masi-20201027
0000937556false00009375562020-10-272020-10-27

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 8-K
________________________________________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 27, 2020
masi-20201027_g1.jpg
MASIMO CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________________
DE001-3364233-0368882
(State or other jurisdiction
of incorporation)		(Commission
File Number)		(IRS Employer
Identification No.)
52 DiscoveryIrvine,CA92618
(Address of Principal Executive Offices)(Zip Code)
(949)
297-7000
Registrant’s telephone number, including area code:
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities Registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueMASIThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933(§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐



Item 2.02.Results of Operations and Financial Condition.
On October 27, 2020, Masimo Corporation (the “Company”) issued a press release announcing its financial results for the quarter ended September 26, 2020. A copy of the press release is furnished as Exhibit 99.1 to this Current Report.
In accordance with General Instructions B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 7.01.Regulation FD Disclosure.
In connection with the Company’s conference call scheduled to be held on October 27, 2020, the Company’s Chief Financial Officer will review supplemental information regarding the Company’s financial results for the quarter ended September 26, 2020. The Company’s supplemental information is furnished as Exhibit 99.2 to this Current Report.
In addition, the Company is making available to investors supplemental financial information for fiscal 2018, fiscal 2019 and the third quarter of fiscal 2020 pursuant to the materials furnished as Exhibit 99.3 to this Current Report.
In accordance with General Instructions B.2 of Form 8-K, the information in Item 7.01 of this Current Report on Form 8-K shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 9.01.Financial Statements and Exhibits.
(d) The following items are filed as exhibits to the Current Report on Form 8-K.
Exhibit
 No.
Description
99.1
99.2
99.3
99.4
104Cover Page Interactive Data File (embedded within the Inline XBRL document)



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Masimo Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
MASIMO CORPORATION
Date: October 27, 2020By:
/s/ MICAH YOUNG
Micah Young
Executive Vice President & Chief Financial Officer
(Principal Financial Officer)



Exhibit 99.1
masimologoq20201a.jpg
Masimo Reports Third Quarter 2020 Financial Results
Third Quarter 2020 Highlights
■Product revenue increased 21.5% to $278.1 million, or 21.1% on a constant currency basis;
■GAAP net income per diluted share was $0.85; and
■Non-GAAP net income per diluted share was $0.80.
Irvine, California, October 27, 2020 - Masimo (Nasdaq: MASI) today announced its financial results for the third quarter ended September 26, 2020.
Third Quarter 2020 Results:
Total revenue, including royalty and other revenue, increased 21.4% to $278.1 million, compared to $229.0 million in the third quarter of 2019. Product revenue increased 21.5% to $278.1 million, or 21.1% on a constant currency basis, compared to $228.9 million in the third quarter of 2019. Excluding handheld and fingertip pulse oximeters, shipments of noninvasive technology boards and instruments of 151,700 increased 150% in the third quarter of 2020, compared to 60,700 in the third quarter of 2019.
GAAP operating margin for the third quarter 2020 was 21.5% compared to 22.5% in the third quarter of 2019. Third quarter 2020 non-GAAP operating margin was 21.9% compared to 23.0% in the third quarter of 2019.
For the third quarter of 2020, GAAP net income was $49.4 million or $0.85 per diluted share compared to net income of $49.1 million or $0.86 per diluted share in 2019. Non-GAAP net income was $46.8 million or $0.80 per diluted share compared to net income of $43.7 million or $0.76 per diluted share in 2019. Total cash, cash equivalents and short-term investments was $719.1 million as of September 26, 2020.
Joe Kiani, Chairman and Chief Executive Officer of Masimo, said “Our third quarter results clearly show the benefits our technologies and products bring to patient care. We remain committed to supporting our customers as they continue to face unusual challenges related to the ongoing pandemic. We have invested heavily this year to mitigate COVID-19 related disruptions in production and distribution of our products, and yet expanded our offerings with additional solutions to meet the unique challenges of COVID-19. We believe these actions will help Masimo and our customers not only at these times, but beyond COVID-19.”

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2020 Financial Guidance
The Company provided the following updated estimates for its full-year 2020 guidance:
2020 Updated Guidance(1)
(in millions, except percentages and earnings per share)GAAPNon-GAAP
Total revenue$1,128.0 $1,128.0 
   Product revenue$1,128.0 $1,128.0 
      Percentage growth - as reported20.5 %N/A
      Percentage growth - constant currencyN/A20.5 %
   Royalty and other revenue$— $— 
Gross margin65.6 %65.7 %
Operating margin22.5 %23.0 %
Diluted earnings per share$3.77 $3.46 
Estimated tax rate15.4 %23.8 %
______________
(1)     Updated guidance provided October 27, 2020. Prior guidance provided February 19, 2020.

•Total revenue, including royalty and other revenue, increasing to $1,128.0 million;
•Product revenue increasing 20.5% to $1,128.0 million, on a reported and constant currency basis;
•GAAP diluted earnings per share increasing to $3.77;
•Non-GAAP diluted earnings per share increasing to $3.46;
•There is no material foreign exchange impact versus prior year on our full-year revenue guidance.
Supplementary Non-GAAP Financial Information
For additional non-GAAP financial details, please visit the Investor Relations section of the Company’s website at www.masimo.com to access Supplementary Financial Information.
Non-GAAP Financial Measures
The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented exclude the items described below. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes that these items are not indicative of the Company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP.
Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies.
The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) constant currency product revenue growth %, (ii) non-GAAP net income, (iii) non-GAAP (net income) earnings per diluted share and (iv) non-GAAP operating income/margin. These non-GAAP financial measures may also assist investors in making comparisons of the Company’s core operating results with those of other companies. Management believes constant currency product revenue growth, non-GAAP operating income/margin, non-GAAP net income and non-GAAP earnings per diluted share are important measures in the evaluation of the Company’s performance and uses these measures to better understand and evaluate our business.

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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. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating our product revenue growth rates on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and the related constant currency adjustments for calculation of our product revenue growth rate will continue to occur in future periods.
Royalty and other revenue, net of related costs.
We derive royalty and other revenue, net of related costs, from certain non-recurring contractual arrangements that we do not expect to continue in the future. We believe the exclusion of royalty and other revenue, net of related costs, associated with these non-recurring revenue streams is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis.
Acquisition/Strategic investment-related costs, including depreciation and amortization.
In the event the Company acquires, invests in or divests certain business operations, there may be non-recurring gains, losses or expenses that will be recognized related to the assets and/or liabilities sold or acquired that are not representative of normal on-going cash flows. Furthermore, there may be depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to the acquisition/strategic investment that does not reflect the normal on-going costs of operating our core business. We believe that exclusion of these gains, losses or costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods.
Litigation damages, awards and settlements.
In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds. We believe that exclusion of these gains (net of any related costs incurred in the period the award or settlement is recognized) and losses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or are infrequent in nature.
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 and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods.
Excess tax benefits from stock-based compensation.
Current authoritative accounting guidance requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of such guidance can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees.
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Third Quarter 2020 Actuals versus Third Quarter 2019 Actuals
RECONCILIATION OF GAAP TO NON-GAAP CONSTANT CURRENCY PRODUCT REVENUE(1):
Three Months Ended
(in thousands, except percentages)September 26,
2020		September 28,
2019
GAAP product revenue$278,112 $228,916 
Non-GAAP constant currency adjustments:
Constant currency F/X adjustments(815)N/A
Total non-GAAP constant currency adjustments(815)N/A
    Non-GAAP constant currency product revenue$277,298 $228,916 
Product revenue growth %
GAAP21.5 %
Non-GAAP constant currency21.1 %
__________________
(1)     May not foot due to rounding.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1):
Three Months Ended
September 26,
2020		September 28,
2019
(in thousands, except per share amounts)$Per Diluted Share$Per Diluted Share
GAAP net income$49,405 $0.85 $49,085 $0.86 
Non-GAAP adjustments:
Royalty and other revenue, net of related costs— — (57)— 
Acquisition/strategic investment related costs1,277 0.02 1,098 0.02 
Non-operating other (income) expense(647)(0.01)856 0.01 
Tax impact of pre-tax non-GAAP adjustments above(202)— (303)(0.01)
Excess tax benefits from stock-based compensation(3,076)(0.05)(7,020)(0.12)
Total non-GAAP adjustments
(2,649)(0.05)(5,427)(0.09)
Non-GAAP net income$46,756 $0.80 $43,657 $0.76 
Weighted average shares outstanding - diluted58,280 57,262 
__________________
(1)     May not foot due to rounding.
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RECONCILIATION OF GAAP TO NON-GAAP OPERATING MARGIN(1):
Three Months Ended
September 26,
2020		September 28,
2019
(in thousands, except percentages)$$
GAAP operating income/margin$59,698 $51,632 
Non-GAAP adjustments:
Royalty and other revenue, net of related costs— (57)
Acquisition/strategic investment related costs1,277 1,098 
Total non-GAAP adjustments1,277 1,040 
Non-GAAP operating income/margin$60,975 $52,671 
GAAP operating income/margin %21.5 %22.5 %
Non-GAAP operating income/margin %21.9 %23.0 %
__________________
(1)     May not foot due to rounding.

Full-Year 2020 Guidance versus Full-Year 2019 Actuals
RECONCILIATION OF GAAP PRODUCT REVENUE GROWTH % TO CONSTANT CURRENCY PRODUCT REVENUE GROWTH %:
(in thousands, except percentages)
Full-Year 2020
 Updated Guidance(2)
Full-Year 2019
Actuals
GAAP product revenue$1,128,000 $936,408 
Non-GAAP constant currency adjustments:
Constant currency F/X adjustments— N/A
Total non-GAAP constant currency adjustments— N/A
Non-GAAP constant currency product revenue$1,128,000 $936,408 
Product revenue growth %:
GAAP20.5 %
Non-GAAP constant currency20.5 %
__________________
(1)     Updated guidance provided October 27, 2020. Prior guidance provided February 19, 2020.
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RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1):
Full-Year 2020
 Updated Guidance(2)
Full-Year 2019
Actuals
(in thousands, except per share amounts)$Per Diluted Share$Per Diluted Share
GAAP net income$219,400 $3.77 $196,216 $3.44 
Non-GAAP adjustments:
Royalty and other revenue, net of related costs— — (1,262)(0.02)
Acquisition/strategic investment related costs6,900 0.12 4,729 0.08 
Litigation damages, awards and settlements(500)(0.01)— — 
Non-operating other (income) expense(1,200)(0.02)627 0.01 
Tax impact of pre-tax non-GAAP adjustments above(1,300)(0.02)(689)(0.01)
Excess tax benefits from stock-based compensation(21,700)(0.37)(15,692)(0.27)
Total non-GAAP adjustments
(17,800)(0.31)(12,286)(0.22)
Non-GAAP product net income$201,600 $3.46 $183,930 $3.22 
Weighted average shares outstanding - diluted58,200 57,100 
__________________
(1)     May not foot due to rounding.
(2)    Updated guidance provided October 27, 2020. Prior guidance provided February 19, 2020.


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RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT AND OPERATING MARGIN(1):
Full-Year 2020
 Updated Guidance(2)
Full-Year 2019
Actuals
(in thousands, except percentages)$$
GAAP gross margin$739,500 $629,172 
Non-GAAP adjustments:
Royalty and other revenue, net of related costs— (1,262)
Acquisition/strategic investment-related costs1,900 511 
Total non-GAAP adjustments1,900 (751)
Non-GAAP gross margin$741,400 $628,421 
GAAP gross margin %65.6 %67.1 %
Non-GAAP gross margin %65.7 %67.1 %
GAAP operating income/margin$253,300 $221,216 
Non-GAAP adjustments:
Royalty and other revenue, net of related costs— (1,262)
Acquisition/strategic investment-related costs6,900 4,729 
Litigation damages, awards and settlements(500)— 
Total non-GAAP adjustments6,400 3,467 
Non-GAAP operating income/margin$259,700 $224,683 
GAAP operating income/margin %22.5 %23.6 %
Non-GAAP operating income/margin %23.0 %24.0 %
__________________
(1)     May not foot due to rounding.    
(2)    Updated guidance provided October 27, 2020. Prior guidance provided February 19, 2020.
Conference Call:
The conference call to review the results will begin at 1:30 p.m. PT today (4:30 p.m. ET) and will be hosted by Joe Kiani, Chairman and Chief Executive Officer, and Micah Young, Executive Vice President and Chief Financial Officer.
To register for the conference call and receive the dial-in number, please use the link below. Upon registering, each participant will be provided with call details and a registrant ID number.
Conference Call Registration Link:
http://www.directeventreg.com/registration/event/4925989
A replay of the webcast and conference call will be available shortly after the conclusion of the call and will be archived on the Company’s website.
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About Masimo
Masimo (Nasdaq: MASI) is a global medical technology company that develops and produces a wide array of industry-leading monitoring technologies, including innovative measurements, sensors, patient monitors, and automation and connectivity solutions. Our mission is to improve patient outcomes and reduce the cost of care. Masimo SET® Measure-through Motion and Low Perfusion™ pulse oximetry, introduced in 1995, has been shown in over 100 independent and objective studies to outperform other pulse oximetry technologies. Masimo SET® has also been shown to help clinicians reduce severe retinopathy of prematurity in neonates, improve CCHD screening in newborns, and, when used for continuous monitoring with Masimo Patient SafetyNet™ in post-surgical wards, reduce rapid response team activations, ICU transfers, and costs. Masimo SET® is estimated to be used on more than 200 million patients in leading hospitals and other healthcare settings around the world, and is the primary pulse oximetry at 9 of the top 10 hospitals listed in the 2019-20 U.S. News and World Report Best Hospitals Honor Roll.Masimo continues to refine SET® and in 2018, announced that SpO2 accuracy on RD SET® sensors during conditions of motion has been significantly improved, providing clinicians with even greater confidence that the SpO2 values they rely on accurately reflect a patient’s physiological status. In 2005, Masimo introduced rainbow® Pulse CO-Oximetry technology, allowing noninvasive and continuous monitoring of blood constituents that previously could only be measured invasively, including total hemoglobin (SpHb®), oxygen content (SpOC™), carboxyhemoglobin (SpCO®), methemoglobin (SpMet®), Pleth Variability Index (PVi®), RPVi™ (rainbow® PVi), and Oxygen Reserve Index (ORi™). In 2013, Masimo introduced the Root® Patient Monitoring and Connectivity Platform, built from the ground up to be as flexible and expandable as possible to facilitate the addition of other Masimo and third-party monitoring technologies; key Masimo additions include Next Generation SedLine® Brain Function Monitoring, O3®Regional Oximetry, and ISA™ Capnography with NomoLine® sampling lines. Masimo’s family of continuous and spot-check monitoring Pulse CO-Oximeters® includes devices designed for use in a variety of clinical and non-clinical scenarios, including tetherless, wearable technology, such as Radius-7®and Radius PPG™, portable devices like Rad-67™, fingertip pulse oximeters like MightySat® Rx, and devices available for use both in the hospital and at home, such as Rad-97™. Masimo hospital automation and connectivity solutions are centered around the Iris® platform, and include Iris Gateway™, Patient SafetyNet, Replica™, Halo ION™, UniView™, and Masimo SafetyNet™. Additional information about Masimo and its products may be found at www.masimo.com. Published clinical studies on Masimo products can be found at www.masimo.com/evidence/featured-studies/feature/.
Forward-Looking Statements
All statements other than statements of historical facts included in this press release 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 expectations for fourth quarter 2020 and full year 2020 financial guidance; our long-term outlook; demand for our products; anticipated revenue and earnings growth; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET® and Masimo rainbow SET™ products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors’ assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; risks related to global economic and marketplace uncertainties related to the impact of the COVID-19 pandemic; and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC’s website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
# # #
Investor Contact: Eli KammermanMedia Contact: Evan Lamb
(949) 297-7077(949) 396-3376
[email protected][email protected]
Masimo, SET, Signal Extraction Technology, Improving Patient Outcome and Reducing Cost of Care... by Taking Noninvasive Monitoring to New Sites and Applications, rainbow, SpHb, SpOC, SpCO, SpMet, PVI and ORI are trademarks or registered trademarks of Masimo Corporation.
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MASIMO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
September 26,
2020		December 28,
2019
ASSETS
Current assets
Cash and cash equivalents$669,056 $567,687 
Short-term investments50,000 120,000 
Accounts receivable, net of allowance for doubtful accounts 146,859 132,433 
Inventories204,779 115,871 
Other current assets88,272 60,071 
Total current assets1,158,966 996,062 
Lease receivable, noncurrent56,212 49,936 
Deferred costs and other contract assets18,566 16,214 
Property and equipment, net267,160 219,552 
Intangible assets, net57,306 27,251 
Goodwill80,220 22,350 
Deferred tax assets36,168 35,972 
Other non-current assets38,545 28,791 
Total assets$1,713,143 $1,396,128 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$89,533 $54,548 
Accrued compensation58,853 54,705 
Deferred revenue and other contract liabilities, current44,542 25,939 
Other current liabilities39,824 37,027 
Total current liabilities232,752 172,219 
Other non-current liabilities65,587 56,035 
Total liabilities298,339 228,254 
Commitments and contingencies
Stockholders’ equity
Common stock55 54 
Treasury stock(527,171)(526,580)
Additional paid-in capital676,568 600,624 
Accumulated other comprehensive loss(5,214)(6,718)
Retained earnings1,270,566 1,100,494 
Total stockholders’ equity1,414,804 1,167,874 
Total liabilities and stockholders’ equity$1,713,143 $1,396,128 


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MASIMO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three Months EndedNine Months Ended
September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Revenue:
Product$278,112 $228,916 $848,690 $688,974 
Royalty and other revenue— 95 — 1,353 
Total revenue278,112 229,011 848,690 690,327 
Cost of goods sold99,186 72,743 292,551 228,078 
Gross profit178,926 156,268 556,139 462,249 
Operating expenses:
Selling, general and administrative90,376 80,354 278,714 232,718 
Research and development28,852 24,282 86,971 69,872 
Litigation awards— — (474)— 
Total operating expenses119,228 104,636 365,211 302,590 
Operating income59,698 51,632 190,928 159,659 
Non-operating income 1,357 2,723 6,108 10,138 
Income before provision for income taxes61,055 54,355 197,036 169,797 
Provision for income taxes11,650 5,270 27,403 26,502 
Net income$49,405 $49,085 $169,633 $143,295 
Net income per share:
Basic$0.90 $0.92 $3.11 $2.69 
Diluted$0.85 $0.86 $2.92 $2.51 
Weighted-average shares used in per share calculations:
Basic54,997 53,535 54,543 53,367 
Diluted58,280 57,262 58,033 57,055 
The following table presents details of the stock-based compensation expense that is included in each functional line item in the condensed consolidated statements of operations (in thousands):
Three Months EndedNine Months Ended
September 26,
2020		September 28,
2019		September 26,
2020		September 28,
2019
Cost of goods sold$184 $110 $498 $339 
Selling, general and administrative8,659 8,420 27,443 23,033 
Research and development3,069 2,325 8,431 6,273 
Total
$11,912 $10,855 $36,372 $29,645 

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MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Nine Months Ended
September 26,
2020		September 28,
2019
Cash flows from operating activities:
Net income$169,633 $143,295 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization21,200 17,569 
Stock-based compensation36,372 29,645 
Loss on disposal of property, equipment and intangibles 202 149 
Provision for doubtful accounts5 678 
Provision (benefit) for deferred income taxes136 (19)
Changes in operating assets and liabilities:
Increase in accounts receivable(9,459)(21,697)
Increase in inventories(86,815)(15,221)
Increase in other current assets(23,461)(12,060)
Increase in lease receivable, net(6,279)(9,396)
(Increase) decrease in deferred costs and other contract assets(1,964)8,901 
Increase in other non-current assets(775)(68)
Increase (decrease) in accounts payable31,793 (1,223)
Increase (decrease) in accrued compensation3,654 (975)
Increase in accrued liabilities4,691 389 
(Decrease) increase in income tax payable(2,756)3,430 
Increase in deferred revenue and other contract-related liabilities9,973 6,760 
Increase in other non-current liabilities395 1,259 
Net cash provided by operating activities146,545 151,416 
Cash flows from investing activities:
Maturities (purchases) of short-term investments, net70,000 (120,000)
Purchases of property and equipment, net(60,017)(56,064)
Increase in intangible assets(5,763)(2,968)
Business combinations, net of cash acquired(78,310)— 
Other strategic investing activities(6,750)(5,189)
Net cash used in investing activities(80,840)(184,221)
Cash flows from financing activities:
Proceeds from issuance of common stock40,994 22,706 
Payroll tax withholdings on behalf of employees for vested equity awards(1,449)(123)
Repurchases of common stock(591)(27,924)
Net cash provided by (used in) financing activities38,954 (5,341)
Effect of foreign currency exchange rates on cash(294)(983)
Net increase (decrease) in cash, cash equivalents and restricted cash104,365 (39,129)
Cash, cash equivalents and restricted cash at beginning of period568,075 552,641 
Cash, cash equivalents and restricted cash at end of period$672,440 $513,512 

-11-
Third Quarter 2020 Improving Patient Outcomes Earnings Presentation | October 27, 2020 Reducing the Cost of Care®

 
FORWARD-LOOKING STATEMENTS These presentations contain forward-looking statements within the meaning of federal securities laws, including, among others, statements about our expectations, plans, strategies or prospects. We generally use the words “may,” “will,” “expect,” “believe,” “anticipate,” “plan,” “estimate,” “project,” “assume,” “guide,” “target,” “forecast,” “see,” “seek,” “can,” “should,” “could,” “would,” “intend” “predict,” “potential,” “strategy,” “is confident that,” “future,” “opportunity,” “work toward,” and similar expressions to identify forward-looking statements. All statements other than statements of historical or current fact are, or may be deemed to be, forward-looking statements. Such statements are based upon the current beliefs, expectations and assumptions of management and are subject to significant risks, uncertainties and changes in circumstances that could cause actual results to differ materially from the forward-looking statements. Forward-looking statements speak only as of the date they are made, and we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers of these presentations are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in these presentations. The risks and uncertainties that may cause actual results to differ materially from Masimo’s current expectations are more fully described in Masimo’s reports filed with the U.S. Securities and Exchange Commission (SEC), including our most recent Form 10-K and Form 10-Q. Copies of these filings, as well as subsequent filings, are available online at www.sec.gov, www.masimo.com or upon request.

 
NON-GAAP FINANCIAL MEASURES The non-GAAP financial measures contained herein are a supplement to the corresponding financial measures prepared in accordance with U.S. GAAP. The non-GAAP financial measures presented exclude certain items that are more fully described in the Appendix. Management believes that adjustments for these items assist investors in making comparisons of period-to-period operating results. Furthermore, management also believes that these items are not indicative of the Company’s on-going core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies. The Company has presented the following non-GAAP measures to assist investors in understanding the Company’s core net operating results on an on-going basis: (i) constant currency product revenue growth %, (ii) non-GAAP gross profit/margin %, (iii) non-GAAP SG&A expense, (iv) non-GAAP R&D expense, (v) non- GAAP litigation settlement, award and/or defense costs, (vi) non-GAAP operating expense %, (vii) non-GAAP operating income/margin %, (viii) non-GAAP earnings per diluted share and (ix) adjusted free cash flow. These non-GAAP financial measures may also assist investors in making comparisons of the company’s core operating results with those of other companies. Management believes constant currency product revenue growth, non-GAAP gross profit/margin, non-GAAP SG&A expense %, non-GAAP R&D expense %, non-GAAP litigation settlement, award and/or defense costs, non-GAAP operating expense %, non-GAAP operating income/margin, non-GAAP net income, non-GAAP net income per diluted share, and adjusted free cash flow are important measures in the evaluation of the Company’s performance and uses these measures to better understand and evaluate our business. For additional financial details, including GAAP to non-GAAP reconciliations, please visit the Investor Relations section of the Company’s website at www.masimo.com to access Supplementary Financial Information.

 
Third Quarter 2020 Highlights  Total revenue, including royalty and other revenue, increased 21.4% to $278.1 million Revenue  Product revenue increased 21.5% to $278.1 million, or 21.1% on a constant currency basis(1) Shipments  Shipments of noninvasive technology boards and instruments were 151,700  GAAP operating margin was 21.5% Profitability  Non-GAAP operating margin(1) was 21.9%  GAAP EPS was $0.85 per diluted share EPS  Non-GAAP EPS(1) was $0.80 per diluted share  Operating cash flow was $40.5 million Cash  Adjusted free cash flow(1) was $31.7 million  Cash and investments balance was $719.1 million (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information.

 
Third Quarter 2020 Results – GAAP(1) (in millions; except % and EPS) Q3 2020 Q3 2019 vs. Prior Year Comments Revenue $278.1 $229.0 21.4% Increased demand driven by higher volumes of technology boards and instruments. Gross margin decrease due to a higher than usual proportion of revenue coming from our Gross Margin 64.3% 68.2% (390) bps technology boards and instruments, which have a lower margin profile than sensors, and increased manufacturing complexity associated with COVID-19. SG&A Expense 32.5% 35.1% (260) bps R&D Expense 10.4% 10.6% (20) bps Lower SG&A and R&D spend as a % of revenue driven by strong sales growth, which Operating Expenses 42.9% 45.7% (280) bps enabled operating leverage across the global organization while at the same time increasing our investments in R&D, marketing, and advertising. Operating Margin 21.5% 22.5% (100) bps GAAP tax rate includes excess tax benefits from stock based compensation, which were Tax Rate 19.1% 9.7% 940 bps $3.1M in Q3 2020 compared to $7.0M in Q3 2019. GAAP EPS $0.85 $0.86 (1.2%) (1) May not foot due to rounding.

 
Third Quarter 2020 Results – Non-GAAP(1) vs. Prior Year Constant (in millions; except % and EPS) Q3 2020 Q3 2019 Reported Comments Currency Increased demand driven by higher volumes of technology Revenue $278.1 $228.9 21.5% 21.1% boards and instruments. Gross margin decrease due to a higher than usual proportion of revenue coming from our technology boards and instruments, Gross Margin 64.5% 68.3% (380) bps which have a lower margin profile than sensors, and increased manufacturing complexity associated with COVID-19. SG&A Expense 32.2% 34.7% (250) bps R&D Expense 10.4% 10.6% (20) bps Lower SG&A and R&D spend as a % of revenue driven by strong sales growth, which enabled operating leverage across the global Operating Expenses 42.6% 45.3% (270) bps organization while at the same time increasing our investments in R&D, marketing, and advertising. Operating Margin 21.9% 23.0% (110) bps Driven by an increase in compensation related non-deductible Tax Rate 24.2% 22.4% 180 bps items partially offset by an in increase in R&D tax credit Non-GAAP EPS $0.80 $0.76 5.3% (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. May not foot due to rounding.

 
Third Quarter 2020 Results – Non-GAAP(1) Non-GAAP(1) Non-GAAP(1) Product Revenue Operating Margin EPS $278M 23.0% $229M 21.9% $0.80 $0.76 Constant Currency +21.1%Growth(1) (110) bps +5.3% Q3 2019 Q3 2020 Q3 2019 Q3 2020 Q3 2019 Q3 2020 (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information.

 
Full Year 2020 Financial Guidance  Total revenue, including royalty and other revenue, of $1,128 million Revenue  Product revenue increasing 20.5% to $1,128 million on a reported and constant currency basis(1)  GAAP operating margin of 22.5% Profitability  Non-GAAP operating margin(1) of 23.0%  GAAP EPS of $3.77 per diluted share EPS  Non-GAAP EPS(1) of $3.46 per diluted share (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information.

 
Full Year 2020 Financial Guidance – GAAP(1) (in millions; except % and EPS) FY 2020 FY 2019 vs. Prior Year Comments Revenue $1,128.0 $937.8 20.3% Increased demand driven by higher volumes of technology boards and instruments. Gross margin decrease due to a higher than usual proportion of revenue coming from our technology boards and instruments, which have a lower margin profile than sensors and Gross Margin 65.6% 67.1% (150) bps increased manufacturing complexity associated with COVID-19, partially offset by manufacturing cost improvements. Lower SG&A and R&D spend as a % of revenue driven by strong sales growth, which Operating Expenses 43.1% 43.5% (40) bps enabled operating leverage across the global organization while at the same time increasing our investments in R&D, marketing, and advertising. Operating Margin 22.5% 23.6% (110) bps GAAP tax rate includes excess tax benefits from stock based compensation, which were Tax Rate 15.4% 16.2% (80 bps) $21.7M in FY 2020 compared to $15.7M in FY 2019. GAAP EPS $3.77 $3.44 9.6% (1) May not foot due to rounding.

 
Full Year 2020 Financial Guidance – Non-GAAP(1) vs. Prior Year Constant (in millions; except % and EPS) FY 2020 FY 2019 Reported Comments Currency Increased demand driven by higher volumes of technology boards and Revenue $1,128.0 $936.4 20.5% 20.5% instruments. Gross margin decrease due to a higher than usual proportion of revenue coming from our technology boards and instruments, which Gross Margin 65.7% 67.1% (140) bps have a lower margin profile than sensors and increased manufacturing complexity associated with COVID-19, partially offset by manufacturing cost improvements. Lower SG&A and R&D spend as a % of revenue driven by strong sales growth, which enabled operating leverage across the global Operating Expenses 42.7% 43.1% (40) bps organization, while at the same time increasing our investments in R&D, marketing, and advertising. Operating Margin 23.0% 24.0% (100) bps Driven by an increase in compensation related non-deductible items Tax Rate 23.8% 22.8% 100 bps partially offset by an in increase in R&D tax credit Non-GAAP EPS $3.46 $3.22 7.5% (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. May not foot due to rounding.

 
Full Year 2020 Financial Guidance – Non-GAAP(1) Non-GAAP(1) Non-GAAP(1) Product Revenue Operating Margin EPS $1,128M 24.0% $3.46 23.0% $3.22 $936M Constant Currency +20.5%Growth(1) (100) bps +7.5% FY 2019 FY 2020 FY 2019 FY 2020 FY 2019 FY 2020 (1) Non-GAAP measures shown have been adjusted for certain items that are fully described in the Appendix. Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information.

 
APPENDICES Improving Patient Outcomes GAAP to Non-GAAP Reducing the Cost of Care® Adjustments and Reconciliations

 
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. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating our product revenue growth rates on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and the related constant currency adjustments for calculation of our product revenue growth rate will continue to occur in future periods. Royalty and other revenue, net of related costs We derive royalty and other revenue, net of related costs, associated with certain non-recurring contractual arrangements that we do not expect to continue in the future. We believe the exclusion of royalty and other revenue, net of related costs, associated with these certain non-recurring revenue streams is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Acquisition/strategic investment-related costs, including depreciation and amortization Depreciation and amortization related to the revaluation of assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) to fair value through purchase accounting related to value created by the seller prior to the acquisition/strategic investment rather than ongoing costs of operating our core business. As a result, we believe that exclusion of these costs in presenting non-GAAP financial measures provides management and investors a more effective means of evaluating historical performance and projected costs and the potential for realizing cost efficiencies within our core business. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods. In the event the Company acquires, invests in or divests certain business operations, there may be non-recurring gains, losses or expenses that will be recognized related to the assets and/or liabilities sold or acquired that are not representative of normal on-going cash flows. These gains, losses or expenses are excluded from non-GAAP earnings. Litigation damages, awards and settlements In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds. We believe that exclusion of these gains (netofanyrelatedcosts incurred in the period the award or settlement is recognized) and losses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or infrequent in nature.

 
Description of Non-GAAP Adjustments 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 and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods. Excess tax benefits from stock-based compensation Current authoritative accounting guidance requires that excess tax benefits or costs recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. Since we cannot control or predict when stock option awards will be exercised or the price at which such awards will be exercised, the impact of such guidance can create significant volatility in our effective tax rate from one period to the next. We believe that exclusion of these excess tax benefits or costs is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. These excess tax benefits or costs will generally recur in future periods as long as we continue to issue equity awards to our employees. Tax impacts that may not be representative of the ongoing results of our core operations The Tax Cuts and Jobs Act of 2017 (2017 Tax Act) was signed into law in December 2017, and became effective January 1, 2018. The 2017 Tax Act included a number of changes to existing U.S. federal tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%, a one-time transition tax on the “deemed repatriation” of cumulative undistributed foreign earnings as of December 31, 2017 and changes in the prospectivetaxationofthe foreign operations of U.S. multinational companies. From time to time, we may also record tax benefits relating to the de-recognition of uncertain tax positions due to the expiration of the statutes of limitations. During the twelve months ended December 29, 2018, we recorded a significant tax benefit due to the expiration of the applicable statutes of limitations related to certain non-recurring transactions. We believe that exclusion of the tax charges related to the 2017 Tax Act and the tax benefit resulting from the expiration of certain statutes of limitations related to non- recurring transactions is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these tax items are unrelated to our core business and non-recurring in nature. Adjusted Free Cash Flow Represents free cash flow (cash flow from operations less cash used for the purchase of property, plant and equipment) adjusted for the impact of cash receipts or payments relating to certain previously described non-GAAP adjustments, which may impact period over period comparability.

 
Constant Currency Product Revenue(1),(2) RECONCILIATION OF GAAP PRODUCT REVENUE GROWTH TO CONSTANT CURRENCY PRODUCT REVENUE GROWTH (in thousands, except percentages) 2020 Full Year Q3 2019 FY 2019 Q3 2020 Guidance (3) GAAP product revenue $ 228,916 $ 936,408 $ 278,112 $ 1,128,000 Constant currency F/X adjustments N/A N/A (815) - Constant currency (non-GAAP) product revenue $ 228,916 $936,408 $ 277,298 $ 1,128,000 GAAP product revenue growth 21.5% 20.5% Constant currency (non-GAAP) product revenue growth 21.1% 20.5% (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding. (3) Updated for most recent guidance provided on October 27, 2020.

 
Non-GAAP Gross Margin %(1),(2) RECONCILIATION OF GAAP GROSS PROFIT/MARGIN TO NON-GAAP GROSS PROFIT/MARGIN: (in thousands, except percentages) 2020 Full Year Q3 2019 FY 2019 Q3 2020 Guidance (3) GAAP gross profit/margin$ 156,268 $ 629,172 $ 178,926 $ 739,500 Non-GAAP adjustments: Royalty and other revenue, net of related costs (57) (1,262) - - Acquisition & investment related costs 114 511 409 1,900 Total non-GAAP gross profit/margin adjustments 57 (751) 409 1,900 Non-GAAP gross profit/margin$ 156,325 $ 628,421 $ 179,336 $ 741,400 Non-GAAP gross margin % (4) 68.3% 67.1% 64.5% 65.7% (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding. (3) Updated for most recent guidance provided on October 27, 2020. (4) Calculated as a percentage of product revenue.

 
Non-GAAP Operating Expense %(1),(2) RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES: (in thousands, except percentages) 2020 Full Year Q3 2019 FY 2019 Q3 2020 Guidance (3) GAAP selling, general and administrative operating expenses$ 80,354 $ 314,661 $ 90,376 Non-GAAP adjustments: Acquisition & investment related costs (983) (4,218) (838) Non-GAAP selling, general and administrative operating expenses $ 79,371 $ 310,443 $ 89,538 Non-GAAP selling, general and administrative operating expenses % (4) 34.7% 33.2% 32.2% GAAP research and development operating expenses$ 24,282 $ 93,295 $ 28,852 Non-GAAP adjustments: Acquisition & investment related costs - - (30) Non-GAAP research and development operating expenses$ 24,282 $ 93,295 $ 28,822 Non-GAAP research and development operating expenses % (4) 10.6% 10.0% 10.4% GAAP litigation settlement, award and/or defense costs$ - $ - $ - Non-GAAP adjustments: Litigation damages, awards and settlements - - - Non-GAAP litigation settlement, award and/or defense costs$ - $ - $ - GAAP operating expenses$ 104,636 $ 407,956 $ 119,228 $ 486,300 Non-GAAP adjustments: Acquisition & investment related costs (983) (4,218) (868) (5,000) Litigation damages, awards and settlements - - - 500 Total non-GAAP operating expense adjustments (983) (4,218) (868) 4,600 Non-GAAP operating expenses$ 103,653 $ 403,738 $ 118,360 $ 481,700 Non-GAAP operating expenses % (4) 45.3% 43.1% 42.6% 42.7% (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding. (3) Updated for most recent guidance provided on October 27, 2020. (4) Calculated as a percentage of product revenue.

 
Non-GAAP Operating Margin %(1),(2) RECONCILIATION OF GAAP OPERATING INCOME/MARGIN TO NON-GAAP OPERATING INCOME/MARGIN: (in thousands, except percentages) 2020 Full Year Q3 2019 FY 2019 Q3 2020 Guidance (3) GAAP operating income/margin$ 51,632 $ 221,216 $ 59,698 $ 253,300 Non-GAAP adjustments: Royalty and other revenue, net of related costs (57) (1,262) - - Acquisition & investment related costs 1,098 4,729 1,277 6,900 Litigation damages, awards and settlements - - - (500) Total non-GAAP operating income/margin adjustments 1,040 3,467 1,277 6,400 Non-GAAP operating income/margin$ 52,671 $ 224,683 $ 60,975 $ 259,700 Non-GAAP operating income % (4) 23.0% 24.0% 21.9% 23.0% (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding. (3) Updated for most recent guidance provided on October 27, 2020. (4) Calculated as a percentage of product revenue.

 
Non-GAAP Net Income and Diluted EPS(1),(2) RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME: (in thousands, except percentages) 2020 Full Year Q3 2019 FY 2019 Q3 2020 Guidance (3) GAAP net income $ 49,085 $ 196,216 $ 49,405 $ 219,400 Non-GAAP adjustments: Royalty and other revenue, net of related costs (57) (1,262) - - Acquisition & investment related costs: Cost of goods sold 114 511 409 1,900 Operating expenses 983 4,218 868 5,000 Subtotal - Acquisition & investment related costs 1,098 4,729 1,277 6,900 Litigation damages, awards and settlements Operating expenses - - - (500) Non-operating other (income) expense: Realized and unrealized foreign currency gains or losses 856 627 (647) (1,200) # Tax impact of non-GAAP net income adjustments (303) (689) (202) (1,300) 980Excess tax benefits from stock-based compensation (7,020) (15,692) (3,076) (21,700) Total non-GAAP net income adjustments (5,427) (12,286) (2,649) (17,800) Non-GAAP net income$ 43,657 $ 183,930 $ 46,756 $ 201,600 Non-GAAP net income per diluted share$ 0.76 $ 3.22 $ 0.80 $ 3.46 (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding. (3) Updated for most recent guidance provided on October 27, 2020.

 
Adjusted Free Cash Flow(1),(2) RECONCILIATION OF FREE CASH FLOW TO ADJUSTED FREE CASH FLOW (in thousands, except percentages) Q3 2019 FY 2019 Q3 2020 Net cash provided by operating activities Net cash provided by operating activities$ 50,637 $ 221,640 $ 40,478 Purchases of property and equipment, net (8,741) (68,375) (8,747) Free cash flow 41,896 153,265 31,731 Litigation damages, awards and settlements - - - Tax payments related to litigation awards and damages - - - Adjusted free cash flow $ 41,896 $ 153,265 $ 31,731 (1) Please visit the Investor Relations section of the Company’s website at www.masimo.com to access additional information related to our Non-GAAP adjustments and Supplementary Financial Information. (2) Reported amounts may vary from amounts previously reported due to rounding conventions; Note items may not foot due to rounding.

 
MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2) All statements other than statements of historical facts included in this Supplemental Non-GAAP information 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 expectations for full fiscal year GAAP and non-GAAP 2020 total revenue, product revenue, royalty and other revenues, gross profit/margin, selling, general and administrative operating expenses, research and development operating expenses, litigation settlement, award and/or defense costs, operating expenses, operating income/margin, net income, diluted earnings per share, non-operating income, provision for income taxes, adjusted free cash flow; our long-term outlook; demand for our products; anticipated revenue and earnings growth; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management’s current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET® and Masimo rainbow SET™ products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors’ assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; and other factors discussed in the “Risk Factors” section of our most recent periodic reports filed with the Securities and Exchange Commission (“SEC”), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC’s website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. For additional information related to the definitions of our Non-GAAP measures, please visit the Investor Relations section of the Company's website at www.masimo.com. Page 1

 
MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2) GAAP TOTAL REVENUE 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP revenue Product revenue$ 738,242 $ 204,389 $ 202,004 $ 202,068 $ 221,413 $ 829,874 $ 230,548 $ 229,510 $ 228,916 $ 247,434 $ 936,408 $ 269,625 $ 300,953 $ 278,112 $ 1,128,000 Royalty and other revenue 52,006 8,564 9,617 8,515 1,719 28,415 1,116 142 95 76 1,429 - - - - GAAP total revenue $ 790,248 $ 212,953 $ 211,621 $ 210,583 $ 223,132 $ 858,289 $ 231,664 $ 229,652 $ 229,011 $ 247,510 $ 937,837 $ 269,625 $ 300,953 $ 278,112 $ 1,128,000 RECONCILIATION OF GAAP GROSS PROFIT/MARGIN TO NON-GAAP GROSS PROFIT/MARGIN: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP gross profit/margin$ 522,032 $ 143,661 $ 142,147 $ 140,753 $ 148,331 $ 574,892 $ 151,642 $ 154,339 $ 156,268 $ 166,923 $ 629,172 $ 185,629 $ 191,584 $ 178,926 $ 739,500 Non-GAAP adjustments: Royalty and other revenue, net of related costs (48,384) (8,390) (9,415) (8,364) (1,535) (27,704) (1,048) (111) (57) (45) (1,262) - - - - Acquisition & investment related costs 500 114 114 114 114 458 114 114 114 167 511 373 578 409 1,900 Total non-GAAP gross profit/margin adjustments (47,884) (8,275) (9,300) (8,250) (1,421) (27,246) (934) 3 57 122 (751) 373 578 409 1,900 Non-GAAP gross profit/margin $ 474,147 $ 135,386 $ 132,847 $ 132,503 $ 146,910 2 $ 547,645 $ 150,708 $ 154,343 $ 156,325 $ 167,046 $ 628,421 $ 186,001 $ 192,163 $ 179,336 $ 741,400 Non-GAAP gross margin % (4) 64.2% 66.2% 65.8% 65.6% 66.4% 66.0% 65.4% 67.2% 68.3% 67.5% 67.1% 69.0% 63.9% 64.5% 65.7% RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING EXPENSES: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP selling, general and administrative operating expenses$ 273,011 $ 70,217 $ 70,450 $ 71,037 $ 73,713 $ 285,417 $ 74,204 $ 78,160 $ 80,354 $ 81,943 $ 314,661 $ 89,877 $ 98,461 $ 90,376 Non-GAAP adjustments: Acquisition & investment related costs (1,097) (246) (246) (246) (246) (984) (246) (1,022) (983) (1,968) (4,218) (2,049) (711) (838) Non-GAAP selling, general and administrative operating expenses$ 271,915 $ 69,971 $ 70,203 $ 70,791 $ 73,467 $ 284,433 $ 73,958 $ 77,138 $ 79,371 $ 79,976 $ 310,443 $ 87,828 $ 97,750 $ 89,538 Non-GAAP selling, general, and administrative operating expenses % (4) 36.8% 34.2% 34.8% 35.0% 33.2% 34.3% 32.1% 33.6% 34.7% 32.3% 33.2% 32.6% 32.5% 32.2% GAAP research and development operating expenses$ 65,234 $ 19,559 $ 20,085 $ 20,575 $ 20,788 $ 81,006 $ 21,415 $ 24,175 $ 24,282 $ 23,423 $ 93,295 $ 27,241 $ 30,878 $ 28,852 Non-GAAP adjustments: Acquisition & investment related costs - - - - - - - - - - - (25) (24) (30) Non-GAAP research and development operating expenses$ 65,233 $ 19,559 $ 20,085 $ 20,575 $ 20,788 $ 81,006 $ 21,415 $ 24,175 $ 24,282 $ 23,423 $ 93,295 $ 27,215 $ 30,854 $ 28,822 Non-GAAP research and development operating expenses % (4) 8.8% 9.6% 9.9% 10.2% 9.4% 9.8% 9.3% 10.5% 10.6% 9.5% 10.0% 10.1% 10.3% 10.4% GAAP litigation settlement, award and/or defense costs$ - $ - $ - $ 500 $ (75) $ 425 $ - $ - $ - $ - $ - $ (499) $ 25 $ - Non-GAAP adjustments: Litigation damages, awards and settlements - - - (500) 75 (425) - - - - - 499 (25) - Non-GAAP litigation settlement, award and/or defense costs$ - $ - $ - $ - $ - $ - 4 $ - $ - $ - $ - $ - 4 $ - $ - $ - GAAP operating expenses $ 338,245 $ 89,776 $ 90,535 $ 92,112 $ 94,425 $ 366,848 $ 95,619 $ 102,335 $ 104,636 - $ 105,366 - $ 407,956 $ 116,619 $ 129,364 $ 119,228 $ 486,300 Non-GAAP adjustments: Acquisition & investment related costs (1,097) (246) (246) (246) (246) (984) (246) (1,022) (983) (1,968) (4,218) (2,075) (735) (868) (5,000) Litigation damages, awards and settlements - - - (500) 75 (425) - - - - - 499 (25) - 500 Total non-GAAP operating expense adjustments (1,097) (246) (246) (746) (171) (1,409) (246) (1,022) (983) (1,968) (4,218) (1,576) (760) (868) 4,600 Non-GAAP operating expenses$ 337,149 $ 89,530 $ 90,288 $ 91,366 $ 94,255 $ 365,439 $ 95,374 $ 101,312 $ 103,653 $ 103,398 $ 403,738 $ 115,043 $ 128,604 $ 118,360 $ 481,700 Non-GAAP operating expenses % (4) 45.7% 43.8% 44.7% 45.2% 42.6% 44.0% 41.4% 44.1% 45.3% 41.8% 43.1% 42.7% 42.7% 42.6% 42.7% Page 2

 
MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2) RECONCILIATION OF GAAP OPERATING INCOME/MARGIN TO NON-GAAP OPERATING INCOME/MARGIN: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP operating income/margin$ 183,787 $ 53,885 $ 51,612 $ 48,641 $ 53,906 $ 208,044 $ 56,023 $ 52,004 $ 51,632 $ 61,557 $ 221,216 $ 69,010 $ 62,220 $ 59,698 $ 253,300 Non-GAAP adjustments: Royalty and other revenue, net of related costs (48,384) (8,390) (9,415) (8,364) (1,535) (27,704) (1,048) (111) (57) (45) (1,262) - - - - Acquisition & investment related costs 1,597 361 361 361 361 1,442 361 1,136 1,098 2,135 4,729 2,447 1,313 1,277 6,900 Litigation damages, awards and settlements - - - 500 (75) 425 - - - - - (499) 25 - (500) Total non-GAAP operating income/margin adjustments (46,787) (8,029) (9,054) (7,504) (1,250) (25,837) (688) 1,025 1,040 2,090 3,467 1,948 1,338 1,277 6,400 Non-GAAP operating income/margin $ 136,999 $ 45,856 $ 42,559 $ 41,136 $ 52,655 $ 182,206 $ 55,334 $ 53,030 $ 52,671 $ 63,647 $ 224,683 $ 70,958 $ 63,558 $ 60,975 $ 259,700 Non-GAAP operating income % (4) 18.6% 22.4% 21.1% 20.4% 23.8% 22.0% 24.0% 23.1% 23.0% 25.7% 24.0% 26.3% 21.1% 21.9% 23.0% RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP net income$ 124,789 $ 45,630 $ 43,853 $ 57,126 $ 46,934 $ 193,543 $ 49,322 $ 44,888 $ 49,085 $ 52,921 $ 196,216 $ 64,456 $ 55,772 $ 49,405 $ 219,400 Non-GAAP adjustments: Royalty and other revenue, net of related costs (48,384) (8,390) (9,415) (8,364) (1,535) (27,704) (1,048) (111) (57) (45) (1,262) - - - - Acquisition & investment related costs: Cost of goods sold 500 114 114 114 114 458 114 114 114 167 511 373 578 409 1,900 Operating expenses 1,097 246 246 246 246 984 246 1,022 983 1,968 4,218 2,075 735 868 5,000 Subtotal - Acquisition & investment related costs 1,597 361 361 361 361 1,442 361 1,136 1,098 2,135 4,729 2,447 1,313 1,277 6,900 Litigation damages, awards and settlements Operating expenses - - - 500 (75) 425 - - - - - (499) 25 - (500) Non-operating other (income) expense: Realized and unrealized foreign currency gains or losses 270 (1,113) 566 1,311 1,263 2,027 (534) (7) 856 312 627 (588) (11) (647) (1,200) # Tax impact of non-GAAP net income adjustments 16,100 2,101 2,344 1,599 (513) 5,532 359 (179) (303) (566) (689) (318) (361) (202) (1,300) Expiration of certain statues of limitation related to unique and non-recurring tax positions - - - (4,169) - (4,169) - - - - - - - - - 9800Excess tax benefits from stock-based compensation (39,242) (3,148) (3,947) (14,647) (294) (22,036) (3,432) (2,608) (7,020) (2,631) (15,692) (9,609) (7,486) (3,076) (21,700) 2017 U.S. Tax Reform 41,392 16 - (16) (675) (675) - - - - - - - - - Total non-GAAP net income adjustments (28,267) (10,173) (10,091) (23,425) (1,468) (45,157) (4,294) (1,768) (5,427) (796) (12,286) (8,568) (6,519) (2,649) (17,800) Non-GAAP net income $ 96,520 $ 35,457 $ 33,763 $ 33,701 $ 45,465 $ 148,385 $ 45,027 $ 43,120 $ 43,657 $ 52,126 $ 183,930 $ 55,889 $ 49,253 $ 46,756 $ 201,600 Page 3

 
MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2) RECONCILIATION OF GAAP NET INCOME PER DILUTED SHARE TO NON-GAAP NET INCOME PER DILUTED SHARE: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP net income per diluted share $ 2.23 $ 0.82 $ 0.79 $ 1.02 $ 0.83 $ 3.45 $ 0.87 $ 0.79 $ 0.86 $ 0.92 $ 3.44 $ 1.12 $ 0.96 $ 0.85 $ 3.77 Non-GAAP adjustments: Royalty and other revenue, net of related costs (0.87) (0.15) (0.17) (0.15) (0.03) (0.49) (0.02) (0.00) (0.00) (0.00) (0.02) - - - - Acquisition & investment related costs 0.03 0.01 0.01 0.01 0.01 0.03 0.01 0.02 0.02 0.04 0.08 0.04 0.02 0.02 0.12 Litigation damages, awards and settlements - - - 0.01 (0.00) 0.01 - - - - - (0.01) 0.00 - (0.01) Realized and unrealized foreign currency gains or losses 0.00 (0.02) 0.01 0.02 0.02 0.04 (0.01) (0.00) 0.01 0.01 0.01 (0.01) (0.00) (0.01) (0.02) Tax impact of non-GAAP net income adjustments 0.29 0.04 0.04 0.03 (0.01) 0.10 0.01 (0.00) (0.01) (0.01) (0.01) (0.01) (0.01) (0.00) (0.02) Expiration of certain statues of limitation related to unique and non-recurring tax positions - - - (0.07) - (0.07) - - - - - - - - - 9800Excess tax benefits from stock-based compensation (0.70) (0.06) (0.07) (0.26) (0.01) (0.39) (0.06) (0.05) (0.12) (0.05) (0.27) (0.17) (0.13) (0.05) (0.37) 2017 U.S. Tax Reform 0.74 0.00 - (0.00) (0.01) (0.01) - - - - - - - - - Total non-GAAP net income per diluted share adjustments (0.51) (0.18) (0.18) (0.42) (0.03) (0.81) (0.08) (0.03) (0.09) (0.01) (0.22) (0.15) (0.11) (0.05) (0.31) Non-GAAP net income per diluted share$ 1.73 $ 0.64 $ 0.61 $ 0.60 $ 0.81 $ 2.65 $ 0.79 $ 0.76 $ 0.76 $ 0.91 $ 3.22 $ 0.97 $ 0.85 $ 0.80 $ 3.46 Weighted average shares outstanding - diluted 55,874 55,495 55,742 56,237 56,449 56,039 56,799 57,066 57,262 57,267 57,100 57,585 58,204 58,280 58,200 RECONCILIATION OF GAAP NON-OPERATING INCOME (EXPENSE) TO NON-GAAP NON-OPERATING INCOME (EXPENSE): 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP Non-operating income (expense)$ 2,013 $ 1,647 $ 1,405 $ 1,028 $ 1,652 $ 5,732 $ 3,886 $ 3,529 $ 2,723 $ 2,812 $ 12,950 $ 3,346 $ 1,405 $ 1,357 $ 6,100 Non-GAAP adjustments: Realized and unrealized foreign currency gains or lossesh 270 (1,113) 566 1,311 1,263 2,027 (534) (7) 856 312 627 (588) (11) (647) (1,200) Non-GAAP non-operating income (expense) $ 2,283 $ 535 $ 1,970 $ 2,340 $ 2,915 $ 7,760 $ 3,351 $ 3,522 $ 3,579 $ 3,124 $ 13,577 $ 2,758 $ 1,394 $ 710 $ 4,900 RECONCILIATION OF GAAP PROVISION FOR INCOME TAXES TO NON-GAAP PROVISION FOR INCOME TAXES: 2020 Full Year FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Guidance(3) GAAP provision for income taxes$ 61,011 $ 9,902 $ 9,164 $ (7,457) $ 8,624 $ 20,233 $ 10,587 $ 10,645 $ 5,270 $ 11,448 $ 37,950 $ 7,900 $ 7,853 $ 11,650 $ 40,000 Non-GAAP adjustments: Excess tax benefits from stock-based compensation 39,242 3,148 3,947 14,647 294 22,036 3,432 2,608 7,020 2,631 15,692 9,609 7,486 3,076 21,700 Tax impact of pre-tax non-GAAP adjustments (16,100) (2,101) (2,344) (1,599) 513 (5,532) (359) 179 303 566 689 318 361 202 1,300 Expiration of certain statues of limitation related to unique and non-recurring tax positions - - - 4,169 - 4,169 - - - - - - - - - 2017 U.S. Tax Reform (41,392) (16) - 16 675 675 - - - - - - - - - Total non-GAAP provision for income tax adjustments (18,250) 1,031 1,602 17,233 1,482 21,348 3,072 2,787 7,324 3,198 16,381 9,928 7,846 3,279 23,000 Non-GAAP provision for income taxes $ 42,761 $ 10,934 $ 10,766 $ 9,775 $ 10,105 $ 41,580 $ 13,659 $ 13,433 $ 12,593 $ 14,646 $ 54,331 $ 17,828 $ 15,699 $ 14,929 $ 63,000 Page 4

 
MASIMO CORPORATION SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2) RECONCILIATION OF FREE CASH FLOW TO ADJUSTED FREE CASH FLOW FY 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 FY 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 FY 2019 Q1 2020 Q2 2020 Q3 2020 Net cash provided by operating activities Net cash provided by operating activities$ 56,062 $ 71,995 $ 55,904 $ 48,406 $ 63,222 $ 239,527 $ 42,468 $ 58,311 $ 50,637 $ 70,224 $ 221,640 $ 42,355 $ 63,712 $ 40,478 Purchases of property and equipment, net (43,684) (3,788) (5,642) (2,869) (4,827) (17,126) (6,963) (40,360) (8,741) (12,311) (68,375) (37,004) (14,266) (8,747) Free cash flow 12,378 68,207 50,262 45,537 58,395 222,401 35,505 17,951 41,896 57,913 153,265 5,351 49,446 31,731 Litigation damages, awards and settlements - - - - - - - - - - - (499) - - Tax payments related to litigation awards and damages 74,201 - - - - - - - - - - - - - Adjusted free cash flow $ 86,579 $ 68,207 $ 50,262 $ 45,537 $ 58,395 $ 222,401 $ 35,505 $ 17,951 $ 41,896 $ 57,913 $ 153,265 $ 4,852 $ 49,446 $ 31,731 (1) Totals may not foot due to rounding (2) Quarterly reported amounts may vary from amounts previously reported due to rounding conventions. (3) Updated for most recent guidance provided on October 27, 2020 (4) Calculated as a percentage of Product Revenue Page 5

 
Non-GAAP Measures, Adjustments and Definitions Updated 10/27/20 © 2019 Masimo

 
Forward-Looking Statements Masimo Corporation (“Masimo,” “MASI,” or the “Company”) cautions you that statements included in this presentation that are not a description of historical facts are forward-looking statements that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause the Company’s results to differ materially and adversely from historical results or those expressed or implied by such forward-looking statements. Further information on Masimo’s disclaimer and forward-looking statements and the potential risks and uncertainties that could cause actual results to differ materially are more fully described in the Company’s press releases and periodic filings with the Securities and Exchange Commission. © 2019 Masimo

 
Non-GAAP Measures & Adjustments Management uses certain non-GAAP financial measures such as constant currency product revenue growth, non-GAAP gross profit/margin %, non-GAAP SG&A expense %, non-GAAP R&D expense %, non- GAAP litigation settlement, award and/or defense costs, non-GAAP operating expense %, non-GAAP operating income/margin %, non-GAAP provision for income taxes/tax rate, non-GAAP net income, non- GAAP net income per diluted share, and adjusted free cash flow. These non-GAAP financial measures may include certain adjustments related to the following items: > Constant currency > Royalty and other revenue, net of related costs > Acquisition-related costs such as amortization, depreciation, contingent consideration revaluation and asset/liability re-measurements > Litigation damages, awards and settlements > In process research and development (IPR&D) expenses or impairments > Acquisition, strategic investment and divestiture related gains, losses or expenses > Integration related charges > Acquired intangible assets impairment > Business consolidation costs > Realized and unrealized gains or losses from foreign currency transactions > Charges associated with the early repayment of debt and non-cash interest expense > Gains or losses related to certain significant non-recurring events > Tax charges and benefits associated with the above exclusions > Tax impacts that may not be representative of the ongoing results of our core operations > Excess tax benefits from stock-based compensation expense (ASU No. 2016-09) > Dilutive share impact related to certain financial instruments © 2019 Masimo

 
Non-GAAP Measures & Adjustments (continued) The Company also uses non-GAAP liquidity measures such as adjusted free cash flow, which excludes certain cash items related to the foregoing that may impact period over period comparability, and adjusted EBITDA, which excludes non-cash stock based compensation expense. Management calculates the non-GAAP financial measures excluding these items and uses these non-GAAP financial measures to enable it to further and more consistently analyze the period-to-period financial performance of its core business operations, which are generally designated as “non-GAAP …” measures herein. Management believes that providing investors with these non-GAAP financial measures gives investors additional information to enable them to assess, in the same way management assesses, the Company’s current and future core operating performance. These non-GAAP financial measures have certain limitations in that they do not reflect all of the costs associated with the operations of the Company’s business as determined in accordance with GAAP. Therefore, investors should consider these non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. The non-GAAP financial measures presented by the Company may be different from the non-GAAP financial measures used by other companies. Reconciliations of the non-GAAP financial measures to the comparable GAAP financial measures can be found on the Investor Relations section of the Company’s website. © 2019 Masimo

 
Non-GAAP Definitions > Constant currency revenue adjustments  Some of our sales agreements with foreign customers provide for payment in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary significantly from period to period depending on the average and quarter-end exchange rates during a respective period. We believe that comparing these foreign currency denominated revenues by holding the exchange rates constant with the prior year period is useful to management and investors in evaluating our product revenue growth rates on a period-to-period basis. We anticipate that fluctuations in foreign exchange rates and the related constant currency adjustments for calculation of our product revenue growth rate will continue to occur in future periods. > Royalty and other revenue, net of related costs  We derive royalty and other revenue, net of related costs, from certain non-recurring contractual arrangements that we do not expect to continue in the future. We believe the exclusion of royalty and other revenue, net of related costs, associated with these non-recurring revenue streams is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. > Acquisition-related costs such as amortization, depreciation, contingent consideration revaluation and asset/liability re-measurements  Relates to establishing assets and liabilities (primarily intangible assets, property, plant and equipment adjustments, inventory revaluation, lease liabilities, etc.) through purchase accounting. These items, which do not represent normal ongoing business cash flows, are excluded from non-GAAP earnings. Depreciation and amortization related to the revaluation of acquisition related assets and liabilities will generally recur in future periods. © 2019 Masimo

 
Non-GAAP Definitions (continued) > Litigation damages, awards and settlements  In connection with litigation proceedings arising in the course of our business, we have recorded expenses as a defendant in such proceedings in the form of damages, as well as gains as a plaintiff in such proceedings in the form of litigation awards and settlement proceeds. We believe that exclusion of these gains (net of any related costs incurred in the period the award or settlement is recognized) and losses is useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. In this regard, we note that these expenses and gains are generally unrelated to our core business and/or infrequent in nature. > In process research and development (IPR&D) expenses or impairments  Certain expenses are considered in process research and development. In acquiring these through an acquisition, they are reflected on the balance sheet as an intangible asset until the related project is completed or abandoned. In the event of completion, it is either amortized or written off as IPR&D expense. In addition, in asset purchases, the cost of acquiring IPR&D is expensed immediately unless a future alternative use can be identified. These costs are excluded from non-GAAP earnings. > Acquisition, strategic investment and divestiture related gains, losses or expenses  In the event the Company acquires, invests in or divests certain business operations, there may be non-recurring gains, losses or expenses that will be recognized related to the assets and/or liabilities sold or acquired that are not representative of normal on-going cash flows. These gains, losses or expenses are excluded from non-GAAP earnings. © 2019 Masimo

 
Non-GAAP Definitions (continued) > Integration related charges  As part of acquiring and divesting businesses, the Company may take actions that are considered non-recurring in nature to integrate the acquired business into the current Company structure as well as modify the current Company structure to account for the divested business. The costs that will be considered integration-related will be those costs not related to the on-going business, but rather, will be those costs that are considered non-recurring in the normal operations of the business and are excluded from non-GAAP earnings. > Acquired intangible assets impairment  As needed, the Company will perform impairment tests related to intangible assets and assess whether the recoverability is less than the carrying value. In the event there is an intangible asset impairment, the Company may exclude these charges from non-GAAP earnings. > Business consolidation costs  The Company, from time to time may enter into restructuring plans and incur costs along these lines, in order to rationalize footprint, product lines and re-adjust employee levels to optimize business results, and may accordingly exclude these costs from non-GAAP earnings. > Charges associated with the early repayment of debt and non-cash interest expense  The Company may enter into convertible debt arrangements whereby certain instrument features are valued and expensed accordingly but are not necessarily indicative of the on-going cash flow generation of the Company and therefore excludes these costs from non-GAAP earnings. © 2019 Masimo

 
Non-GAAP Definitions (continued) > 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 and other operating expenses. As the Company does not actively hedge these currency exposures, changes in the underlying currency rates relative to the U.S. Dollar may result in realized and unrealized foreign currency gains and losses between the time these receivables and payables arise and the time that they are settled in cash. Since such realized and unrealized foreign currency gains and losses are the result of macro-economic factors and can vary significantly from one period to the next, we believe that exclusion of such realized and unrealized gains and losses are useful to management and investors in evaluating the performance of our ongoing operations on a period-to-period basis. Realized and unrealized foreign currency gains and losses are likely to recur in future periods. > Gains or losses related to certain significant non-recurring events  In the event there are non-recurring items which impact period over period comparability and do not represent the underlying ongoing results of the business, the Company may choose to exclude these from non-GAAP earnings. > Tax charges and benefits associated with the above exclusions  In order to reflect the tax effected impact of the non-GAAP adjustments, the Company will adjust the non-GAAP earnings by the approximate tax impact of these adjustments. > Tax impacts that may not be representative of the ongoing results of the core operations  In the event there are non-recurring tax events that impact period over period comparability and do not represent the underlying ongoing results of the core operations, the Company may choose to exclude these from non-GAAP earnings. © 2019 Masimo

 
Non-GAAP Definitions (continued) > Excess tax benefits from stock-based compensation expense  GAAP requires that excess tax benefits recognized on stock-based compensation expense be reflected in our provision for income taxes rather than paid-in capital. As these excess tax benefits may be highly variable from period to period, the Company may choose to exclude these tax benefits from non-GAAP earnings to facilitate comparability between periods and with peers. > Dilutive share impact related to certain financial instruments  The Company may enter into certain financial instruments with potential dilutive effects for earnings per share purposes. For GAAP diluted earnings per share purposes, the Company cannot reflect the anti-dilutive impact, if applicable, in its diluted shares calculations. However, the Company believes that reflecting the anti-dilutive impact of these instruments in non-GAAP diluted earnings per share provides management and investors with useful information in evaluating the financial performance of the Company on a per share basis. > Adjusted Free Cash Flow  Represents free cash flow (cash flow from operations less cash used for the purchase of property, plant and equipment) adjusted for the impact of cash receipts or payments relating to certain previously described non-GAAP adjustments, which may impact period over period comparability. > Adjusted EBITDA  Represents earnings before non-operating income/expense, taxes, depreciation and amortization, as adjusted for the applicable non-GAAP adjustments previously described, and further excluding non-cash stock based compensation expense. © 2019 Masimo