Ladies and gentlemen, good afternoon, and welcome to Masimo's Third Quarter 2024 Earnings Conference Call. The company's press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. And I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations.

Hello, everyone. Joining me today are Interim CEO, Michelle Brennan; COO, Bilal Muhsin; and Executive Vice President and Chief Financial Officer, Micah Young. This call will contain forward-looking statements, which reflect management's current judgment, including certain of our expectations regarding fiscal year 2024 and 2025 financial performance. However, they are subject to risks and uncertainties that could cause actual results to differ materially. Risk factors that could cause our actual results to differ materially from our projections and forecasts are discussed in detail in our periodic filings with the SEC. You will find these in the Investor Relations section of our website. This call will also include a discussion of the potential separation of our consumer business and a preliminary estimate of the financial impact of a potential separation. However, the estimate is being provided solely for illustrative and informational purposes. The company is currently evaluating the structure of any potential separation of its consumer business, and the method, structure, timing, and terms of any such potential separation are still under consideration and have not been determined, approved, or finalized. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. Management uses non-GAAP measures to budget, evaluate, and measure the company's performance and sees these results as an indicator of the company's ongoing business performance. The company believes that these non-GAAP financial measures increase transparency and better reflect the underlying financial performance of the business. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within the earnings release and supplementary financial information on our website. Investors should consider all of our statements today together with our reports filed with the SEC, including our most recent Form 10-K and Form 10-Q, in order to make informed investment decisions. In addition to the earnings release issued today, we have posted a quarterly earnings presentation within the Investor Relations section of our website to supplement the content we will be covering this afternoon. I'll now pass the call to Michelle Brennan.

Thanks, Eli, and hello, everyone, and thank you for joining us today. I'm pleased to be with you for my first earnings call as Interim CEO of Masimo. I strongly believe in the company's long-term growth potential and the Board and management team are focused on executing our plan to achieve continued growth by capitalizing on the many opportunities we see ahead for this business. At the onset, I want to stress how impressed I have been by the team at Masimo. Over the past month, I have had many interactions with employees who are energized by our path forward, by our purpose of saving patients' lives, and by our innovation-focused culture. Notably, we have not seen any critical talent departure since the Annual Meeting, and in fact, have seen attrition rates decline. With such a strong team, there is no limit to what we can accomplish today and in the future. We have a lot to cover today, so let's jump right in. I'm going to touch on a number of governance, strategic, and corporate updates. Then Micah will dive into the financials and cover some near-term plans and areas of priority, specifically around our margin improvement initiatives. We will then turn to Q&A and Bilal will join us to answer your questions. With all the significant items currently being considered by the Board, we ask that you limit your questions during this quarterly earnings call to those focused on business and financial performance during the quarter. First, let me provide an update on the strategic review of the consumer business. As we previously announced, the Board has engaged Centerview Partners and Morgan Stanley as our financial advisors and Sullivan & Cromwell as a legal advisor to evaluate strategic alternatives for our consumer business. We will provide updates to the market when appropriate, but we want to assure you that this process is fully underway and we are focused on delivering the best outcomes for our shareholders. Next, our review of the product portfolio and R&D projects is ongoing. But the headline is that we have excellent opportunities for growth and are laser-focused on ensuring we allocate resources to those areas that will drive the greatest return. At a high level, we will be focusing on fewer projects and therefore concentrating on those big market opportunities addressing clear unmet needs. As part of this effort of refocusing the organization, we have also found areas to reduce spending that are not contributing to our long-term growth objectives. However, let me be clear, as we refocus Masimo to capitalize on the long-term growth opportunities in front of us, improved margins will be the output of our efforts, not the input. We are not going to make short-term cuts at the expense of long-term growth. Finally, regarding leadership. In terms of the Board, as you recently saw, we have expanded to eight Directors and added Tim Scannell and Wendy Lane. Tim's background leading highly successful commercial organizations in Medtech and Wendy's vast experience overseeing corporate governance and changes and serving in Board leadership roles will both be highly additive as we refocus the organization. Tim and Wendy have hit the ground running and we are excited about what they bring to the boardroom. Let me also provide a brief update on the CEO succession process. As you know, Joe Kiani was not re-elected to the Board at the Annual meeting and is no longer CEO. Given the various related matters described in our 8-Ks and 10-Q, including litigation, we are not going to comment further on this matter. I've been very clear that my intention is to guide the company through this initial transition period until a permanent CEO is found and then continue to focus on contributing as a member of the Board for the long term. I'm not going to commit to the exact timing of the search process, but I can say that getting a permanent CEO in place is a top priority for the Board. We have Korn Ferry assisting us and the Board is already meeting with excellent candidates. We will do everything we can on our end to keep our foot on the gas during this process while ensuring that the candidate we ultimately select is the absolute best choice for the organization. And now, I'll turn the floor over to Micah to dive into the financials for the quarter.

Thank you, Michelle, and good afternoon, everyone. For the third quarter, our healthcare revenues were $343 million, which is near the top-end of our guidance range and represented 12% growth versus last year. We saw strong growth in our consumable and service revenues, partially offset by a decline in capital equipment and other related products. Driver shipments for the third quarter were approximately 61,000 and were in line with our expectations. Non-healthcare revenues were $161 million, which was near the low end of our guidance range and represented a 6% decline versus the prior year. This business continues to be affected by the weakening environment for luxury consumer purchases as well as slowness in the housing market, which affects product installations and upgrades. Now moving down the P&L. For the third quarter, our consolidated non-GAAP gross margin was 54%, which included gross margins of 62.9% for healthcare and 34.6% for non-healthcare. Healthcare gross margin improved 260 basis points year-over-year and rose 40 basis points sequentially as we continue to benefit from the relocation of our sensor manufacturing to Malaysia in combination with increased operational efficiencies and a favorable impact related to a higher proportion of our sales coming from consumables. For our consolidated business, non-GAAP operating profit was $81 million, representing 23% growth versus last year. Our operating margin of 16% improved 230 basis points year-over-year and rose 130 basis points sequentially from the second quarter. This represents a very strong result considering that we overcame 480 basis points of year-over-year expense headwinds due to the return of performance-based compensation to normal levels in 2024. We continue to make meaningful progress on our margin improvement initiatives, which I will discuss in more detail in a moment. Even with the return of performance-based compensation, we delivered 31% EPS growth to reach non-GAAP earnings per share of $0.98 for the third quarter, which was primarily driven by strong performance from our healthcare business and effective expense management across the organization. Now I'd like to provide an update on our 2024 financial guidance. For the fourth quarter of 2024, we are projecting consolidated revenue of $581 million to $611 million and non-GAAP earnings per share of $1.35 to $1.50. For the healthcare segment, we are projecting revenue of $363 million to $373 million, representing 7% to 10% revenue growth. For driver shipments, we expect to ship 60,000 to 65,000 drivers in the fourth quarter. For the non-healthcare segment, we are projecting revenues of $218 million to $238 million. Now turning to our full-year 2024 financial guidance. We are now projecting a consolidated revenue range of $2,075 million to $2,105 million. For our healthcare segment, we are projecting revenues of $1,390 million to $1,400 million, representing 9% to 10% revenue growth for the year, in line with our prior guidance midpoint. For the non-healthcare segment, we are projecting revenues of $685 million to $705 million, which represents a decrease of $20 million at the midpoint versus the prior guidance range. For the full year, we are projecting consolidated non-GAAP gross margin of 53%, which includes healthcare gross margins of 62.7% and non-healthcare gross margins of 33.7%. Further, we are projecting a consolidated non-GAAP operating margin range of 15.7% to 16%, which represents an increase of 50 basis points at the midpoint versus the prior guidance range. Finally, we are projecting a consolidated non-GAAP EPS range of $3.95 to $4.10, which represents an increase of $0.13 at the midpoint versus the prior guidance range due to strong performance from our healthcare business and effective expense management across the organization, partially offset by the reduction in non-healthcare revenue. Now I'd like to expand on some of the important initiatives that Michelle had mentioned earlier, which we fully expect will strengthen Masimo's revenue growth and earnings power in 2025 and beyond. We are enthusiastic about the opportunities we see to enhance revenue growth while continuing to expand margins. The management team, in partnership with the new business review committee of the Board, is in the process of focusing our R&D resources on those projects that will enhance our long-term growth profile. And we are excited about the work we have done to date. While our foremost focus is on innovation-driven growth, we are also happy to see our margins expand as we right-size corporate overhead costs, drive improved gross margin, reduce marketing expenses associated with products that do not show promise of generating meaningful revenue, and take other reasonable cost actions on items unrelated to our top-line growth, such as selling the corporate jet, among other things. It is still early, and our work is ongoing. But as we look forward to 2025, we believe actions identified to date will deliver at least 200 basis points of additional operating margin, while we continue to deliver on our long-term revenue growth expectations. For context, on our August Q2 earnings call, we detailed for investors a 24% EBIT margin profile for our healthcare business. As we look forward to 2025 and take into consideration the actions identified to date, we expect this margin to be at least 26%. For those of you trying to estimate our earnings potential, please note that we currently have $38 million per year in net interest expense, an approximately 26% effective tax rate, and roughly 55 million diluted shares outstanding. We will continue to update the market on the work of the management team in partnership with the Board's business review committee. We expect to provide the next update in January 2025. With regard to our strategic review process, the Board has not made a final determination of the manner in which the consumer business will be separated. If among other things, the Board decides to no longer pursue a spin-off of this business into a publicly traded company, we anticipate treating the consumer business as a discontinued operation upon those decisions being finalized. Further, we would exclude the results for this segment from our non-GAAP earnings and no longer provide guidance for this segment if it still remains with the company into the first quarter of 2025. In closing, our ongoing focus on expanding our footprint with existing customers and winning new customers has built a solid foundation for growth in 2025. As shown in our slides today, the incremental value of new contracts this year now totals $318 million through the third quarter and is continuing to track ahead of last year, which itself was a record for the company. This clearly demonstrates Masimo's strong market share gains through contracting with our hospital customers and has contributed to a 15% increase in our unrecognized contract revenues, which have reached $1.65 billion as of the end of the third quarter. I'm excited about the strength we are seeing in our core healthcare business, and when you combine that with our ongoing initiatives to separate the consumer business and improve operating margins, we have tremendous opportunity in front of us to achieve our goal of more than doubling our earnings per share within five years and, most importantly, increasing shareholder value.

With that, we'll open the call to questions. Operator?

Hi, good afternoon. Congrats on a nice quarter and great to hear about the stability in the business here. Michelle, I wanted to start with some of your comments, and Micah, feel free to weigh in as well. You have pretty direct comments in the press release regarding the actions that have already been taken to focus spending on just fewer projects and focus on those with the greatest return. I really appreciate the insight you also gave on 2025 operating margin for healthcare. But just to clarify, the 26% floor that it seems like we now have in place. Does that reflect spending reductions that have taken place to date and does it contemplate additional actions that you still plan to take between now and over the next few months or whatever? And then one other point on this, just can you clarify out of that 200 basis points that we're seeing, is that mostly R&D or SG&A or do we have some gross margin lift in there as well? Because I believe that was part of the original plan.

Jayson, thank you very much for your question. The 26% contemplates the actions we're going to take between now and year-end. But I'm going to turn it over to Micah to answer the rest of your question.

Yes, Jayson. Thank you for your question. The actions we have taken so far and the initiatives we are implementing through the end of the year are aimed at improving costs and operating margins. We anticipate that these will increase our healthcare margins to at least 26%. This projection is based on the measures we have already put in place. We are also focusing on reallocating resources within the organization to promote top-line growth and prioritize projects that yield the best returns. We are confident that the steps we've taken will have a minimal effect on the top line. I previously mentioned several factors contributing to this, such as managing corporate overhead costs, optimizing gross margins, and cutting marketing expenses for products that aren't generating significant revenue. We also have other cost-reduction strategies in progress. We are being very careful and strategic in our approach to ensure that we maintain top-line growth and lay the groundwork for profitable growth in the future.

All right. Really helpful. Thanks for that. I would like to ask about the CEO search process. I understand we aren't discussing timing, but could you provide insight into what the Board is looking for in the next CEO? Are you considering a medtech industry veteran, someone focused on growth, or someone with an operations background? I’d appreciate hearing about your priorities in this search, as this is a very attractive and important position for the Board to fill.

So we are, first of all, looking at both internal and external candidates. We are looking for a medtech background. We would like to have a balance of operational as well as technical or experience in refreshing pipelines. We want to make sure that the fit is really good with the culture that is here at Masimo because we have a very strong culture of innovation-focused and a family-type of atmosphere. So we want to make sure that the new CEO will come in and hit the ground running and really is the right person for the long-term.

Okay. Thanks, Michelle.

Hi, good evening. Thanks for taking the questions and nice quarter. Michelle, glad to be working with you, and hi to Micah and Bilal as well. Good to talk to you. I wanted to ask a question here on Malaysia and gross margin. Just sort of a status update on where we are in realizing some of those benefits. I know a lot of the volume has already flowed to the Malaysia facility. What portion of the gross margin uplift would you say we've seen and sort of the timing of how we might continue to see some of that benefit roll-out?

Thank you, Marie. We're seeing significant improvement this year. Last year, our healthcare margins were at 60.9%. We've increased that to a guidance of 62.7% this year, following two or three guidance raises. We've improved by about 70 to 80 basis points from our initial guidance. In Malaysia, we're successfully relocating our high-volume sensor manufacturing from Mexico, which is providing us with substantial savings due to the better cost structure there. We're also experiencing impressive manufacturing efficiencies that are positively impacting our inventory and margins. Our projected margins for Q4 are around 63%, and we achieved 62.9% this quarter. We're on a strong path as we head into 2025, expecting further margin expansion as we enhance our efficiency and continue moving more production to Malaysia.

Okay. That's really helpful, Micah. My follow-up here then, just sort of a headline overview of the healthcare environment in general. In the past, you've given us some color on hospital census, OEM activity, ordering activity. Maybe any early thoughts on flu season as well as we think about Q4-Q1? Thank you.

Yes. So in terms of census, I think we've talked about implied in our guidance last quarter was kind of that somewhere between 2.5% to 4% in terms of census contribution in terms of growth. We're still seeing it very stable and since it has been stable, we're probably now with what we saw the result in Q3 and what we're expecting for the year. We're still in that zone. So it's been very stable, very strong. Ordering patterns are much better than they had been in the past and the business is back to kind of where we can predict it much better than in the past few years. So we're happy with where things are, and it's giving us confidence in our guidance for the fourth quarter and as we move into next year.

And then, Marie, just this is Bilal. One thing to add. Related to flu season, it's probably too early to predict that at this point. But like Micah said, everything we've anticipated so far has held steady for us.

Okay. Very good. Thank you.

Hi, good afternoon. Thank you. I'm wondering if you might be willing to share a product or two or three that the organization is deemphasizing here. Just to put a little more meat on the bone around how you're perceiving these opportunities as you review the broader portfolio and look to drive efficiencies?

Yes. So there are a few products that we've deemphasized. One of them is Opioid Halo. If you guys remember, we made a push for monitoring patients on opioids at home, as well as Bridge, which was a therapeutic device for patients or people on opioids that wanted to reduce the pain of removing opioids, basically overcoming off opioids. So both of those products are examples that we've reduced from our current portfolio.

You know, Michael, I would also add that we had some feasibility studies that were being done on non-invasive monitoring of cancer, bilirubin, and diabetes. And we really have felt like we had not made the progress we would expect to bring those products to market. So we have also discontinued those.

Okay. Thank you.

And Mike, I want to add that regarding opioids, we still have important products related to Opioid Halo that will be focused on the hospital sector. It’s important to clarify that these products will remain crucial for our business as we engage with hospitals. However, when it comes to remote monitoring, particularly for illicit users, we anticipate a more difficult pathway and challenges in reimbursement. We aim to be more efficient and not prioritize those areas in the long term at this time.

The direct-to-consumer market.

Thank you. As a follow-up topic, I want to ask about Apple. My understanding is that the trade secrets trial is starting again or the retrial is this week, I believe. Maybe for Michelle, I'm just curious about how the Board views this investment and pursuit. Any comments on what you've learned about this opportunity as the team has investigated? Thank you.

You're welcome. Well, as an innovation leader, we are going to definitely defend our patents. And I don't think that's new news to anyone. What I would like to do is turn it over to Bilal, who is very active with this litigation to really comment on where we are.

Thanks, Michelle. Yes, the California trial for theft and trade secret did start. It actually started today. It's a bench trial, so we're not going to be able to predict the timing of it and we don't have any further updates at this time.

Thank you. Good afternoon, everyone. I've noticed that over the past four or five quarters, we've seen better-than-expected performance in healthcare sales, driver shipments, and growth in backlog. The business appears to be in strong condition as we approach 2025. Micah, you shared some early thoughts about the potential for further expansion of operating margins. Could you help us consider the sales outlook and the key drivers? It would be great to hear what you're feeling positive about, as well as any concerns, so we can begin to anticipate how we should approach our revenue models for 2025.

Thank you, Rick. Earlier this year, specifically in June, we shared our long-range plan which outlines expected revenue growth and improvements in operating margin. We are already witnessing strong progress in operating margins. When I consider revenue, I see our product platforms, particularly SET, as solid. We have projected a long-term growth range of 7% to 10%, which we've slightly adjusted to reflect our larger base, indicating high-single-digit to 10% growth. For SET, we anticipate it will continue to perform in the long-term growth range of 6% to 8%, while brain monitoring and Capnography could see growth between 10% and 20%. Additionally, we foresee hospital automation growing by 20% or more. These are our primary categories of focus. I'm excited about the potential of combining rainbow and Hemodynamics, particularly continuous total hemoglobin measurements with cardiac output from LiDCO, which we are gearing up to roll out. Another product we are launching is ORi in the U.S. market now that we have 510(k) clearance; we've had it available outside the U.S. for some time, but we're eager to introduce it domestically now that we have the necessary clearance. Bilal, do you have anything to add?

Yes. I mean, we're going to continue to expand our platform. One of them that's exciting is also the Radius VSM That's our new wearable vital signs monitor designed for the general care floor. And this product, including the LiDCO product that Micah mentioned, our Hemodynamics platform, we're just starting the phases of launch throughout this year and next year. So it should be exciting for us.

That's great. As a follow-up, Micah, you've been helpful in previous calls by discussing what could influence our numbers toward either end of the various ranges you've considered. Could you specifically address the drivers, particularly since the fourth quarter seems to have a broad range? Is there anything particular that might push you more toward the 65,000 mark? Please share your near-term outlook and the different factors at play. Thank you for your insights.

Thank you, Rick. What we can control is the direct placement of our Masimo branded drivers, which makes up about 20% to 25% of our total drivers shipped. The remaining portion comes from OEMs, so the numbers heavily depend on their ordering patterns. We are optimistic about maintaining that range for Q4, and we believe it will remain steady as we head into next year. While we anticipate that it may continue to grow, we want to be cautious because we don’t have control over the OEM segment, which is influenced by their inventory management. We have faced challenges in the past in this area and plan to proceed thoughtfully. Nonetheless, we are confident in acquiring the new drivers necessary for growth, driven by the strong contracting we’ve seen in recent years. As I noted earlier, we are currently on track to reach $318 million this year, and we aim to surpass the $400 million mark, which is crucial for sustaining our growth annually. I feel very positive about this outlook. Our unrecognized contract revenues have increased by 15% due to strong contracts, positioning us well as we approach 2025.

Thanks so much.

Hi, thank you for taking the question. I guess my first question on the margin progression. I know you talked about the 26% from the actions you've taken. And in the LRP update we had earlier this year. You talked about getting back to a cadence of about 100 basis points a year kind of over that plan. So I guess beyond the 26%, is that the right cadence to think about or do you think you could do better than that?

As we look at the 26% for next year and beyond, we expect to achieve at least 100 basis points, if not more. We are focused on optimizing all areas, not just for margin improvement, but to refocus the organization on delivering long-term growth and prioritizing the most important projects. I believe we will continue to see benefits as we progress that may exceed this expected cadence.

I want to emphasize that it's crucial for us to pursue the significant opportunities in our pipeline, ensuring we allocate sufficient resources to them to drive strong growth. This effort is just as vital for improving our margins as the cost structure initiatives we have discussed.

Thank you. And just a follow-up on the components revenue thinking about the go-forward here. You had really nice improvement in the revenue per driver this year. And the installed base is up 2%, but that really stands out to 13% growth in utilization. How would you think about those two pieces going forward?

Yes, we are observing revenue per driver, which when examined more closely relates to revenue per bed and per patient. Bilal is focused on enhancing this aspect as we plan for the future. We are not only increasing our charges for more advanced technologies that hold higher value, but we are also expanding our connectivity platform and looking to monetize advanced algorithms for decision support and related services. Therefore, moving forward, the revenue per driver will become increasingly significant beyond just the growth of the installed base. This is a topic we will continue to discuss as we progress. Bilal, would you like to add anything?

No, just like Micah said, the additional technologies we provide now, it's not just pulse oximetry, but you guys know it expands across our different platforms. So we're really looking at that closely to see from each bed how many of the platforms can apply on a per-patient basis as we expand or after we land in terms of expanding within our installed base.

Great. Thank you so much.

Hi, good afternoon, and thanks for taking the questions. Bouncing around. So apologize if this has already been asked. But maybe just on your updated guidance, just talk about what gives you confidence in this new guidance range and what gets you to the top-end versus the bottom-end of your guidance. And I had a follow-up.

Yes, thank you, Vik. At the moment, we see many opportunities in the healthcare sector. We expect strong performance from the rainbow platform in the fourth quarter, and we anticipate good growth in brain monitoring as well. The variability between the high and low ends of our guidance is largely dependent on census data. We are comfortable with the range, and the midpoint reflects the historical seasonality of our business, which typically sees about 26.5% of revenues in the fourth quarter. Thus, how the census trends in Q4, including factors like a strong flu season, could push us towards the higher end of that range. We are optimistic about concluding the year on a high note, expecting strong performance across all platforms in line with our growth targets, which will position us well for next year. As for our non-healthcare sector, the consumer side remains challenging to predict, so we've adjusted the guidance down to reflect historical seasonality. We have also reduced some of the projected headphone growth and core growth. The midpoint of our guidance is currently set at 33%, reflecting the historical trends of that segment. Notably, the decline we've experienced since last year has been easing, and we expect to see growth in that area in the fourth quarter.

Got it. Thank you for that comprehensive answer. And just as we look at our models for next year, maybe just talk about how you're thinking about the outlook for your end markets in 2025 and any potential headwinds or tailwinds higher for next year? Thank you.

Thank you, Vik. In the end-markets, we have a very strong business that is supported by our large installed base and our ability to generate revenue per driver. A significant portion of our revenue is contracted this year, positioning us well for growth in the next year. With the strength we are observing in contracting, we feel optimistic about the healthcare end-market as we approach next year. However, this will depend on fluctuations related to census data, but all indicators suggest a strong year ahead as we move into 2025. Regarding the consumer market, there are many variables at play due to upcoming elections, making it harder to predict future trends. However, we see signs of stabilization in that business, coupled with several new product launches set for Q4 and Q1, which we hope will reinvigorate growth in that area.

Yes, thanks. So just want to ask one on the Malaysian sensor production. So as we get through the end of the year here, how much of that is completed? And to what degree is that going to continue to be a benefit to margins in 2025?

Yes, thank you for your question, Mike. As we approach the end of this year, most of our high-volume sensors will be produced in Malaysia. We've made significant progress this year, which will lead to some margin expansion next year. Looking ahead, we plan to expand into other categories, such as disposables and capnography with our cannulas, which are additional products we are currently working on moving over there. These developments will provide us with strong momentum as we move into next year. While it's still early and we have much work ahead to finalize our plans, our long-term goal is to reach a margin of 66%. This year, we improved to 62.7%, which represents about 350 basis points of margin expansion over five years. Averaging that out, we expect around 70 basis points of improvement per year, and we're optimistic about achieving at least that target, with potential for even better results.

Okay, I understand. I believe I know the answer, but I want to confirm that I’m not making any incorrect assumptions. For next year, you mentioned a 200 basis points improvement in operating margin, which sounds like it will come from your cost initiatives. Does this also account for the typical improvements you'd expect in a normal year from leverage and other efforts? In other words, is the 100 basis points you mentioned for a normal year included in that $200 million, or is it in addition to that $200 million?

Yes, it's included. We've accounted for the gross margin expansion and the cost improvement initiatives we've implemented. This is all factored into our plan to achieve at least 26% next year.

Okay, got it. And then finally, regarding the potential divestiture or separation of the consumer division, I know you had previously shared some estimates. Are those still accurate? Also, putting aside the interest expense, which will depend on how much you receive for the business, would the divestiture have a positive or negative effect on Masimo's earnings per share?

Yes. I think the reason we're sharing this is so you can model the healthcare business effectively. Depending on the Board's final decision, we would likely classify that as discontinued operations. So, please consider the 26% margins for the healthcare business, as well as the interest expense, tax rate, and share count, which will give you a solid estimate of our expectations for 2025.

Thanks, and congrats on the progress here. I just have a few kind of follow-ups, a little random here. But just on the capital side, selling capital, it still seems a bit heavy from a growth perspective. Are you seeing any changes in the environment? And can I assume that most of this is still in the OEM side?

Yes. I believe most of that is on the OEM side. But when we were looking at our own capital, we're still seeing slowness in terms of capital purchases in hospitals, and we hope that starts to turn around for us next year.

And Jayson, we think that's been a headwind for us all this year, but we think it's stabilizing. We're past the point of where we saw kind of a pullback in drivers that we were shipping to OEMs earlier this year and that's been climbing sequentially as we move throughout this year, and it's going to set us up very well as we move into next year, so.

What do you think the issue is? It seems like hospitals have plenty of cash. I'm just curious about it and I assume it’s not due to competition.

No, we don't believe it's competitive. We think they have gone through a cycle in how they manage capital. As they emerge from that now, they are being very selective about their capital usage. They have likely paused some of the larger projects, particularly in imaging and related areas. They are focusing on those before they return to refreshing or updating their monitoring solutions. We expect to see that start to come back next year, but it seems to be a matter of prioritization based on their past and current situation.

Okay. That's helpful. Thank you. On revenue per driver, I think one of the components after utilization is price. And so if you could talk about just price, have you been able to take price over the last year?

Yes, Jayson, the pricing is stable to positive. We have CPI clauses linked to the medical or healthcare equipment index that are included in our contracts, and we adjust for that each year, resulting in some modest price increases. However, many of our customers are under GPO contracting, which sets a limit on pricing growth over time. Nevertheless, we do observe stable pricing with modest improvements each year.

Okay. Okay. And then just last for me, I feel like I have to ask it, is there anything assumed in the fourth quarter guidance for disruption from hurricanes or IV solutions?

No, we do not have any concerns regarding disruptions affecting our business and revenue for the fourth quarter.

Fair enough. Thank you.

And ladies and gentlemen, this concludes today's conference call and we thank you for your participation. You may now disconnect.