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Masimo Corporation's Mighty Momentum Continues in 3rd Quarter

Things looked so great for Masimo Corporation (NASDAQ: MASI) when it reported results from the second quarter in August that the company upped its full-year guidance. Revenue and earnings soared, and the maker of non-invasive monitoring technologies didn't think the momentum would slow down in the second half of 2017.

Masimo announced its third-quarter results after the market closed on Tuesday. Its optimism from three months ago proved to be spot on. Here are the highlights from Masimo's strong performance.

Image source: Getty Images.

Masimo results: The raw numbers

Metric 

Q3 2017 

Q3 2016 

Year-Over-Year Change

Sales

 $193.7 million  $167.6 million

15.5%

Net income from continuing operations

 $39.2 million $27.8 million

41.3%

Diluted earnings per share (EPS)

 $0.70  $0.52

34.6%

Data Source: Masimo. 

What happened with Masimo this quarter?

Nearly everything looked sunny for Masimo in the third quarter. The company makes most of its money from product sales of its oximetry devices, which jumped 13.1% year over year to $181.3 million. Direct product sales, by far the biggest component of these sales, increased by $21.7 million over the prior-year period. The one negative for Masimo came from its original equipment manufacturer (OEM) sales, which fell 3% year over year to $22.2 million.

Revenue was driven higher in the third quarter thanks to sustained high demand for Masimo's SET pulse oximeters. The company reported that it shipped around 51,100 SET pulse oximeters and rainbow SET Pulse CO-Oximeters, not counting handheld and finger oximeters. Masimo estimates that its global install base of oximetry devices totaled 1,566,000 units at the end of the third quarter, a 5.7% increase over the same period in 2016.

Masimo's bottom line improved even better than its top line for three key reasons. First, cost of goods sold rose at a lower rate than sales. This improved the company's gross margin. Second, Masimo kept its operational spending under control. Third, the company enjoyed a higher tax benefit than it did in the prior-year period. 

As of Sept. 30, Masimo's cash position, including cash and cash investments, totaled $289.9 million. That's below its cash position of $306 million at the end of 2016. However, there's a good reason: Masimo has been buying back its stock, including spending $45.3 million in the third quarter for repurchasing shares.

What management had to say

Masimo chairman and CEO Joe Kiani said:

We are happy to again report results that were above our projections, including a record high for shipments of our SET Pulse Oximeters which reached 51,100. Our third quarter results reflect the success we are achieving with an expanding customer base as clinicians and patients globally appreciate the improved outcomes realized with our technologies. We are raising our guidance once more for fiscal 2017, with a positive outlook for the remainder of the year and the long-term, as we prepare to implement our new long-term plan in 2018.

Looking forward

As Joe Kiani stated, Masimo boosted its full-year 2017 guidance yet again. The company projects fiscal 2017 revenue of $774 million, compared to its previous estimate of $769 million. Masimo also increased its full-year 2017 earnings guidance to $2.95 per diluted share from $2.80 per diluted share.

The company has launched two new products recently. Masimo rolled out RAD-97 pulse CO-Oximeter in September after receiving 510(k) clearance from the U.S. Food and Drug Administration. A few days later, the company launched its RAS-45 rainbow acoustic monitoring sensor. In early October, Masimo unveiled its Trace data visualization and reporting software. 

These product launches, combined with strong demand for its core, products bode well for Masimo's prospects. While there could be bumps in the road at some point, the latest upward guidance revisions give reason for investors' confidence that Masimo should have a bright future ahead.

 

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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.