MASI - Earnings call transcript Q1 2018

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Masimo's First Quarter 2018 Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations.

Eli Kammerman

you. Thank everyone. Hello,

Masimo's are Vice today Micah CEO, Kiani; XXXX which Joe This our certain Joining regarding expectations of Chairman Finance Executive fiscal reflect statements, forward-looking President will performance. Officer, judgment, and and including call of me financial contain and current Chief Young. Financial

projections materially. discussed risks to could that cause detail actual results subject However, that periodic the cause factors they to filings are are actual SEC. Risk could materially and from in our our differ uncertainties in and results forecasts to differ with our

Relations You will will to these find GAAP. section certain not these of financial discussion generally non-GAAP a as accordance website. in financial call or the accepted this in generally that principles are Investor calculated We Also, refer of measures. measures our include with accounting

evaluate release in today to our with be the the of Investors XX-Q supplementary decisions. to statements to with the intended assess quarter together budget, underlying company's filed same comparable and earnings the financial included financial In Reconciliation better these investment as performance. uses operations. and make directly the reflect to measures measures information should our these investors provide company's Management performance order all these consider transparency financial additional measures results, SEC business. and the sees way are measures The operations of these addition financial the to ongoing business within most of non-GAAP website. increase to in the to enable on assesses an company's the to non-GAAP of first believes are GAAP performance results management GAAP our informed information the for non-GAAP measures financial that indicator and company measure

issued this I'll covering of we the release morning now we supplement call – to presentation the quarterly within website the posted afternoon, afternoon. our this content will Investors In addition be section Joe have Kiani. a earnings to this to the pass

Joe E. Kiani

for $XX.X Masimo's record of of million you, and Thank of Good XXXX achieved afternoon, $XXX Eli. quarter revenue non-GAAP first for joining million earnings with and EPS review. us $X.XX. We thank you Product

strong Our results increasingly margins our of performance for community of least recognized realizing in solutions, from the and seven Product over recognized to XXX% revenue our the of next is execution outcomes achieve our care. X% internationally plan the gains saw and demand and effective to both healthcare and for our clinicians We're institutions to solutions the by at with and technologies in growth rate business. of breakthrough operating cost value expanding reducing XX% reflect years. the We as and growth spectrum earnings U.S. patient administrators international across hospitals, improving that

audio and for new use two-way capabilities. discuss some today. telehealth boards which non-invasive shipments quarter. some quarter, video FDA growth rose units, CE additional XX,XXX an clearances business For a technology and over the noteworthy home monitor We to in is during with our increase of of both the to the reflects quarter, direct business. updates worldwide received including I'll these and prior of our The our attributable Rad-XX OEM year XX% later clearance call first monitors with and the

guidance. with ask our update an provide more I'll in Now, and results our Micah? you Micah to review financial detail to QX XXXX

Micah Young

everyone. Thank and good you, Joe, afternoon,

using quarter of moment the our a method. XXXX standard, with Before to started financials, we retrospective adopted new during full want the XXX, which I to first get accounting the take ASC I discuss

types under reflect changes the transactions historical Number had effect periods high more forward is the as ASC sell-through under forward resulted had going prior recognition accounting in in XXX. reported to to in we ASC Although with on been two, – to increasing adjustments XXX reflect implementation the the has approximately ASC compared most QX revenue will as non-recurring primary XXXX these periods significant. completion completion million. that new had previously historically XXXX to under method and Philips periods reported new of results Product much modest standard standard that one, had QX been the changes adjusted on we a quarter At non-recurring of percentage under two Product have related engineering significant XXX. revenues our impact on of compared to results, had the XXX sell-to a be our prior reported level, related Number revenues ASC here our first to to partnership impact revenues that historically adjusted ASC have method accounting recognition XXX our our Masimo. to milestone going a $X.X for by just-in-time method by the of that accounting for prior will million our at adjustments $X reported be revenue sales The revenues a distributors of method were XXXX the and and

XXXX increased expectations. XXXX delivering first very per our growth strong XXXX our by were reduced our exceeded rates quarter by increased to share quarter million. results our despite this Also, were earnings result, of significantly total for non-GAAP These $X.XX. QX that a have apparent revenues numbers QX $XX.X XXXX QX As adjustments our

new For standard section related to further Relations on our XXX, Investor supplementary in accounting historical information to the the the information adjustments website. please the regarding financial ASC refer

our on quarter. to moving the Now, for results financial

ASC new measures noted. on financial will covering accounting the be I be today standard be reminder, on will and otherwise basis another a unless non-GAAP based As also XXX, that the will

and reported revenue, quarter revenue, Other we $XXX million. Royalty first XXXX, of including of total the For

XX% for or $XXX.X quarter, which reflects the of million X.X% of revenues growth Product the Our were FX. excluding impact

accounting to of the revenues related the million the standard previously, $X.X mentioned I what XXX previously As Product resulted prior had adjustment in in reported QX to XXXX. addition we new approximately our ASC from period

by a basis. currency XX.X% XXXX, QX in increased period prior first approximately or revenue Product our adjustment quarter constant on XXXX the XX.X% Excluding

this we previously revenue new quarter first the for revenue clear, of quarter. million The did comparison XXXX. XXX and first what quarter quarter $X.X included under of was prepare $X.X using under Product of under method. the first prior in results quarter to adopted XXXX the XXXX be XXXX We in million to we is the ASC ASC of since reported first not the full a quarter, Other year million million ASC our retrospective quarter the versus Royalty compared compared the XXX. royalties, in standard XXX for to Just results $XX.X for current had $X.X

in related into Philips standard XXXX. monitors, accounting our The approximately quarter. adjustment of to various year in to technologies prior quarter million current in to the the had new the $X NRE ASC revenues of to an addition, Masimo integration addition In related in included NRE $XXX,XXX the reported $X from QX revenues million what compared prior adjusted the period XXX revenue resulted previously of NRE we

turn to let's Now, the rest P&L. the of

XXXX, including the non-GAAP XX.X% year gross was the margin, For revenue, and versus prior in of NRE first period. XX.X% royalty quarter

as well line. leverage. revenue that which realize as $XX.X to first Product invest Our remain will total million to we increased growth, clear and Product $XX.X with operating expenses X.X% XX improvement rate well continue gross the of (sic) the expectations. increased staffing margins which benefit costs, due manufacturing project-related [$XX.X] our the to customers innovative favorable quarter, efficiencies, margin in upgrading marketplace. and in newer to the for expenses due to selling, and Non-GAAP about XX.X%, administrative or from research product was the first of We to X% was in illustrating technologies increasing we general the the delivering million revenue as gross mix realize potential development our to to RD a below in basis Non-GAAP increased levels to positive sensor increased quarter line higher points

the operating in typically XX.X%, Our our profit the fourth was fiscal first first reflects quarter revenue profitability stronger margin we of non-GAAP see quarters and and year. which

further income last the approximately non-operating in compared same $XXX,XXX was Moving non-GAAP the down basis to on $XXX,XXX, period a year. P&L,

effective tax, US the in in the rate laws. tax a in non-GAAP lower to tax a XX.X% million, of of changes expense The turning rate non-GAAP Now resulting reflected was period. our effective XX.X%, quarter to tax the first in non-GAAP tax recent compared tax rate $XX.X year-ago

with approximately $XX.X for Our outstanding quarter approximately million, level an was essentially quarter period. XX.X at the ago year We the price weighted the for per average million of shares share. during shares $XX average XXX,XXX repurchased approximately

net was $XX.X non-GAAP income non-GAAP In $X.XX $XX.X XXXX per or quarter diluted diluted million First comparison, income per share. or quarter $X.XX first share. net was XXXX million

had the in I to period in our previously, approximately share prior from QX adjustment we new addition non-GAAP what per earnings ASC accounting As the reported related $X.XX of resulted mentioned XXXX. previously standard the to XXX

information again, standard XXX, to on per share earnings first our Excluding adjustments than the Relations regarding XXXX in related financial historical website. Investor Once the ASC refer by this our non-GAAP supplementary further the accounting new quarter. section XX% adjustment, the information QX in increased to more for please the

payment to Our collections days the first end we outside longer improved XX days terms. to days from year due outstanding XX primarily sells where at of last the improved of in have the quarter from generally XXXX, U.S. cash

first were for year. the at turns X.X performance in which of the inventory with end quarter, our at is last Our line

reach our the and short-term result and million. a during investments million strong earnings increased As our working cash improvement, $XX.X capital to of by quarter $XXX.X

our update you to like guidance. financial full-year I'd Now, on XXXX

projecting now Royalty total guidance. approximately and to from $XXX $XX represents prior Other our are revenue, be million an XXXX, including For million, of increase we revenue, which

guidance which XX% to approximately We XXXX are now increasing our Product reflects up a constant now $XXX $XXX growth million currency from over XXXX of on basis. million, revenue

revenues for we anticipating the $XX is and $X NRE Our for still in approximately revenue which are million guidance $XX revenues. of comprised unchanged, Other million Royalty still as million year, royalty remains in and

non-GAAP remains margins, XX.X% year. Royalty and Our unchanged gross for expectation at including Other revenue, the for

on profit remains XX.X% non-GAAP Product at operating at guidance and total our total of continuing Based non-GAAP expense margins XX.X% approximately are XX.X% we total of our margin -- total of operating to unchanged guidance expenses remains these Our assumptions, operating revenue. project revenue. unchanged gross non-GAAP

million guidance to Moving expected interest further is are will estimating mix points of this income XX%, prior guidance we and on XX.X% now U.S. in approximately to our down improve of non-GAAP are based GAAP from our XXX lower net $X.XX. our the which XXXX. expense generate the from profits, depreciation projection $X.XX. option in And for expect outstanding $X P&L, assumptions, we XX approximately we non-GAAP $X excess will for of are and exercises net still $X.XX for of weighted of basis and GAAP Joe. And shares by foreign of be of tax $X year. now EPS a call OUS in benefits and repurchases tax of exchange year per tax of projecting still our rate earnings these of this of approximately the guidance we to were from for on which the year, share will remainder year, that increasing XX%. any $X.X $X.XX reflect up rate guidance amortization GAAP our prior million all our approximately the million gains, additional than Included from prior million, are which does to the our Based perspective, stock of up we not acquisition-related a are million share With Also, turn average back tax. that, I after-tax that estimating offset

Joe E. Kiani

you, Micah. Thank

growth expanding adoption market clearly rate pulse innovative products world, above once realized around pulse results sales technologies oximetry well growth our the SET the illustrate for QX oximetry we the as Our again. of

newer Our and OX our another lines regional growth noninvasive function rainbow rate. oximetry SedLine quarter constituents and brain adding strong monitoring monitoring, delivered performance Capnography, are blood to of NomoLine including product

including revenue than and XXXX described, growth just of product core for XX% growth that our we Micah Chicago expect product growth our deliver the some in multiple Health we happy in even and faster Memorial business sales Beach As Orange area. County the customers, hospitals this year. to renew Long now In is were to earnings realize in first System University with important quarter, Rush

we Rad-XX Valencia for the a technology John a are of center Peter region won a Spain. Texas. way. rainbow significant defense to the of Army network the SpHb transfusion Pulse we multi-year large blood contract one Navy the department of Air Hospital secured in with a with we substantial addition, awarded Overseas, spot-check CO-Oximetry Smith in Force, of our contract big partner, ZOLL, with in program Through providing and donation U.S. contract the In OEM

is sensors. our an Reserve rainbow revolutionary rainbow in about In Oxygen of As product which we and RPVi, move received launches the January, through PVi, excited the we're new we XXXX, sensor than improved less of CE and Index recent Lite sensors, for mark our but which our product costly rainbow-based SET enabled pipeline. a use RD version

of We expect of outcomes. early that and of desaturation recent an received "the in Children's clinical could management." another reduce a newborns after of which ability X,XXX that CE provide study induced at Masimo's arterial study, as patient to utility researchers in to-date, into condition, concluded researchers of morbidity UC births to screening perfusion. calculation over and CCHD assistance of of assessment. pre-ductal Pulse with advanced hemoglobin a impending with high-risk our infants XX% the safety mark post-ductal been supports study incorporates for in Center from approximately has reported detection for to to clinical desaturation screening CCHD February. in advance time dangerous RPVi perfusion improving apnea with median comparison for or data calls The This warning or largest a XX% to the birth combined affects to ORi Eve to requires or heart sensitivity desaturation School In the see health potentially airway new warning ORi clinicians XXX,XXX SET proprietary a potential pediatric the use CCHD, X of the shown modification translate for clinicians to low body process arterial investigated. in screening that in adjunct of CCHD a CO-Oximeter screen of an per Eve concluded increase obese person, the which clinicians In for from earlier Medicine, study for to ORi patients Dallas infants, was from incorporate in pulse the designed Eve a significant of recent intervention Medical study in use critical sensitivity to as experienced Rad-XX of screening impending index with allows XX-second the newborns helping application also prevent patient clinical ORi In growing Masimo congenital algorithm of provide this for more additional increased Davis demonstrates patients patient a after SpOX this pathologically warning soon by and disease, inclusion oximetry mortality. errors improved population. allowing live can pre-oxygenation. warning

features relayed intelligent of other existing Perhaps Replica alert near data choosing and from and as regardless tool from application Patient two-way the alerts, would alarm smart Another significant patient notification indicated remote quarter of and study alarm tablets of Replica a PI continuous index as XXXX new over the with or as first tablets, their ventilators as a a and responded, clinical are Masimo data view technology, forward that, conjunction fidelity And patients, Masimo. such monitors, notifications the respond most smartphones smartphones in allows notification Replica display protocol. for connected Masimo location. notifications our while a SafetyNet. Clinicians to study Replica, of Patient ORi, improving and sensitivity be can the for respond delivery. and Eve also also and monitoring all to for importantly, perfusion RPVi, the incorporated announcement the multiple has screening. the into screen. evaluating in devices, response well CCHD and derived product see waveforms, further to in biomarker and when innovation third-party view during from works accept data, high smartphone enabling few real-time thereby A application concluded notable Masimo's screening to recent displays capabilities, conventional perfusion a supplemental SafetyNet's was is Replica as it that system workflow. the just index to clinicians alarm that bedside Eve examples offers that from their monitoring have systems, already send be of product useful Eve, or be at that advantages without if allows additional clinicians the can which to app, included, CCHD screening confirmation improved. such

expect which improve is professionals adoption a questions. differentiated and healthcare We helping help call Operator? while products the of for care. increased improve open reducing other the steady to cost further our we'll encouraged technology. patient outcomes, will to of we're XXXX, the dedicated remainder achieving clinicians that, by number gains, of care new lowering cost care. In closing, of the practices to during Masimo while outcomes, of we're all their associated With launch

Operator

Wise the Your first comes Stifel. from from of Rick question line

line open. Your is

Rick Wise

excellent great what XX you see to Philips your Maybe what And think now Good cross-training Good extent sales of or and that quarter? now the in that another you that with the sort six had XXth – those to and to nine It's of forces. a opening progress Joe you training, – whatever starters, in about for afternoon, and up last accounts the of just to Where driver Joe. Micah, you talk was the you've everybody. period last have I I the a can been this date for know quarter is exceeded. are particularly months months afternoon, the in rainbow? venture where are

Joe E. Kiani

best future exceeding our expected been keep customers said we give while that's volume our each of other. been the of to think really anticipations. Rick. we're account after we of all the numbers. of of relationship do reasons, our both that despite we're technology the has the seeing from in And numbers holds, of levels one I The Philips' years all the trying you ahead to together, what through adoptions have than even you, going at done haven't courts better excellent, I the Philips we we being Thank perhaps believe had with things

what's we the new the initiatives we're take be about far extent that Philips, that to countries, going next shape Massimo, other are some and the of introduced technologies as but to some other doing So, jointly that programs in and were some begun marketing as to by going countries. remaining have be ahead, still excited from to in

So hopefully, results hopefully we that continue the have the together but hoped, seeing we're exactly speed do and are sides have anticipated. at we we gone of both better we'll that together say expediting going plans had continue not despite not -- just both may will what that doing had we some we'll to than

Rick Wise

us to that – big come opportunities about opportunity that of are help any impact set rather talked general gain as Root, milestones like fair on for sort front. and visibility talked come, you are and up say haven't to is So yet, Where haven't health to you there ward byproducts One addressing believe might the ward. in general that years more that that you in XXXX some opportunity the might or et Joe, see ahead more cetera? about a

Joe E. Kiani

Rick, a in brainer. to shown really floor again due Well, overdose. ward technologies, because with Masimo costs in the patients elimination, over way deaths not hospitals it's and have is the By have dramatic general market and preventable and over reduction reduction, general dumbfounding, no monitoring over a if on of dramatic opioid

in over in that it's while in X,XXX can technology, brag around few the Patient years the we SET been world the still general have different the with So a floors drop ocean. and last implemented SafetyNet about systems

and market the as market, size of potentially a market. of times four intensive fraction and general yet care business intensive general the care operating floor the we the to care, the small coming see unit out critical room floor is the three So of

I years recommended saw even recommend is us is when saves to may couple we it, come saw Patient us we get ago don't recommend say everybody it, to this the saves some Foundation Safety CMS every Commission enough it, and it So lives, have laws Joint maybe that it. unfortunately do eventually it Anesthesia know. a to We it enough, something do, will money? hospital

Rick Wise

us ones you your one comments making FP&A know your of little a a on. outlook, Micah, talk that I to And are plans to but confidence your bit process? something the upgrading customers very to and multi-year some or Micah. just efficiencies on two so right I is maybe that manufacturing know probably last Maybe we you're quick for expand sounds well just much. of just you're talked about Okay. progress capability that and about as RD piece as it? about in now, it it's adds the in and the Thanks like well where sensor process, focused as

Micah Young

right. All Rick. Thank you,

efficiencies, the sticking point on saw we manufacturing the first Just were. those on where

of was we into unfavorable vertically we off course turn in the where that kicking us. the trying see that another the felt favorable we're manufacturing variances. to starting to Over to basically, lot And variances integrate that get a were last manufacturing going year of plant. into XXXX, more that year, behind We're going

to starting for absorption need first while. the positive variances fixed seeing we're overhead So the of we that And out costs. get a those we're in time

one strong course, volumes. that's we've And, So got thing. of

more Our our our to of of business, been absorb underlying costs. sensor helping volumes and very those us strong, have volumes, that's

one that's thing. So

and lower sensors, opportunity the in there much very got that that take RD mentioned to it's much of still still quality innings as with drive the early a converting On we've We've renewing conversions. higher new But going before new next through lot years costs, sensor customers of work to line. also it's early a contracts we RD definitely and innings, several this (XX:XX). but to we're

Rick Wise

Thank you so much.

Joe E. Kiani

Thanks, Rick.

Operator

of Your Keusch next from question Larry from James. Raymond comes line the

open. is line Your

Lawrence Keusch

kind you've us over been several Joe, around to enough everyone. afternoon, past thoughts your the update on Good M&A quarters.

you as So any or of again, yet, had about share thinking if new just thoughts cash deployment of to into sort anything M&A? there wondering

Joe E. Kiani

acquiring something had. we at we the fit kind may you, quite tightly Thank be were summer Well, that it think short parameters term thought I while would And very last we been dilutive, they long-term Sure. to Larry. of looking accretive. have

Since of we then, I to changed that XXth hour we were not like and looking had assumptions doing what parameters for. haven't anything the we Some on explained acquisition it. the ended found up

we are there's nothing what looking and really unfortunately at M&As, some we while that out there for. fits looking small tuck-ins were So

see M&A in we'll horizon. looking, for So future significant don't our foreseeable continue I but the a

Lawrence Keusch

Okay, terrific. That's helpful.

So mounting notable certainly on with we at do the it's How the capital allocation priorities sheet, think balance cash about levels. now?

Joe E. Kiani

liked seem bad doesn't Apple buyback announcement idea. like the I today. Well, a Stock

to at So, look we're that. going

today, I more with we in noticed did buy get think might you aggressive but future. that shares more the we some

Lawrence Keusch

Okay, perfect. And then, one just one. last

just think So, terms any help benefit the noticed of in flu the quarter, way rainbow numbers SpHb. to then us the revenues breakout you about themselves, didn't or and in I

So be could you if provide great. any thoughts around would that, that

Joe E. Kiani

another rainbow Yes, We SpHb of course. had really and quarter specifically. strong with

though you, everything I it think even it decided break a over quarter. grew to nice we've down not for so but nice, was XXX%,

worst, the sensor pulse As one season oximetry as perspective. was It's of the probably from from probably revenue a season, the a flu flu one far of best perspective. health the

And but above The we in mid-term good short-term, certainly additional the by outlook, on only for and our so, we numbers. very even is, that increased outlook, our revenues solid as of the slightly news seeing guidance, saw based some indicated positive it continue that QX, in helps long-term. we year, guidance a our because not raised we do

Lawrence Keusch

quantify but perfect, revenues the Okay the way any flu to just quarter? for

Joe E. Kiani

growth they quarterly season, in we continue about to because were our think our of to numbers. a the flu – they sorry, total the tip on really have it's especially generally – hand, but I business. strong very strong that because tell don't I I'm have what can I that add don't my is you percent I number – significant that No of mean

falling think our growth, if might to was and larger. look I the business flat oximetry impact more business more

Lawrence Keusch

the it. Thanks Got very for time. Perfect. much

Joe E. Kiani

looked Thank you It window. you and your have much. so like looks outside not Rick

Boston. the York nice weather New really in In fact, and is

analysts questions you of the today; only I playing. So are rest out guys think two are our the

So all thank you joining us. for

So, our to forward report. quarter next we look

Operator

Ladies and Thank gentlemen, conference. day. this your and you participation a wonderful concludes have today's for

You may all disconnect.

Joe E. Kiani

Bye-bye. you. Thank

Masimo (MASI) 2 May 182018 Q1 Earnings call transcript