Morningstar | Masimo's Third-Quarter Results Track Our Expectations
Masimo reported another in a string of strong quarters, with revenue and gross profit figures that were in line with our forecasts while providing a modest bump to full-year guidance. We plan on updating our model and may inch up our fair value estimate by a low-single-digit percentage to account for the time value of money. We don't anticipate making any sizable changes to our forecast for the year.For the second quarter in a row now, driver placements and revenue growth through the firm's OEM channel have been the standout metrics. Driver placements in the quarter were up 15.7% versus last year and beat our estimate by nearly 4,000 units. Additionally, OEM revenue expanded 27.5% after being up 31.7% last quarter, following a multiyear period of lackluster performance. We contend that much of this share gain is at least in part attributable to the ongoing product integration and comarketing campaign with Philips and expect the firm to continue to see success through the OEM channel over the coming years.
We think the firm is on track to meet management's longer-term targets of gross margin near 70% and operating margin of roughly 30%. Product gross margin expanded roughly 350 basis-points year over year after considering the effects of ASC 606, to 65.5% on a GAAP basis. On the operating line, the company showed just under 100 basis points of expansion due to stepped up investment in research and development initiatives, along with lower royalty revenue. Notably, as of Oct. 6 the company is no longer receiving royalties from Medtronic, which will create a modest headwind to sales and earnings growth over the next 12 months.
Lastly, as has been the case all year Masimo's balance sheet continues to grow, reporting $493 million in net cash as of the end of the quarter, up from $430 million in June. Management seemed to emphasize its acquisition philosophy for the first time since 2017, potentially due to the recent marketwide improvement in valuations.
Masimo is a medical technology company that develops, manufactures, and markets a variety of noninvasive monitoring technologies. The company provides its products to hospitals, emergency medical service providers, long-term care facilities, physician offices, veterinarians and consumers. The company's main business is Measure-through Motion and Low Perfusion? pulse oximetry monitoring, known as Masimo Signal Extraction Technology? pulse oximetry. The company's products offerings also includes noninvasive monitoring of blood constituents with an optical signature, optical organ oximetry monitoring, electrical brain function monitoring, acoustic respiration monitoring and exhaled gas monitoring.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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