Masimo Corporation ( MASI - Analyst Report ) , a leader in non-invasive monitoring technology for patient care, reported first quarter fiscal 2012 earnings per share of 27 cents, in line with the Zacks Consensus Estimate. Reported profit dipped 12.2% year over year to $15.8 million.

Revenues

Sales for the quarter rose 6% year over year to $119.2 million, surpassing the Zacks Consensus Estimate of $118 million.

Product revenues were up 11% to $112.2 million in the reported quarter. Masimo’s global end-user business (85% of product revenue) increased 12% year over year, but revenues from Original Equipment Manufacturer (“OEM”) (15% of product revenue) were flat. Sales of Rainbow products increased 14% year over year to $8.5 million.

During the quarter, Masimo shipped about 33,300 Masimo SET pulse oximetry and Masimo Rainbow SET pulse co-oximetry units, excluding hand-held sets. Sales declined 22.7% year over year. The company’s worldwide installed base grew 13% year over year to about 1,005,000 units at the end of the first quarter.

Margins

Gross margin fell to 66.5% from 68% in the year-ago quarter due to higher cost of sales and lower royalty revenues. Operating margin declined to 18.7% from 22.5% a year ago.

Balance Sheet

The company exited the quarter with cash and cash equivalents of $128.8 million, up 22% year over year. Masimo completed its buyback of 3 million shares in the reported quarter.

Our Take

Masimo is a market leader in the pulse oximetry monitoring equipment industry. The company’s prospects are encouraging, given the sizeable global market opportunity, adoption of pulse oximetry in non-critical areas of the hospital and growing barriers to entry due to additional non-invasive parameters.

Shipments have been growing at a steady rate fueled by new contracts. However, the renewal of the royalty agreement with Covidien ( COV - Analyst Report ) provides little or no benefit due to lower rates. Further, competition is intense and Masimo partly depends upon its OEM partners for sales as well as royalty.

On June 2011, Masimo announced a non-exclusive, long-term agreement with Philips ( PHG - Analyst Report ) , under which Philips will utilize Masimo’s Rainbow SET know-how. Philips products are expected to integrate Masimo’s Rainbow SET technology.