Masimo Corporation · NASDAQ:MASI
Masimo — 37th Annual J.P. Morgan Healthcare Conference (January 2019)
36 slides from Masimo's conference presentation, Jan 9, 2019
Slide 1: 37th Annual J.P. Morgan Healthcare Conference
37th Annual J.P. Morgan Healthcare Conference January 9, 2019
Slide 2: Forward Looking Statements
Forward Looking Statements All statements other than statements of historical facts contained herein that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our
Slide 3: Agenda
Agenda The Masimo Story Automating Care Opioid Safety Driving Shareholder Value
Slide 4: Masimo Today
Masimo Today Product revenue of $910 million for 2019 1 > 100 million patients impacted each year 2 > 140 countries Innovator in noninvasive patient monitoring Leader in pulse oximetry 3 1 Masimo 2019 financial guidance as of January 9, 2019 2 Estimate: Masimo data on file 3 http://health.usnews.com
Slide 5: Long Term Plan
Long Term Plan Improve patient outcomes Reduce the cost of care Long-term financial targets Revenue growth of 8%-10% Gross margins of 70% Operating expenses of 40% Operating margins of 30%
Slide 6: Solving the Unsolvable with SET
Solving the Unsolvable with SET® October 25, 2018 – Masimo announces FDA Clearance for Masimo RD Sensors with Improved SpO2 Accuracy (3% to 1.5% with motion)
Slide 7: Broad Portfolio of Innovative Technologies
Broad Portfolio of Innovative Technologies * Some products are not yet cleared in the U.S.
Slide 8: Evolution of Masimo
Evolution of Masimo Broad Technology Integrated Systems Products Portfolio and Solutions Automating Care Through Integrated Systems and Solutions
Slide 9: Automating Care
Automating Care
Slide 10: Challenges in Healthcare
Challenges in Healthcare Heavy cognitive and physical workload Increasing documentation demands detract from attention to patients Manual assessments and procedures Lack of effective care coordination systems Disparate and disconnected Care delivery can be inefficient and data sources inef
Slide 11: Integrated Systems and Solutions
Integrated Systems and Solutions Root Patient SafetyNet and Electronic Medical Record Connectivity Platform Iris Gateway™ (EMR) Data Management and Alarm Scoring Notification Third Party Devices IRIS Ports Newer Technologies MOC-9 Ports Patient SafetyNet Uniview Central View Station Patient Associat
Slide 12: Hospital Automation
Hospital Automation Elements of Hospital Automation Interoperability (broad connectivity capabilities) Automatic execution of the elements below: Element Relevant Product(s) Capture Root & Patient SafetyNet Aggregate MOC-9 & Iris Ports; Vital Signs Capture Software Translate Iris Gateway server
Slide 13: Opioid Safety
Opioid Safety
Slide 14: Opioid Crisis
Opioid Crisis ~72,000 U.S. residents died from a drug overdose in 20171 ~49,000 of those deaths involved opioids such as heroin, morphine and fentanyl Opioids induce respiratory depression Opioids kill people by slowing the rate of breathing and the depth of breathing 1 National Center for Hea
Slide 15: Rad-97 for Post-Discharge Opioid Safety
Rad-97 for Post-Discharge Opioid Safety May 2018: Utah State Legislature Concurrent Resolution on Deaths From Opioid-Induced Postoperative Respiratory Depression (“Parker’s Bill”) Utah Resolution key points: Links between opioids and respiratory depression after surgery Encourages doctors to pre
Slide 16: FDA Opioid Crisis Challenge
FDA Opioid Crisis Challenge Masimo is 1 of 8 companies selected by the FDA from a group of 250 applicants FDA review divisions and management will work closely with the companies selected 90 day collaboration phase with 2 key objectives: 1. Create mutual understanding of the product profile in
Slide 17: Driving Shareholder Value
Driving Shareholder Value Grow Revenues at Multiples of the Market Margin Expansion Tax Rate Improvement EPS Growth Cash Flow
Slide 18: Revenue Growth Opportunities
Revenue Growth Opportunities SET growth continues Large share of pulse oximetry market still available General Floor expansion Rainbow expansion opportunities – including partnership with large OEM Expanding Markets Nomoline™ capnography SedLine™ brain function monitoring O3® regiona
Slide 19: Product Revenue
Product Revenue1 Driver Shipments Product Revenue In Thousands $ in Millions ~12% ~11% ~232 $910 CAGR CAGR $827 - $830 203 $738 186 $674 2 2 2 2018 Driver shipments up ~14% over prior year 2018 Product revenues up between 11.5% to 11.9% on a constant currency basis3 SET growing at multiples of
Slide 20: Non-GAAP Gross Margin %
Non-GAAP Gross Margin %1 Total Gross Margin % Product Gross Margin % (Including Royalty & NRE) (Excluding Royalty & NRE) 67.2% 130 bps 66.8% 66.8% 66.8% improvement 1.7% 66.1% 1.0% 65.8% 65.5% 1.9% 66.8% 65.5% 65.8% 64.2% 64.2% 2 3 2 3 Royalty & NRE RD sensor line conversion Asset efficiencies
Slide 21: Non-GAAP Operating Expense %
Non-GAAP Operating Expense %1 % of Total Revenue % of Product Revenue (Including Royalty & NRE) (Excluding Royalty & NRE) 46.2% 45.7% 340 bps improvement 2.5% 3.0% 43.8% 1.4% 42.8% 43.7% 42.7% 42.4% 42.8% 2 3 2 3 Royalty & NRE Maintaining R&D investment between 8–9% of revenue Growing SG&A at a
Slide 22: Non-GAAP Operating Margin %
Non-GAAP Operating Margin %1 Total Operating Margin % Product Operating Margin % (Including Royalty & NRE) (Excluding Royalty & NRE) 24.4% 24.0% 24.0% 23.5% 23.5% 460 bps 2.4% improvement 22.0% 4.1% 4.9% 24.0% 19.4% 22.0% 18.6% 19.4% 18.6% 2 3 2 3 Royalty & NRE Gross margin improvement Infrastru
Slide 23: Non-GAAP Earnings Per Diluted Share (EPS)
Non-GAAP Earnings Per Diluted Share (EPS)1 Earnings Per Diluted Share Earnings Per Diluted Share (Including Royalty & NRE) (Excluding Royalty & NRE) $2.92 $3.05 22% $3.05 CAGR $0.36 $2.56 $2.30 $2.13 $3.05 $0.57 $2.56 $0.45 $1.73 $1.68 $1.68 $1.73 2 3 2 3 Royalty & NRE Growing EPS through the roya
Slide 24: September YTD Adjusted Free Cash Flow
September YTD Adjusted Free Cash Flow1,2 $ in Millions % of Total Revenue ~$164 ~26% ~$40 ~7% ► September 2018 YTD Adjusted Free Cash Flow yield of ~26% of revenue ► Revenue growth and profitability improvements ► Working capital improvements ► Strong cash collections and inventory management ► DSO
Slide 25: Driving Shareholder Value
Driving Shareholder Value Grow Revenues at Targeting Long-Term Multiples of the Market Revenue Growth of 8-10% Targeting Long-Term Margin Expansion Operating Margins of 30% Leveraging Operational Tax Rate Improvement Structure to Improve Tax Rate Over Time Targeting Long-Term EPS Growth Double-Digit
Slide 26: Thank You!
THANK YOU!
Slide 27: Appendix: Reconciliations
APPENDIX RECONCILIATIONS: ► Adjustments related to the Adoption of ASC 606 ► GAAP to Non-GAAP Financial Measures
Slide 28: Description of Non-GAAP Adjustments
Description of Non-GAAP Adjustments 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.
Slide 29: Description of Non-GAAP Adjustments (cont.)
Description of Non-GAAP Adjustments (cont.) 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
Slide 30: Revenue
REVENUE1 RECONCILIATION OF GAAP PRODUCT REVENUE AS ADJUSTED FOR ASC 606: (in thousands) 2016 2017 GAAP Product revenue, as previously reported $ 663,846 $ 741,324 ASC 606 adjustments 10,116 (3,082) GAAP Product revenue, as adjusted $ 673,962 $ 738,242 RECONCILIATION OF GAAP TOTAL REVENUE AS ADJUSTED
Slide 31: Revenue (continued)
REVENUE1 (continued) RECONCILIATION OF GAAP PRODUCT REVENUE GROWTH TO NON-GAAP PRODUCT REVENUE GROWTH: (in thousands, except percentages) 2017 2018 Low E2 2018 High E2 GAAP Product revenue, as previously reported $ 741,324 N/A N/A ASC 606 adjustments (3,082) GAAP Product revenue, as adjusted $ 738,2
Slide 32: Gross Margin %
GROSS MARGIN %1 RECONCILIATION OF GAAP GROSS MARGIN % TO NON-GAAP GROSS MARGIN %: (in thousands, except percentages) 2016 2017 2018 E 2 2019 E 3 GAAP Product revenue, as adjusted $ 673,962 $ 738,242 $ 826,000 $ 910,000 GAAP Total revenue, as adjusted $ 712,898 $ 790,248 $ 854,000 $ 910,000 Product g
Slide 33: Operating Expense %
OPERATING EXPENSE %1 RECONCILIATION OF GAAP OPERATING EXPENSE % TO NON-GAAP OPERATING EXPENSE %: 2 3 (in thousands, except percentages) 2016 2017 2018 E 2019 E GAAP Product revenue, as adjusted $ 673,962 $ 738,242 $ 826,000 $ 910,000 GAAP Total revenue, as adjusted $ 712,898 $ 790,248 $ 854,000 $ 91
Slide 34: Operating Margin %
OPERATING MARGIN %1 RECONCILIATION OF GAAP OPERATING MARGIN % TO NON-GAAP OPERATING MARGIN %: 2 (in thousands, except percentages) 2016 2017 2018 E 2019 E 3 GAAP Product revenue, as adjusted $ 673,962 $ 738,242 $ 826,000 $ 910,000 GAAP Total revenue, as adjusted $ 712,898 $ 790,248 $ 854,000 $ 910,0
Slide 35: Net Income and Diluted EPS
NET INCOME AND DILUTED EPS1 RECONCILIATION OF GAAP NET INCOME AND DILUTED EPS TO NON-GAAP NET INCOME AND DILUTED EPS: (in thousands, except per share amounts) 2016 2017 2018 E 2 2019 E 3 Product net income 280,905 96,224 168,900 182,500 Royalty and other revenue net income 19,761 35,392 20,400 - GAA
Slide 36: Adjusted Free Cash Flow
ADJUSTED FREE CASH FLOW 1 RECONCILIATION OF FREE CASH FLOW TO ADJUSTED FREE CASH FLOW: 2 2 (in thousands, except percentages) 2017 YTD 2018 YTD September YTD Total Revenue, as last reported $ 582,309 $ 635,157 Net cash provided by operating activities 7,381 176,305 Purchases of property and equipmen
Masimo — 37th Annual J.P. Morgan Healthcare Conference (January 2019) on 6ix