Please ensure Javascript is enabled for purposes of website accessibility

Masimo Corporation's Strong First Quarter Spurs an Upgrade to Its 2018 Outlook

By Keith Speights – May 3, 2018 at 6:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The maker of non-invasive monitoring technologies reported a record quarter, thanks to solid sales growth of its SET pulse oximetry products.

The pulse of Masimo Corporation's (MASI 1.28%) business felt quite strong when the company reported its 2017 fourth-quarter results in February. Masimo's revenue and adjusted earnings soared on solid sales growth for its SET pulse oximeters.

Masimo announced its 2018 first-quarter results after the market closed on Wednesday. This time around, the company had a record quarter, but its growth slowed down somewhat. Here are the highlights from Masimo's update.

Masimo pulse oximetry systems in hospital room.

Image source: Masimo.

Masimo results: The raw numbers

Metric 

Q1 2018 

Q1 2017 

Year-Over-Year Change

Sales

$213 million $196.6 million

8.3%

Net income from continuing operations

$45.6 million $51.5 million

(11.5%)

Adjusted earnings per share (EPS)

$0.75 $0.65

15.4%

Data source: Masimo.

What happened with Masimo this quarter?

Masimo makes its money in three primary ways: direct product revenue, OEM (original equipment manufacturer) product sales, and royalties and other revenue. The company had good news in two of the three areas.

Direct product revenue, which contributes 87.5% of Masimo's total product revenue, increased to $178.9 million in the first quarter. OEM product sales, which make up the rest of the company's product revenue, grew to $25.5 million. However, first-quarter royalties and other revenue fell to $8.6 million from $14.2 million in the prior-year period.

While Masimo's total revenue increased, the company's GAAP net income fell from the first quarter of 2017. There were two primary causes of this decline. One was a $6.2 million positive adjustment for revenue from contracts with customers posted in the prior-year period that wasn't there in the first quarter of 2018. Without this GAAP adjustment, Masimo's net income would have increased slightly year over year. In addition, Masimo paid more in taxes in the first quarter of 2018 than it did in the prior-year period. 

The company's non-GAAP adjusted EPS looked much better, though. This stemmed largely from a bigger hit in the first quarter of 2017 for excess tax benefits from stock-based compensation.

Masimo ended the first quarter with cash and cash equivalents totaling $369.5 million. This cash stockpile would have been even bigger, but the company spent $16.5 million buying back stock.

What management had to say

Masimo chairman and CEO Joe Kiani stated:

We had another record quarter for product revenues and earnings, demonstrating once again the clinical and economic value of our innovative technologies for improving patient care. We achieved another strong quarter of shipments of our noninvasive monitoring technologies, at 53,600. Our positive outlook is visible in our higher guidance for sales and earnings in 2018 as we introduce important new products and gain new customers around the world.

Looking forward

The strong performance in the first quarter prompted Masimo to boost its full-year 2018 guidance. The company now expects total revenue of $846 million, up from the previous guidance of $836 million. Masimo expects GAAP diluted EPS of $3.01 and adjusted non-GAAP diluted EPS of $2.88. Its previous outlook called for GAAP EPS of $2.90 and non-GAAP EPS of $2.80.

Several new products introduced in recent months could contribute to Masimo's growth later this year. The company is now marketing its Eve critical congenital heart disease (CCHD) newborn screening application for the Rad-9 Pulse CO-Oximeter in Europe. In April, Masimo launched the UniView integrated display of real-time data and alarms from multiple Masimo and third-party devices. Also, the company can now sell its Rad-97 Pulse CO-Oximeter with integrated NomoLine capnography in Europe. The device was already available in the U.S.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Masimo. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Masimo Stock Quote
Masimo
MASI
$144.85 (1.28%) $1.83

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.