Document
false0000937556 0000937556 2020-02-19 2020-02-19


 
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): February 19, 2020
masimologoq32019b.jpg
MASIMO CORPORATION
(Exact name of registrant as specified in its charter)
________________________________________________
DE
 
001-33642
 
33-0368882
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
52 Discovery
 
Irvine
,
CA
 
 
 
 
92618
(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 class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
MASI
 
The 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 February 19, 2020, Masimo Corporation (the “Company”) issued a press release announcing its financial results for the fourth quarter and full-year ended December 28, 2019. 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 February 19, 2020, the Company’s Chief Financial Officer will review supplemental information regarding the Company’s financial results for the quarter and full-year ended December 28, 2019, as well as the Company’s outlook for fiscal 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 2017, fiscal 2018 and the fourth quarter of fiscal 2019 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
104
Cover 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: February 19, 2020
 
 
 
By:
 
/s/ MICAH YOUNG
 
 
 
 
 
 
Micah Young
 
 
 
 
 
 
Executive Vice President & Chief Financial Officer
 
 
 
 
 
 
(Principal Financial Officer)





Exhibit 99.1
masimologopressreleaseq42019.jpg

Masimo Reports Fourth Quarter and Full-Year 2019 Financial Results
Fourth Quarter 2019 Highlights:
 
■
 
Total revenue, including royalty and other revenue, was $247.5 million;
 
■
 
Product revenue increased 11.8% to $247.4 million, or 12.0% on a constant currency basis;
 
■
 
GAAP net income per diluted share was $0.92; and
 
■
 
Non-GAAP net income per diluted share was $0.91.

Full-Year 2019 Highlights:
 
■
 
Total revenue, including royalty and other revenue, was $937.8 million;
 
■
 
Product revenue increased 12.8% to $936.4 million, or 13.6% on a constant currency basis;
 
■
 
GAAP net income per diluted share of $3.44; and
 
■
 
Non-GAAP net income per diluted share was $3.22.
Irvine, California, February 19, 2020 - Masimo (Nasdaq: MASI) today announced its financial results for the fourth quarter and full-year ended December 28, 2019.
Fourth Quarter 2019 Results:
Total revenue, including royalty and other revenue, was $247.5 million. Product revenues increased 11.8% to $247.4 million, or 12.0% on a constant currency basis. Shipments of noninvasive technology boards and monitors increased 1.8% to 61,400 in the fourth quarter of 2019, compared to 60,300 in the fourth quarter of 2018.
Fourth quarter 2019 GAAP operating margin was 24.9%, compared to 24.2% in the prior year period. Fourth quarter 2019 non-GAAP operating margin was 25.7%, compared to 23.8% in the prior year period.
For the fourth quarter of 2019, GAAP net income was $52.9 million, or $0.92 per diluted share. Non-GAAP net income was $52.1 million, or $0.91 per diluted share.
Full-Year 2019 Results:
Total revenue, including royalty and other revenue, was $937.8 million. Product revenue increased 12.8% to $936.4 million, or 13.6% on a constant currency basis. Shipments of noninvasive technology boards and monitors increased 6.3% to 246,200 for the full-year 2019, compared to 231,700 for the full-year 2018.
Full-year 2019 GAAP operating margin was 23.6%, compared to 24.2% in the prior year period. Full-year 2019 non-GAAP operating margin was 24.0%, compared to 22.0% in the prior year period.
For the full-year of 2019, GAAP net income was $196.2 million, or $3.44 per diluted share. Non-GAAP net income was $183.9 million, or $3.22 per diluted share.
Total cash, cash equivalents and short term investments increased $135.2 million during the year to $687.7 million as of December 28, 2019.
Joe Kiani, Chairman and Chief Executive Officer of Masimo, said, “In 2019, we advanced our mission to improve patient outcomes while reducing the cost of care. To mark our 30th anniversary, we delivered a new product to care providers in every month of 2019, while we also grew our product revenue 12.8%, or 13.6% on a constant currency basis. We once again delivered above market growth and improved our non-GAAP operating margins by 200 basis points through disciplined execution of our strategy. For 2020, we are projecting product revenues of $1.035 billion, GAAP earnings per share of $3.64 and non-GAAP earnings per share of $3.56.”

-1-


2020 Financial Guidance
The Company provided the following estimates for its full-year 2020 guidance:
(in millions, except percentages and earnings per share)
 
2020
Updated Guidance(1)
 
 
GAAP
 
Non-GAAP
Total revenue, including royalty and other revenue
 
$
1,035

 
$
1,035

Product revenue
 
$
1,035

 
$
1,035

 
 
Percentage growth - as reported
 
10.5
%
 
N/A

 
 
Percentage growth - constant currency
 
N/A

 
11.0
%
 
Royalty and other revenue
 
$
—

 
$
—

Gross margin
 
67.7
%
 
68.0
%
Operating margin
 
24.0
%
 
24.7
%
Earnings per diluted share
 
$
3.64

 
$
3.56

Estimated tax rate
 
19.1
%
 
23.3
%
______________
(1) 
Consistent with prior guidance provided on January 14, 2020.

•
Product revenue of $1.035 billion, which reflects growth of 10.5% and constant currency growth of 11.0%;
•
GAAP earnings per diluted share of $3.64;
•
Non-GAAP earnings per diluted share of $3.56;
•
Included in our full-year 2020 revenue guidance is approximately $4 million of year-over-year currency headwinds.
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 earnings per diluted share, (iv) non-GAAP gross profit/margin and (v) 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 gross profit/margin, 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.
The non-GAAP financial measures reflect adjustments for the following items, as well as the related income tax effects thereof:

-2-


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-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 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.
Tax impacts that may not be representative of the ongoing results of our core operations.
From time-to-time, we may experience significant non-recurring tax events, such as changes in tax laws and regulations or the derecognition of uncertain tax positions related to non-recurring transactions due to the expiration of the statutes of limitations. We believe that exclusion of such tax charges or benefits 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 generally unique and non-recurring in nature.

-3-


Fourth Quarter and Full-Year 2019 Actuals versus Fourth Quarter 2018 and Full-Year Actuals:
RECONCILIATION OF GAAP TO CONSTANT CURRENCY PRODUCT REVENUE(1):
 
 
Quarter Ended
(in thousands, except percentages)
 
December 28,
2019
 
December 29,
2018
GAAP product revenue
 
$
247,434

 
$
221,413

Non-GAAP constant currency adjustments:
 
 
 
 
 
Constant currency F/X adjustments
 
571

 
—

 
 
Total non-GAAP product revenue adjustments
 
571

 
—

 
 
 
Constant currency product revenue
 
$
248,005

 
$
221,413

Product revenue growth %:
 
 
 
 
 
GAAP
 
11.8
%
 
 
 
Constant currency
 
12.0
%
 
 
______________
(1) 
May not foot due to rounding.
 
 
 
RECONCILIATION OF GAAP TO CONSTANT CURRENCY PRODUCT REVENUE(1):
 
 
Year Ended
(in thousands, except percentages)
 
December 28,
2019
 
December 29,
2018
GAAP product revenue
 
$
936,408

 
$
829,874

Non-GAAP constant currency adjustments:
 
 
 
 
 
Constant currency F/X adjustments
 
6,702

 
—

 
 
Total non-GAAP product revenue adjustments
 
6,702

 
—

 
 
 
Constant currency product revenue
 
$
943,110

 
$
829,874

Product revenue growth %:
 
 
 
 
 
GAAP
 
12.8
%
 
 
 
Constant currency
 
13.6
%
 
 
______________
(1) 
May not foot due to rounding.


-4-


RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1):
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
December 28, 2019
 
December 29, 2018
(in thousands, except earnings per share)
 
$
 
Per Diluted Share
 
$
 
Per Diluted Share
GAAP net income
 
$
52,921

 
$
0.92

 
$
46,934

 
$
0.83

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Royalty and other revenue, net of related costs
 
(45
)
 
—

 
(1,535
)
 
(0.03
)
 
Acquisition/strategic investment related costs
 
2,135

 
0.04

 
361

 
0.01

 
Litigation damages, awards and settlements
 
—

 
—

 
(75
)
 
—

 
Non-operating other (income) expense
 
312

 
0.01

 
1,263

 
0.02

 
Tax impact of pre-tax non-GAAP adjustments above
 
(566
)
 
(0.01
)
 
(513
)
 
(0.01
)
 
Excess tax benefits from stock-based compensation
 
(2,631
)
 
(0.05
)
 
(294
)
 
(0.01
)
 
2017 U.S. Tax Reform
 
—

 
—

 
(675
)
 
(0.01
)
 
 
Total non-GAAP adjustments
 
(796
)
 
(0.01
)
 
(1,468
)
 
(0.03
)
Non-GAAP net income
 
$
52,126

 
$
0.91

 
$
45,465

 
$
0.81

Weighted average shares outstanding-diluted
 
 
 
57,267

 
 
 
56,449

______________
(1) 
May not foot due to rounding.

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1):
 
 
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
December 28, 2019
 
December 29, 2018
(in thousands, except earnings per share)
 
$
 
Per Diluted Share
 
$
 
Per Diluted Share
GAAP net income
 
$
196,216

 
$
3.44

 
$
193,543

 
$
3.45

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
Royalty and other revenue, net of related costs
 
(1,262
)
 
(0.02
)
 
(27,704
)
 
(0.49
)
 
Acquisition/strategic investment related costs
 
4,729

 
0.08

 
1,442

 
0.03

 
Litigation damages, awards and settlements
 
—

 
—

 
425

 
0.01

 
Non-operating other (income) expense
 
627

 
0.01

 
2,027

 
0.04

 
Tax impact of pre-tax non-GAAP adjustments above
 
(689
)
 
(0.01
)
 
5,532

 
0.10

 
Excess tax benefits from stock-based compensation
 
(15,692
)
 
(0.27
)
 
(22,036
)
 
(0.39
)
 
Tax impact of expiration of certain statutes of limitations related to unique and non-recurring tax positions
 
—

 
—

 
(4,169
)
 
(0.07
)
 
2017 U.S. Tax Reform
 
—

 
—

 
(675
)
 
(0.01
)
 
 
Total non-GAAP adjustments
 
(12,286
)
 
(0.22
)
 
(45,157
)
 
(0.81
)
Non-GAAP net income
 
$
183,930

 
$
3.22

 
$
148,385

 
$
2.65

Weighted average shares outstanding-diluted
 
 
 
57,100

 
 
 
56,039

______________
(1) 
May not foot due to rounding.



-5-


RECONCILIATION OF GAAP TO NON-GAAP OPERATING INCOME/MARGIN %(1):
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
December 28, 2019
 
December 29, 2018
(in thousands, except percentages)
 
$
 
$
GAAP operating income/margin
 
$
61,557

 
$
53,906

Non-GAAP adjustments:
 
 
 
 
 
Royalty and other revenue, net of related costs
 
(45
)
 
(1,535
)
 
Acquisition/strategic investment related costs
 
2,135

 
361

 
Litigation damages, awards and settlements
 
—

 
(75
)
 
 
Total non-GAAP adjustments
 
2,090

 
(1,250
)
Non-GAAP operating income/margin
 
$
63,647

 
$
52,655

 
GAAP operating income/margin %
 
24.9
%
 
24.2
%
 
Non-GAAP operating income/margin %
 
25.7
%
 
23.8
%
______________
(1) 
May not foot due to rounding.




RECONCILIATION OF GAAP OPERATING INCOME/MARGIN %(1):
 
 
 
 
 
 
 
 
 
Year Ended
 
 
 
 
December 28, 2019
 
December 29, 2018
(in thousands, except percentages)
 
$
 
$
GAAP operating income/margin
 
$
221,216

 
$
208,044

Non-GAAP adjustments to product operating income/margin:
 
 
 
 
 
Royalty and other revenue, net of related costs
 
(1,262
)
 
(27,704
)
 
Acquisition/strategic investment related costs
 
4,729

 
1,442

 
Litigation damages, awards and settlements
 
—

 
425

 
 
Total non-GAAP adjustments
 
3,467

 
(25,837
)
Non-GAAP operating income/margin
 
$
224,683

 
$
182,206

 
GAAP operating income/margin %
 
23.6
%
 
24.2
%
 
Non-GAAP operating income/margin %
 
24.0
%
 
22.0
%
______________
(1) 
May not foot due to rounding.







-6-


Full-Year 2020 Guidance versus Full-Year 2019 Actuals:
RECONCILIATION OF GAAP PRODUCT REVENUE GROWTH % TO CONSTANT CURRENCY PRODUCT REVENUE GROWTH %(1):
 
 
 
 
Full-Year 2020
Updated Guidance(2)
 
Full-Year 2019
Actuals
GAAP product revenue
 
$
1,035,000

 
$
936,408

Non-GAAP constant currency adjustments:
 
 
 
 
 
Constant currency F/X adjustments
 
4,000

 
—

 
 
Total non-GAAP constant currency adjustments
 
4,000

 
—

 
 
Non-GAAP constant currency product revenue
 
$
1,039,000

 
$
936,408

Product revenue growth %:
 
 
 
 
 
GAAP
 
10.5
%
 
 
 
Non-GAAP constant currency
 
11.0
%
 
 
________________
(1) 
May not foot due to rounding.
(2) 
Consistent with prior guidance provided on January 14, 2020.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND NET INCOME PER DILUTED SHARE(1):

 
 
 
 
 
 
 
 
 
 
 
Full-Year 2020
Guidance(2)
 
Full-Year 2019
Actuals
(in thousands, except earnings per share)
 
$
 
Per Diluted Share
 
$
 
Per Diluted Share
GAAP net income
 
$
210,500

 
$
3.64

 
$
196,216

 
$
3.44

Non-GAAP net income adjustments:
 
 
 
 
 
 
 
 
 
Royalty and other revenue, net of related costs
 
—

 
—

 
(1,262
)
 
(0.02
)
 
Acquisition/strategic investment related costs
 
8,000

 
0.14

 
4,729

 
0.08

 
Non-operating other (income) expense
 
—

 
—

 
627

 
0.01

 
Tax impact of pre-tax non-GAAP adjustments above
 
(1,900
)
 
(0.03
)
 
(689
)
 
(0.01
)
 
Excess tax benefits from stock-based compensation
 
(11,000
)
 
(0.19
)
 
(15,692
)
 
(0.27
)
 
 
Total non-GAAP adjustments
 
(4,900
)
 
(0.08
)
 
(12,286
)
 
(0.22
)
Non-GAAP net income
 
$
205,600

 
$
3.56

 
$
183,930

 
$
3.22

Weighted average shares outstanding-diluted
 
 
 
57,800

 
 
 
57,100

________________
(1) 
May not foot due to rounding.
(2) 
Consistent with prior guidance provided on January 14, 2020.




-7-


RECONCILIATION OF GAAP TO NON-GAAP GROSS PROFIT/MARGIN AND OPERATING INCOME/MARGIN(1):
 
 
 
 
 
 
 
 
 
 
 
Full-Year 2020
Guidance(2)
 
Full-Year 2019
Actuals
(in thousands, except earnings per share)
 
$
 
$
GAAP gross profit/margin
 
$
700,400

 
$
629,172

Non-GAAP adjustments:
 
 
 
 
 
Royalty and other revenue, net of related costs
 
—

 
(1,262
)
 
Acquisition/strategic investment related costs
 
3,000

 
511

 
 
Total non-GAAP adjustments
 
3,000

 
(751
)
Non-GAAP gross profit/margin
 
$
703,400

 
$
628,421

 
GAAP gross profit/margin %
 
67.7
%
 
67.1
%
 
Non-GAAP gross profit/margin %
 
68.0
%
 
67.1
%
 
 
 
 
 
 
GAAP operating income/margin
 
$
248,000

 
$
221,216

Non-GAAP adjustments:
 
 
 
 
 
Royalty and other revenue, net of related costs
 
—

 
(1,262
)
 
Acquisition/strategic investment related costs
 
8,000

 
4,729

 
Litigation damages, awards and settlements
 
—

 
—

 
 
Total non-GAAP adjustments
 
8,000

 
3,467

Non-GAAP operating income/margin
 
$
256,000

 
$
224,683

 
GAAP operating income/margin %
 
24.0
%
 
23.6
%
 
Non-GAAP operating income/margin %
 
24.7
%
 
24.0
%
________________
(1) 
May not foot due to rounding.
(2) 
Consistent with prior guidance provided on January 14, 2020.
Conference Call
The conference call to review Masimo’s complete financial results for the fourth quarter and full-year ended December 28, 2019 will begin at 1:30 p.m. PT (4:30 p.m. ET) on February 19, 2020 and will be hosted by Joe Kiani, Chairman and Chief Executive Officer, and Micah Young, Executive Vice President and Chief Financial Officer. A live webcast of the conference call will be available online from the investor relations page of the Company’s corporate website at www.masimo.com.
The dial-in numbers are (833) 227-5837 for domestic callers and +1 (825) 312-2251 for international callers. The reservation code for both dial-in numbers is 2862927. After the live webcast, the call will be available on Masimo’s website through March 19, 2020. In addition, a telephonic replay of the call will be available through March 4, 2020. The replay dial-in numbers are (800) 585-8367 for domestic callers and +1 (416) 621-4642 for international callers. Please use reservation code 2862927 .
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 100 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 according to 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

-8-


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® Organ 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 Doctella™. 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 full fiscal year GAAP and non-GAAP 2020 total, product, royalty and other revenues, earnings per diluted share, gross margin, operating margin, EBITDA, and estimated tax rate, and 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: risks related to the integration of the acquisition of the Connected Care assets from NantHealth, Inc.; 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.


# # #
 
 
 
Investor Contact: Eli Kammerman
 
Media Contact: Evan Lamb
(949) 297-7077
 
(949) 396-3376
 
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.


-9-


MASIMO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)

 
December 28,
2019
 
December 29,
2018
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
567,687

 
$
552,490

Short-term investments
120,000

 
—

Trade accounts receivable, net of allowance for doubtful accounts
132,433

 
109,629

Inventories
115,871

 
94,732

Other current assets
60,071

 
32,426

Total current assets
996,062

 
789,277

Lease receivable, noncurrent
49,936

 
—

Deferred costs and other contract assets
16,214

 
122,906

Property and equipment, net
219,552

 
165,972

Intangible assets, net
27,251

 
27,924

Goodwill
22,350

 
23,297

Deferred tax assets
35,972

 
21,210

Other non-current assets
28,791

 
4,232

Total assets
$
1,396,128

 
$
1,154,818

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
54,548

 
$
40,388

Accrued compensation
54,705

 
49,486

Deferred revenue and other contract-related liabilities, current
25,939

 
32,054

Other current liabilities
37,027

 
24,627

Total current liabilities
172,219

 
146,555

Other non-current liabilities
56,035

 
39,198

Total liabilities
228,254

 
185,753

Commitments and contingencies
 
 
 
Stockholders’ equity:
 
 
 
Common stock
54

 
53

Treasury stock
(526,580
)
 
(489,026
)
Additional paid-in capital
600,624

 
533,164

Accumulated other comprehensive loss
(6,718
)
 
(6,199
)
Retained earnings
1,100,494

 
931,073

Total stockholders’ equity
1,167,874

 
969,065

Total liabilities and stockholders’ equity
$
1,396,128

 
$
1,154,818



-10-


MASIMO CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)

 
Quarter Ended
 
Year Ended
 
December 28,
2019
 
December 29,
2018
 
December 28,
2019
 
December 29,
2018
Revenue:
 
 
 
 
 
 
 
Product
$
247,434

 
$
221,413

 
$
936,408

 
$
829,874

Royalty and other revenue
76

 
1,719

 
1,429

 
28,415

Total revenue
247,510

 
223,132

 
937,837

 
858,289

Cost of goods sold
80,587

 
74,801

 
308,665

 
283,397

Gross profit
166,923

 
148,331

 
629,172

 
574,892

Operating expenses:
 
 
 
 
 
 
 
Selling, general and administrative
81,943

 
73,713

 
314,661

 
285,417

Research and development
23,423

 
20,787

 
93,295

 
81,006

Litigation settlement, award and/or defense costs
—

 
(75
)
 
—

 
425

Total operating expenses
105,366

 
94,425

 
407,956

 
366,848

Operating income
61,557

 
53,906

 
221,216

 
208,044

Non-operating income
2,812

 
1,652

 
12,950

 
5,732

Income before provision for income taxes
64,369

 
55,558

 
234,166

 
213,776

Provision for income taxes
11,448

 
8,624

 
37,950

 
20,233

Net income
$
52,921

 
$
46,934

 
$
196,216

 
$
193,543

Other comprehensive gain (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation gains (losses)
1,076

 
(382
)
 
(519
)
 
(3,258
)
Total comprehensive income
$
53,997

 
$
46,552

 
$
195,697

 
$
190,285

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.99

 
$
0.88

 
$
3.67

 
$
3.70

Diluted
$
0.92

 
$
0.83

 
$
3.44

 
$
3.45

 
 
 
 
 
 
 
 
Weighted-average shares used in per share calculations:
 
 
 
 
 
 
 
Basic
53,633

 
53,043

 
53,434

 
52,296

Diluted
57,267

 
56,449

 
57,100

 
56,039

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):
 
Quarter Ended
 
Year Ended
 
December 28,
2019
 
December 29,
2018
 
December 28,
2019
 
December 29,
2018
Cost of goods sold
$
106

 
$
94

 
$
445

 
$
334

Selling, general and administrative
7,417

 
6,081

 
30,450

 
21,391

Research and development
2,067

 
1,547

 
8,340

 
5,692

Total
$
9,590

 
$
7,722

 
$
39,235

 
$
27,417



-11-


MASIMO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)

 
Year Ended
 
December 28, 2019
 
December 29, 2018
Cash flows from operating activities:
 
 
 
Net income
$
196,216

 
$
193,543

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
23,487

 
21,127

Stock-based compensation
39,233

 
27,417

Loss on disposal of equipment, intangibles and other assets
357

 
949

Provision (benefit) for doubtful accounts
687

 
(439
)
Benefit for amount due from former foreign agent
—

 
(2,016
)
Benefit from deferred income taxes
(5,965
)
 
(8,274
)
Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in trade accounts receivable
(23,580
)
 
10,826

Increase in inventories
(21,257
)
 
(1,885
)
(Increase) decrease in other current assets
(8,536
)
 
3,843

Increase in lease receivable, net
(11,958
)
 
—

Decrease (increase) in deferred costs and other contract assets
3,308

 
(17,935
)
(Increase) decrease in other non-current assets
(226
)
 
407

Increase in accounts payable
9,934

 
5,211

Increase in accrued compensation
5,338

 
10,195

Increase in deferred revenue and other contract-related liabilities
7,739

 
1,420

Increase (decrease) in income taxes payable
4,079

 
(1,208
)
Increase in accrued liabilities
746

 
3,923

Increase (decrease) increase in other non-current liabilities
2,038

 
(7,577
)
Net cash provided by operating activities
221,640

 
239,527

Cash flows from investing activities:
 
 
 
Purchases of short-term investments
(120,000
)
 
—

Purchases of property and equipment
(68,375
)
 
(17,126
)
Increase in intangible assets
(4,117
)
 
(5,557
)
Business acquisition, net of cash acquired
—

 
(3,922
)
(Purchases of) proceeds from strategic investments
(5,189
)
 
453

Net cash used in investing activities
(197,681
)
 
(26,152
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock
28,339

 
44,748

Repurchases of common stock
(37,555
)
 
(18,478
)
Other
(123
)
 
(490
)
Net cash provided by (used in) financing activities
(9,339
)
 
25,780

Effect of foreign currency exchange rates on cash
814

 
(1,997
)
Net increase in cash, cash equivalents and restricted cash
15,434

 
237,158

Cash, cash equivalents and restricted cash at beginning of period
552,641

 
315,483

Cash, cash equivalents and restricted cash at end of period
$
568,075

 
$
552,641


-12-
Fourth Quarter 2019 Improving Patient Outcomes Earnings Presentation | February 19, 2019 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 operating expense %, (vi) non-GAAP operating income/margin %, (vii) non-GAAP earnings per diluted share and (viii) 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 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.

 
Fourth Quarter 2019 Highlights  Total revenue, including royalty and other revenue, was $247.5 million Revenue  Product revenue increased 11.8% to $247.4 million, or 12.0% on a constant currency basis(1) Shipments  Shipments of noninvasive technology boards and monitors were 61,400  GAAP operating margin was 24.9% Profitability  Non-GAAP operating margin(1) was 25.7%  GAAP EPS was $0.92 per diluted share EPS  Non-GAAP EPS(1) was $0.91 per diluted share  Operating cash flow was $70.2 million Cash  Adjusted free cash flow(1) was $57.9 million  Cash and investments balance was $687.7 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.

 
Fourth Quarter 2019 Results – GAAP(1) (in millions; except % and EPS) Q4 2019 Q4 2018 vs. Prior Year Comments Product revenue includes leased equipment revenues under ASC 842, which Product Revenue $247.4 $221.4 11.8% were ~$3M in Q4 2019. GAAP results include royalty and other (non-recurring) revenue. The royalty Royalty and Other Revenue $0.1 $1.7 (95.6%) agreement expired on 10/6/2018. Revenue $247.5 $223.1 10.9% Gross Margin 67.4% 66.5% 90 bps SG&A Expense 33.1% 33.0% 10 bps R&D Expense 9.5% 9.3% 20 bps Operating Expenses 42.6% 42.3% 30 bps GAAP operating margins increased 70 bps due to operational improvements Operating Margin 24.9% 24.2% 70 bps offset by the impact of lower royalty and other revenues and higher acquisition related costs. GAAP tax rate includes excess tax benefits from stock based compensation, Tax Rate 17.8% 15.5% 230 bps which were $2.6M in Q4 2019, compared to $0.3M in Q4 2018. GAAP EPS increased 10.8% due to operational improvements; offset by the GAAP EPS $0.92 $0.83 10.8% impact of lower royalty and other revenues, higher acquisition related costs and lower tax benefits from stock based compensation. (1) May not foot due to rounding.

 
Fourth Quarter 2019 Results – Non-GAAP(1) vs. Prior Year Constant (in millions; except % and EPS) Q4 2019 Q4 2018 Reported Comments Currency Product revenue includes leased equipment revenues Product Revenue $247.4 $221.4 11.8% 12.0% under ASC 842, which were ~$3M in Q4 2019. Non-GAAP results exclude royalty and other (non- Royalty and Other Revenue - - - - recurring) revenue. Revenue $247.4 $221.4 11.8% 12.0% Gross Margin 67.5% 66.4% 110 bps SG&A Expense 32.3% 33.2% (90 bps) R&D Expense 9.5% 9.4% 10 bps Operating Expenses 41.8% 42.6% (80 bps) Non-GAAP operating margins increased 190 bps due Operating Margin 25.7% 23.8% 190 bps primarily to gross margin improvement and lower SG&A expenses as a percentage of product revenue. Non-GAAP tax rate excludes excess tax benefits from Tax Rate 21.9% 18.2% 370 bps stock based compensation. Non-GAAP EPS increased 12.3% due to constant Non-GAAP EPS $0.91 $0.81 12.3% currency revenue growth of 12.0%, operating margin expansion of 190 bps; offset by higher tax expenses. (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.

 
Fourth Quarter 2019 Results – Non-GAAP(1) Non-GAAP(1) Non-GAAP(1) Product Revenue Operating Margin EPS $247M 25.7% $0.91 23.8% $221M $0.81 Constant Currency +12.0% Growth(1) +190 bps +12.3% Q4 2018 Q4 2019 Q4 2018 Q4 2019 Q4 2018 Q4 2019 (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 2019 Highlights  Total revenue, including royalty and other revenue, was $937.8 million Revenue  Product revenue increased 12.8% to $936.4 million, or 13.6% on a constant currency basis(1) Shipments  Shipments of noninvasive technology boards and monitors were 246,200  GAAP operating margin was 23.6% Profitability  Non-GAAP operating margin(1) was 24.0%  GAAP EPS was $3.44 per diluted share EPS  Non-GAAP EPS(1) was $3.22 per diluted share  Operating cash flow was $221.6 million Cash  Adjusted free cash flow(1) was $153.3 million  Cash and investments balance was $687.7 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.

 
Full Year 2019 Results – GAAP(1) (in millions; except % and EPS) FY 2019 FY 2018 vs. Prior Year Comments Product revenue includes leased equipment revenues under ASC 842, which Product Revenue $936.4 $829.9 12.8% were ~$10M in FY 2019. GAAP results include royalty and other (non-recurring) revenue. The royalty Royalty and Other Revenue $1.4 $28.4 (95.0%) agreement expired on 10/6/2018. Revenue $937.8 $858.3 9.3% Gross Margin 67.1% 67.0% 10 bps SG&A Expense 33.6% 33.3% 30 bps R&D Expense 9.9% 9.4% 50 bps Operating Expenses 43.5% 42.7% 80 bps GAAP operating margins decreased (60 bps) due to the impact of lower Operating Margin 23.6% 24.2% (60 bps) royalty and other revenues and higher acquisition related costs; offset by operational improvements. GAAP tax rate includes excess tax benefits from stock based compensation, Tax Rate 16.2% 9.5% 670 bps which were $15.7M in FY 2019, compared to $22.0M in FY 2018. GAAP EPS decreased (0.3%) due to the impact of lower royalty and other GAAP EPS $3.44 $3.45 (0.3%) revenues, higher acquisition related costs and lower tax benefits from stock based compensation; offset by operational improvements. (1) May not foot due to rounding.

 
Full Year 2019 Results – Non-GAAP(1) vs. Prior Year Constant (in millions; except % and EPS) FY 2019 FY 2018 Reported Comments Currency Product revenue includes leased equipment revenues Product Revenue $936.4 $829.9 12.8% 13.6% under ASC 842, which were ~$10M in FY 2019. Non-GAAP results exclude royalty and other (non- Royalty and Other Revenue - - - - recurring) revenue. Revenue $936.4 $829.9 12.8% 13.6% Gross Margin 67.1% 66.0% 110 bps SG&A Expense 33.2% 34.3% (110 bps) R&D Expense 10.0% 9.8% 20 bps Operating Expenses 43.1% 44.0% (90 bps) Non-GAAP operating margins increased 200 bps due Operating Margin 24.0% 22.0% 200 bps primarily to gross margin improvement and lower SG&A expenses as a percentage of product revenue. Non-GAAP tax rate excludes excess tax benefits from Tax Rate 22.8% 21.9% 90 bps stock based compensation. Non-GAAP EPS increased 21.5% due to constant Non-GAAP EPS $3.22 $2.65 21.5% currency revenue growth of 13.6%, operating margin expansion of 200 bps; offset by higher tax expenses. (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 2019 Financial Results – Non-GAAP(1) Non-GAAP(1) Non-GAAP(1) Product Revenue Operating Margin EPS $936M 24.0% $3.22 22.0% $830M $2.65 Constant Currency +13.6% Growth(1) +200 bps +21.5% FY 2018 FY 2019 FY 2018 FY 2019 FY 2018 FY 2019 (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 $1.035 billion Revenue  Product revenue increasing 10.5% to $1.035 billion, or 11.0% on a constant currency basis(1)  GAAP operating margin of 24.0% Profitability  Non-GAAP operating margin(1) of 24.7%  GAAP EPS of $3.64 per diluted share EPS  Non-GAAP EPS(1) of $3.56 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 Masimo expects that the Connected Care transaction will contribute Product Revenue $1,035.0 $936.4 10.5% approximately one percentage point to its full-year 2020 revenue growth rate. GAAP results include royalty and other (non-recurring) revenue. The royalty Royalty and Other Revenue - $1.4 (100.0%) agreement expired on 10/6/2018. Revenue $1,035.0 $937.8 10.4% Gross Margin 67.7% 67.1% 60 bps Operating Expenses 43.7% 43.5% 20 bps GAAP operating margins increasing 40 bps due to operational improvements Operating Margin 24.0% 23.6% 40 bps offset by the impact of lower royalty and other revenues and higher acquisition related costs. GAAP tax rate includes excess tax benefits from stock based compensation, Tax Rate 19.1% 16.2% 290 bps which are estimated to be ~$11.0M in FY 2020, compared to $15.7M in FY 2019. GAAP operating margins increasing 5.8% due to operational improvements; GAAP EPS $3.64 $3.44 5.8% offset by the impact of lower royalty and other revenues, higher acquisition related costs and lower tax benefits from stock based compensation. (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 Masimo expects that the Connected Care transaction Product Revenue $1,035.0 $936.4 10.5% 11.0% will contribute approximately one percentage point to its full-year 2020 revenue growth rate. Non-GAAP results exclude royalty and other (non- Royalty and Other Revenue - - - - recurring) revenue. Revenue $1,035.0 $936.4 10.5% 11.0% Gross Margin 68.0% 67.1% 90 bps Operating Expenses 43.2% 43.1% 10 bps Non-GAAP operating margins increasing 70 bps due Operating Margin 24.7% 24.0% 70 bps primarily to gross margin improvement; offset by higher costs relating to the Connected Care transaction. Non-GAAP tax rate excludes excess tax benefits from Tax Rate 23.3% 22.8% 50 bps stock based compensation. Masimo expects the Connected Care transaction to be Non-GAAP EPS $3.56 $3.22 10.6% slightly dilutive to non-GAAP EPS in 2020 with accretion to non-GAAP EPS beginning in 2021. (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 $1,035M 24.7% $3.56 24.0% $936M $3.22 Constant Currency +11.0% Growth(1) +70 bps +10.6% 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 (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.

 
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 prospective taxation of the 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 2020 Full Year (in thousands, except percentages) Q4 2018 FY 2018 Q4 2019 FY 2019 Guidance (3) GAAP product revenue $ 221,413 $ 829,874 $ 247,434 $ 936,408 $ 1,035,000 Constant currency F/X adjustments N/A N/A 571 6,702 4,000 Constant currency (non-GAAP) product revenue $ 221,413 $ 829,874 $ 248,005 $ 943,110 $ 1,039,000 GAAP product revenue growth 11.8% 12.8% 10.5% Constant currency (non-GAAP) product revenue growth 12.0% 13.6% 11.0% (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) Reflects current guidance provided on February 19, 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 Q4 2018 FY 2018 Q4 2019 FY 2019 Guidance (3) GAAP gross profit/margin $ 148,331 $ 574,892 $ 166,923 $ 629,172 $ 700,400 Non-GAAP adjustments: Royalty and other revenue, net of related costs (1,535) (27,704) (45) (1,262) - Acquisition & investment related costs 114 458 167 511 #REF! 3,000 Total non-GAAP gross profit/margin adjustments (1,421) (27,246) 122 (751) 3,000 Non-GAAP gross profit/margin $ 146,910 2 $ 547,645 $ 167,046 $ 628,421 $ 703,400 Non-GAAP gross margin % (4) 66.4% 66.0% 67.5% 67.1% 68.0% (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) Reflects current guidance provided on February 19, 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 Q4 2018 FY 2018 Q4 2019 FY 2019 Guidance (3) GAAP selling, general and administrative operating expenses $ 73,713 $ 285,417 $ 81,943 $ 314,661 Non-GAAP adjustments: Acquisition & investment related costs (246) (984) (1,968) (4,218) Non-GAAP selling, general and administrative operating expenses $ 73,467 $ 284,433 $ 79,976 $ 310,443 Non-GAAP selling, general and administrative operating expenses % (4) 33.2% 34.3% 32.3% 33.2% GAAP research and development operating expenses $ 20,788 $ 81,006 $ 23,423 $ 93,295 Non-GAAP adjustments: Acquisition & investment related costs - - - - Non-GAAP research and development operating expenses $ 20,788 $ 81,006 $ 23,423 $ 93,295 Non-GAAP research and development operating expenses % (4) 9.4% 9.8% 9.5% 10.0% GAAP litigation settlement, award and/or defense costs $ (75) $ 425 $ - $ - Non-GAAP adjustments: Litigation damages, awards and settlements 75 (425) - - Non-GAAP litigation settlement, award and/or defense costs $ - $ - 4 $ - $ - 4 GAAP operating expenses $ 94,425 $ 366,848 $ 105,366 - $ 407,956 $ 452,400 Non-GAAP adjustments: Acquisition & investment related costs (246) (984) $ (1,968) (4,218) (5,000) Litigation damages, awards and settlements 75 (425) - - - Total non-GAAP operating expense adjustments (171) (1,409) (1,968) (4,218) (5,000) Non-GAAP operating expenses $ 94,255 $ 365,439 $ 103,398 $ 403,738 $ 447,400 Non-GAAP operating expenses % (4) 42.6% 44.0% 41.8% 43.1% 43.2% (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) Reflects current guidance provided on February 19, 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 Q4 2018 FY 2018 Q4 2019 FY 2019 Guidance (3) GAAP operating income/margin $ 53,906 $ 208,044 $ 61,557 $ 221,216 $ 248,000 Non-GAAP adjustments: Royalty and other revenue, net of related costs (1,535) (27,704) (45) (1,262) - Acquisition & investment related costs 361 1,442 2,135 4,729 8,000 Litigation damages, awards and settlements (75) 425 - - - Total non-GAAP operating income/margin adjustments (1,250) (25,837) $ 2,090 - 3,467 8,000 Non-GAAP operating income/margin $ 52,655 $ 182,206 $ 63,647 $ 224,683 $ 256,000 Non-GAAP operating income % (4) 23.8% 22.0% 25.7% 24.0% 24.7% (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) Reflects current guidance provided on February 19, 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 Q4 2018 FY 2018 Q4 2019 FY 2019 Guidance (3) GAAP net income $ 46,934 $ 193,543 $ 52,921 $ 196,216 $ 210,500 Non-GAAP adjustments: Royalty and other revenue, net of related costs (1,535) (27,704) (45) (1,262) - Acquisition & investment related costs: Cost of goods sold 114 458 167 511 3,000 Operating expenses 246 984 1,968 4,218 5,000 Subtotal - Acquisition & investment related costs 361 1,442 2,135 4,729 8,000 Litigation damages, awards and settlements Operating expenses (75) 425 - - - Non-operating other (income) expense: Realized and unrealized foreign currency gains or losses 1,263 2,027 312 627 - # Tax impact of non-GAAP net income adjustments (513) 5,532 (566) (689) (1,900) Expiration of certain statues of limitation related to unique and non-recurring tax positions - (4,169) - - - 9800Excess tax benefits from stock-based compensation (294) (22,036) (2,631) (15,692) (11,000) 2017 U.S. Tax Reform (675) (675) - - - Total non-GAAP net income adjustments (1,468) (45,157) (796) (12,286) (4,900) Non-GAAP net income $ 45,465 $ 148,385 $ 52,126 $ 183,930 $ 205,600 Weighted average shares outstanding - diluted 56,449 56,039 57,267 57,100 57,800 Non-GAAP net income per diluted share $ 0.81 $ 2.65 $ 0.91 $ 3.22 $ 3.56 (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) Reflects current guidance provided on February 19, 2020.

 
Adjusted Free Cash Flow(1),(2) RECONCILIATION OF FREE CASH FLOW TO ADJUSTED FREE CASH FLOW (in thousands, except percentages) Q4 2018 FY 2018 Q4 2019 FY 2019 Net cash provided by operating activities Net cash provided by operating activities $ 63,222 $ 239,527 $ 70,224 $ 221,640 Purchases of property and equipment, net (4,827) (17,126) (12,311) 153,265.00 (68,375) Free cash flow 58,395 222,401 57,913 153,265 Litigation damages, awards and settlements - - - - Tax payments related to litigation awards and damages - - - - Adjusted free cash flow $ 58,395 $ 222,401 $ 57,913 $ 153,265 (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 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 $ 1,035,000 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 $ 1,035,000 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 Guidance(3) GAAP gross profit/margin (1) $ 522,031 $ 143,661 $ 142,147 $ 140,753 $ 148,331 $ 574,892 $ 151,642 $ 154,339 $ 156,268 $ 166,923 $ 629,172 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 $ 700,400 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 500 114 114 114 114 458 114 114 114 167 511 #REF! 3,000 Total non-GAAP gross profit/margin adjustments (47,884) (8,275) (9,300) (8,250) (1,421) (27,246) (934) 3 57 122 (751) 3,000 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 $ 703,400 (4) Non-GAAP gross margin % 64.2% 66.2% 65.8% 65.6% 66.4% 66.0% 65.4% 67.2% 68.3% 67.5% 67.1% 68.0% 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 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 Non-GAAP adjustments: Acquisition & investment related costs (1,097) (246) (246) (246) (246) (984) (246) (1,022) (983) (1,968) (4,218) 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 (4) Non-GAAP selling, general, and administrative operating expenses % 36.8% 34.2% 34.8% 35.0% 33.2% 34.3% 32.1% 33.6% 34.7% 32.3% 33.2% 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 Non-GAAP adjustments: Acquisition & investment related costs - - - - - - - - - - - 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 (4) Non-GAAP research and development operating expenses % 8.8% 9.6% 9.9% 10.2% 9.4% 9.8% 9.3% 10.5% 10.6% 9.5% 10.0% GAAP litigation settlement, award and/or defense costs $ - $ - $ - $ 500 $ (75) $ 425 $ - $ - $ - $ - $ - Non-GAAP adjustments: Litigation damages, awards and settlements - - - (500) 75 (425) - - - - - 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 $ 452,400 Non-GAAP adjustments: Acquisition & investment related costs (1,097) (246) (246) (246) (246) (984) (246) (1,022) $ (983) $ (1,968) (4,218) (5,000) Litigation damages, awards and settlements - - - (500) 75 (425) - - - - - - Total non-GAAP operating expense adjustments (1,097) (246) (246) (746) (171) (1,409) (246) (1,022) (983) (1,968) (4,218) (5,000) 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 $ 447,400 (4) Non-GAAP operating expenses % 45.7% 43.8% 44.7% 45.2% 42.6% 44.0% 41.4% 44.1% 45.3% 41.8% 43.1% 43.2% 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 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 $ 248,000 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 8,000 Litigation damages, awards and settlements - - - 500 (75) 425 - - - - - - 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 8,000 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 $ 256,000 (4) Non-GAAP operating income % 18.6% 22.4% 21.1% 20.4% 23.8% 22.0% 24.0% 23.1% 23.0% 25.7% 24.0% 24.7% 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 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 $ 210,500 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: Cost of goods sold 500 114 114 114 114 458 114 114 114 167 511 3,000 Operating expenses 1,097 246 246 246 246 984 246 1,022 983 1,968 4,218 5,000 Subtotal - Acquisition & investment related costs 1,597 361 361 361 361 1,442 361 1,136 1,098 2,135 4,729 8,000 Litigation damages, awards and settlements Operating expenses - - - 500 (75) 425 - - - - - - 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 - ## Tax impact of non-GAAP net income adjustments 16,100 2,101 2,344 1,599 (513) 5,532 359 (179) (303) (566) (689) (1,900) 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) (11,000) 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) (4,900) 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 $ 205,600 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 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 $ 3.64 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 0.00 0.02 0.02 0.04 0.08 0.14 Litigation damages, awards and settlements - - - 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 - 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) (0.03) 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) (0.19) 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) (0.08) 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 $ 3.56 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 57,800 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 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 $ 12,100 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 - 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 $ 12,100 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 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 $ 49,600 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 11,000 Tax impact of pre-tax non-GAAP adjustments (16,100) (2,101) (2,344) (1,599) 513 (5,532) (359) 179 303 566 689 1,900 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 12,900 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 $ 62,500 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 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 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) 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 Litigation damages, awards and settlements - - - - - - - - - - - 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 (1) Totals may not foot due to rounding (2) Quarterly reported amounts may vary from amounts previously reported due to rounding conventions. (3) Reflects current guidance provided on February 19, 2020 (4) Calculated as a percentage of Product Revenue Page 5

 
Non-GAAP Measures, Adjustments and Definitions Updated 02/13/20 © 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, non- GAAP gross profit/margin %, non-GAAP operating expenses, non-GAAP operating expense %, non-GAAP operating income/margin %, non-GAAP provision for income taxes/tax rate, non-GAAP net income and non- GAAP net income per diluted share. 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