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Masimo Sees Sunny Year Ahead After Partly Cloudy 2011

03/12/2012 -- Irvine-based medical-device maker Masimo Corp. is working toward what its chief executive calls a "brighter 2012" in the wake of recent challenges.

"Although 2011 was a tough year that we're glad to put behind us, we know that we've laid important groundwork over the past 12 months that gives us confidence," Chief Executive Joe Kiani said during a conference last week to discuss fourth-quarter financial results.

Masimo makes a range of patient monitoring products used in hospitals and other settings. Those include a pulse oximeter, which is attached to a finger or toe and reads the level of oxygen in a patient's blood.

The company said it expects a full-year profit of $72.2 million for 2012, compared with analyst expectations of $71.6 million.

Masimo said it expects 2012 revenue of $483 million; Wall Street has forecast $480.9 million.

"While we have put many initiatives in place to achieve top-line and bottom-line growth in the high teens or better, we have to remain conservative with our financial outlook until we have proven to ourselves and to you that we can grow at those levels," Kiani told analysts.

Masimo's setbacks last year included declines in U.S. hospital admission rates, an "unexpected decrease" in sales to one of the company's longtime original equipment manufacturing partners, as well as the Food and Drug Administration's delay in clearing Pronto-7, a handheld patient monitor, Kiani said.

Masimo expects growth from the recent FDA clearance and full U.S. release of Pronto7, the chief executive said. "Sales efforts are in full swing," he added.

The device maker is likely to increase the sales of sensors used in its core SET pulse oximetry business to its existing hospital customers, while attracting new ones, Kiani said. The company shipped more than 300,000 system drivers over the past two years and will ship another 150,000 this year.

Masimo also sees potential internationally.

Masimo posted a profit of $63.7 million for 2011, down 13% from 2010 but in line with analyst expectations.

Annual revenue grew 8% to $439 million, modestly exceeding consensus expectations.

Masimo saw $13.8 million in net income after one-time charges in the fourth quarter. That represented a 1 4% decline from a year earlier in line with expectations.

Fourth-quarter revenue rose 6% to $1 12.3 million, buoyed by a 16% hike in its Rainbow line of blood-measurement monitors.

Lower Royalties

Royalty revenue declined 35% in the quarter to $7.6 million, reflecting changes in Masimo's agreement with longtime rival Covithen Ltd. Masimo now gets a 7.75% royalty on U.S. sales of pulse oximeters from Covithen instead of a previous 13%.

Kiani said Masimo's fourth-quarter performance was driven by double-digit revenue growth in its acute-care and international businesses. Having more patient monitoring systems installed led to the sale of more disposable sensors, he added.

Analysts appear cautiously upbeat about the company's prospects this year.

"For 2012, we believe trends are beginning to improve modestly for hospitals and [usage] should not be a negative factor going forward," said Matt Dolan, an analyst who covers Masimo for Newport Beachbased Roth Capital Partners LLC.

Dolan added that Masimo will see difficult comparisons with prior quarters this year following big sales to Phoenix-based Banner Health and Oakland-based Kaiser Permanente last year.

Analyst Sara Micheimore of New York investment bank Brean Murray, Carret & Co. said she expects Masimo to benefit this year from recent cost-cutting and product introductions.

Kiani: "we've laid important groundwork" in 2011

(c) 2012 CBJ, L. P.