAP operating income and (vi) adjusted EBITDA. 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 growth %, non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA 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 foreign currency adjustments.
Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, 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 by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating our product revenue growth rates on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and the related constant currency adjustments for calculation of our product revenue growth rate will continue to occur in future periods.
Acquisition-related costs, including depreciation and amortization.
Depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to 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 historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods.
Litigation damages, awards and settlements.
In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds; most recently in connection with our November 2016 settlement agreement with Koninklijke Philips N.V. We believe that exclusion of these expenses and gains 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 and gains are generally unrelated to our core business and/or infrequent in nature.
Realized and unrealized gains or losses from foreign currency transactions.
We are exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables related to certain customer sales agreements, product costs and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods.
Excess tax benefits from stock-based compensation.
Current authoritative accounting guidance requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of such guidance can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees.
Tax impacts that may not be representative of the ongoing results of our core operations.
The Tax Cuts and Jobs Act of 2017 (2017 Tax Act) was signed into law in December 2017, and became effective January 1, 2018. The 2017 Tax Act included a number of changes to existing U.S. federal tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%, a one-time transition tax on the “deemed repatriation” of cumulative undistributed foreign earnings as of December 31, 2017 and changes in the prospective taxation of the foreign operations of U.S. multinational companies. We believe that exclusion of the tax charges related to the 2017 Tax Act 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 this tax charge is unrelated to our core business and non-recurring in nature.
Second Quarter 2018 Actuals versus Second Quarter 2017 Actuals:
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