Masimo (NSDQ:MASI) said yesterday that it and founder & CEO Joe Kiani agreed to retool his employment contract, potentially saving the patient monitoring company as much as $100 million, as it posts 3rd-quarter results that beat expectations and raises its outlook for the rest of the year.
“At the time that Mr. Kiani’s original employment agreement was entered into 20 years ago, Masimo’s board of directors had concluded that Mr. Kiani, as Masimo’s founding chairman & chief executive officer, possessed a unique set of skills, including both keen technical industry knowledge and market sense, and believed that is was critical to enter into an employment agreement that sufficiently incentivized him to remain with Masimo rather than consider other compelling opportunities available to him. Mr. Kiani’s employment agreement has been amended from time to time over the past 20 years, with each amendment reflecting the same considerations and conclusions of the board,” Masimo said in a regulatory filing. “In negotiating the restated employment agreement, the compensation committee of the board and Mr. Kiani sought to eliminate certain provisions of the original employment agreement, based, in part, on feedback from shareholders. The compensation committee and Mr. Kiani also sought to decrease the cost of the agreement to Masimo and its shareholders, while still honoring Mr. Kiani’s unique role as Masimo’s founding CEO and chairman of the board, his stature and tenure in the industry, and his key, ongoing contributions to the success of Masimo.”
The new contract eliminates “gross-up” payments Masimo would have owed Kiani to reimburse him for excise taxes incurred if Masimo is acquired, and does away with gross-ups that would cover business travel expenses (a perk Kiani has waived since 2012, Masimo said). The new deal also gets rid of single-trigger payments to Kiani in the event of an acquisition and gradually phases out Kiani’s annual, 300,000-share equity grant by the end of 2017.
Masimo said the changes could save “close to $100 million in many circumstances in which severance payments may be triggered.”
Third-quarter sales, earnings beat forecast, 2015 outlook raised
Masimo reported profits of $19.3 million,or 36¢ per share, on sales of $152.6 million for the 3 months ended Oct. 3, for bottom-line growth of 30.0% on sales growth of 5.9% compared with Q3 2014. Adjusted to exclude 1-time items, earnings per share were 40¢, a full 9¢ ahead of the consensus estimate on Wall Street, where analysts were looking for sales of $149.3 million.
“Our 3rd-quarter results reflect the continued demand for our Set pulse oximetry technology and our emerging Rainbow Set pulse CO-oximetry technology. We are happy to be able to report record quarterly driver shipments and Rainbow revenues, and another quarter of strong year-over-year earnings growth. Our underlying technology strength, along with our continued focus on value engineering and expense management, continue to make us confident about the financial leverage in our business model,” Kiani said in prepared remarks.
Masimo also raised its outlook for the rest of the year, saying it now expects to post adjusted EPS of roughly $1.67, up from prior guidance of $1.61, on sales of about $627 million, up from $621 million previously.