Masimo Corporation announced select preliminary results for the full year December 29, 2018 and provided estimates for its full year 2019 financial guidance.
Preliminary fourth quarter 2018 results:
Masimo expects that its product revenue for the full year 2018 will range from USD 827 million to USD 830 million, which reflects growth of 12.0 percent to 12.4 percent and constant currency growth of 11.5 percent to 11.9 percent. The Company expects its royalty and other revenue for the year will be approximately USD 28 million. As a result, Masimo now expects its full year 2018 total revenue, including royalty and other revenue, to range from USD 855 million to USD 858 million. Additionally, the Company expects that full year 2018 non-GAAP earnings per share will exceed previously issued financial guidance of USD 2.92, with guidance alone reflecting 27 percent growth compared to the full year 2017. The preliminary financial information presented in this press release is based on Masimo’s current expectations and may be adjusted as a result of, among other things, completion of customary annual audit procedures. Management plans to discuss Masimo’s complete fourth quarter and full year 2018 financial results after the market closes on Tuesday, February 26, 2019.
2019 financial guidance:
The Company provided the following estimates for its full year 2019 financial guidance:
- Product revenue increasing to USD 910 million, which reflects reported growth of 9.6 percent to 10.0 percent and constant currency growth of 10.5 percent to 10.9 percent;
- GAAP diluted earnings per share increasing to USD 3.17;
- Non-GAAP diluted earnings per share increasing to USD 3.05; and
- Included in our full year 2019 revenue guidance is approximately USD 7.0 million of year-over-year currency headwinds.
Supplementary non-GAAP financial information
For additional non-GAAP financial details, please visit the Investor Relations section of the Company’s website 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 percent, (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 percent, 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 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 gains and losses 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
From time to time, we record tax benefits relating to the derecognition of uncertain tax positions due to the expiration of the statutes of limitations. During the three months ended September 29, 2018, we recorded a significant tax benefit due to the expiration of the applicable statutes of limitations related to certain non-recurring transactions. We believe that exclusion of the tax benefit resulting from the expiration of certain statutes of limitations related to non-recurring transactions 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 item is unrelated to our core business and non-recurring in nature.
J.P. Morgan Healthcare Conference on Wednesday, January 9, 2019
Masimo will participate in the J.P. Morgan Healthcare Conference on Wednesday, January 9, 2019 at the Westin St. Francis Hotel in San Francisco, California. Micah Young, Executive Vice President and Chief Financial Officer, will represent the Company in a presentation scheduled for 7:30 a.m. Pacific Time.
A live webcast and replay of the Company’s presentation will be available online from the investor relations page of the company’s corporate website.
Fourth Quarter and Full Year 2018 Financial Results Conference Call on Tuesday, February 26, 2019
The conference call to review Masimo’s complete financial results for the fourth quarter ended December 29, 2018 will begin at 1:30 p.m. PT (4:30 p.m. ET) on February 26, 2019 and will be hosted by Joe Kiani, Chairman and Chief Executive Officer, and Micah Young, Executive Vice President and Chief Financial Officer. A live webcast of the conference call will be available online from the investor relations page of the company’s corporate website. 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 6889465. After the live webcast, the call will be available on Masimo’s website through March 26, 2019. In addition, a telephonic replay of the call will be available through March 5, 2019. The replay dial-in numbers are (855) 859-2056 for domestic callers and +1 (404) 537-3406 for international callers. Please use reservation code 6889465. – Medical Buyer Bureau