10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________

FORM 10-Q

________________________________________________

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number 001-33642

________________________________________________

MASIMO CORPORATION

(Exact Name of Registrant as Specified in its Charter)

________________________________________________

Delaware					33-0368882
(State or Other Jurisdiction of Incorporation or Organization)					(I.R.S. Employer Identification Number)
52 Discovery	Irvine,	California			92618
(Address of Principal Executive Offices)					(Zip Code)
			(949)	297-7000
(Registrant’s Telephone Number, Including Area Code)
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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.						Yes	☒	No	☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).						Yes	☒	No	☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer	☒				Accelerated filer		☐
Non-accelerated filer	☐				Smaller reporting company		☐
					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.									☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)						Yes	☐	No	☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class					Number of Shares Outstanding as of July 3, 2021
Common stock, $0.001 par value					55,056,901

MASIMO CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JULY 3, 2021

TABLE OF CONTENTS

PART I. Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of July 3, 2021 and January 2, 2021	3
	Condensed Consolidated Statements of Operations for the three and six months ended July 3, 2021 and June 27, 2020	4
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2021 and June 27, 2020	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended July 3, 2021 and June 27, 2020	6
	Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2021 and June 27, 2020	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II. Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 6.	Exhibits	73
Signatures		74

2

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

MASIMO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except par values)

	July 3, 2021		January 2, 2021
ASSETS
Current assets
Cash and cash equivalents	$	575,955	$	641,447
Trade accounts receivable, net of allowance for credit losses of $1,962 and $1,603 at July 3, 2021 and January 2, 2021, respectively	179,354		141,350
Inventories	206,607		215,952
Other current assets	89,920		102,416
Total current assets	1,051,836		1,101,165
Lease receivable, noncurrent	65,198		57,666
Deferred costs and other contract assets	21,704		20,076
Property and equipment, net	274,723		272,511
Intangible assets, net	75,025		73,923
Goodwill	102,486		103,206
Deferred tax assets	39,312		39,363
Other non-current assets	51,404		44,642
Total assets	$	1,681,688	$	1,712,552
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	66,248	$	64,061
Accrued compensation	55,043		71,601
Deferred revenue and other contract liabilities, current	44,158		44,935
Other current liabilities	54,580		53,239
Total current liabilities	220,029		233,836
Other non-current liabilities	70,424		71,076
Total liabilities	290,453		304,912
Commitments and contingencies - (Note 21)
Stockholders’ equity
Preferred stock, $0.001 par value; 5,000 shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value; 100,000 shares authorized; 55,057 and 55,251 shares issued and outstanding at July 3, 2021 and January 2, 2021, respectively	55		55
Treasury stock, 16,540 and 15,993 shares at July 3, 2021 and January 2, 2021, respectively	(767,653)		(638,736)
Additional paid-in capital	714,267		703,693
Accumulated other comprehensive (loss) income	(267)		1,413
Retained earnings	1,444,833		1,341,215
Total stockholders’ equity	1,391,235		1,407,640
Total liabilities and stockholders’ equity	$	1,681,688	$	1,712,552

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Product revenue	$	305,118	$	300,953	$	604,161	$	570,578
Cost of goods sold	112,206		109,369		214,374		193,365
Gross profit	192,912		191,584		389,787		377,213
Operating expenses:
Selling, general and administrative	93,833		98,461		190,533		188,338
Research and development	33,943		30,878		68,454		58,119
Litigation settlements and (awards)	—		25		—		(474)
Total operating expenses	127,776		129,364		258,987		245,983
Operating income	65,136		62,220		130,800		131,230
Non-operating income (loss)	80		1,405		(657)		4,751
Income before provision for income taxes	65,216		63,625		130,143		135,981
Provision for income taxes	14,981		7,853		26,525		15,753
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Net income per share:
Basic	$	0.91	$	1.02	$	1.88	$	2.21
Diluted	$	0.88	$	0.96	$	1.80	$	2.08
Weighted-average shares used in per share calculations:
Basic	55,032		54,764		55,116		54,316
Diluted	57,379		58,204		57,630		57,913

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in thousands)

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Other comprehensive income, net of tax:
Unrealized gains (losses) from foreign currency translation adjustments	1,204		1,314		(1,680)		(1,149)
Total comprehensive income	$	51,439	$	57,086	$	101,938	$	119,079

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands)
	Three and Six Months Ended July 3, 2021
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at January 2, 2021	55,251	$	55	15,993	$	(638,736)	$	703,693	$	1,413	$	1,341,215	$	1,407,640
Stock options exercised	61	—		—	—		2,886		—		—		2,886
Restricted/Performance stock units vested	303	—		—	—		—		—		—		—
Shares paid for tax withholding	(68)	—		—	—		(16,691)		—		—		(16,691)
Stock-based compensation	—	—		—	—		12,708		—		—		12,708
Repurchases of common stock	(547)	—		547	(128,917)		—		—		—		(128,917)
Net income	—	—		—	—		—		—		53,383		53,383
Foreign currency translation adjustment	—	—		—	—		—		(2,884)		—		(2,884)
Balance at April 3, 2021	55,000	55		16,540	(767,653)		702,596		(1,471)		1,394,598		1,328,125
Stock options exercised	52	—		—	—		3,442		—		—		3,442
Restricted/Performance stock units vested	4	—		—	—		—		—		—		—
Shares paid for tax withholding	1	—		—	—		(33)		—		—		(33)
Stock-based compensation	—	—		—	—		8,262		—		—		8,262
Net income	—	—		—	—		—		—		50,235		50,235
Foreign currency translation adjustment	—	—		—	—		—		1,204		—		1,204
Balance at July 3, 2021	55,057	$	55	16,540	$	(767,653)	$	714,267	$	(267)	$	1,444,833	$	1,391,235

6

	Three and Six Months Ended June 27, 2020
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 28, 2019	53,696	$	54	15,530	$	(526,580)	$	600,624	$	(6,718)	$	1,100,494	$	1,167,874
Stock options exercised	384	—		—	—		13,495		—		—		13,495
Restricted/Performance stock units vested	46	—		—	—		—		—		—		—
Shares paid for tax withholding	(8)	—		—	—		(1,424)		—		—		(1,424)
Stock-based compensation	—	—		—	—		11,272		—		—		11,272
Repurchases of common stock	(3)	—		3	(371)		—		—		—		(371)
Cumulative effect of adoption of ASU 2016-13	—	—		—	—		—		—		439		439
Net income	—	—		—	—		—		—		64,456		64,456
Foreign currency translation adjustment	—	—		—	—		—		(2,463)		—		(2,463)
Balance at March 28, 2020	54,115	54		15,533	(526,951)		623,967		(9,181)		1,165,389		1,253,278
Stock options exercised	825	1		—	—		21,212		—		—		21,213
Restricted/Performance stock units vested	9	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		13,188		—		—		13,188
Repurchases of common stock	(1)	—		1	(220)		—		—		—		(220)
Net income	—	—		—	—		—		—		55,772		55,772
Foreign currency translation adjustment	—	—		—	—		—		1,314		—		1,314
Balance at June 27, 2020	54,948	$	55	15,534	$	(527,171)	$	658,367	$	(7,867)	$	1,221,161	$	1,344,545

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	Six Months Ended
	July 3, 2021		June 27, 2020
Cash flows from operating activities:
Net income	$	103,618	$	120,228
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,314		13,587
Stock-based compensation	20,970		24,460
Loss on disposal of equipment, intangibles and other assets	166		196
Provision (Benefit) for credit losses	497		(170)
Benefit from deferred income taxes	—		77
Changes in operating assets and liabilities:
Increase in accounts receivable	(38,700)		(41,295)
Decrease (increase) in inventories	8,627		(37,548)
Decrease (increase) in other current assets	6,456		(12,004)
Increase in lease receivable, net	(7,544)		(2,183)
Increase in deferred costs and other contract assets	(1,652)		(2,105)
Increase in other non-current assets	(166)		(442)
Increase in accounts payable	1,974		32,798
Decrease in accrued compensation	(16,303)		(2,025)
(Decrease) increase in accrued liabilities	(5,998)		5,876
(Decrease) increase in income tax payable	(2,034)		248
(Decrease) increase in deferred revenue and other contract-related liabilities	(1,231)		6,920
Decrease in other non-current liabilities	(736)		(558)
Net cash provided by operating activities	85,258		106,060
Cash flows from investing activities:
Maturities of short-term investments	—		70,000
Purchases of property and equipment, net	(14,242)		(51,263)
Increase in intangible assets	(2,977)		(4,322)
Business combinations, net of cash acquired	—		(78,310)
Other strategic investing activities	—		(6,750)
Net cash used in investing activities	(17,219)		(70,645)
Cash flows from financing activities:
Proceeds from issuance of common stock	9,137		34,629
Payroll tax withholdings on behalf of employees for vested equity awards	(16,724)		(1,424)
Repurchases of common stock	(128,917)		(591)
Net cash (used in) provided by financing activities	(136,504)		32,614
Effect of foreign currency exchange rates on cash	804		(847)
Net (decrease) increase in cash, cash equivalents and restricted cash	(67,661)		67,182
Cash, cash equivalents and restricted cash at beginning of period	645,004		568,075
Cash, cash equivalents and restricted cash at end of period	$	577,343	$	635,257

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of the Company

Masimo Corporation (the Company) is a global medical technology company that develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation solutions, home monitoring devices and consumer products. The Company’s mission is to improve patient outcomes, reduce the cost of care and take noninvasive monitoring to new sites and applications. The Company’s patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables. The Company primarily sells its products to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long-term care facilities, and consumers through its direct sales force, distributors and original equipment manufacturer (OEM) partners.

Masimo’s core measurement technologies are based on Measure-through Motion and Low Perfusion™ pulse oximetry, known as Masimo Signal Extraction Technology® (SET®) pulse oximetry, and advanced rainbow® Pulse CO-Oximetry parameters such as noninvasive hemoglobin (SpHb®), alongside many other modalities, including brain function monitoring, hemodynamic monitoring, regional oximetry, acoustic respiration rate monitoring, capnography, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology for the reduction of symptoms associated with opioid withdrawal. Masimo’s measurement technologies are available on many types of devices, from bedside hospital monitors like the Root® Patient Monitoring and Connectivity Hub, to various handheld and portable devices, and to the tetherless Masimo SafetyNet™ remote patient surveillance solution. The Masimo Hospital Automation™ Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™(1), Replica®, and UniView™ to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely. Leveraging the Company’s expertise in hospital-grade technologies, the Company has also expanded its suite of products intended for use outside the hospital to products for consumers, including Sleep™, a sleep quality solution and the Radius Tº™ wireless, wearable continuous thermometer.

______________

(1)    The use of the trademark Patient SafetyNet™ is under license from the University HealthSystem Consortium.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, including normal recurring accruals, necessary to present fairly the Company’s condensed consolidated financial statements. The accompanying condensed consolidated balance sheet as of January 2, 2021 was derived from the Company’s audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (fiscal year 2020), filed with the SEC on February 23, 2021. The results for the three and six months ended July 3, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending January 1, 2022 (fiscal year 2021) or for any other interim period or for any future year.

Fiscal Periods

The Company follows a conventional 52/53 week fiscal year. Under a conventional 52/53 week fiscal year, a 52 week fiscal year includes four quarters of 13 weeks while a 53 week fiscal year includes three 13 week fiscal quarters and one 14 week fiscal quarter. The Company’s last 53 week fiscal year was fiscal year 2020. Fiscal year 2021 is a 52 week fiscal year ending January 1, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

Reclassifications

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

9

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Use of Estimates

The Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the determination of standalone selling prices, variable consideration, total consideration allocated to each performance obligation within a contract, inventory valuation, valuation of the Company’s equity awards, valuation of identifiable assets and liabilities connected with business combinations, deferred taxes and any associated valuation allowances, deferred revenue, uncertain income tax positions, and litigation costs and related accruals. Actual results could differ from such estimates.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition. The excess of the purchase price over fair values of identifiable assets, liabilities and noncontrolling interests in the acquired entity, if applicable, is recorded as goodwill. The Company finalizes the purchase price allocation within one year from the acquisition date.

Fair Value Measurements

Authoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

●    Level 1—Quoted prices in active markets for identical assets or liabilities.

●    Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Pursuant to current authoritative guidance, entities are allowed an irrevocable option to elect the fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to apply the fair value option under this guidance to specific assets or liabilities on a contract-by-contract basis. There were no transfers between Level 1, Level 2 and Level 3 inputs during either the six months ended July 3, 2021 or June 27, 2020. The Company carries cash and cash equivalents, at cost, which approximates fair value.

For certain other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances. The Company also measures certain non-financial assets at fair value on a non-recurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or highly liquid investments that are readily convertible into known amounts of cash, to be cash equivalents.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consist of trade receivables recorded at the time of invoicing of product sales, reduced by reserves for estimated bad debts and returns. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of the customer’s financial condition. Collateral is generally not required. The Company records an allowance for credit losses that it does not expect to collect based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Accounts are charged off against the allowance when the Company believes they are uncollectible.

10

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates the first in, first out method, and includes material, labor and overhead costs. Inventory valuation adjustments are recorded for inventory items that have become excess or obsolete or are no longer used in current production and for inventory items that have a market price less than carrying value in inventory. The Company generally determines inventory valuation adjustments based on an evaluation of the expected future use of its inventory on an item by item basis and applies historical obsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. The Company also records other specific inventory valuation adjustments when it becomes aware of unique events or circumstances that result in an expected recovery value below cost. For inventory items that have been written down, the reduced value becomes the new cost basis.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:

	Useful Lives
Building and building improvements	7 to 39 years
Computer equipment and software	2 to 12 years
Demonstration units	3 years
Furniture and office equipment	2 to 6 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 10 years
Transportation, vehicles and other	4 to 20 years

Land is not depreciated and construction-in-progress is not depreciated until placed in service. Normal repair and maintenance costs are expensed as incurred, whereas significant improvements that materially increase values or extend useful lives are capitalized and depreciated over the remaining estimated useful lives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss on the sale or retirement is recognized in income.

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships and acquired technology. Costs related to patents and trademarks, which include legal and application fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Patent and trademark amortization commences once final approval of the patent or trademark has been obtained. Patent costs are amortized over the lesser of 10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. For intangibles purchased in an asset acquisition or business combination, which mainly include patents, trademarks, customer relationships and acquired technologies, the useful life is determined largely by valuation estimates of remaining economic life. The Company’s policy is to renew its patents and trademarks. Costs to renew patents and trademarks are capitalized and amortized over the remaining useful life of the intangible asset. The Company periodically evaluates the amortization period and carrying basis of patents, trademarks and other intangible assets to determine whether any events or circumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined that the patent or trademark will not be obtained or is abandoned.

11

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of a reporting unit is less than its carrying amount, then a quantitative analysis is unnecessary. However, if the Company concludes otherwise, or if the Company elects to bypass the qualitative analysis, then the Company must perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

The Company derives the majority of its product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where the Company provides up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to OEM customers who incorporate the Company’s embedded software technology into their multiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standard payment terms based on the geography within which the specific customer is located.

The Company generally recognizes revenue following a single, principles-based five-step model to be applied to all contracts with customers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, when control over the promised goods or services are transferred to the customer. Revenue related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease.

While the majority of the Company’s revenue contracts and transactions contain standard business terms and conditions, there are some transactions that contain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriate accounting, including: (i) the amount of the total consideration, as well as variable consideration, (ii) whether the arrangement contains an embedded lease, and if so, whether such embedded lease is a sales-type lease or an operating lease, (iii) the identification of the distinct performance obligations contained within the arrangement, (iv) how the arrangement consideration should be allocated to each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, and (v) when to recognize revenue on the performance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition.

12

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company enters into agreements to sell its monitoring solutions and services, sometimes as a part of arrangements with multiple performance obligations that include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that the total consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is not readily observable, the Company estimates the standalone selling price by considering multiple factors including, but not limited to, features and functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, the Company’s pricing and discount practices, and other market conditions.

Sales under deferred equipment agreements are generally structured such that the Company agrees to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three years to six years. The Company allocates contract consideration under deferred equipment agreements containing fixed annual sensor purchase commitments to the underlying lease and non-lease components at contract inception. In determining whether any underlying lease components are related to a sales-type lease or an operating lease, the Company evaluates the customer’s rights and ability to control the use of the underlying equipment throughout the contract term, including any equipment substitution rights retained by the Company, as well as the Company’s expectations surrounding potential contract/lease extensions or renewals and the customer’s likelihood to exercise any purchase options. Revenue allocable to non-lease performance obligations is generally recognized as such non-lease performance obligations are satisfied. Revenue allocable to lease components under sales-type lease arrangements is generally recognized when control over the equipment is transferred to the customer. Revenue allocable to lease components under operating lease arrangements is generally recognized over the term of the operating lease. The Company generally does not expect to derive any significant value in excess of such asset’s unamortized book value from equipment underlying its operating lease arrangements after the end of the agreement.

Revenue from the sale of products to end-user hospitals, emergency medical response organizations, other direct customers, distributors and OEM customers, is recognized by the Company when control of such products transfer to the customer based upon the terms of the contract or underlying purchase order.

Revenue related to OEM rainbow® parameter software licenses is recognized by the Company upon the OEM’s shipment of its product to its customer, as reported to the Company by the OEM.

The Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company records estimates related to these programs as a reduction to revenue at the time of sale. In general, customers do not have a right of return for credit or refund. However, the Company allows returns under certain circumstances. At the end of each period, the Company estimates and accrues for these returns as a reduction to revenue. The Company estimates the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations.

Shipping and Handling Costs and Fees

All shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. Charges for shipping and handling billed to customers are included as a component of product revenue.

Taxes Collected From Customers and Remitted to Governmental Authorities

The Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities.

Deferred Costs and Other Contract Assets

The costs of monitoring-related equipment provided to customers under operating lease arrangements within the Company’s deferred equipment agreements are generally deferred and amortized to cost of goods sold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain allowances to be made directly to the end-user hospital customer at the inception of the arrangement. These allowances are generally allocated to the lease and non-lease components and recognized as a reduction to revenue as the underlying performance obligations are satisfied.

13

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company generally invoices its customers under deferred equipment agreements as sensors are provided to the customer. However, the Company may recognize revenue for certain non-lease performance obligations under deferred equipment agreements with fixed annual commitments at the time such performance obligations are satisfied and prior to the customer being invoiced. When this occurs, the Company records an unbilled contract receivable related to such revenue until the customer has been invoiced pursuant to the terms of the underlying deferred equipment agreement.

The incremental costs of obtaining a contract with a customer are capitalized and deferred if the Company expects such costs to be recoverable over the life of the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by the Company’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term of the underlying contract.

Product Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from three months to forty-eight months, depending on the product type. In traditional sales activities, including direct and OEM sales, the Company establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to cost of goods sold. Customers may also purchase extended warranty coverage or service level upgrades separately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage and service level upgrades is generally recognized over the life of the contract, which reasonably approximates the period over which such services will be provided. The related extended warranty and service level upgrade costs are expensed as incurred.

Changes in the product warranty accrual were as follows (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Warranty accrual, beginning of period	$	2,740	$	3,395
Accrual for warranties issued	2,172		1,019
Changes in pre-existing warranties (including changes in estimates)	(1,454)		(270)
Settlements made	(662)		(508)
Warranty accrual, end of period	$	2,796	$	3,636

Litigation Costs and Contingencies

The Company records a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements, and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigation settlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and other litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigation expenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries are only recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and any related tax benefits that have been excluded from net income and reflected in stockholders’ equity.

14

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Net Income Per Share

A computation of basic and diluted net income per share is as follows (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Basic net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Net income per basic share	$	0.91	$	1.02	$	1.88	$	2.21
Diluted net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Diluted share equivalent: stock options, RSUs and PSUs	2,347		3,440		2,514		3,597
Weighted-average shares outstanding - diluted	57,379		58,204		57,630		57,913
Net income per diluted share	$	0.88	$	0.96	$	1.80	$	2.08

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income per diluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if the effect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of both restricted share units (RSUs) and performance share units (PSUs). For the three months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.4 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the six months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.2 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. Certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain future events. Since such events had not occurred and were not considered probable of occurring as of each of July 3, 2021 and June 27, 2020, 2.7 million weighted-average shares related to such RSUs have been excluded from the calculation of potential shares for each of the three and six month periods then ended.

15

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Supplemental Cash Flow Information

Supplemental cash flow information includes the following (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Cash paid during the year for:
Interest expense	$	196	$	130
Income taxes	24,152		10,049
Operating lease liabilities	3,676		3,038
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	4,423	$	7,394
Non-cash investing activities:
Unpaid purchases of property and equipment	$	2,381	$	3,135
Unpaid purchases of intangible assets	3,000		—
Settlement of promissory note receivable in connection with business combination	—		5,100
Unpaid strategic investments	6,000		—
Deposit release to acquire noncontrolling interest(1)	3,374		—
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	202	$	94
Fair value of common stock received for payment of stock option exercise price	—		220
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	575,955	$	631,881
Restricted cash	1,388		3,376
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	577,343	$	635,257

______________

(1)     See Note 5.

Segment Information

The Company uses the “management approach” in determining reportable business segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Based on this assessment, management has determined it operates in one reportable business segment, which is comprised of patient monitoring and related products.

16

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The new standard simplifies the accounting for income taxes by removing exceptions to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the standard requires that an entity recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The new guidance provides updates for technical corrections, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements across various areas of accounting within GAAP. ASU No. 2020-10 is effective after December 15, 2020 on a retrospective basis. Early adoption is permitted. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The new guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply this guidance prospectively through December 31, 2022. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new guidance clarified the scope and application of the original guidance. ASU No. 2021-01 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04). The new guidance addresses modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. ASU No. 2021-04 is effective after December 15, 2021 on a prospective basis, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period and should be applied as of the beginning of the fiscal year that includes the interim period. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

17

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

3. Related Party Transactions

The Company’s Chairman and Chief Executive Officer (CEO) is also the Chairman and CEO of Cercacor Laboratories, Inc. (Cercacor). The Company is a party to the following agreements with Cercacor:

•Cross-Licensing Agreement - The Company and Cercacor are parties to a cross-licensing agreement (Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $3.2 million and $3.1 million for the three months ended July 3, 2021 and June 27, 2020, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $6.7 million and $6.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), which governs certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million for each of the three months ended July 3, 2021 and June 27, 2020. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million and $0.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Lease and Sublease Agreements - Effective December 2019, the Company entered into a lease agreement with Cercacor for approximately 34,000 square feet of office, research and development space at one of the Company’s owned facilities in Irvine (Cercacor Lease). The term of the Cercacor Lease expires on December 31, 2024. In March 2016, the Company entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California (Cercacor Sublease). The Cercacor Sublease began on May 1, 2016 and expired on December 15, 2019. The Company recognized approximately $0.3 million of lease income for each of the three months ended July 3, 2021 and June 27, 2020. The Company recognized approximately $0.6 million and $0.5 million of lease income for the six months ended July 3, 2021 and June 27, 2020, respectively.

Net amounts due to Cercacor at each of July 3, 2021 and January 2, 2021 were approximately $3.1 million and $3.6 million, respectively.

The Company’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’s Executive Vice President (EVP), Chief Financial Officer (CFO) serves as the Treasurer of the Masimo Foundation and the Company’s EVP, General Counsel and Corporate Secretary serves as the Secretary for the Masimo Foundation. During the three months ended July 3, 2021 and June 27, 2020, the Company made no cash contributions to the Masimo Foundation. During the six months ended July 3, 2021, the Company made no contributions to the Masimo Foundation. During the six months ended June 27, 2020, the Company made cash contributions of approximately $1.5 million to the Masimo Foundation. During the three and six months ended July 3, 2021 and June 27, 2020, the Company made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.

The Company’s CEO is also a co-founder and a member of the board of directors of Like Minded Media Ventures (LMMV), a team of storytellers that create content focused in the areas of true stories, social causes and science. LMMV creates stories with a multi-platform strategy, bridging the gap between film, television, digital and social media. The Company entered into a marketing service agreement with LMMV for audiovisual production services promoting brand awareness, including television commercials and digital advertising, during the second quarter of 2020. During the three and six months ended July 3, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the three and six months ended June 27, 2020, the Company incurred $3.3 million in marketing expenses to LMMV under the marketing service agreement. At July 3, 2021 and January 2, 2021, there was no amount due to LMMV for services rendered.

The Company entered into a software license and professional services agreement with Like Minded Labs (LML), a subsidiary of LMMV, during the second quarter of 2021. Pursuant to the software license agreement, LML granted the Company a perpetual, non-exclusive and fully paid-up right and license to integrate LML’s software into the Company’s products in exchange for a $3.0 million one-time license fee. Pursuant to the professional services agreement, LML will provide professional services to the Company, including the development of custom software intended to support the integration of the licensed software into the Company’s products, as well as future support services upon the Company’s acceptance of deliverables.

18

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

In July 2021, the Company entered into a patent purchase and option agreement with Vantrix Corporation (Vantrix), an acquiree of LML, for certain patents for $0.5 million, and the right to purchase two pools of additional patents from Vantrix for an exercise fee of up to $1.1 million. The agreements with LML and Vantrix include sublicensing provisions whereby the software and patents are licensed back to LML or Vantrix, respectively, for further advancement of the technologies.

The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates. For each of the three and six months ended July 3, 2021 and June 27, 2020, the Company charged the Company’s CEO less than $0.1 million related to such disbursements.

4. Inventories

Inventories consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Raw materials	$	133,921	$	133,098
Work-in-process	18,185		15,985
Finished goods	54,501		66,869
Total inventories	$	206,607	$	215,952

5. Other Current Assets

Other current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Prepaid expenses	$	32,636	$	30,235
Lease receivable, current	26,650		23,206
Indirect taxes receivable	11,258		14,545
Prepaid income taxes	10,315		14,782
Prepaid rebates and royalties, current	3,186		3,081
Customer notes receivable	1,554		2,283
Restricted cash(1)	1,299		3,397
Deposit to acquire noncontrolling interest(2)	—		3,374
Other current assets	3,022		7,513
Total other current assets	$	89,920	$	102,416

______________

(1)     Restricted cash includes funds received from the Bill and Melinda Gates Foundation. As the Company incurs costs associated with research and development related to this project, on a quarterly basis, the Company reclasses amounts from the grant to offset costs incurred.

(2)     During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The Company made a deposit to acquire the noncontrolling interest of the acquiree. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

6. Lease Receivable

The Company recognizes revenue and costs, as well as a lease receivable, at the time the lease commences pursuant to deferred equipment agreements containing embedded sales-type leases. Lease revenue related to both operating-type and sales-type leases for the three months ended July 3, 2021 and June 27, 2020 was approximately $18.0 million and $8.0 million, respectively, and is included within product revenue in the accompanying condensed consolidated statements of operations. Lease revenue related to both operating-type and sales-type leases for the six months ended July 3, 2021 and June 27, 2020 was approximately $28.0 million and $18.0 million, respectively, and is included within product revenue in the accompanying condensed consolidated statements of operations. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of goods sold in the accompanying condensed consolidated statements of operations.

19

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Lease receivable consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Lease receivable	$	92,078	$	81,074
Allowance for credit loss	(230)		(202)
Lease receivable, net	91,848		80,872
Less: current portion of lease receivable	(26,650)		(23,206)
Lease receivable, noncurrent	$	65,198	$	57,666

As of July 3, 2021, estimated future maturities of customer sales-type lease receivables for each of the following fiscal years are as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	26,650
2022	22,526
2023	17,572
2024	11,971
2025	8,026
Thereafter	5,103
Total	$	91,848

Estimated future operating lease payments expected to be received from customers under deferred equipment agreements are not material as of July 3, 2021.

7. Deferred Costs and Other Contract Assets

Deferred costs and other contract assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred commissions	$	8,849	$	7,477
Prepaid contract allowances	7,074		7,336
Unbilled contract receivables	4,343		3,925
Equipment leased to customers, net	1,438		1,338
Deferred costs and other contract assets	$	21,704	$	20,076

20

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

8. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Building and building improvements	$	141,856	$	122,310
Machinery, equipment and tooling	100,682		90,843
Land	57,255		57,151
Transportation, vehicles and other	33,111		33,175
Computer equipment and software	31,510		24,693
Leasehold improvements	20,476		19,295
Furniture and office equipment	14,103		13,567
Demonstration units	1,046		1,024
Construction-in-progress (CIP)	19,443		44,589
Total property and equipment	419,482		406,647
Accumulated depreciation	(144,759)		(134,136)
Property and equipment, net	$	274,723	$	272,511

For the three months ended July 3, 2021 and June 27, 2020, depreciation expense of property and equipment was $6.4 million and $5.3 million, respectively. For the six months ended July 3, 2021 and June 27, 2020, depreciation expense of property and equipment was $12.3 million and $10.2 million, respectively.

The balance in CIP at July 3, 2021 related primarily to the capitalized implementation costs related to a new enterprise resource planning software system and costs related to equipment and other facility improvements, the underlying assets for which have not been completed or placed into service. The decrease in CIP balance from January 2, 2021 primarily relates to the Company’s European headquarters building in Switzerland being placed into service along with a phase of the new enterprise resource planning software system for certain subsidiaries being placed into service.

The balance in CIP at January 2, 2021 related primarily to acquisition and improvement costs for a portion of the Company’s European headquarters building in Switzerland, capitalized implementation costs related to a new enterprise resource planning software system and costs related to manufacturing equipment and other facility improvements, the underlying assets for which had not been placed into service.

9. Intangible Assets, net

Intangible assets, net, consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Acquired technologies	$	29,011	$	29,039
Patents	28,839		26,875
Customer relationships	24,667		24,666
Trademarks	12,072		11,708
Licenses-related party	7,500		7,500
Other	14,166		10,801
Total intangible assets	116,255		110,589
Accumulated amortization	(41,230)		(36,666)
Intangible assets, net	$	75,025	$	73,923

Intangible assets have a weighted-average amortization period of twelve years. Total amortization expense for the three months ended July 3, 2021 and June 27, 2020 was $2.4 million and $2.1 million, respectively. Total amortization expense for the six months ended July 3, 2021 and June 27, 2020 was $5.0 million and $3.5 million, respectively.

21

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Total renewal costs for patents and trademarks for each of the three months ended July 3, 2021 and June 27, 2020 were $0.2 million and $0.3 million, respectively. Total renewal costs for patents and trademarks for the six months ended July 3, 2021 and June 27, 2020 were $0.4 million and $0.5 million, respectively. As of July 3, 2021, the weighted-average number of years until the next renewal was two years for patents and four years for trademarks.

Estimated amortization expense for each of the next fiscal years is as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	9,377
2022	8,304
2023	7,817
2024	7,455
2025	6,173
Thereafter	35,899
Total	$	75,025

10. Goodwill

Changes in goodwill were as follows (in thousands):

	Six Months Ended July 3, 2021
Goodwill, beginning of period	$	103,206
Foreign currency translation adjustment	(720)
Goodwill, end of period	$	102,486

11. Lessee ROU Assets and Lease Liabilities

The Company leases certain facilities in North and South America, Europe, the Middle East and Asia-Pacific regions under operating lease agreements expiring at various dates through January 2032. In addition, the Company leases equipment in the U.S. and Europe, and these leases are classified as operating leases and expire at various dates through May 2026. The majority of these leases are non-cancellable and generally do not contain any material restrictive covenants, material residual value guarantees or other material guarantees. The Company recognizes lease costs under these agreements using a straight-line method based on total lease payments. Certain facility leases contain predetermined price escalations and in some cases renewal options, the longest of which is for five years.

The Company generally estimates the applicable discount rate used to determine the net present value of lease payments based on available information at the lease commencement date. As of July 3, 2021, the weighted-average discount rate used by the Company for all operating leases was approximately 2.5%.

The balance sheet classifications for amounts related to the Company’s operating leases for which it is the lessee are as follows (in thousands):

	Balance sheet classification	July 3, 2021		January 2, 2021
Lessee ROU assets	Other non-current assets	$	33,031	$	32,324
Lessee current lease liabilities	Other current liabilities	6,248		5,975
Lessee non-current lease liabilities	Other non-current liabilities	28,940		28,373
Total operating lease liabilities		$	35,188	$	34,348

As of July 3, 2021 and January 2, 2021, accumulated amortization for lessee ROU assets was $12.0 million and $9.2 million, respectively. The weighted-average remaining lease term for the Company’s operating leases was 6.9 years as of July 3, 2021.

22

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of July 3, 2021, estimated future operating lease payments for each of the following fiscal years were as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	3,693
2022	6,719
2023	6,522
2024	5,120
2025	4,007
Thereafter(1)	12,387
Total	38,448
Imputed interest	(3,260)
Present value	$	35,188

______________

(1)     Includes optional renewal period for certain leases.

During the three months ended July 3, 2021 and June 27, 2020, operating lease costs were approximately $2.2 million and $1.7 million, respectively. During the six months ended July 3, 2021 and June 27, 2020, operating lease costs were approximately $4.1 million and $3.4 million, respectively.

12. Other Non-Current Assets

Other non-current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee ROU assets, net	$	33,031	$	32,324
Strategic investments	13,928		8,002
Prepaid deposits and other	4,445		4,316
Total other non-current assets	$	51,404	$	44,642

13. Deferred Revenue and Other Contract Liabilities, Current

Deferred revenue and other contract liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred revenue	$	33,132	$	33,221
Accrued rebates and allowances	9,583		12,127
Accrued customer reimbursements	5,218		3,829
Total deferred revenue and other contract liabilities	47,933		49,177
Less: Non-current portion of deferred revenue	(3,775)		(4,242)
Deferred revenue and other contract liabilities - current	$	44,158	$	44,935

Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before the Company can recognize the revenue. These amounts primarily relate to undelivered equipment, sensors and services under deferred equipment agreements, extended warranty agreements and maintenance agreements.

23

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Changes in deferred revenue were as follows (in thousands):

	Six Months Ended July 3, 2021
Deferred revenue, beginning of the period	$	33,221
Revenue deferred during the period	16,888
Recognition of revenue deferred in prior periods	(16,977)
Deferred revenue, end of the period	$	33,132

Expected revenue from remaining contractual performance obligations (Unrecognized Contract Revenue) includes deferred revenue, as well as other amounts that will be invoiced and recognized as revenue in future periods, when the Company completes its performance obligations. While Unrecognized Contract Revenue is similar in concept to backlog, Unrecognized Contract Revenue excludes revenue allocable to monitoring-related equipment that is effectively leased to customers under deferred equipment agreements and other contractual obligations for which neither party has performed.

As of July 3, 2021, the Company had approximately $949.1 million of Unrecognized Contract Revenue related to executed contracts with an original duration of five years or more. The Company expects to recognize approximately $265.6 million of this amount as revenue within the next twelve months and the remaining balance thereafter.

The estimated timing of this revenue is based, in part, on management’s estimates and assumptions about when its performance obligations will be completed. As a result, the actual timing of this revenue in future periods may vary, possibly materially.

14. Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Accrued expenses	$	17,746	$	6,794
Accrued indirect taxes payable	9,627		14,365
Lessee lease liabilities, current	6,248		5,975
Accrued legal fees	4,124		4,058
Income tax payable	3,871		5,910
Related party payables	3,155		3,655
Accrued warranty	2,796		2,740
Noncontrolling interest(1)	—		3,469
Accrued donations	1,307		495
Accrued property taxes	2,420		1,682
Other current liabilities	3,286		4,096
Total other current liabilities	$	54,580	$	53,239

______________

(1)During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The noncontrolling interest of the acquiree was recorded within other current liabilities as of January 2, 2021, as the noncontrolling interest shares were mandatorily redeemable. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

24

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

15. Credit Facility

The Company currently maintains a credit facility with various lenders that provides for up to $150.0 million of unsecured borrowings, with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity up to $550.0 million in the future with such lenders and additional lenders, as required. The credit facility also provides for a sublimit of up to $25.0 million for the issuance of letters of credit and a sublimit of $75.0 million for borrowings in specified foreign currencies. All unpaid principal under the credit facility will become due and payable on December 17, 2023. Proceeds from the credit facility are expected to be used for general corporate, capital investment and working capital needs. As of July 3, 2021 and January 2, 2021, the credit facility had no outstanding draws and $1.8 million and $1.7 million of outstanding letters of credit, respectively. The Company was in compliance with all covenants under the credit facility as of July 3, 2021 and January 2, 2021.

For each of the three months ended July 3, 2021 and June 27, 2020, the Company incurred total interest expense of $0.1 million under the credit facility. For each of the six months ended July 3, 2021 and June 27, 2020, the Company incurred total interest expense of $0.2 million under the credit facility.

16. Other Non-Current Liabilities

Other non-current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee non-current lease liabilities	$	28,940	$	28,373
Income tax payable, non-current	16,980		19,245
Unrecognized tax benefits	13,659		11,777
Deferred tax liabilities	6,157		6,247
Other	4,688		5,434
Total other non-current liabilities	$	70,424	$	71,076

Unrecognized tax benefits relate to the Company’s long-term portion of tax liability associated with uncertain tax positions. Authoritative guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. See Note 20 to these condensed consolidated financial statements for further details.

17. Stock Repurchase Program

In July 2018, the Company’s Board of Directors (Board) approved a stock repurchase program, authorizing the Company to purchase up to 5.0 million additional shares of its common stock over a period of up to three years (2018 Repurchase Program). The Company expects to fund the 2018 Repurchase Program through its available cash, cash expected to be generated from future operations, the credit facility and other potential sources of capital. The 2018 Repurchase Program can be carried out at the discretion of a committee comprised of the Company’s CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. As of July 3, 2021, 3.7 million shares remained available for repurchase pursuant to the 2018 Repurchase Program.

The following table provides a summary of the Company’s stock repurchase activities (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Shares repurchased(1)	—		1		547		4
Average cost per share	$	—	$	213.91	$	235.88	$	164.44
Value of shares repurchased	$	—	$	220	$	128,917	$	591

______________

(1)     Excludes shares withheld from the shares of its common stock actually issued in connection with the vesting of PSU or RSU awards to satisfy certain U.S. federal and state tax withholding obligations.

25

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

18. Stock-Based Compensation

Total stock-based compensation expense for the three months ended July 3, 2021 and June 27, 2020 was $8.3 million and $13.2 million, respectively. Total stock-based compensation expense for the six months ended July 3, 2021 and June 27, 2020 was $21.0 million and $24.5 million, respectively. As of July 3, 2021, an aggregate of 10.9 million shares of common stock were reserved for future issuance under the Company’s equity plans, of which 4.4 million shares were available for future grant under the Masimo Corporation 2017 Equity Incentive Plan (2017 Equity Plan). Additional information related to the Company’s current equity incentive plans, stock-based award activity and valuation of stock-based awards is included below.

Equity Incentive Plans

2017 Equity Incentive Plan

On June 1, 2017, the Company’s stockholders ratified and approved the 2017 Equity Plan. The 2017 Equity Plan permits the grant of stock options, restricted stock, RSUs, stock appreciation rights, PSUs, performance shares, performance bonus awards and other stock or cash awards to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Upon its effectiveness, an aggregate of 5.0 million shares were available for issuance under the 2017 Equity Plan. In May 2020, the Company’s stockholders approved an increase of 2.5 million shares to the 2017 Equity Plan. The aggregate number of shares that may be awarded under the 2017 Equity Plan is 7.5 million shares. The 2017 Equity Plan provides that at least 95% of the equity awards issued under the 2017 Equity Plan must vest over a period of not less than one year following the date of grant. The exercise price per share of each option granted under the 2017 Equity Plan may not be less than the fair market value of a share of the Company’s common stock on the date of grant, which is generally equal to the closing price of the Company’s common stock on the Nasdaq Global Select Market on the grant date.

2007 Stock Incentive Plan

Effective June 1, 2017, upon the approval and ratification of the 2017 Equity Plan, the Company’s 2007 Stock Incentive Plan (2007 Equity Plan) terminated, provided that awards outstanding under the 2007 Equity Plan will continue to be governed by the terms of that plan. In addition, upon the effectiveness of the 2017 Equity Plan, an aggregate of 5.0 million shares of the Company’s common stock registered under prior registration statements for issuance pursuant to the 2007 Equity Plan were deregistered and concurrently registered under the 2017 Equity Plan.

Stock-Based Award Activity

Stock Options

The number and weighted-average exercise price of options issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average exercise prices):

	Six Months Ended July 3, 2021
	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3,448	$	77.44
Granted	85	250.15
Canceled	(128)	146.51
Exercised	(113)	56.02
Options outstanding, end of period	3,292	$	79.92
Options exercisable, end of period	2,311	$	53.95

Total stock option expense for the three months ended July 3, 2021 and June 27, 2020 was $2.9 million and $4.1 million, respectively. Total stock option expense for the six months ended July 3, 2021 and June 27, 2020 was $6.7 million and $8.1 million, respectively. As of July 3, 2021, the Company had $34.9 million of unrecognized compensation cost related to non-vested stock options that are expected to vest over a weighted-average period of approximately 2.7 years. The weighted-average remaining contractual term of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was 5.4 years. The weighted-average remaining contractual term of options exercisable, with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021, was 4.5 years.

26

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

RSUs

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2,862	$	99.66
Granted	82	246.67
Canceled	(10)	197.13
Expired	—	—
Vested	(34)	163.57
RSUs outstanding, end of period	2,900	$	102.71

Total RSU expense for the three months ended July 3, 2021 and June 27, 2020 was $2.4 million and $1.5 million, respectively. Total RSU expense for the six months ended July 3, 2021 and June 27, 2020 was $4.4 million and $2.5 million, respectively. As of July 3, 2021, the Company had $36.6 million of unrecognized compensation cost related to non-vested RSU awards expected to be recognized and vest over a weighted-average period of approximately 3.8 years.

PSUs

The number of PSUs outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	444	$	120.28
Granted(1)	148	162.99
Canceled	(17)	166.84
Expired	—	—
Vested	(273)	86.95
PSUs outstanding, end of period	302	$	168.68

______________

(1)     On February 22, 2021, the Audit Committee approved the weighted payout percentage for the 2018 PSU awards (three-year performance period), which were based upon the actual fiscal 2020 performance against pre-established performance objectives. Included in the granted amount are those additional PSUs earned based on actual performance achieved. These PSUs were originally awarded at target.

During the six months ended July 3, 2021, the Company awarded 68,600 PSUs that will vest three years from the award date, based on the achievement of certain 2024 performance criteria approved by the Board. If earned, the PSUs granted will vest upon achievement of the performance criteria after the year in which the performance achievement level has been determined. The number of shares that may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under these awards is twice the original award of 68,600 PSUs, or 137,200 shares. Based on management’s estimate of the number of units expected to vest, total PSU expense for the three months ended July 3, 2021 and June 27, 2020 was $3.0 million and $7.6 million, respectively. Based on management’s estimate of the number of units expected to vest, total PSU expense for the six months ended July 3, 2021 and June 27, 2020 was $9.9 million and $13.9 million, respectively. As of July 3, 2021, the Company had $48.7 million of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 1.3 years.

27

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Valuation of Stock-Based Award Activity

The fair value of each RSU and PSU is determined based on the closing price of the Company’s common stock on the grant date.

The Black-Scholes option pricing model is used to estimate the fair value of options granted under the Company’s stock-based compensation plans. The range of assumptions used and the resulting weighted-average fair value of options granted at the date of grant were as follows:

	Three Months Ended		Six Months Ended
	July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020
Risk-free interest rate	0.4%	0.3% to 0.6%	0.3% to 0.9%	0.3% to 1.7%
Expected term (in years)	5.1	5.1	5.6	5.1
Estimated volatility	32.9%	26.9% to 35.5%	30.9% to 34.7%	26.9% to 35.5%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$66.53	$60.12	$75.72	$49.82

The aggregate intrinsic value of options is calculated as the positive difference, if any, between the market value of the Company’s common stock on the date of exercise or the respective period end, as appropriate, and the exercise price of the options. The aggregate intrinsic value of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was $566.5 million. The aggregate intrinsic value of options exercisable with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was $457.7 million. The aggregate intrinsic value of options exercised during the three months ended July 3, 2021 was $8.7 million. The aggregate intrinsic value of options exercised during the six months ended July 3, 2021 was $21.4 million.

19. Non-operating (loss) income

Non-operating (loss) income consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Interest income	$	218	$	1,478	$	435	$	4,323
Interest expense	(88)		(83)		(172)		(167)
Realized and unrealized foreign currency (losses) gains	(50)		11		(920)		599
Other	—		(1)		—		(4)
Total	$	80	$	1,405	$	(657)	$	4,751

20. Income Taxes

The Company has provided for income taxes in fiscal year 2020 interim periods based on the estimated effective income tax rate for the complete fiscal year, as adjusted for discrete tax events, including excess tax benefits or deficiencies related to stock-based compensation, in the period such events occur. The estimated annual effective tax rate is computed based on the expected annual pretax income of the consolidated entities located within each taxing jurisdiction based on legislation enacted as of the balance sheet date. For the three months ended July 3, 2021 and June 27, 2020, the Company recorded discrete tax benefits of approximately $1.3 million and $7.5 million, respectively, related to excess tax benefits realized from stock-based compensation. For the six months ended July 3, 2021 and June 27, 2020, the Company recorded discrete tax benefits of approximately $5.6 million and $17.1 million, respectively, related to excess tax benefits realized from stock-based compensation.

28

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for accounting and tax purposes. A valuation allowance for deferred tax assets is recorded to the extent that the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not. Realization of deferred tax assets is principally dependent upon the achievement of future taxable income, the estimation of which requires significant judgment by the Company’s management. The judgment of the Company’s management regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances.

As of July 3, 2021, the liability for income taxes associated with uncertain tax positions was approximately $19.9 million. If fully recognized, approximately $18.0 million (net of federal benefit on state taxes) would impact the Company’s effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits in various jurisdictions may change in the next twelve months due to the expiration of statutes of limitation and audit settlements. However, due to the uncertainty surrounding the timing of these events, an estimate of the change within the next twelve months cannot currently be made.

The Company conducts business in multiple jurisdictions and, as a result, one or more of the Company’s subsidiaries files income tax returns in U.S. federal, various state, local and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters through fiscal year 2016. All material state, local and foreign income tax matters have been concluded through fiscal year 2012. The Company does not believe that the results of any tax authority examination would have a significant impact on its consolidated financial statements.

21. Commitments and Contingencies

Employee Retirement Savings Plan

The Company sponsors a qualified defined contribution plan or 401(k) plan, the Masimo Retirement Savings Plan (MRSP), covering the Company’s full-time U.S. employees who meet certain eligibility requirements. In general, the Company matches an employee’s contribution up to 3% of the employee’s compensation, subject to a maximum amount. The Company may also contribute to the MRSP on a discretionary basis. The Company contributed $0.9 million and $0.8 million to the MRSP for the three months ended July 3, 2021 and June 27, 2020, respectively, all in the form of matching contributions. The Company contributed $1.9 million and $1.6 million to the MRSP for the six months ended July 3, 2021 and June 27, 2020, respectively, all in the form of matching contributions. In addition, the Company sponsors various defined contribution plans in certain locations outside of the United States, the contributions to which were not material for any period.

Employment and Severance Agreements

In July 2017, the Company entered into the First Amendment to the certain Amended and Restated Employment Agreement entered into between the Company and Mr. Kiani on November 4, 2015 (as amended, the Amended Employment Agreement). Pursuant to the terms of the Amended Employment Agreement, upon a “Qualifying Termination” (as defined in the Amended Employment Agreement), Mr. Kiani will be entitled to receive a cash severance benefit equal to two times the sum of his then-current base salary and the average annual bonus paid to Mr. Kiani during the immediately preceding three years, the full amount of the “Award Shares” (as defined in the Amended Employment Agreement) and the full amount of the “Cash Payment” (as defined in the Amended Employment Agreement). In addition, in the event of a “Change in Control” (as defined in the Amended Employment Agreement) prior to a Qualifying Termination, on each of the first and second anniversaries of the Change in Control, 50% of the Cash Payment and 50% of the Award Shares will vest, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date; however, in the event of a Qualifying Termination or a termination of Mr. Kiani’s employment due to death or disability prior to either of such anniversaries, any unvested amount of the Cash Payment and all of the unvested Award Shares shall vest and be paid in full.

Additionally, in the event of a Change in Control prior to a Qualifying Termination, Mr. Kiani’s stock options and any other equity awards will vest in accordance with their terms, but in no event later than in two equal installments on each of the one year and two year anniversaries of the Change in Control, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date. As of July 3, 2021, the expense related to the Award Shares and Cash Payment that would be recognized in the Company’s consolidated financial statements upon the occurrence of a Qualifying Termination under the Restated Employment Agreement was approximately $292.9 million.

29

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of July 3, 2021, the Company had severance plan participation agreements with five executive officers. The participation agreements (the Agreements) are governed by the terms and conditions of the Company’s 2007 Severance Protection Plan (the Severance Plan), which became effective on July 19, 2007 and which was amended effective December 31, 2008. Under each of the Agreements, the applicable executive officer may be entitled to receive certain salary, equity, medical and life insurance benefits if he is terminated by the Company without cause or if he terminates his employment for good reason under certain circumstances. The executive officers are also required to give the Company six months’ advance notice of their resignation under certain circumstances.

Purchase Commitments

Pursuant to contractual obligations with vendors, the Company had $143.9 million of purchase commitments as of July 3, 2021 that are expected to be purchased within one year. These purchase commitments have been made for certain inventory items in order to secure sufficient levels of those items, other critical inventory and manufacturing supplies, and to achieve better pricing.

Other Contractual Commitments

In the normal course of business, the Company may provide bank guarantees to support government hospital tenders in certain foreign jurisdictions. As of July 3, 2021, the Company had approximately $2.8 million in outstanding unsecured bank guarantees.

In certain circumstances, the Company also provides limited indemnification within its various customer contracts whereby the Company indemnifies the parties to whom it sells its products with respect to potential infringement of intellectual property, and against bodily injury caused by a defective Company product. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved. As of July 3, 2021, the Company had not incurred any significant costs related to contractual indemnification of its customers.

Concentrations of Risk

The Company is exposed to credit loss for the amount of its cash deposits with financial institutions in excess of federally insured limits. The Company invests a portion of its excess cash with major financial institutions. As of July 3, 2021, the Company had $576.0 million of bank balances, of which $4.2 million was covered by either the U.S. Federal Deposit Insurance Corporation limit or foreign countries’ deposit insurance organizations.

The Company’s ability to sell its products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential customers for the Company’s products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes exclusively, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. During the three months ended July 3, 2021 and June 27, 2020, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 49.0% and 45.9% of product revenue, respectively. During the six months ended July 3, 2021 and June 27, 2020, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 50.1% and 50.3% of product revenue, respectively.

For the three months ended July 3, 2021, the Company had sales through two just-in-time distributors that represented 15.0% and 9.9% of product revenue, respectively. For the three months ended June 27, 2020, the Company had sales through the same two just-in-time distributors that represented 8.8% and 8.3% of product revenue, respectively.

For the six months ended July 3, 2021, the Company had sales through two just-in-time distributors that represented 14.4% and 10.4% of product revenue, respectively. For the six months ended June 27, 2020, the Company had sales through the same two just-in-time distributors that represented 11.3% and 10.4% of product revenue, respectively.

As of July 3, 2021 and January 2, 2021, one customer represented 11.9% and 9.1%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by a letter of credit.

30

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Litigation

During the third quarter of fiscal year 2017, the Company became aware that certain amounts had been paid by a foreign government customer to the Company’s former appointed foreign agent in connection with a foreign government tender, but had not been remitted by such agent to the Company in accordance with the agency agreement. On December 28, 2017, the Company initiated arbitration proceedings against this foreign agent after unsuccessful attempts to recover such remittances. As a result, the Company recorded a net charge of approximately $10.5 million during the fourth quarter of fiscal year 2017 in connection with this dispute, of which $2.0 million was recovered during the year ended December 28, 2019. An arbitration hearing was held on February 11, 2019. On July 8, 2019, the arbitrator awarded the Company $10.5 million in damages, fees and costs. On January 12, 2020, the Company received notice that bankruptcy restructuring proceedings had been initiated for the foreign agent. The Company filed its claim with the bankruptcy trustee on January 16, 2020. In July 2020, the Company was notified that a bankruptcy reorganization proposal had been submitted for voting by creditors in August 2020. The reorganization proposal was rejected by a vote of the creditors on August 26, 2020. On October 22, 2020, the Company filed a petition seeking to enforce the arbitration award. Although the Company intends to vigorously pursue the collection of the arbitration award, there is no guarantee that the Company will be successful in these efforts.

On January 2, 2014, a putative class action complaint was filed against the Company in the U.S. District Court for the Central District of California (District Court) by Physicians Healthsource, Inc. The complaint alleges that the Company sent unsolicited facsimile advertisements in violation of the Junk Fax Protection Act of 2005 and related regulations. The complaint seeks $500 for each alleged violation, treble damages if the District Court finds the alleged violations to be knowing, plus interest, costs and injunctive relief. On March 26, 2019, an amended complaint was filed adding Radha Geismann, M.D. PC as an additional named plaintiff. On June 17, 2019, the plaintiffs filed their motion for class certification. On September 10, 2019, the parties filed motions for summary judgment. On September 30, 2019, the Company filed its opposition to the motion for class certification, and the plaintiffs filed their reply on October 7, 2019. On November 21, 2019, the District Court issued an order denying the plaintiffs’ motion for class certification and granting in part and denying in part the Company’s motion for summary judgment, and deferring ruling on the plaintiffs’ motion for summary judgment. On December 5, 2019, the plaintiffs filed a petition for permission to appeal the order denying class certification, which was denied on January 24, 2020. Trial of the individual plaintiffs’ claims was scheduled for June 2, 2020, but on April 1, 2020, the District Court vacated the trial date and directed the parties to conduct an in-person mediation. The mediation has not occurred and no new trial date has been set. On July 13, 2020, the District Court issued an order granting in part and denying in part the plaintiffs’ motion for summary judgment.

The Company believes it has good and substantial defenses to the claims, but there is no guarantee that the Company will prevail. The Company is unable to determine whether any loss will ultimately occur or to estimate the range of such loss; therefore, no amount of loss has been accrued by the Company in the accompanying condensed consolidated financial statements.

On January 9, 2020, the Company filed a complaint against Apple Inc. (Apple) in the District Court for infringement of a number of patents, for trade secret misappropriation, and for ownership and correction of inventorship of a number of Apple patents listing one of its former employees as an inventor. Apple filed petitions for Inter Partes review of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO has instituted Inter Partes review of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the Inter Partes review proceedings. On February 5, 2021, the Company filed a fourth amended complaint. On February 26, 2021, Apple filed a partial motion to dismiss the trade secrets claim in the fourth amended complaint. On April 21, 2021, the District Court issued an order granting in part and denying in part the motion to dismiss. On May 5, 2021, Apple filed its answer to the fourth amended complaint. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents.

On June 30, 2021, the Company filed a complaint with the U.S. International Trade Commission (ITC) against Apple for infringement of a number of other patents. The ITC has not yet initiated a formal investigation of the Company’s claims. The Company is seeking an exclusion order and a permanent cease and desist order. Although the Company intends to vigorously pursue all of its legal remedies, there is no guarantee that the Company will be successful in these efforts.

From time to time, the Company may be involved in other litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. The Company believes that it currently is not a party to any other legal proceedings which, individually or in the aggregate, would have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

22. Segment Information and Enterprise Reporting

The Company operates in one segment based upon the Company’s organizational structure and the way in which the Company’s chief operating decision maker, the CEO, reviews financial information, including gross profit, operating expenses, operating income and net income presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region, for purposes of making operating decisions and assessing financial performance. In addition, the Company’s assets are primarily located in the U.S. The Company does not produce reports for, or measure the performance of, its geographic regions on any asset-based metrics. Therefore, geographic information is presented only for revenues and long-lived assets.

The following schedule presents an analysis of the Company’s product revenues based upon the geographic area to which the product was shipped (in thousands, except percentages):

	Three Months Ended								Six Months Ended
	July 3, 2021				June 27, 2020				July 3, 2021				June 27, 2020
Geographic area by destination:
United States (U.S.)	$	201,874	66.2	%	$	194,721	64.7	%	$	406,137	67.2	%	$	384,240	67.3	%
Europe, Middle East and Africa	61,207		20.1		68,167		22.7		120,830		20.0		122,524		21.5
Asia and Australia	32,423		10.6		26,259		8.7		59,256		9.8		45,572		8.0
North and South America (excluding the U.S.)	9,614		3.1		11,806		3.9		17,938		3.0		18,242		3.2
Product revenue	$	305,118	100.0	%	$	300,953	100.0	%	$	604,161	100.0	%	$	570,578	100.0	%

The Company’s consolidated long-lived assets (tangible non-current assets) by geographic area are (in thousands, except percentages):

	July 3, 2021				January 2, 2021
Long-lived assets by geographic area:
United States	$	238,638	86.4	%	$	238,094	86.9	%
International	37,523		13.6		35,755		13.1
Total long-lived assets	$	276,161	100.0	%	$	273,849	100.0	%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in connection with the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results or financial condition; statements concerning new products, technologies or services; statements related to future capital expenditures; statements related to future economic conditions or performance; statements related to our stock repurchase program; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may” or “will,” the negative versions of these terms and similar expressions or variations. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially and adversely from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our other Securities and Exchange Commission (SEC) filings, including our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, which we filed with the SEC on February 23, 2021. Furthermore, such forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Executive Overview

We are a global medical technology company that develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation solutions, home monitoring devices and consumer products. Our mission is to improve patient outcomes, reduce the cost of care and take noninvasive monitoring to new sites and applications. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables. We primarily sell our products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and consumers through our direct sales force, distributors and original equipment manufacturer (OEM) partners. We were incorporated in California in May 1989 and reincorporated in Delaware in May 1996.

Our core measurement technologies are Measure-through Motion and Low Perfusion™ pulse oximetry, known as Masimo Signal Extraction Technology® (SET®) pulse oximetry, and advanced rainbow® Pulse CO-Oximetry parameters such as noninvasive hemoglobin (SpHb®), alongside many other modalities, including brain function monitoring, hemodynamic monitoring, regional oximetry, acoustic respiration rate monitoring, capnography, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology for the reduction of symptoms associated with opioid withdrawal. Masimo’s measurement technologies are available on many types of devices, from bedside hospital monitors like the Root® Patient Monitoring and Connectivity Hub, to various handheld and portable devices, and to the tetherless Masimo SafetyNet™ remote patient surveillance solution. The Masimo Hospital Automation™ Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™, Replica® and UniView™ to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely. Leveraging our expertise in hospital-grade technologies, we are also expanding our suite of products intended for use outside the hospital and products for consumers, including Sleep™, a sleep quality solution and the Radius Tº™ wireless, wearable continuous thermometer. For an overview of our product offerings and technologies, please refer to “Business” in Part I, Item 1 of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on February 23, 2021.

In January 2021, we announced the global launch of iSirona™, a compact, versatile connectivity hub designed to maximize interoperability across the continuum of care. The iSirona™ hub offers an efficient way to physically connect up to six medical devices at the bedside and automatically route the data to the Masimo Hospital Automation™ Platform. The iSirona™ hub helps ensure that whatever the source, all patient data can be accurately and efficiently captured and presented to clinicians in the most suitable ways.

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In February 2021, we announced the full market release of Masimo SafetyNet-OPEN™, a web and mobile app solution that helps businesses, schools and other organizations screen, trace and manage users entering their facilities with respect to COVID-19 and other infectious illnesses, such as seasonal flu. SafetyNet-OPEN™ helps organizations bring their people back to the workplace responsibly and stay open safely. Tailored for each organization’s safety protocols and needs, SafetyNet-OPEN™ is capable of covering all stages of back-to-work management, including risk screening, exposure contact tracing and recovery management.

Also in February 2021, we announced the U.S. introduction of softFlow®, which provides nasal high-flow warmed and humidified respiratory gases to spontaneously breathing patients. The technology offers adult patients high-flow respiratory support through a soft nasal cannula by generating a consistent high flow of warm, humidified air or air/oxygen mixture.

In March 2021, we announced the CE Marking of the Rad-G™ with temperature, a rugged handheld device that provides clinically proven SET® pulse oximetry, respiration rate from the pleth (RRp®) parameter and other important parameters alongside clinical-grade, non-contact infrared thermometry. With its long-lasting rechargeable battery, robust rubber casing, light weight and integrated noninvasive, real-time forehead temperature measurement, Rad-G™ with temperature makes it easier for clinicians to quickly assess patients and make informed care decisions anywhere pulse oximetry or vital signs monitoring is needed in a compact, portable form factor. Coupled with the universal Mini-Clip™ pulse oximeter sensor to provide the ultimate in handheld versatility, Rad-G™ with temperature can be used in a variety of settings, including but not limited to, entry screening, physicians’ offices, outpatient services, long-term care facilities, wellness clinics, first-response scenarios and limited-resource environments both indoors and in the field. Rad-G™ can provide both spot-check measurement and continuous monitoring.

In April 2021, we announced that Radius PCG™, a portable real-time capnograph with wireless Bluetooth® connectivity, received FDA 510(k) clearance. Radius PCG™ connects with the Root® Patient Monitoring and Connectivity Platform to provide seamless, tetherless mainstream capnography for patients of all ages. Radius PCG™ offers Masimo SET® Measure-through Motion and Low Perfusion pulse oximetry, continuous temperature measurements with no routine calibration, along with accurate end-tidal carbon dioxide (EtCO2) and respiration rate measurements.

In June 2021, we announced that Radius T°™, a wearable, wireless thermometer that measures body temperature continuously and noninvasively, received FDA 510(k) clearance for both prescription and over-the-counter use on patients and consumers five years and older. Featuring continuously trending temperature measurements and Bluetooth® connectivity, Radius T°™ automates remote, continuous body temperature status for clinicians through its paired connection to a Masimo patient monitoring or telehealth solution, and for consumers through the Masimo Radius T°™ smartphone application.

COVID-19 Pandemic

The COVID-19 pandemic has created significant uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business. We are committed to being as transparent as possible with our investors, employees, customers, suppliers and business partners as we collectively work to respond to this crisis. In response to this situation, we implemented a number of precautionary measures at our facilities, including: requiring certain personnel to work remotely from home and enacting social distancing, requiring face masks and mandatory screening for symptoms associated with COVID-19 for critical personnel that are required to report to our facilities to work. We also introduced new products, such as Masimo SafetyNet™ and Masimo SafetyNet-OPEN™to help combat the COVID-19 pandemic, and made pledges to various charitable organizations to support global COVID-19 relief efforts. We currently believe that our existing liquidity position will be sufficient to fund these ongoing initiatives and our response efforts.

Given the continuing uncertainties related to the COVID-19 pandemic, we cannot predict how it will continue to affect our product demand or our product mix. In addition, the increase in demand we have experienced due to the COVID-19 pandemic could result in potential reductions in future demand if our customers have over purchased our products and need to consume their excess inventory before purchasing additional products. Furthermore, we continue to be exposed to potential disruptions to our manufacturing operations and disruptions in the supply of critical manufacturing components and in our workforce as circumstances surrounding the global impact of the COVID-19 pandemic continue to change. Please see “Risks Related to Our Revenues” and “Risks Related to our Business and Operations” in Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information on potential negative impacts to us resulting from the COVID-19 pandemic.

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Cercacor

Cercacor Laboratories, Inc. (Cercacor) is an independent entity spun off from us to our stockholders in 1998. Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor. We are a party to a cross-licensing agreement with Cercacor, which was amended and restated effective January 1, 2007 (the Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. See Note 3 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to Cercacor.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as U.S. Dollar amounts and as a percentage of revenue (dollars in thousands).

	Three Months Ended								Six Months Ended
	July 3, 2021		Percentage of Revenue		June 27, 2020		Percentage of Revenue		July 3, 2021		Percentage of Revenue		June 27, 2020		Percentage of Revenue
Product revenue	$	305,118	100.0	%	$	300,953	100.0	%	$	604,161	100.0	%	$	570,578	100.0	%
Cost of goods sold	112,206		36.8		109,369		36.3		214,374		35.5		193,365		33.9
Gross profit	192,912		63.2		191,584		63.7		389,787		64.5		377,213		66.1
Operating expenses:
Selling, general and administrative	93,833		30.8		98,461		32.7		190,533		31.5		188,338		33.0
Research and development	33,943		11.1		30,878		10.3		68,454		11.3		58,119		10.2
Litigation settlements and (awards)	—		—		25		—		—		—		(474)		(0.1)
Total operating expenses	127,776		41.9		129,364		43.0		258,987		42.8		245,983		43.1
Operating income	65,136		21.3		62,220		20.7		130,800		21.6		131,230		23.0
Non-operating income (loss)	80		—		1,405		0.5		(657)		(0.1)		4,751		0.8
Income before provision for income taxes	65,216		21.3		63,625		21.2		130,143		21.5		135,981		23.8
Provision for income taxes	14,981		4.9		7,853		2.6		26,525		4.4		15,753		2.8
Net income	$	50,235	16.4	%	$	55,772	18.6	%	$	103,618	17.1	%	$	120,228	21.0	%

Comparison of the Three Months ended July 3, 2021 to the Three Months ended June 27, 2020

Revenue. Product revenue increased $4.2 million, or 1.4%, to $305.1 million for the three months ended July 3, 2021 from $301.0 million for the three months ended June 27, 2020. The following table details our product revenues by the geographic area to which the products were shipped for each of the three months ended July 3, 2021 and June 27, 2020 (dollars in thousands):

	Three Months Ended
	July 3, 2021				June 27, 2020				Increase/ (Decrease)		Percentage Change
United States (U.S.)	$	201,874	66.2	%	$	194,721	64.7	%	$	7,153	3.7	%
Europe, Middle East and Africa	61,207		20.1		68,167		22.7		(6,960)		(10.2)
Asia and Australia	32,423		10.6		26,259		8.7		6,164		23.5
North and South America (excluding the U.S.)	9,614		3.1		11,806		3.9		(2,192)		(18.6)
Product revenue	$	305,118	100.0	%	$	300,953	100.0	%	$	4,165	1.4	%

This increase was primarily due to higher revenue from consumables, parameters and services, as well as the impact of approximately $4.3 million of favorable foreign exchange rate movements from the prior year that increased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies. During the three months ended July 3, 2021, we shipped approximately 72,500 noninvasive technology boards and instruments.

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Product revenue generated through our direct and distribution sales channels increased $30.2 million, or 12.4%, to $272.6 million for the three months ended July 3, 2021, compared to $242.4 million for the three months ended June 27, 2020. Revenues from our OEM channel decreased $26.0 million, or 44.4%, to $32.5 million for the three months ended July 3, 2021 as compared to $58.5 million for the three months ended June 27, 2020.

Gross Profit. Gross profit consists of product revenue less cost of goods sold. Our gross profit for the three months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Gross Profit
Three Months Ended July 3, 2021	Percentage of  Net Revenues	Three Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$192,912	63.2%	$191,584	63.7%	$1,328	0.7%

Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products. Cost of goods sold increased $2.8 million for the three months ended July 3, 2021, compared to the three months ended June 27, 2020, primarily due to costs associated with an elevated level of customer installations and a charge related to assisting a long-term OEM customer with their medical device correction.

Gross profit decreased to 63.2% for the three months ended July 3, 2021, compared to 63.7% for the three months ended June 27, 2020, primarily due to costs associated with an elevated level of customer installations and a charge related to assisting a long-term OEM customer with their medical device correction, offset by favorable product mix.

Selling, General and Administrative. Selling, general and administrative expenses consist primarily of salaries, stock-based compensation and related expenses for sales, marketing and administrative personnel, sales commissions, advertising and promotion costs, professional fees related to legal, accounting and other outside services, public company costs and other corporate expenses. Selling, general and administrative expenses for the three months ended July 3, 2021 and June 27, 2020 were as follows (dollars in thousands):

Selling, General and Administrative
Three Months Ended July 3, 2021	Percentage of  Net Revenues	Three Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$93,833	30.8%	$98,461	32.7%	$(4,628)	(4.7)%

Selling, general and administrative expenses decreased $4.6 million, or 4.7%, for the three months ended July 3, 2021, compared to the three months ended June 27, 2020. This decrease was primarily attributable to lower advertising and marketing-related costs of approximately $9.1 million, lower compensation and other employee-related costs of approximately $3.8 million and lower charitable contributions of approximately $1.1 million, which were partially offset by higher legal and professional fees of $5.5 million, higher travel costs of approximately $1.6 million and higher occupancy and other office-related costs of approximately $1.2 million.

Research and Development. Research and development expenses consist primarily of salaries, stock-based compensation and related expenses for engineers and other personnel engaged in the design and development of our products. These expenses also include third-party fees paid to consultants, prototype and engineering supply expenses and the costs of clinical trials. Research and development expenses for the three months ended July 3, 2021 and June 27, 2020 were as follows (dollars in thousands):

Research and Development
Three Months Ended July 3, 2021	Percentage of  Net Revenues	Three Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$33,943	11.1%	$30,878	10.3%	$3,065	9.9%

Research and development expenses increased $3.1 million, or 9.9%, for the three months ended July 3, 2021, compared to the three months ended June 27, 2020, primarily due to higher compensation and employee-related costs of approximately $1.8 million and higher engineering project costs of approximately $1.6 million, which were partially offset by lower legal and professional fees of approximately $0.8 million.

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Non-operating Income. Non-operating income consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating income for the three months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Non-operating Income
Three Months Ended July 3, 2021	Percentage of  Net Revenues	Three Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$80	—%	$1,405	0.5%	$(1,325)	(94.3)%

Non-operating income was less than $0.1 million for the three months ended July 3, 2021, as compared to $1.4 million of non-operating income for the three months ended June 27, 2020. This decrease of approximately $1.3 million was primarily due to lower interest yields realized on our invested cash.

Provision for Income Taxes. Our provision for income taxes for the three months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Provision for Income Taxes
Three Months Ended July 3, 2021	Percentage of  Net Revenues	Three Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$14,981	4.9%	$7,853	2.6%	$7,128	90.8%

For the three months ended July 3, 2021, we recorded a provision for income taxes of approximately $15.0 million, or an effective tax provision rate of 23.0%, as compared to a provision for income taxes of approximately $7.9 million, or an effective tax provision rate of 12.3%, for the three months ended June 27, 2020. The increase in our effective tax rate for the three months ended July 3, 2021 resulted primarily from a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $6.2 million compared to the three months ended June 27, 2020.

Comparison of the Six Months ended July 3, 2021 to the Six Months ended June 27, 2020

Revenue. Product revenue increased $33.6 million, or 5.9%, to $604.2 million for the six months ended July 3, 2021 from $570.6 million for the six months ended June 27, 2020. The following table details our product revenues by the geographic area to which the products were shipped for each of the six months ended July 3, 2021 and June 27, 2020 (dollars in thousands):

	Six Months Ended
	July 3, 2021				June 27, 2020				Increase/ (Decrease)		Percentage Change
United States (U.S.)	$	406,137	67.2	%	$	384,240	67.3	%	$	21,897	5.7	%
Europe, Middle East and Africa	120,830		20.0		122,524		21.5		(1,694)		(1.4)
Asia and Australia	59,256		9.8		45,572		8.0		13,684		30.0
North and South America (excluding the U.S.)	17,938		3.0		18,242		3.2		(304)		(1.7)
Product revenue	$	604,161	100.0	%	$	570,578	100.0	%	$	33,583	5.9	%

This increase was primarily due to higher revenue from consumables, parameters and services, as well as the impact of approximately $8.2 million of favorable foreign exchange rate movements from the prior year period that increased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies. During the six months ended July 3, 2021, we shipped approximately 138,500 noninvasive technology boards and instruments.

Product revenue generated through our direct and distribution sales channels increased $55.9 million, or 11.7%, to $534.6 million for the six months ended July 3, 2021, compared to $478.7 million for the six months ended June 27, 2020. Revenues from our OEM channel decreased $22.4 million, or 24.3%, to $69.5 million for the six months ended July 3, 2021 as compared to $91.9 million for the six months ended June 27, 2020.

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Gross Profit. Gross profit consists of total revenue less cost of goods sold. Our gross profit for the six months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Gross Profit
Six Months Ended July 3, 2021	Percentage of  Net Revenues	Six Months Ended July 3, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$389,787	64.5%	$377,213	66.1%	$12,574	3.3%

Cost of goods sold increased $21.0 million for the six months ended July 3, 2021 compared to the six months ended June 27, 2020, primarily due to higher material, manufacturing and distribution costs associated with the increase in product sales, product mix, and increased manufacturing complexity due to the impact of COVID-19.

Gross profit decreased to 64.5% for the six months ended July 3, 2021 compared to 66.1% for the six months ended June 27, 2020, primarily due to costs associated with an elevated level of customer installations and a charge related to assisting a long-term OEM customer with their medical device correction, offset by favorable product mix.

Selling, General and Administrative. Selling, general and administrative expenses for the six months ended July 3, 2021 and June 27, 2020 were as follows (dollars in thousands):

Selling, General and Administrative
Six Months Ended July 3, 2021	Percentage of  Net Revenues	Six Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$190,533	31.5%	$188,338	33.0%	$2,195	1.2%

Selling, general and administrative expenses increased $2.2 million, or 1.2%, for the six months ended July 3, 2021 compared to the six months ended June 27, 2020. This increase was primarily due to higher legal and professional fees of approximately $8.5 million, higher compensation and other employee-related costs of approximately $3.8 million, higher occupancy and other office-related costs of approximately $2.9 million, which were partially offset by lower advertising and marketing-related costs of approximately $9.9 million, lower charitable contributions of approximately $2.6 million and lower travel costs of approximately $0.9 million.

Research and Development. Research and development expenses for the six months ended July 3, 2021 and June 27, 2020 were as follows (dollars in thousands):

Research and Development
Six Months Ended July 3, 2021	Percentage of  Net Revenues	Six Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$68,454	11.3%	$58,119	10.2%	$10,335	17.8%

Research and development expenses increased $10.3 million, or 17.8%, for the six months ended July 3, 2021 compared to the six months ended June 27, 2020, primarily due to higher compensation-related costs of approximately $6.9 million, higher engineering project costs of approximately $2.3 million and higher occupancy and other office-related costs of approximately $1.1 million, which were partially offset by lower professional service fees of $0.9 million.

Non-operating (Loss) Income. Non-operating (loss) income consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating (loss) income for the six months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Non-operating (Loss) Income
Six Months Ended July 3, 2021	Percentage of  Net Revenues	Six Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$(657)	(0.1)%	$4,751	0.8%	$(5,408)	(113.8)%

Non-operating (loss) income decreased by $5.4 million for the six months ended July 3, 2021 compared to the six months ended June 27, 2020, primarily due to lower interest yields realized on our invested cash of approximately $3.9 million and a decrease in net realized and unrealized gains on foreign currency denominated transactions of approximately $1.5 million.

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Provision for Income Taxes. Our provision for income taxes for the six months ended July 3, 2021 and June 27, 2020 was as follows (dollars in thousands):

Provision for Income Taxes
Six Months Ended July 3, 2021	Percentage of  Net Revenues	Six Months Ended June 27, 2020	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$26,525	4.4%	$15,753	2.8%	$10,772	68.4%

For the six months ended July 3, 2021, we recorded a provision for income taxes of approximately $26.5 million, or an effective tax rate of 20.4%, as compared to a provision for income taxes of approximately $15.8 million, or an effective tax rate of 11.6%, for the six months ended June 27, 2020. The increase in our tax rate for the six months ended July 3, 2021 resulted primarily from a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $11.5 million as compared to the six months ended June 27, 2020.

Liquidity and Capital Resources

Our principal sources of liquidity consist of our existing cash and cash equivalent balances, future funds expected to be generated from operations and available borrowing capacity under our credit facility. As of July 3, 2021, we had approximately $831.8 million in working capital, of which approximately $576.0 million was in cash and cash equivalents. In addition to net working capital, we had approximately $148.2 million of available borrowing capacity (net of outstanding letters of credit) under our credit facility.

In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds. As of July 3, 2021, we had cash totaling $85.6 million held outside of the U.S., of which approximately $45.9 million was accessible without additional tax cost and approximately $39.7 million was accessible at an incremental estimated tax cost of up to $0.5 million. We currently have sufficient funds on-hand and cash held outside the U.S. that is available without additional tax cost to fund our global operations. In the event funds that are treated as permanently reinvested are repatriated, we may be required to accrue and pay additional U.S. taxes to repatriate these funds.

Cash Flows

The following table summarizes our cash flows (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Net cash provided by (used in):
Operating activities	$	85,258	$	106,060
Investing activities	(17,219)		(70,645)
Financing activities	(136,504)		32,614
Effect of foreign currency exchange rates on cash	804		(847)
Increase (decrease) in cash, cash equivalents and restricted cash	$	(67,661)	$	67,182

Operating Activities. Cash provided by operating activities was approximately $85.3 million for the six months ended July 3, 2021, generated primarily from net income from operations of $103.6 million. Non-cash activity included stock-based compensation of $21.0 million and depreciation and amortization of $17.3 million. An additional source of cash included a decrease in other current assets of $6.5 million and an increase in accounts payable of $2.0 million. These sources of cash were partially offset by other changes in operating assets and liabilities, including a decrease in accrued compensation, accrued liabilities, income tax payable, deferred revenue and other contract-related liabilities of approximately $16.3 million, $6.0 million, $2.0 million and $1.2 million, respectively, primarily due to the timing of payments; an increase in accounts receivable of approximately $38.7 million, primarily due to the timing of cash receipts, and an increase in lease receivable of approximately $7.5 million.

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For the six months ended June 27, 2020, cash provided by operating activities was approximately $106.1 million, generated primarily from net income from operations of $120.2 million. Non-cash activity included stock-based compensation of $24.5 million and depreciation and amortization of $13.6 million. Additional sources of cash included an increase in accounts payable, deferred revenue and other contract-related liabilities, and accrued liabilities of $32.8 million, $6.9 million and $5.9 million, respectively. These sources of cash were partially offset by other changes in operating assets and liabilities, including a decrease in accrued compensation of approximately $2.0 million, and an increase in accounts receivable of approximately $41.3 million, primarily due to the timing of cash receipts, an increase in inventory of approximately $37.5 million and an increase in other current assets and lease receivable of approximately $12.0 million and $2.2 million, respectively, primarily due to the timing of payments.

Investing Activities. Cash used in investing activities for the six months ended July 3, 2021 was approximately $17.2 million, consisting primarily of approximately $14.2 million for purchases of property and equipment and $3.0 million of capitalized intangible asset costs related primarily to patent and trademark costs.

For the six months ended June 27, 2020, cash used in investing activities was approximately $70.6 million, consisting primarily of approximately $78.3 million for a business combination, $51.3 million for purchases of property and equipment, $6.8 million for strategic investments and $4.3 million of capitalized intangible asset costs related primarily to patent and trademark costs, which were partially offset by cash provided by maturities of short-term investments of approximately $70.0 million.

Financing Activities. Cash used in financing activities for the six months ended July 3, 2021 was approximately $136.5 million, consisting primarily of repurchases of our common stock of approximately $128.9 million and withholding of shares for employee payroll taxes for vested equity awards of approximately $16.7 million, which were partially offset by the proceeds from the issuance of common stock related to employee equity awards of approximately $9.1 million.

For the six months ended June 27, 2020, cash provided by financing activities was approximately $32.6 million, consisting primarily of proceeds from the issuance of common stock related to employee equity awards of approximately $34.6 million, which was partially offset by the withholding of shares for employee payroll taxes for vested equity awards of approximately $1.4 million and repurchases of our common stock of approximately $0.6 million.

Capital Resources and Prospective Capital Requirements

We expect to fund our future operating, investing and financing activities through our available cash, future cash from operations, our credit facility and other potential sources of capital. In addition to funding our working capital requirements, we anticipate additional capital expenditures primarily related to investments in infrastructure growth. Possible additional uses of cash may include acquisitions of and/or strategic investments in technologies or technology companies, investments in property and equipment as well as repurchases of common stock under our authorized stock repurchase program. However, any repurchases of common stock will be subject to numerous factors, including the availability of our stock, general market conditions, the trading price of our stock, available capital, alternative uses for capital and our financial performance. In addition, the amount and timing of our actual investing activities will vary significantly depending on numerous factors, including the timing and amount of capital expenditures, costs of product development efforts, our timetable for infrastructure expansion, stock repurchase activity and costs related to our domestic and international regulatory requirements. Despite these investment requirements and potential expenditures, we anticipate that our existing cash and cash equivalents and amounts available under our credit facility will be sufficient to meet our working capital requirements, capital expenditures and other operational funding needs for at least the next 12 months. For additional information related to our credit facility, please see Note 15 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. As of July 3, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of net revenues, expenses, assets and liabilities. We regularly evaluate our estimates and assumptions related to our critical accounting policies, including revenue recognition, inventory valuation, lessee right-of-use (ROU) assets and lease liabilities, stock-based compensation, business combinations, deferred taxes and related valuation allowances, uncertain tax positions, tax contingencies, litigation costs and loss contingencies.

These estimates and judgments are based on historical experience and on various other factors that we believe to be reasonable under the circumstances, and form the basis for making management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Although we regularly evaluate these estimates and assumptions, changes in judgments and uncertainties relating to these estimates could potentially result in materially different results under different assumptions and conditions. If these estimates differ significantly from actual results, the impact to the condensed consolidated financial statements may be material.

There have been no material changes to any of our critical accounting policies during the six months ended July 3, 2021. For a description of these critical accounting policies, please refer to “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, which was filed with the SEC on February 23, 2021.

Recent Accounting Pronouncements

For details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks that may arise from adverse changes in market rates and prices, such as interest rates, foreign exchange fluctuations and inflation. We do not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates to the increase or decrease in the amount of interest income we can earn on our cash and cash equivalents and on the increase or decrease in the amount of interest expense we must pay with respect to our various outstanding debt instruments. As of July 3, 2021, the carrying value of our cash equivalents approximated fair value. We currently do not have any significant risks associated with interest rates fluctuations related to interest expense. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. Therefore, declines in interest rates over time will reduce our interest income while increases in interest rates will increase our interest income. A hypothetical 100 basis point change in interest rates along the entire interest rate yield curve would increase or decrease our interest rate yields on our investments and interest income by approximately $0.1 million for each $10.0 million in interest-bearing investments.

Foreign Currency Exchange Rate Risk

A majority of our assets and liabilities are maintained in the United States in U.S. Dollars and a majority of our sales and expenditures are transacted in U.S. Dollars. However, we also transact with foreign customers in currencies other than the U.S. Dollar. These foreign currency revenues, when converted into U.S. Dollars, can vary depending on average exchange rates during a respective period. In addition, certain of our foreign subsidiaries transact in their respective country’s local currency, which is also their functional currency. As a result, expenses of these foreign subsidiaries, when converted into U.S. Dollars can also vary depending on average monthly exchange rates during a respective period.

We are exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables, as well as our foreign currency denominated cash balances and certain intercompany transactions. In addition, other transactions between us or our subsidiaries and a third-party, denominated in a currency different from the functional currency, are foreign currency transactions. Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred.

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The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S. Dollars at the rate of exchange at the balance sheet date and the statements of comprehensive income and cash flows are translated into U.S. Dollars using an approximation of the average monthly exchange rates applicable during the period. Any foreign exchange gain or loss as a result of translating the balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar is included in equity as a component of accumulated other comprehensive income.

Our foreign currency exchange rate exposures are primarily with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexican Peso, Turkish Lira and Australian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the six months ended July 3, 2021, we estimate fluctuations in the exchange rates between the U.S. Dollar and other foreign currencies, including the Euro, the Australian Dollar, the Canadian Dollar, the British Pound, the South Korean Won and the Japanese Yen, favorably impacted our revenues by $8.2 million.

We currently do not enter into forward exchange contracts to hedge exposures denominated in foreign currencies and do not use derivative financial instruments for trading or speculative purposes. The effect of additional changes in foreign currency exchange rates could have a material effect on our future operating results or cash flows, depending on which foreign currency exchange rates change and depending on the directional change (either a strengthening or weakening against the U.S. Dollar). We estimate that the potential impact of a hypothetical 10% adverse change in all applicable foreign currency exchange rates from the rates in effect as of July 3, 2021 would have resulted in an estimated reduction of $9.1 million in reported pre-tax income for the six months ended July 3, 2021. As our foreign operations continue to grow, our exposure to foreign currency exchange rate risk may become more significant.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the periods presented. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (SEC) regulations, rules and forms and that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (CFO), as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) or Rule 15d-15(b) promulgated by the SEC under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.During the three months ended July 3, 2021, we implemented the second phase of our new enterprise resource planning software system for certain subsidiaries. In connection with this software implementation, we modified several related internal controls over financial reporting to maintain the desired control objectives. There were no other changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth in Note 21 to our accompanying condensed consolidated financial statements under the caption “Litigation” included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

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Item 1A. Risk Factors

The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following risks come to fruition, our business, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you could lose all or part of your investment. Risk factors marked with an asterisk (*) below include a substantive change from or an update to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on February 23, 2021.

Summary of Material Risk Factors

Below is a summary of the principal factors that make an investment in our securities speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this summary, and other risks that we face, can be found following this summary and should be carefully considered together with all of the other information appearing in this Quarterly Report on Form 10-Q.

•We currently derive the majority of our revenue from our Masimo SET® platform, Masimo rainbow SET® platform and related products. If these technologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would be adversely affected.

•Some of our products are in development or have been recently introduced into the market and may not achieve market acceptance, which could limit our growth and adversely affect our business, financial condition and results of operations.

•Our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® and our licensed rainbow® technology is limited to certain markets by our Cross-Licensing Agreement with Cercacor Laboratories, Inc. (Cercacor), which may impair our growth and adversely affect our business, financial condition and results of operations.

•We face competition from other companies, many of which have substantially greater resources than we do. If we do not successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenue opportunities and customers, and our ability to grow our business would be impaired, adversely affecting our financial condition and results of operations.

•We depend on our domestic and international OEM partners for a portion of our revenue. If they do not devote sufficient resources to the promotion of products that use our technologies, our business would be harmed.

•If we fail to maintain or develop relationships with GPOs, sales of our products would decline.

•Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our products, or for procedures using our products, may cause our revenue to decline or prevent us from realizing revenues from future products.

•Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of existing market participants from certain markets, which could have an adverse effect on our business, results of operations or financial condition.

•Our customers may reduce, delay or cancel purchases due to a variety of factors, such as lower hospital census levels or third-party guidelines, which could adversely affect our business, financial condition and results of operations.

•The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results.

•Counterfeit Masimo sensors and third-party reprocessed single-patient-use Masimo sensors may harm our reputation. Also, these counterfeit and third-party reprocessed sensors, as well as genuine Masimo reprocessed sensors, are sold at lower prices than new Masimo sensors and could cause our revenue to decline, which may adversely affect our business, financial condition and results of operations.

•If the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.

•If third parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

•We believe competitors may currently be violating and may in the future violate our intellectual property rights. As a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy.

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•The laws of foreign countries may not adequately protect our intellectual property rights.

•Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new products in the U.S., which could severely harm our business.

•The failure of our OEM partners to obtain required FDA clearances or approvals for products that incorporate our technologies could have a negative impact on our revenue.

•If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

•Failure to obtain regulatory authorizations in foreign jurisdictions may prevent us from marketing our products abroad.

•Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained.

•Regulatory reforms may impact our ability to develop and commercialize our products and technologies.

•If our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations, and may need to initiate voluntary corrective actions or in certain circumstances be required to take corrective actions, such as the recall of our products.

•Promotion of our products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.

•The regulatory environment governing information, cybersecurity and privacy is increasingly demanding and continues to evolve.

•We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse laws, and could face substantial penalties if we are unable to fully comply with these laws.

•Legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance. Furthermore, our business, financial condition, results of operations and cash flows could be significantly and adversely affected by healthcare reform legislation in the U.S. or in our key international markets.

•Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic.

•If our employees become ill or otherwise incapacitated, our operations may be adversely impacted.

•We may experience conflicts of interest with Cercacor with respect to business opportunities and other matters.

•We will be required to assign to Cercacor and pay Cercacor for the right to use certain products and technologies we develop that relate to the monitoring of non-vital sign parameters, including improvements to Masimo SET®.

•In the event that the Cross-Licensing Agreement is terminated for any reason, or Cercacor grants a license to rainbow® technology to a third-party, our business would be adversely affected.

•We may not be able to commercialize our products incorporating licensed rainbow® technology cost-effectively or successfully.

•Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.

•If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers.

•Future strategic initiatives, including acquisitions of businesses and strategic investments, could negatively affect our business, financial condition and results of operations if we fail to integrate the acquired businesses successfully into our existing operations or achieve the desired results of our investment.

•Our credit agreement contains certain covenants and restrictions that may limit our flexibility in operating our business.

•Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

•Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.

•Our bylaws provide that the state or federal courts located within the State of Delaware are the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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Risks Related to Our Revenues

We currently derive the majority of our revenue from our Masimo SET® platform, Masimo rainbow SET® platform and related products. If these technologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would be adversely affected.

We are highly dependent upon the continued success and market acceptance of our proprietary Masimo SET® and Masimo rainbow SET® technologies that serve as the basis of our primary product offerings. Continued market acceptance of products incorporating these technologies will depend upon us continuing to provide evidence to the medical community that our products are cost-effective and offer significantly improved performance compared to conventional pulse oximeters. Healthcare providers that currently have significant investments in competitive pulse oximetry products may be reluctant to purchase our products. If hospitals and other healthcare providers do not believe our Masimo SET® and Masimo rainbow SET® platforms are cost-effective, safe or more accurate or reliable than competitive pulse oximetry products, they may not buy our products in sufficient quantities to enable us to generate revenue growth from the sale of these products. In addition, allegations regarding the safety and effectiveness of our products, whether or not substantiated, may impair or impede the acceptance of our products.

*Some of our products are in development or have been recently introduced into the market and may not achieve market acceptance, which could limit our growth and adversely affect our business, financial condition and results of operations.

Many of our noninvasive measurement technologies are considered disruptive. These technologies have performance levels that we believe are acceptable for many clinical environments but may be insufficient in others. In addition, these technologies may perform better in some patients and settings than others. Over time, we hope to continue to improve the performance of these technologies and educate the clinical community on how to properly evaluate them. If we are successful in these endeavors, we expect these technologies will become more useful in more environments and will become more widely adopted. Our product portfolio continues to expand, and we are investing significant resources to enter into, and in some cases create, new markets for these products. We are continuing to invest in sales and marketing resources to achieve market acceptance of these products, but are unable to guarantee that our technologies will achieve general market acceptance.

The degree of market acceptance of these products will depend on a number of factors, including but not limited to:

•perceived clinical benefits from our products;

•perceived cost effectiveness of our products;

•perceived safety and effectiveness of our products;

•reimbursement available through government and private healthcare programs for using some of our products; and

•introduction and acceptance of competing products or technologies.

If our products do not gain market acceptance or if our customers prefer our competitors’ products, our potential revenue growth would be limited, which would adversely affect our business, financial condition and results of operations.

Our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® and our licensed rainbow® technology is limited to certain markets by our Cross-Licensing Agreement with Cercacor Laboratories, Inc. (Cercacor), which may impair our growth and adversely affect our business, financial condition and results of operations.

Since 1998, we have been a party to a cross-licensing agreement with Cercacor, (as amended, the Cross-Licensing Agreement), under which we granted Cercacor:

•an exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us, including all improvements to this technology, for the monitoring of non-vital signs parameters and to develop and sell devices incorporating Masimo SET® for monitoring non-vital signs parameters in any product market in which a product is intended to be used by a patient or pharmacist rather than by a professional medical caregiver, which we refer to as the “Cercacor Market”; and

•a non-exclusive, perpetual and worldwide license, with sublicense rights, to use all Masimo SET® technology owned by us for measurement of vital signs in the “Cercacor Market.”

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Non-vital signs measurements consist of body fluid constituents other than vital signs measurements, including, but not limited to, carbon monoxide, methemoglobin, blood glucose, hemoglobin and bilirubin. Under the Cross-Licensing Agreement, we are only permitted to sell devices utilizing Masimo SET® for the monitoring of non-vital signs parameters in markets where the product is intended to be used by a professional medical caregiver, including, but not limited to, hospital caregivers and alternate care facility caregivers, rather than by a patient or pharmacist, which we refer to as the “Masimo Market.” Accordingly, our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET® is limited. In particular, our inability to expand beyond the “Masimo Market” may limit our ability to maintain or increase our revenue and impair our growth.

Pursuant to the Cross-Licensing Agreement, we have licensed from Cercacor the right to make and distribute products in the “Masimo Market” that utilize rainbow® technology for certain noninvasive measurements. As a result, the opportunity to expand the market for our products incorporating rainbow® technology is also limited, which could limit our ability to maintain or increase our revenue and impair our growth.

*We face competition from other companies, many of which have substantially greater resources than we do. If we do not successfully develop and commercialize enhanced or new products that remain competitive with products or alternative technologies developed by others, we could lose revenue opportunities and customers, and our ability to grow our business would be impaired, adversely affecting our financial condition and results of operations.

The medical device industry is intensely competitive and is significantly affected by new product introductions and other market activities of industry participants. A number of our competitors have substantially greater capital resources, larger product portfolios, larger customer bases, larger sales forces and greater geographic presence, have established stronger reputations with specific customers, and have built relationships with Group Purchasing Organizations and other hospital purchasing groups (collectively, GPOs) that may be more effective than ours. Our Masimo SET® platform faces additional competition from companies developing products for use with third-party monitoring systems, as well as from companies that currently market their own pulse oximetry monitors. In addition, competitors with larger product portfolios than ours are engaging in bundling practices, whereby they offer increased discounts to hospitals that purchase their requirements for a variety of different products from the competitor, including products that we do not offer, effectively pricing their competing products at a loss.

Continuing technological advances and new product introductions within the medical device industry place our products at risk of obsolescence. Our long-term success depends upon the development and successful commercialization of new products, new or improved technologies and additional applications for our existing technologies. The research and development process is time-consuming and costly and may not result in products or applications that we can successfully commercialize. In particular, we may not be able to successfully commercialize our products for applications other than arterial blood oxygen saturation and pulse rate monitoring, such as for respiration rate, hemoglobin, carboxyhemoglobin and methemoglobin monitoring. In addition, we may not be able to develop and successfully commercialize new products and technologies that we acquire.

If we do not successfully adapt our products and applications both within and outside these measurements, we could lose revenue opportunities and customers. Furthermore, one or more of our competitors may develop products that are substantially equivalent to those of our products that are cleared or approved for use, or those of our original equipment manufacturer (OEM) partners, in which case a competitor of ours may use our products or those of our OEM partners as predicate devices to more quickly obtain regulatory clearance or approval of their competing products. Competition could result in pressure from our customers to reduce the price of our products and could cause them to place fewer orders for our products, which could, in turn, cause a reduction in our revenues and product gross margins, thereby adversely impacting our business, financial condition and results of operations.

Some of the world’s largest technology companies that have not historically operated in the healthcare or medical device space, such as Alphabet Inc., Apple Inc., Samsung Electronics Co., Ltd. and others, have developed or may develop products and technologies that may compete with our current or future products and technologies. For example, in September 2020, Apple, Inc. announced that its Apple Watch Series 6 includes a pulse oximetry monitoring feature, which may compete with certain of our existing products and products in development, including the consumer versions of our iSpO2® and MightySat® pulse oximeters. These companies have substantially greater capital, research and development, and sales resources than we have. If we are unable to successfully compete against them, our financial performance could decline.

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We depend on our domestic and international OEM partners for a portion of our revenue. If they do not devote sufficient resources to the promotion of products that use our technologies, our business would be harmed.

We are, and will continue to be, dependent upon our domestic and international OEM partners for a portion of our revenue through their marketing, selling and distribution of certain of their products that incorporate our technologies. Although we expect that our OEM partners will accept and actively market, sell and distribute products that incorporate our technologies, they may not do so. Because products that incorporate our technologies may represent a relatively small percentage of business for some of our OEM partners, they may have less incentive to promote these products over other products that do not incorporate these technologies.

In addition, some of our OEM partners offer products that compete with ours and also may be involved in intellectual property disputes with us. Therefore, we cannot guarantee that our OEM partners, or any company that may acquire any of our OEM partners, will vigorously promote products incorporating our technologies. The failure of our OEM partners to successfully market, sell or distribute products incorporating our technologies, the termination of OEM agreements, the loss of OEM partners or the inability to enter into future OEM partnership agreements would have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain or develop relationships with GPOs, sales of our products would decline.

Our ability to sell our products to hospitals depends, in part, on our relationships with GPOs. Many existing and potential customers for our products are members of GPOs. GPOs negotiate pricing arrangements and contracts with medical supply manufacturers and distributors that may include provisions for sole sourcing and bundling, which generally reduce the choices available to member hospitals.

These negotiated prices are made available to a GPO’s members. If we are not one of the providers selected by a GPO, the GPO’s members may be less likely or unlikely to purchase our products. If a GPO has negotiated a strict sole source, market share compliance or bundling contract for another manufacturer’s products, we may be prohibited from making sales to members of such GPO for the duration of such contractual arrangement. Shipments of our pulse oximetry products to customers that are members of GPOs represent approximately 50% of our U.S. product sales. Our failure to renew our contracts with GPOs may cause us to lose market share and could have a material adverse effect on our business, financial condition and results of operations. In addition, if we are unable to develop new relationships with GPOs, our competitive position would likely suffer and our opportunities to grow our revenues and business would be harmed.

Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our products, or for procedures using our products, may cause our revenue to decline or prevent us from realizing revenues from future products.

Sales of our products depend in part on the reimbursement and coverage policies of governmental and private healthcare payers. The lack of adequate coverage and reimbursement for our products or the procedures in which our products are used may deter customers from purchasing our products.

We cannot guarantee that governmental or third-party payers will reimburse or begin reimbursing a customer for the cost of our products or the procedures in which our products are used. For example, some insurance carriers have issued policies denying coverage for transcutaneous hemoglobin measurement on the grounds that the technology is investigational in the outpatient setting. Other payers are continuing to investigate our products to determine if they will provide reimbursement for the use of such products.

These trends could lead to pressure to reduce prices for our current and future products, hinder our ability to obtain market adoption, cause a decrease in the size of the market or potentially increase competition, any of which could have a material adverse effect on our business, financial condition and results of operations.

We do not control payer decision-making with respect to coverage and payment levels for our products. Additionally, we expect many payers to continue to explore cost-containment strategies (e.g., comparative and cost-effectiveness analyses, so-called “pay-for-performance” programs implemented by various public government healthcare programs and private third-party payers, and expansion of payment bundling initiatives, and other such methods that shift medical cost risk to providers) that may potentially impact coverage and/or payment levels for our current products or products we develop in the future.

Outside of the U.S., reimbursement systems vary by country. These systems are often subject to the same pressures to curb rising healthcare costs and control healthcare expenditures as those in the U.S. In addition, as economies of emerging markets develop, these countries may implement changes in their healthcare delivery and payment systems. If adequate levels of reimbursement from third-party payers outside of the U.S. are not obtained, sales of our products outside of the U.S. may be adversely affected.

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Consolidation in the healthcare industry could lead to demands for price concessions or to the exclusion of existing market participants from certain markets, which could have an adverse effect on our business, results of operations or financial condition.

Because healthcare costs have risen significantly over the past decade, numerous initiatives and reforms initiated by legislators, regulators and third-party payers to curb these costs have resulted in a consolidation trend in the healthcare industry to aggregate purchasing power. As the healthcare industry consolidates, competition to provide products and services to industry participants has become, and will continue to become, more intense. This has resulted in, and will likely continue to result in, greater pricing pressures and the exclusion of certain existing market participants from important market segments as GPOs, independent delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions for hospitals.

We expect that market demand, government regulation, third-party coverage and reimbursement policies and societal pressures will continue to impact the worldwide healthcare industry, resulting in further business consolidations and alliances among our customers, which may reduce competition, exert further downward pressure on the prices of our products and adversely impact our business, financial condition and results of operations.

Our customers may reduce, delay or cancel purchases due to a variety of factors, such as lower hospital census levels or third-party guidelines, which could adversely affect our business, financial condition and results of operations.

Our customers are facing growing levels of uncertainties, including variations in overall hospital census for paying patients and the impact of such census variations on hospital budgets. As a result, many hospitals are reevaluating their entire cost structure, including the amount of capital they allocate to medical device technologies and products. In addition, certain of our products, including our rainbow® measurements such as carbon monoxide, methemoglobin and hemoglobin, that are sold with upfront license fees and more complex and expensive sensors, could also be impacted by hospital budget reductions. Any reductions in capital spending budgets by hospitals could have a significant negative impact on our OEM customers who, due to their traditionally larger capital equipment sales model, could see declines in purchases from their hospital customers. This, in turn, could reduce our board sales to our OEM customers.

From time to time, states and other local regulatory authorities may issue guidelines regarding the appropriate scope and use of our products. For example, some of our noninvasive monitoring devices may be subject to authorization by individual states as part of the Emergency Medical Services (EMS) scope of practice procedures. A lack of inclusion into scope of practice procedures may limit adoption of our products.

Additionally, increases in demand resulting from global medical crises such as the COVID-19 pandemic may be short lived. If the increased demand results in a stockpiling of our products by, or excess inventory at, our customers, future orders may be delayed or canceled until such on-hand inventory is consumed.

*The loss of any large customer or distributor, or any cancellation or delay of a significant purchase by a large customer, could reduce our net sales and harm our operating results.

We have a concentration of OEM, distributor and direct customers. For example, sales to two just-in-time distributors each represented 10% or more of our product sales for the fiscal quarter ended July 3, 2021. We cannot provide any assurances that we will retain our current customers, groups of customers or distributors, or that we will be able to attract and retain additional customers in the future. If for any reason we were to lose our ability to sell to a specific group or class of customers or through a distributor, we could experience a significant reduction in revenue, which would adversely impact our operating results.

Our sales could also be negatively affected by any rebates, discounts or fees that are required by, or offered to, GPOs and customers, including wholesalers or distributors. Additionally, some of our just-in-time distributors have been demanding higher fees, which we may be obligated to pay in order to continue to offer products to our customers through these distributors or which may obligate us to distribute our products directly to our customers. The loss of any large customer or distributor, an increase in distributor fees or the risks associated with selling directly to our customers could have a material adverse effect on our business, financial condition and results of operations.

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Counterfeit Masimo sensors and third-party reprocessed single-patient-use Masimo sensors may harm our reputation. Also, these counterfeit and third-party reprocessed sensors, as well as genuine Masimo reprocessed sensors, are sold at lower prices than new Masimo sensors and could cause our revenue to decline, which may adversely affect our business, financial condition and results of operations.

We believe that other entities are manufacturing and selling counterfeit Masimo sensors. In addition, certain medical device reprocessors have been collecting our used single-patient-use sensors from hospitals and then reprocessing, repackaging and reselling those sensors to hospitals. These counterfeit and third-party reprocessed sensors are sold at lower prices than new Masimo sensors. Our experience with both these counterfeit sensors and third-party reprocessed sensors is that they provide inferior performance, increased sensor consumption, reduced comfort and a number of monitoring problems. Notwithstanding these limitations, some of our customers have indicated a willingness to purchase some of their sensor requirements from these counterfeit manufacturers and third-party reprocessors in an effort to reduce their sensor costs.

These counterfeit and reprocessed sensors have led and may continue to lead to confusion with our genuine Masimo products, have reduced and may continue to reduce our revenue, and, in some cases, have harmed and may continue to harm our reputation if customers conclude incorrectly that these counterfeit or reprocessed sensors are original Masimo sensors.

In addition, we have expended a significant amount of time and expense investigating issues caused by counterfeit and reprocessed sensors, troubleshooting problems stemming from such sensors, educating customers about why counterfeit and reprocessed sensors do not perform to their expectations, enforcing our proprietary rights against the counterfeit manufacturers and reprocessors, and enforcing our contractual rights..

In response to these counterfeit sensors and third-party reprocessors, we have incorporated X-Cal® technology into certain products to ensure our customers get the performance they expect by using genuine Masimo sensors and that such sensors do not continue to be used beyond their useful life. However, some customers may object to the X-Cal® technology, potentially resulting in the loss of customers and revenues.

We also offer our own Masimo reprocessed sensors, which meet the same performance specifications as our new Masimo sensors, to our customers. Reprocessed sensors sold by us are also offered at a lower price and, therefore, may reduce certain customer demand for our new sensors. As a result, increased sales of our own Masimo reprocessed sensors may result in lower revenues, which could negatively impact our business, financial condition and results of operations.

Risks Related to Our Intellectual Property

If the patents we own or license, or our other intellectual property rights, do not adequately protect our technologies, we may lose market share to our competitors and be unable to operate our business profitably.

Our success depends significantly on our ability to protect our rights to the technologies used in our products. Our utilization of patent protection, trade secrets and a combination of copyright and trademark laws, as well as nondisclosure, confidentiality and other contractual arrangements, to protect our intellectual property afford us only limited protection and may not adequately protect our rights or permit us to gain or maintain any competitive advantage.

Certain of our patents related to our technologies have begun to expire. Upon the expiration of our issued or licensed patents, we generally lose some of our rights to exclude competitors from making, using, selling or importing products using the technology based on the expired patents. Furthermore, in recent years, the U.S. Supreme Court has ruled on several patent cases and several laws have been enacted that, in certain situations, potentially narrow the scope of patent protection available and weaken the rights of patent owners. There can be no assurance that we will be successful in securing additional patents on commercially desirable improvements, that such additional patents will adequately protect our innovations or offset the effect of expiring patents, or that competitors will not be able to design around our patents.

In addition, third parties may challenge our issued patents through procedures such as Inter-Partes Review (IPR). In many IPR challenges, the U.S. Patent and Trademark Office (PTO) cancels or significantly narrows issued patent claims. IPR challenges could increase the uncertainties and costs associated with the maintenance, enforcement and defense of our issued and future patents and could have a material adverse effect on our business, financial condition and results of operations.

We also utilize unpatented proprietary technology and know-how and often rely on confidentiality agreements and intellectual property assignment agreements with our employees, OEM partners, independent distributors and consultants to protect such unpatented proprietary technology and know-how. However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information.

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We rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition and results of operations.

If third parties claim that we infringe their intellectual property rights, we may incur liabilities and costs and may have to redesign or discontinue selling certain products.

Searching for existing intellectual property rights may not reveal important intellectual property and our competitors may also have filed for patent protection, which may not be publicly-available information, or claimed trademark rights that have not been revealed through our searches. In addition, some of our employees were previously employed at other medical device companies. We may be subject to claims that our employees have disclosed, or that we have used, trade secrets or other proprietary information of our employees’ former employers. Our efforts to identify and avoid infringing on third parties’ intellectual property rights may not always be successful. Any claims of patent or other intellectual property infringement against us, even those without merit, could:

•be expensive and time-consuming to defend and result in payment of significant damages to third parties;

•force us to stop making or selling products that incorporate the intellectual property;

•require us to redesign, reengineer or rebrand our products, product candidates and technologies;

•require us to enter into royalty agreements that would increase the costs of our products;

•require us to indemnify third parties pursuant to contracts in which we have agreed to provide indemnification for intellectual property infringement claims;

•divert the attention of our management and other key employees; and

•result in our customers or potential customers deferring or limiting their purchase or use of the affected products impacted by the claims until the claims are resolved;

any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, new patents obtained by our competitors could threaten the continued commercialization of our products in the market even after they have already been introduced.

We believe competitors may currently be violating and may in the future violate our intellectual property rights. As a result, we may initiate litigation to protect and enforce our intellectual property rights, which may result in substantial expense and may divert management’s attention from implementing our business strategy.

We believe that the success of our business depends, in part, on obtaining patent protection for our products and technologies, defending our patents and preserving our trade secrets. We were previously involved in significant litigation to protect our patent positions related to some of our pulse oximetry signal processing patents that resulted in various settlements. We believe some of the new market entrants in the healthcare and monitoring space, including some of the world’s largest technology companies, may be infringing our intellectual property, and we may be required to engage in additional litigation to protect our intellectual property in the future. In addition, we believe that certain individuals who previously held high level technical and clinical positions with us misappropriated our intellectual property for the benefit of themselves and other companies. For example, on January 9, 2020, we initiated litigation against Apple Inc. for infringement of a number of patents, for trade secret misappropriation and for ownership and correction of inventorship of a number of Apple, Inc. patents that list one of our former employees as an inventor. Our ongoing and future litigation could result in significant additional costs and further divert the attention of our management and key personnel from our business operations and the implementation of our business strategy and may not be successful or adequate to protect our intellectual property rights.

The laws of foreign countries may not adequately protect our intellectual property rights.

Intellectual property protection laws in foreign countries differ substantially from those in the U.S. If we fail to apply for intellectual property protection in foreign countries, or if we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition and results of operations.

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Risks Related to Our Regulatory Environment

Our failure to obtain and maintain FDA clearances or approvals on a timely basis, or at all, would prevent us from commercializing our current, upgraded or new products in the U.S., which could severely harm our business.

Unless an exemption applies, each medical device that we market in the U.S. must first undergo premarket review pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA) by receiving clearance of a 510(k) premarket notification, receiving clearance through the de novo classification review process or obtaining approval of a premarket approval (PMA) application. Even if regulatory clearance or approval of a product is granted, the U.S. Food and Drug Administration (FDA) may clear or approve our products only for limited indications for use. Additionally, the FDA may not grant 510(k) clearance on a timely basis, if at all, for new products or new uses that we propose for Masimo SET® or licensed rainbow® technology.

The traditional FDA 510(k) clearance process for our products has generally taken between four to nine months. However, our more recent experience and interactions with the FDA, along with information we have received from other medical device manufacturers, suggests that, in some cases, the FDA is requiring applicants to provide additional or different information and data for 510(k) clearance than it had previously required, and that the FDA may not rely on approaches that it had previously accepted to support 510(k) clearance. As a result, FDA 510(k) clearance can be delayed for our products in some cases.

To support our product applications to the FDA, we frequently are required to conduct clinical testing of our products. Such clinical testing must be conducted in compliance with FDA requirements pertaining to human research. Among other requirements, we must obtain informed consent from study subjects and approval by institutional review boards before such studies may begin. We must also comply with other FDA requirements such as monitoring, record-keeping, reporting and the submission of information regarding certain clinical trials to a public database maintained by the National Institutes of Health. In addition, if the study involves a significant risk device, we are required to obtain the FDA’s approval of the study under an Investigational Device Exemption (IDE). Compliance with these requirements can require significant time and resources. In addition, public health emergencies and other extraordinary circumstances may disrupt the conduct of our clinical trials. If the FDA determines that we have not complied with such requirements, the FDA may refuse to consider the data to support our applications or may initiate enforcement actions.

Even though 510(k) clearances have been obtained, if safety or effectiveness problems are identified with our products, we may need to initiate a recall of such products. Furthermore, our new products or significantly modified marketed products could be denied 510(k) clearance and be required to undergo the more burdensome PMA or de novo classification review processes. The process of obtaining a de novo classification or PMA approval is much more costly, lengthy and uncertain than the process for obtaining 510(k) clearance.

De novo classification review generally takes six months to one year from the time of submission of the de novo request, although it can take longer. Approval of a PMA generally takes one year from the time of submission of the PMA, but may be longer.

We sell consumer versions of our iSpO2® and MightySat® pulse oximeters that are not intended for medical use. Some of our products or product features may not be subject to the 510(k) process and/or other regulatory requirements in accordance with specific FDA guidance and policies, such as the FDA guidance related to mobile medical applications. In addition, some of our products or product features may not be subject to device regulation pursuant to Section 520(o) of the FDCA, which excludes certain software functions from the statutory definition of a device. In addition, we may market certain products pursuant to enforcement discretion policies the FDA has recently announced to address the need for these products as a result of the COVID-19 pandemic. Such policies only remain in effect during the public health emergency, such that we will need to seek clearance or approval of such products to continue marketing these products at the end of the COVID-19 pandemic. If the FDA changes its policies or concludes that our marketing of these products is not in accordance with its current policies and/or Section 520(o) of the FDCA, we may be required to seek clearance or approval of these devices through the 510(k), de novo classification review or PMA processes.

The failure of our OEM partners to obtain required FDA clearances or approvals for products that incorporate our technologies could have a negative impact on our revenue.

Our OEM partners are required to obtain their own FDA clearances in the U.S. for most products incorporating Masimo technologies. The FDA clearances we have obtained may not make it easier for our OEM partners to obtain clearances of products incorporating these technologies, or the FDA may not grant clearances on a timely basis, if at all, for any future products incorporating Masimo technologies that our OEM partners propose to market.

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If we or our suppliers fail to comply with ongoing regulatory requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Our products, along with the manufacturing processes, labeling and promotional activities for our products, are subject to continual review and periodic inspections by the FDA and other regulatory bodies. Among other requirements, we and certain of our suppliers are required to comply with the FDA’s Quality System Regulation (QSR), which governs the methods and documentation of the design, control testing, production, component suppliers control, quality assurance, complaint handling, labeling control, packaging, storage and shipping of our products. The FDA enforces the QSR through announced and unannounced inspections. We are also subject to similar state requirements and licenses.

In addition to the FDA, from time to time we are subject to inspections by the California Food and Drug Branch, international regulatory authorities and other similar governmental agencies. The standards used by these regulatory authorities are complex and may differ from those used by the FDA.

Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following:

•warning letters or untitled letters issued by the FDA;

•fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution;

•import alerts;

•unanticipated expenditures to address or defend such actions;

•delays in clearing or approving, or refusal to clear or approve, our products;

•withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies;

•product recalls or seizures;

•orders for physician notification or device repair, replacement or refund;

•interruptions of production or inability to export to certain foreign countries; and

•operating restrictions.

If any of these events were to occur, it would harm our reputation and adversely affect our business, financial condition and results of operations.

Failure to obtain regulatory authorizations in foreign jurisdictions may prevent us from marketing our products abroad.

We currently market and intend to continue to market our products internationally. Outside of the U.S., we can generally market a product only if we receive a marketing authorization (and/or meet certain pre-marketing requirements) and, in some cases, pricing approval, from the appropriate regulatory authorities. The regulatory registration/licensing process varies among international jurisdictions and may require additional or different product testing than required to obtain FDA clearance. FDA clearance does not ensure new product registration/licensing by foreign regulatory authorities, and we may be unable to obtain foreign regulatory registration/licensing on a timely basis, if at all.

In addition, clearance by one foreign regulatory authority does not ensure clearance by any other foreign regulatory authority or by the FDA. If we fail to receive necessary approvals to commercialize our products in foreign jurisdictions on a timely basis, or at all, our business, financial condition and results of operations could be adversely affected.

Furthermore, foreign regulatory requirements may change from time to time, which could adversely affect our ability to market new products, and/or continue to market existing products, internationally. Certain significant changes in the international regulatory landscape have recently taken place or will take place in the near future. These include the new European Union Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a new regulatory regime in the UK effective as of January 1, 2021 as a result of the UK’s exit from the EU and the expiry of the transitional periods, on December 31, 2020 (Brexit).

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Modifications to our marketed devices may require new regulatory clearances or premarket approvals, or may require us to cease marketing or to recall the modified devices until clearances or approvals are obtained.

We have made modifications to our devices in the past and we may make additional modifications in the future. Any modification to a device that is cleared by the FDA that could significantly affect its safety or effectiveness or that could constitute a major change in its intended use would require a new clearance or approval and certain modifications to devices cleared or approved by foreign regulatory authorities may also require a new clearance or approval.

We may not be able to obtain such clearances or approvals in a timely fashion, or at all. Delays in obtaining future clearances would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would have an adverse effect on our business, financial condition and results of operations.

For device modifications that we conclude do not require a new regulatory clearance or approval, we may be required to recall and to stop marketing the modified devices if the government agency disagrees with our conclusion and requires new clearances or approvals for the modifications. This could have an adverse effect on our business, financial condition and results of operations.

During the COVID-19 pandemic, the FDA has issued enforcement policies under which the agency has said it will not require clearance of a new 510(k) for certain modifications to 510(k)-cleared non-invasive vital-sign patient monitoring devices. However, these policies remain in effect only during the COVID-19 pandemic. Manufacturers that make modifications pursuant to these policies will need to stop marketing the modifications at the end of the COVID-19 pandemic unless the manufacturer receives 510(k) clearance for the modifications.

Regulatory reforms may impact our ability to develop and commercialize our products and technologies.

From time to time, legislation is drafted and introduced by governments that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of medical devices. For example, in August 2017, Congress enacted the FDA Reauthorization Act of 2017 (FDARA). FDARA reauthorized the FDA to collect device user fees, including a new user fee for de novo classification requests, and contained substantive amendments to the device provisions of the FDCA. Among other changes, FDARA required that the FDA update and revise its processes for scheduling inspections of device establishments, communicating about those inspections with manufacturers and providing feedback on the manufacturer’s responses to Form 483s. The statute also required that the FDA study the impact of device servicing, including third-party services, and created a new process for device sponsors to request classification of accessory devices as part of the PMA application for the parent device or to request a separate classification of accessory devices.

In addition, regulations and guidance are often revised or reinterpreted by the government agency in ways that may significantly affect our business or products. Future regulatory changes could make it more difficult for us to obtain or maintain approval to develop and commercialize our products and technologies. Public health emergencies may also prompt temporary or permanent regulatory reforms that could change the processes governing the clearance or approval, manufacture and marketing of medical devices.

In the EU, for example, the MDR became applicable to our medical devices from May 26, 2021. The MDR requires medical devices and their manufacturers to comply with more stringent standards than before. The MDR also imposes new and enhanced obligations on importers and distributors of medical devices in the EU. Although the MDR is subject to certain transitional periods, both we and others involved in the distribution and commercialization of our medical devices in the EU will need to comply with more stringent EU rules.

Due to Brexit, from January 1, 2021, a new regulatory framework applies to medical devices commercialized in Great Britain (England, Scotland and Wales). This is now separate from the regime in the EU. Although certain transition periods apply until June 30, 2023, the medical devices we intend to commercialize in Great Britain will need to conform to different requirements than the requirements in the EU. These factors are likely to add more complexity to our regulatory compliance obligations in Europe and our ability to commercialize medical devices in European markets.

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*If our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury, we will be subject to medical device reporting regulations, and may need to initiate voluntary corrective actions or in certain circumstances be required to take corrective actions, such as the recall of our products.

Regulatory agencies in many countries require us to report anytime our products cause or contribute to a death or serious injury, or malfunction in a way that would likely cause or contribute to a death or serious injury. For example, under the FDA medical device reporting regulations, we are required to report to the FDA any incident in which a product of ours may have caused or contributed to a death or serious injury or in which a product of ours malfunctioned and, if the malfunction were to recur, would be likely to cause or contribute to death or serious injury. In addition, all manufacturers placing medical devices on the market in the EU are legally required to report any serious or potentially serious incidents involving devices produced or sold by the manufacturer to the relevant authority in those jurisdictions where any such incident occurred.

The FDA and similar foreign regulatory authorities have the authority to require the recall of our commercialized products in the event of material deficiencies or defects in, for example, design, labeling or manufacture. The FDA must find that there is a reasonable probability that the device would cause serious adverse health consequences or death in order to require a recall. The standard for recalling deficient products may be different in foreign jurisdictions. Manufacturers may, under their own initiative, recall a product if any material deficiency is found in a device or they become aware of a safety issue involving a marketed product. A government-mandated or voluntary recall by us or by one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues.

We may initiate certain field actions, such as a product correction or removal of our products in the future. In addition, third parties that commercialize products incorporating our technologies may initiate similar actions or product corrections. Any correction or removal initiated by us to reduce a health risk posed by our device, or to remedy a violation of the FDCA or other regulations caused by the device that may present a risk to health, must be reported to the FDA. If the FDA subsequently determines that a report was required for a correction or removal of our products that we did not believe required a report, we could be subject to enforcement actions.

Any recalls or corrections of our products or third party products that incorporate our technologies, or enforcement actions would divert managerial and financial resources and could have an adverse effect on our financial condition and results of operations. In addition, given our dependence upon patient and physician perceptions, any negative publicity associated with any recalls could materially and adversely affect our business, financial condition, results of operations and growth prospects.

Promotion of our products using claims that are off-label, unsubstantiated, false or misleading could subject us to substantial penalties.

Obtaining 510(k) clearance permits us to promote our products for the uses cleared by the FDA. Use or promotion of a device outside its cleared or approved indications is known as “off-label” use or promotion, respectively. Physicians may use our products off-label because the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine, but we may not promote our products “off-label.” While we may request additional cleared indications for our current products, the FDA may deny those requests, require additional expensive clinical data to support any additional indications or impose limitations on the intended use of any cleared product as a condition of clearance. If the FDA determines that our products were promoted for off-label use or that false, misleading or inadequately substantiated promotional claims have been made by us or our OEM partners, it could request that we or our OEM partners modify those promotional materials or it could take regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine and criminal penalties. While certain U.S. courts have held that truthful, non-misleading, off-label information is protected under the First Amendment under certain circumstances, the FDA continues to take the position that off-label promotion is subject to enforcement action.

It is also possible that other federal, state or foreign enforcement authorities may take action if they consider our communications, including promotional or training materials, to constitute promotion of an uncleared or unapproved use. If not successfully defended, enforcement actions related to off-label promotion could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In any such event, our reputation could be damaged, adoption of our products could be impaired and we could be subject to extensive fines and penalties.

Additionally, we must have adequate substantiation for the claims we make for our products. If any of our claims are determined to be false, misleading or deceptive, our products could be considered misbranded under the FDCA or in violation of the Federal Trade Commission Act. We could also face lawsuits from our competitors under the Lanham Act alleging that our marketing materials are false or misleading.

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The regulatory environment governing information, cybersecurity and privacy is increasingly demanding and continues to evolve.

Personal privacy and data security have become significant issues in the U.S., Europe and many other jurisdictions where we offer our products. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Certain U.S. and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), govern the transmission, security and privacy of individually identifiable information and sensitive health and other personal information that we may obtain or have access to in connection with the operation of our business, including the conduct of clinical research trials or other research studies that may provide us with access to this information. We may be required to make costly system modifications to comply with these data privacy and security requirements. In addition, if we do not properly comply with applicable laws and regulations related to the protection of this information, we could be subject to criminal or civil sanctions. The California Consumer Privacy Act of 2018 (CCPA), which became effective on January 1, 2020, requires us to make new disclosures to consumers about our data collection, use and sharing practices. The CCPA also allows consumers to opt out of certain data sales to third parties, affords new consumer rights, and provides a new cause of action for data breaches with the possibility of significant statutory damage awards as well as injunctive or declaratory relief if there has been unauthorized access, theft or disclosure of specified personal information due to failure to implement reasonable security procedures. Other U.S. states have implemented or are in the process of implementing analogous legislation. The impact of the CCPA and these other state legislations on our business is yet to be determined, but it could result in increased operating expenses as well as additional exposure to the risk of litigation by or on behalf of consumers.

Internationally, the General Data Protection Regulation (GDPR) took effect in May 2018 within the European Economic Area (EEA), and many EEA jurisdictions have also adopted their own data privacy and protection laws in addition to the GDPR. Furthermore, other international jurisdictions, including Singapore, South Korea, China, Brazil, Mexico and Australia, have also implemented laws relating to data privacy and protection. Although we believe that we are complying with the GDPR and similar laws, these laws are still relatively new. Therefore, as international data privacy and protection laws continue to evolve, and as new regulations, interpretive guidance and enforcement information become available, we may incur incremental costs to modify our business practices to comply with these requirements. In addition, our internal control policies and procedures may not always protect us from reckless, intentional or criminal acts committed by our employees or agents.

Violations of these laws, or allegations of such violations, could subject us to monetary and non-monetary penalties for noncompliance, disrupt our operations, involve significant management distraction, subject us to class action lawsuits and result in a material adverse effect on our business, financial condition and results of operations.

We may be subject to or otherwise affected by federal and state healthcare laws, including fraud and abuse laws, and could face substantial penalties if we are unable to fully comply with these laws.

Healthcare fraud and abuse laws potentially applicable to our operations include, but are not limited to:

•the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the purchase, order or recommendation of an item or service reimbursable under a federal healthcare program (such as the Medicare or Medicaid programs);

•the federal False Claims Act and other federal laws which prohibit, among other things, knowingly and willfully presenting, or causing to be presented, claims for payment from Medicare, Medicaid, other government payers or other third-party payers that are false or fraudulent;

•the Physician Payments Sunshine Act, which requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians and teaching hospitals in the U.S.; and

•state laws analogous to each of the above federal laws, such as state anti-kickback and false claims laws that may apply to items or services reimbursed by governmental programs and non-governmental third-party payers, including commercial insurers.

If we are found to have violated any such laws or other similar governmental regulations, including their foreign counterparts, that are directly or indirectly applicable to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion of our products from reimbursement under Medicare, Medicaid and other federal healthcare programs, and the curtailment or restructuring of our operations. Any penalties could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against such action, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

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Legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance. Furthermore, our business, financial condition, results of operations and cash flows could be significantly and adversely affected by healthcare reform legislation in the U.S. or in our key international markets.

Changes in the healthcare industry in the U.S. and abroad could adversely affect the demand for our products and the way in which we conduct our business. For example, the Patient Protection and Affordable Care Act (the ACA), enacted in 2010, required most individuals to have health insurance, established new regulations on health plans, created insurance-pooling mechanisms and reduced Medicare spending on services provided by hospitals and other providers. The long-term viability of the ACA, and its impact on our business and results of operations, remains uncertain. There have also been recent U.S. Congressional actions to repeal and replace the ACA, and future actions are expected. For example, the Tax Cuts and Jobs Act of 2017 (TCJA), among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage effective January 1, 2019.

In December 2018, a federal district court judge in Texas found the ACA’s individual mandate to be unconstitutional; and therefore, the entire law to be invalid. In December 2019, the Fifth Circuit affirmed the ruling regarding the individual mandate but remanded the case to the district court for additional analysis of the question of severability and whether portions of the law remain valid. In June 2021, the U.S. Supreme Court held that the states and individuals that brought the lawsuit do not have standing to challenge the law, effectively ending the case without ruling on the constitutionality of the individual mandate. Although we cannot predict the ultimate content or timing of any healthcare reform legislation or court challenges to the ACA, potential changes resulting from any amendment, repeal, replacement or invalidation of these programs, including any reduction in the future availability of healthcare insurance benefits, may decrease the number of people who are insured, which could adversely affect our business and future results of operations.

Our medical devices and business activities are subject to rigorous regulation by the FDA and other federal, state and international governmental authorities. These authorities and members of Congress have been increasing their scrutiny over the medical device industry. In recent years, Congress, the Department of Justice, the Office of Inspector General of the Department of Health and Human Services and the Department of Defense have issued subpoenas and other requests for information to medical device manufacturers, primarily related to financial arrangements with healthcare providers, regulatory compliance and marketing and product promotional practices. Furthermore, certain state governments have enacted legislation to limit and/or increase transparency of interactions with healthcare providers, pursuant to which we are required by law to disclose payments and other transfers of value to healthcare providers licensed by certain states.

We anticipate that the government will continue to scrutinize our industry closely, and any new regulations or statutory provisions could result in delays or increased costs during the periods of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance.

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Risks Related to Our Business and Operations

*Our business, financial condition and results of operations may be adversely affected by the COVID-19 pandemic.

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China and has since spread to many other countries, including the United States, where we have our principal executive offices and principal operations, Switzerland, where we have our international headquarters, and Mexico, where we have significant manufacturing operations. Government-imposed travel restrictions have resulted, and may continue to result, in direct operational and administrative disruptions to our domestic and foreign facilities. In addition, quarantines, shelter-in-place and similar orders by local governments have impacted and could further impact the productivity of our manufacturing, engineering, sales and administrative staff and facilities in the United States and other countries. Our operations would be disrupted if any of our employees or employees of our business partners were suspected of having contracted COVID-19, which could require quarantine of some or all such employees or closure of our facilities for disinfection.

Although the pace of the COVID-19 pandemic has recently slowed in the U.S. and certain other jurisdictions where we operate, our business operations could be further delayed or interrupted in countries that are still experiencing high levels of infections. Further, any resurgence in infections in countries where government restrictions have been fully or partially lifted could result in a re-imposition of such restrictions, causing renewed disruptions to our business. In the event that government and health authorities announce new or extend existing restrictions, we may be required to make further adjustments to our operations in order to comply with any such restrictions. We may also experience limitations in employee resources.

In addition, global supply chains and the timely availability of raw materials and products may be materially disrupted by quarantines, factory slowdowns or shutdowns, border closings and travel restrictions resulting from the COVID-19 pandemic. For example, we utilize semiconductor chips in certain products that we manufacture. Semiconductor chips have been recently subject to an ongoing global supply shortage and our ability to source semiconductor chips or the components that use semiconductor chips may be adversely affected in the future. Component delivery lead times are expected to increase, which may cause delays in our production of products and increase the cost to obtain semiconductor chips and components that use semiconductor chips. If this semiconductor chip shortage continues, we may experience delays, production interruptions, increased costs and an inability to fulfill engineering design changes or customer demand, each of which could adversely affect our business and financial performance.

The adverse effects of the COVID-19 pandemic on our business could be material in future periods, particularly if there are significant and prolonged economic slowdowns in regions where we derive a significant amount of our revenue or profit, or where our suppliers are located, or if we are forced to close facilities and limit or cease manufacturing operations for extended periods of time. We could also experience delays in receipt of customer payments. In addition, our ability to fulfill orders placed with us within the order’s specified time line and for the cost we estimated when we accepted the order may be negatively affected. Furthermore, we have experienced unusual fluctuations in the demand for our products throughout the COVID-19 pandemic and we may continue to experience these fluctuations for the foreseeable future. These factors could lead to a reduction in revenues, unfavorable gross margin impact due to product mix, and/or a delay in cash flows in future periods and have a material adverse effect on our business, financial condition and results of operations.

The COVID-19 pandemic has also led to extreme volatility in capital markets and a decline in interest rates, and has adversely affected, and may continue to adversely affect, the market price of our common stock. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, a continued or widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our liquidity in the future. The extent to which COVID-19 impacts our business and financial results continues to depend on numerous evolving factors that we may not be able to accurately predict.

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*If our employees become ill or otherwise incapacitated, our operations may be adversely impacted.

At the outset of the COVID-19 pandemic, we implemented telework policies wherever possible for appropriate categories of employees in response to various stay at home/shelter in place orders (Stay at Home Orders) implemented by state and local governments. In response to the lifting or partial lifting of the Stay at Home Orders, we have reopened several of our facilities to both “nonessential” and “essential” employees. We have implemented a number of safety measures for our facilities, including social distancing, face covering, temperature checking and increased sanitation standards. We are following guidance from the Center for Disease Control and the Occupational Safety and Health Administration regarding suspension of nonessential travel, self-isolation recommendations for employees returning from certain geographic areas, confirmed reports of any COVID-19 diagnosis among our employees and the return of such employees to our workplace. Pursuant to updated guidance from the Equal Employment Opportunity Commission, we are engaging in limited and appropriate inquiries of employees regarding potential COVID-19 exposure, based on the direct threat that such exposure may present to our workforce. While we have developed and implemented, and continue to develop and implement, health and safety guidelines in an effort to try to mitigate the negative impact of COVID-19, there can be no assurances that our measures will be sufficient to protect our employees in our workplace or that our employees will not otherwise be exposed to COVID-19 outside of our workplace. If a number of our employees become ill, incapacitated or are otherwise unable to continue working during the current or any future pandemic or epidemic, our operations may be adversely impacted.

We may experience conflicts of interest with Cercacor with respect to business opportunities and other matters.

Prior to our initial public offering in August 2007, our stockholders owned 99% of the outstanding shares of capital stock of Cercacor, and we believe that a number of our stockholders, including certain of our directors and executive officers, continue to own shares of Cercacor stock. Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor.

Due to the interrelated nature of Cercacor with us, conflicts of interest may arise with respect to: transactions involving business dealings between us and Cercacor, potential acquisitions of businesses or products, the development and ownership of technologies and products, the sale of products, markets and other matters in which our best interests and the best interests of our stockholders may conflict with the best interests of the stockholders of Cercacor. In addition, we and Cercacor may disagree regarding the interpretation of certain terms in the Cross-Licensing Agreement. We cannot guarantee that any conflict of interest will be resolved in our favor, or that, with respect to our transactions with Cercacor, we will negotiate terms that are as favorable to us as if such transactions were with another third-party.

We will be required to assign to Cercacor and pay Cercacor for the right to use certain products and technologies we develop that relate to the monitoring of non-vital sign parameters, including improvements to Masimo SET®.

Under the Cross-Licensing Agreement, if we develop certain products or technologies that relate to the noninvasive monitoring of non-vital sign parameters, including improvements to Masimo SET® for the noninvasive monitoring of non-vital sign parameters, we would be required to assign these developments to Cercacor and then license the technology back from Cercacor in consideration for upfront payments and royalty obligations to Cercacor. Therefore, these products and technologies would be deemed to have been developed or improved exclusively by Cercacor.

In addition, we will not be reimbursed by Cercacor for our expenses relating to the development or improvement of any such products or technologies, which expenses may be significant. As a result of these terms, we may not generate any revenue from the further development of certain products and technologies for the monitoring of non-vital sign parameters, including improvements to Masimo SET®, which could adversely affect our business, financial condition and results of operations.

In the event that the Cross-Licensing Agreement is terminated for any reason, or Cercacor grants a license to rainbow® technology to a third-party, our business would be adversely affected.

Cercacor owns all of the proprietary rights to certain rainbow® technology developed with our proprietary Masimo SET® for products intended to be used in the “Cercacor Market”, and all rights to any non-vital signs measurement for which we do not exercise an option pursuant to the Cross-Licensing Agreement. In addition, Cercacor has the right to terminate the Cross-Licensing Agreement or grant licenses covering rainbow® technology to third parties if we breach certain terms of the agreement, including any failure to meet our minimum royalty payment obligations or failure to use commercially reasonable efforts to develop or market products incorporating licensed rainbow® technology. If we lose our exclusive license to rainbow® technology, we would lose the ability to prevent others from making, using, selling or importing products using rainbow® technology in our market. As a result, we would likely be subject to increased competition within our market, and Cercacor or competitors who obtain a license to rainbow® technology from Cercacor would be able to offer related products.

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We may not be able to commercialize our products incorporating licensed rainbow® technology cost-effectively or successfully.

As a result of the royalties that we must pay to Cercacor, it is generally more expensive for us to make products that incorporate licensed rainbow® technology than products that do not include licensed rainbow® technology.

We cannot assure that we will be able to sell products incorporating licensed rainbow® technology at a price the market is willing to accept. If we cannot commercialize our products incorporating licensed rainbow® technology successfully, we may not be able to generate sufficient product revenue from these products to be profitable, which could adversely affect our business, financial condition and results of operations.

Rights provided to Cercacor in the Cross-Licensing Agreement may impede a change in control of our company.

Under the Cross-Licensing Agreement, a change in control includes the resignation or termination of Joe Kiani from his position as CEO of either Masimo or Cercacor. A change in control also includes other customary events, such as the sale or merger of Masimo or Cercacor to a non-affiliated third-party or the acquisition of 50% or more of the voting power of Masimo or Cercacor by a non-affiliated third-party. In the event we undergo a change in control, we are required to immediately pay a $2.5 million fee to exercise an option to license technology developed by Cercacor for use in blood glucose monitoring.

Additionally, our per product royalties payable to Cercacor will become subject to specified minimums, and the minimum aggregate annual royalties for licensed rainbow® measurements payable to Cercacor related to carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and blood glucose will increase to $15.0 million, plus up to $2.0 million for other rainbow® measurements. Also, if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark following a change in control, all rights to the “Masimo” trademark will automatically be assigned to Cercacor. This could delay or discourage transactions involving an actual or potential change in control of us, including transactions in which our stockholders might otherwise receive a premium for their shares over our then-current trading price. In addition, our requirement to assign all future improvements for non-vital signs to Cercacor could impede a change in control of our company.

If we are unable to obtain key materials and components from sole or limited source suppliers, we will not be able to deliver our products to customers.

We depend on certain sole or limited source suppliers for certain key materials and components, including digital signal processor chips and analog-to-digital converter chips, for our noninvasive patient monitoring solutions. These suppliers are located around the world, and the production and shipment of such materials and components may be constrained globally due to the COVID-19 pandemic. We may experience manufacturing problems related to these suppliers and other outside sources if such suppliers fail to develop, manufacture or ship products and components to us on a timely basis, or provide us with products and components that do not meet our quality standards and required quantities. In addition, from time to time there have been industry-wide shortages of certain components that we use in our noninvasive blood constituent patient monitoring solutions. We may also experience price increases for materials or components, with no guarantee that such increases can be passed along to our customers, which could adversely impact our gross margins.

If any of these problems occur, we may be unable to obtain substitute sources for these products and components on a timely basis or on terms acceptable to us, which could harm our ability to manufacture our own products and components profitably or on time.

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Future strategic initiatives, including acquisitions of businesses and strategic investments, could negatively affect our business, financial condition and results of operations if we fail to integrate the acquired businesses successfully into our existing operations or achieve the desired results of our investment.

We have acquired several businesses since our inception and we may acquire additional businesses in the future. Future acquisitions may require debt or equity financing, which could be dilutive to our existing stockholders or reduce our earnings per share. Even if we complete acquisitions, there are many factors that could affect whether such acquisition will be beneficial to our business, including, without limitation:

•payment of above-market prices for acquisitions and higher than anticipated acquisition costs;

•issuance of common stock as part of the acquisition price or a need to issue stock options or other equity to newly-hired employees of target companies, resulting in dilution of ownership to our existing stockholders;

•reduced profitability if an acquisition is not accretive to our business over either the short-term or the long-term;

•difficulties in integrating any acquired companies, personnel, products and other assets into our existing business;

•delays in realizing the benefits of the acquired company, products or other assets;

•regulatory challenges;

•cybersecurity and compliance-related issues;

•diversion of our management’s time and attention from other business concerns;

•limited or no direct prior experience in new markets or countries we may enter;

•unanticipated issues dealing with unfamiliar suppliers, service providers or other collaborators of the acquired company;

•higher costs of integration than we anticipated;

•write-downs or impairments of goodwill or other intangible assets associated with the acquired company;

•difficulties in retaining key employees of the acquired business who are necessary to manage these acquisitions;

•negative impacts on our relationships with our employees, clients or collaborators;

•litigation, other claims or liabilities in connection with the acquisition; and

•changes in the overall financial model as certain acquired companies may have a different revenue, gross profit margin or operating expense profile.

Further, our ability to benefit from future acquisitions and/or external strategic investments depends on our ability to successfully conduct due diligence, negotiate acceptable terms, evaluate prospective opportunities and bring acquired technologies and/or products to market at acceptable margins and operating expense levels. For example, we acquired TNI medical AG® (TNI®) and added softFlow® technology to our product portfolio. In addition, we acquired LiDCO Group, Plc, which specializes in hemodynamic monitoring solutions. As these are our first therapeutic and hemodynamic monitoring solutions, the integration of these technologies may require substantial management time and attention and may divert attention and resources from other important areas, including our existing business and product lines, and we may not be able to sell the softFlow® technology and hemodynamic monitoring solutions at acceptable margins and operating expense levels. Our failure in any of these tasks could result in unforeseen liabilities associated with an acquired company, acquiring a company on unfavorable terms or selecting and eventually acquiring a suboptimal acquisition target.

We may also discover deficiencies in internal controls, data adequacy and integrity, product quality, regulatory compliance, product liabilities or other undisclosed liabilities that we did not uncover prior to our acquisition or investment, which could result in us becoming subject to penalties, other liabilities or asset impairments. In addition, if we do not achieve the anticipated benefits of an acquisition or other external investment as rapidly as expected, or at all, investors or analysts may downgrade our stock.

We also expect to continue to carry out internal strategic initiatives that we believe are necessary to grow our revenues and expand our business, both in the U.S. and abroad. For example, we have continued to invest in international expansion programs designed to increase our worldwide presence and take advantage of market expansion opportunities around the world. Although we believe our investments in these initiatives continue to be in the long-term best interests of Masimo and our stockholders, there are no assurances that such initiatives will yield favorable results for us. Accordingly, if these initiatives are not successful, our business, financial condition and results of operations could be adversely affected.

If these risks materialize, our stock price could be materially adversely affected. Any difficulties in the integration of acquired businesses or unexpected penalties, liabilities or asset impairments in connection with such acquisitions or investments could have a material adverse effect on our business, financial condition and results of operations.

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Our credit agreement contains certain covenants and restrictions that may limit our flexibility in operating our business.

Our credit agreement dated December 17, 2018 (Credit Facility) with JPMorgan Chase Bank, N.A., as Administrative Agent and a lender, and Bank of the West, a lender (each and both, Lender(s)), contains various affirmative covenants and restrictions that limit our ability to engage in specified types of transactions, including:

•incurring specified types of additional indebtedness (including guarantees or other contingent obligations);

•paying dividends on, repurchasing or making distributions in respect of our common stock or making other restricted payments, subject to specified exceptions;

•making specified investments (including loans and advances);

•selling or transferring certain assets;

•creating certain liens;

•consolidating, merging, selling or otherwise disposing of all or substantially all of our assets; and

•entering into certain transactions with any of our affiliates.

In addition, under our Credit Facility, we are required to satisfy and maintain specified financial ratios and other affirmative covenants. Our ability to meet those financial ratios and affirmative covenants could be affected by events beyond our control and, therefore, we cannot be assured that we will be able to continue to satisfy these requirements. A breach of any of these ratios or covenants could result in a default under our Credit Facility. Upon the occurrence of an event of default, the Lenders could elect to declare all amounts outstanding under the Credit Facility immediately due and payable, terminate all commitments to extend further credit and pursue legal remedies for recovery, all of which could adversely affect our business and financial condition. See Note 15 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information on our Credit Facility.

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Risks Related to Our Stock

Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions.

As of July 3, 2021, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 9.1% of our outstanding stock. Subject to any fiduciary duties owed to our other stockholders under Delaware law, these stockholders may be able to exercise significant influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and will have some control over our management and policies in their roles as stockholders. Some of these persons or entities may have interests that are different from yours. For example, these stockholders may support proposals and actions with which you may disagree or which are not in your best interests.

The concentration of ownership could delay or prevent a change in control of us, or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our stock.

In addition, these stockholders could use their voting influence to maintain our existing management and directors in office or support or reject other management and Board of Directors (Board) proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.

Provisions in our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our certificate of incorporation authorizes our Board to issue up to 5.0 million shares of “blank check” preferred stock. As a result, without further stockholder approval, our Board has the authority to attach special rights, including voting and dividend rights, to this preferred stock, including pursuant to a stockholder rights plan. With these rights, preferred stockholders could make it more difficult for a third-party to acquire us. In addition, our certificate of incorporation provides for a staggered Board, whereby directors serve for three-year terms, with one-third of the directors coming up for reelection each year. A staggered Board will make it more difficult for a third-party to obtain control of our Board through a proxy contest, which may be a necessary step in an acquisition of us that is not favored by our Board.

We are also subject to anti-takeover provisions under the General Corporation Law of the State of Delaware. Under these provisions, if anyone becomes an “interested stockholder,” we may not enter into a “business combination” with that person for three years without special approval, which could discourage a third-party from making a takeover offer and could delay or prevent a change in control of us. For purposes of these provisions, an “interested stockholder” generally means someone owning 15% or more of our outstanding voting stock or an affiliate of ours that owned 15% or more of our outstanding voting stock during the past three years, subject to certain exceptions as described in the General Corporation Law of the State of Delaware.

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Our bylaws provide that the state or federal courts located within the State of Delaware are the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our bylaws provide that the state or federal courts located within the State of Delaware are the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or stockholders to our stockholders, (iii) any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware, our certificate of incorporation or our bylaws or as to which the General Corporation Law of the State of Delaware confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) any action asserting a claim governed by the internal affairs doctrine. However, this choice of forum provision does not apply to (a) actions in which the Court of Chancery in the State of Delaware concludes that an indispensable party is not subject to the jurisdiction of Delaware courts, or (b) actions in which a federal court has assumed exclusive jurisdiction to a proceeding. This choice of forum provision is not intended to apply to any actions brought under the Securities Act of 1933, as amended (the Securities Act), or the Securities Exchange Act of 1934, as amended (the Exchange Act). Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees or stockholders, which may discourage such lawsuits against us and our directors, officers and other employees or stockholders.

Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provision in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition and results of operations.

General Risk Factors

We may experience significant fluctuations in our periodic financial results and may not maintain our current levels of profitability in the future.

Our operating results have fluctuated in the past and are likely to fluctuate in the future. Many of the countries in which we operate, including the U.S. and several of the members of the EU, have experienced and continue to experience uncertain economic conditions resulting from global as well as local factors. In addition, continuing strength and growth in the U.S. economy may raise the probability of inflationary pressures and contribute to future interest rate volatility.

Our business or financial results may be adversely impacted by these uncertain economic conditions, including: adverse changes in interest rates, foreign currency exchange rates, tax laws or tax rates; inflation; contraction in the availability of credit in the marketplace due to legislation or other economic conditions, which may potentially impair our ability to access the capital markets on terms acceptable to us or at all; and the effects of government initiatives to manage economic conditions.

We are also unable to predict how changing global economic conditions or potential global health concerns such as the COVID-19 pandemic will affect our critical customers, suppliers and distributors. Any negative impact of such matters on our critical customers, suppliers or distributors may also have an adverse impact on our results of operations or financial condition. Our expense levels are based, in part, on our expectations regarding future revenue levels and are relatively fixed in the short term. As a result, if our revenue for a particular period was below our expectations, we would not be able to proportionately reduce our operating expenses for that period. Any revenue shortfall would have a disproportionately negative effect on our operating results for the period.

In addition, the methods, estimates and judgments that we use in applying our accounting policies are, by their nature, subject to substantial risks, uncertainties and assumptions. Factors may arise over time that lead us to change our methods, estimates and judgments, the impact of which could significantly affect our results of operations. See “Critical Accounting Policies and Estimates” contained in Part I, Item 2 of this Quarterly Report on Form 10-Q.

Recent accounting changes related to our embedded leases within certain deferred equipment agreements have also resulted in the acceleration of the timing related to our recognition of revenue and expenses associated with certain equipment provided to customers at no up-front charge. Since we cannot control the timing of when our customers will request us to deliver such equipment, our revenue and costs with respect to leased equipment could vary substantially in any given quarter or year, which could further increase quarterly or annual fluctuations within our financial results.

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Due to these and other factors, you should not rely on our results for any one quarter as an indication of our future performance. If our operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly.

Future changes in accounting pronouncements and tax laws, or the interpretation thereof, could have a significant impact on our reported results, and may affect our historical reporting of previous transactions.

New accounting pronouncements or taxation rules, and evolving interpretations thereof, have occurred and are likely to occur in the future. Future changes made by new accounting standards may apply prospectively or retrospectively, depending on the method of adoption, and may recast previously reported results. For additional information related to the impact of new accounting pronouncements, please see Note 2 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In addition, future changes to the U.S. tax code and its regulations could have a material impact on our effective tax rate and its implementation could require us to make substantial changes to our business practices, allocate resources, and increase our costs, which could negatively affect our business, results of operations and financial condition.

If we lose the services of our key personnel, or if we are unable to attract and retain other key personnel, we may not be able to manage our operations or meet our growth objectives.

We are highly dependent on our senior management, especially Joe Kiani, our CEO, and other key officers. We are also heavily dependent on our engineers and field sales team, including sales representatives and clinical specialists. The loss of the services of members of our key personnel, including as a result of the COVID-19 pandemic, or the inability to attract and retain qualified personnel in the future could prevent the implementation and completion of our objectives, including the development and introduction of our products. In general, our key personnel may terminate their employment at any time and for any reason without notice, unless the individual is a participant in our 2007 Severance Protection Plan, in which case the individual has agreed to provide us with six months’ notice if such individual decides to voluntarily resign. We do not maintain any “key person” life insurance policies with respect to any of our key personnel.

We are involved, and may become involved in the future, in disputes and other legal or regulatory proceedings that, if adversely decided or settled, could materially and adversely affect our business, financial condition and results of operations.

We are, and may in the future become, party to litigation, regulatory proceedings or other disputes. In general, claims made by or against us in disputes and other legal or regulatory proceedings can be expensive and time-consuming to bring or defend against, requiring us to expend significant resources and divert the efforts and attention of our management and other personnel from our business operations. These potential claims may include, but are not limited to, personal injury and class action lawsuits, intellectual property claims and regulatory investigations relating to the advertising and promotional claims about our products and employee claims against us based on, among other things, discrimination, harassment or wrongful termination. Any one of these claims, even those without merit, may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations. Any adverse determination against us in these proceedings, or even the allegations contained in the claims, regardless of whether they are ultimately found to be without merit, may also result in settlements, injunctions or damages that could have a material adverse effect on our business, financial condition and results of operations.

*Changes to government immigration regulations may materially affect our workforce and limit our supply of qualified professionals, or increase our cost of securing workers.

We recruit professionals on a global basis and must comply with the immigration laws in the countries in which we operate, including the U.S. Some of our employees are working under Masimo-sponsored temporary work visas, including H1-B visas. Statutory law limits the number of new H1-B temporary work permit petitions that may be approved in a fiscal year. Furthermore, there is a possibility that the current U.S. immigration visa program may be significantly overhauled, and the number of H1-B visas available, as well as the process to obtain them, may be subject to significant change. Any resulting changes to this visa program could impact our ability to recruit, hire and retain qualified skilled personnel. If we are unable to obtain work visas in sufficient quantities or at a sufficient rate for a significant period of time, our business, operating results and financial condition could be adversely affected.

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The risks inherent in operating internationally, including the purchase, sale and shipment of our components and products across international borders, may adversely impact our business, financial condition and results of operations.

We currently derive approximately 33% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources. The sale and shipment of our products across international borders, as well as the purchase of materials and components from international sources, subject us to extensive U.S. and foreign governmental trade regulations, including those related to duties, tariffs, and conflict minerals. Compliance with such regulations is costly and we could be exposed to potentially significant penalties, fines and interest if we are found not to be in compliance with such regulations. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, restrictions on certain business activities, and exclusion or debarment from government contracting. For example, we have had sales of medical products destined for Iran. Although these activities have not been financially material to our business, financial condition or results of operations, and were undertaken in accordance with general licenses authorizing such activities issued by the U.S. Treasury Department’s Office of Foreign Assets Control, we may not be successful in ensuring compliance with limitations or restrictions on business in Iran or any other countries subject to economic sanctions and embargoes imposed by the United States. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping, manufacturing and sales activities. Any material decrease in our international sales would adversely affect our business, financial condition and results of operations.

In June 2016, the United Kingdom (UK) held a referendum pursuant to which voters elected to leave the EU, commonly referred to as Brexit. The UK formally left the EU on January 31, 2020 and began a transition period that ended on December 31, 2020. Although the long-term effects of Brexit have yet to be seen, and the UK is in the process of negotiating trade deals with other countries, Brexit has created additional uncertainties that may ultimately result in new regulatory costs and challenges for medical device companies and increased restrictions on imports and exports throughout Europe, which could adversely affect our ability to conduct and expand our operations in Europe and which may have an adverse effect on our business, financial condition and results of operations. Additionally, Brexit may increase the possibility that other countries may decide to leave the EU in the future.

In addition, our international operations expose us and our representatives, agents and distributors to risks inherent in operating in foreign jurisdictions. These risks include, but are not limited to:

•the imposition of additional U.S. and foreign governmental controls or regulations;

•the imposition of costly and lengthy new export licensing requirements;

•a shortage of high-quality sales people and distributors;

•the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets;

•changes in duties and tariffs, license obligations and other non-tariff barriers to trade;

•the imposition of new trade restrictions;

•the imposition of restrictions on the activities of foreign agents, representatives and distributors;

•compliance with foreign tax laws, regulations and requirements;

•pricing pressure;

•changes in foreign currency exchange rates;

•laws and business practices favoring local companies;

•political instability and actual or anticipated military or political conflicts;

•financial and civil unrest worldwide;

•outbreaks of illnesses, pandemics or other local or global health issues;

•the inability to collect amounts paid by foreign government customers to our appointed foreign agents;

•longer payment cycles, increased credit risk and different collection remedies with respect to receivables; and

•difficulties in enforcing or defending intellectual property rights.

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The U.S. government initiated substantial changes in U.S. trade policy and U.S. trade agreements, including the tariffs on certain foreign goods. In response to these tariffs, certain foreign governments instituted or are considering imposing tariffs on certain U.S. goods. In addition, the U.S. has negotiated new trade agreements that could impact us, including the United States-Mexico-Canada Agreement (USMCA), which went into force on July 1, 2020 and replaced the North American Free Trade Agreement. A trade war, trade barriers or other governmental actions related to tariffs, international trade agreements, import or export restrictions or other trade policies could adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof and, therefore, adversely affect our business, financial condition and results of operations.

The U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and their intermediaries from promising or making improper payments to foreign officials for the purpose of obtaining an advantage to secure or retain business. Because of the predominance of government-sponsored healthcare systems around the world, many of our customer relationships outside of the U.S. are with governmental entities and are therefore subject to such anti-bribery laws. We have adopted policies and practices that help us ensure compliance with these anti-bribery laws. However, such policies and practice may require us to invest in additional monitoring resources or forgo certain business opportunities in order to ensure global compliance with these laws.

Our operations may be adversely impacted by our exposure to risks related to foreign currency exchange rates.

We market our products in certain foreign markets through our subsidiaries and other international distributors. As a result, events that result in global economic uncertainty could significantly affect our results of operations in the form of gains and losses on foreign currency transactions and potential devaluation of the local currencies of our customers relative to the U.S. Dollar.

While a majority of our sales are transacted in U.S. Dollars, 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 depending on the approximation of the exchange rates applied during a respective period. Similarly, certain of our foreign subsidiaries transact business in their respective country’s local currency, which is also their functional currency. In addition, certain production costs related to our manufacturing operations in Mexico are denominated in Mexican Pesos. As a result, expenses of these foreign subsidiaries and certain production costs, when converted into U.S. Dollars, can vary depending on average monthly exchange rates during a respective period.

We are also exposed to foreign currency gains or losses on outstanding foreign currency denominated receivables and payables, as well as cash deposits. When converted to U.S. Dollars, these receivables, payables and cash deposits can vary depending on the monthly exchange rates at the end of the period. In addition, certain intercompany transactions may give rise to realized and unrealized foreign currency gains or losses based on the currency underlying such intercompany transactions. Accordingly, our operating results are subject to fluctuations in foreign currency exchange rates.

The balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S. Dollars at the rate of exchange at the balance sheet date and the statements of operations and cash flows are translated into U.S. Dollars using an approximation of the average monthly exchange rates applicable during the period. Any foreign currency exchange gain or loss as a result of translating the balance sheets of our foreign subsidiaries whose functional currency is not the U.S. Dollar is included in equity as a component of accumulated other comprehensive income (loss).

We currently do not hedge our foreign currency exchange rate risk. As a result, changes in foreign exchange rates could have a material adverse effect on our business, financial condition and results of operations. For additional information related to our foreign currency exchange rate risk, please see Quantitative and Qualitative Disclosures about Market Risk in Part I, Item 3 of this Quarterly Report on Form 10-Q.

We currently manufacture our products at a limited number of locations and any disruption to, expansion of, or changes in trade programs related to such manufacturing operations could adversely affect our business, financial condition and results of operations.

We rely on manufacturing facilities in California, New Hampshire and Mexico that may be affected by natural or man-made disasters. Earthquakes are of particular significance since some of our facilities are located in earthquake-prone areas. We are also vulnerable to damage from other types of disasters, including power loss, attacks from extremist or terrorist organizations, epidemics, communication failures, fire, floods and similar events. Our facilities and the manufacturing equipment we use to produce our products would be difficult to replace and could require substantial time to repair if significant damage were to result from any of these occurrences.

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If one of our manufacturing facilities was affected by a natural or man-made disaster, we would be forced to rely on third-party manufacturers if we could not shift production to our other manufacturing facilities. Furthermore, our insurance for damage to our property and the disruption of our business from casualties may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. If the lease for any of our leased facilities is terminated, we are unable to renew any of our leases or we are otherwise forced to seek alternative facilities, or if we voluntarily expand one or more of our manufacturing operations to new locations, we may incur additional transition costs and experience a disruption in the supply of our products until the new facilities are available and operating. Additionally, we have occasionally experienced seasonality among our manufacturing workforce, and if we continue to experience such seasonality or other workforce shortages or otherwise have issues retaining employees or contractors at our manufacturing facilities, we may not be able to meet our customers’ demands.

Our global manufacturing and distribution are dependent upon our manufacturing facilities in Mexico, and the expedient importation of raw materials and exportation of finished goods between the U.S. and Mexico. Undue delays and/or closures of the proximal cross-border transit facilities, or any restrictions by the U.S. federal administration related to the movement of goods across the U.S. and Mexico border, may adversely affect our ability to fulfill orders and supply our healthcare provider customers with essential replenishment supplies, as well as adversely impact our business, operating results and financial condition.

In addition, our manufacturing facilities in Mexico are authorized to operate under the Mexican Maquiladora (IMMEX) program. The IMMEX program allows us to import certain items from the U.S. into Mexico duty-free, provided that such items, after processing, are exported from Mexico within a stipulated timeframe. Maquiladora status, which is renewed periodically, is subject to various restrictions and requirements, including compliance with the terms of the IMMEX program and other local regulations. Failure to comply with the IMMEX program regulations, including any changes thereto, could increase our manufacturing costs and adversely affect our business, operating results and financial condition.

If we do not accurately forecast customer demand, we may hold suboptimal inventory levels that could adversely affect our business, financial condition and results of operations.

If we are unable to meet the demand of our customers, our customers may cancel orders or purchase products from our competitors, which could reduce our revenue and gross profit margin. Conversely, if product demand decreases, we may be unable to timely adjust our manufacturing cost structure, resulting in excess capacity, which would lower gross product margins. Similarly, if we are unable to forecast demand accurately, we could be required to record charges related to excess or obsolete inventory, which would also lower our gross margin.

If we fail to comply with the reporting obligations of the Exchange Act, or if we fail to maintain adequate internal control over financial reporting, our business, results of operations and financial condition and investors’ confidence in us could be adversely affected.

We are required to prepare and disclose certain information under the Exchange Act, in a timely manner and meet our reporting obligations in their entirety, and our failure to do so could subject us to penalties under federal securities laws and regulations of The Nasdaq Stock Market LLC, expose us to lawsuits and restrict our ability to access financing on favorable terms, or at all.

If we fail to maintain adequate internal controls over financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, any material weakness in our internal control environment could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business, negatively impact the trading price of our stock, and adversely affect investors’ confidence in our company and our ability to access capital markets for financing.

Changing laws and increasingly complex corporate governance and public disclosure requirements could have an adverse effect on our business and operating results.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the California Transparency in Supply Chains Act, the UK Modern Slavery Act and new regulations issued by the SEC and The Nasdaq Stock Market LLC, have created, and will create, additional compliance requirements for us. For example, the Dodd-Frank Act includes provisions regarding, among other things, advisory votes on named executive officer compensation and “conflict minerals” reporting. Complying with these rules and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business, financial condition and results of operations.

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We may also need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses. To maintain high standards of corporate governance and public disclosure, we have invested in, and intend to continue to invest in, reasonably necessary resources to comply with evolving standards.

In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act. Furthermore, our stockholders may not continue to approve our advisory vote on named executive officer compensation that is being voted on by our stockholders annually pursuant to the Dodd-Frank Act. If we are involved in a lawsuit related to compensation matters or any other matters not covered by our directors’ and officers’ liability insurance, we may incur significant expenses in defending against such lawsuits, or be subject to significant fines or required to take significant remedial actions, each of which could adversely affect our business, financial condition and results of operations.

If product liability claims are brought against us, we could face substantial liability and costs.

Our products are predominantly used in patient care and expose us to product liability claims and product recalls, including, but not limited to, those that may arise from unauthorized off-label use, malfunctions, design flaws or manufacturing defects related to our products or the use of our products with incompatible components or systems. In addition, as we continue to expand our product portfolio, we may enter or create new markets, including consumer markets, that may expose us to additional product liability risks. For example, with the acquisition of TNI® in March 2020, we added softFlow® technology to our product portfolio. While this technology provides efficient, quiet and comfortable respiratory support to patients, it may present increased risk of infection to caregivers.

We cannot be certain that our product liability insurance will be sufficient to cover any or all damages for product liability claims that may be brought against us in the future. Furthermore, we may not be able to obtain or maintain insurance in the future at satisfactory rates or in adequate amounts to protect us against any product liability claims.

Additionally, the laws and regulations regarding product liability are constantly evolving, both through the passage of new legislation at the state and federal levels and through new interpretations of existing legislation. For example, in February 2017, the Washington Supreme Court determined that, under the Washington Product Liability Act, medical device manufacturers have a duty to warn hospitals of any potential risks posed by their products. As the legal and regulatory landscape surrounding product liability change, we may become exposed to greater liability than currently anticipated.

Any losses that we may suffer from product liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our technology and products, together with the corresponding diversion of the attention of our key employees, may subject us to significant damages and could adversely affect our business, financial condition and results of operations.

We may incur environmental and personal injury liabilities related to certain hazardous materials used in our operations.

Certain manufacturing processes for our products may involve the storage, use, generation and disposal of certain hazardous materials and wastes, including silicone adhesives, solder and solder paste, sealants, epoxies and various solvents such as methyl ethyl ketone, acetone and isopropyl alcohol. As a result, we are subject to certain environmental laws, as well as certain other laws and regulations, that restrict the materials that can be used in our products or in our manufacturing processes. For example, products that we sell in Europe are subject to regulation in the EU markets under the Restriction of the Use of Hazardous Substances Directive (RoHS). RoHS prohibits companies from selling products that contain certain hazardous materials in EU member states. In addition, the EU’s Registration, Evaluation, Authorization, and Restriction of Chemicals Directive also restricts substances of very high concern in products. Compliance with such regulations may be costly and, therefore, we may incur significant costs to comply with these laws and regulations.

In addition, new environmental laws may further affect how we manufacture our products, how we use, generate or dispose of hazardous materials and waste, or further affect what materials can be used in our products. Any required changes to our operations or products may increase our manufacturing costs, detrimentally impact the performance of our products, add greater testing lead-times for product introductions or have other similar effects.

In connection with our research and manufacturing activities, we use, and our employees may be exposed to, materials that are hazardous to human health, safety or the environment. The risk of accidental injury to our employees or contamination from these materials cannot be eliminated, and we could be held liable for any resulting damages, the related liability for which could exceed our reserves. We do not specifically insure against environmental liabilities. If an enforcement action were to occur, our reputation and our business and financial condition may be harmed, even if we were to prevail or settle the action on terms favorable to us.

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We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Increased global cybersecurity vulnerabilities, cybersecurity threats and sophisticated and targeted cybersecurity attacks pose a risk to the security of our systems and networks, including the confidentiality, availability and integrity of any underlying information and data, and those of our customers, partners, suppliers and third-party service providers. Our ability to effectively manage and maintain our internal business information, and to ship products to customers and invoice them on a timely basis, depends significantly on our enterprise resource planning system and other information systems.

Portions of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work. In addition, interfaces between our products and our customers’ computer networks could provide additional opportunities for cybersecurity attacks on us and our customers. The techniques used to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. Cybersecurity attacks in particular are evolving and include, but are not limited to: threats, malicious software, ransomware, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of confidential or otherwise protected information and corruption of data. As a result, there can be no assurance that our protective measures will prevent or detect security breaches that could have a significant impact on our business, reputation, financial condition and results of operations.

The failure of these systems to operate or integrate effectively with other internal, customer, supplier or third-party service provider systems and to protect the underlying information technology system and data integrity, including from cyber-attacks, intrusions or other breaches or unauthorized access of these systems, or any failure by us to remediate any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in product fulfillment and reduced efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or breach, all of which could adversely affect our business, financial condition and results of operations.

Discontinuation, reform or replacement of LIBOR and other benchmark rates, or uncertainty related to the potential for any of the foregoing, may adversely affect our business.

The U.K. Financial Conduct Authority announced in 2017 that it intends to phase out the London Inter-Bank Offered Rate (LIBOR) by the end of 2023. In addition, other regulators have suggested reforming or replacing other benchmark rates. The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets. Uncertainty as to the nature of such potential discontinuation, reform or replacement may also negatively impact interest expense related to borrowings under our Credit Facility. Borrowings under our Credit Facility bear interest, at our election, either at the Alternate Base Rate (as defined in the Credit Facility), or at the Adjusted LIBO Rate (as defined in the Credit Facility), which is derived from LIBOR. We may in the future pursue amendments to our Credit Facility to provide for a transition mechanism or other reference rate in anticipation of LIBOR’s discontinuation, but we may not be able to reach agreement with our Lenders on any such amendments. As a result, additional financing to replace any then-outstanding LIBOR-based debt may be unavailable, more expensive or restricted by the terms of such outstanding indebtedness.

Our stock price may be volatile, and your investment in our stock could suffer a decline in value.

There has been and could continue to be significant volatility in the market price and trading volume of our equity securities. For example, our closing stock price ranged from $208.49 to $283.75 per share from January 3, 2021 to July 3, 2021. Factors contributing to our stock price volatility may include our financial performance, as well as broader economic, political and market factors, including the COVID-19 pandemic. In addition to the other risk factors previously discussed in this Quarterly Report on Form 10-Q, there are many other factors that we may not be able to control that could have a significant effect on our stock price. These include, but are not limited to:

•actual or anticipated fluctuations in our operating results or future prospects;

•our announcements or our competitors’ announcements of new products;

•the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

•strategic actions by us or our competitors, such as acquisitions or restructurings;

•new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

•changes in accounting standards, policies, guidance, interpretations or principles;

•changes in our growth rates or our competitors’ growth rates;

•developments regarding our patents or proprietary rights or those of our competitors;

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•ongoing legal proceedings;

•our inability to raise additional capital as needed;

•concerns or allegations as to the safety or efficacy of our products;

•changes in financial markets or general economic conditions, including the effects of recession or slow economic growth in the U.S. and abroad;

•effects of public health crises, epidemics and pandemics, such as the COVID-19 pandemic;

•sales of stock by us or members of our management team, our Board or certain institutional stockholders; and

•changes in stock market analyst recommendations or earnings estimates regarding our stock, other comparable companies or our industry generally.

Therefore, you may not be able to resell your shares at or above the price you paid for them.

Our investors could experience substantial dilution of their investments as a result of subsequent exercises of our outstanding options, vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs), or the grant of future equity awards by us.

As of July 3, 2021, approximately 10.9 million shares of our common stock were reserved for issuance under our equity incentive plans, of which approximately 3.3 million shares were subject to options outstanding at such date at a weighted-average exercise price of $79.92 per share, approximately 2.9 million shares were subject to outstanding RSUs, approximately 0.3 million shares were subject to outstanding PSUs and approximately 4.4 million shares were available for future awards under our 2017 Equity Incentive Plan. Over the past 36 months, we have experienced higher rates of stock option exercises compared to many earlier periods, and this trend may continue. To the extent outstanding options are exercised or outstanding RSUs or PSUs vest, our existing stockholders may incur dilution.

We rely on equity awards to motivate current employees and to attract new employees. The grant of future equity awards by us to our employees and other service providers may further dilute our stockholders.

Future resales of our stock, including those by our insiders and a few investment funds, may cause our stock price to decline.

A significant portion of our outstanding shares are held by our directors, our executive officers and a few investment funds. Resales by these stockholders of a substantial number of such shares, announcements of any proposed resale of substantial amounts of our stock or the perception that substantial resales may be made, could significantly reduce the market price of our stock. Some of our directors and executive officers have entered into Rule 10b5-1 trading plans pursuant to which they have arranged to sell shares of our stock from time to time in the future. Generally, these sales require public filings. Actual or potential sales by these insiders, including those under a pre-arranged Rule 10b5-1 trading plan, could be interpreted by the market as an indication that the insider has lost confidence in our stock and reduce the market price of our stock.

We have registered and expect to continue to register shares reserved under our equity plans pursuant to Registration Statements on Form S-8. All shares issued pursuant to a Registration Statement on Form S-8 can be freely sold in the public market upon issuance, subject to restrictions on our affiliates under Rule 144. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock.

We may elect not to declare cash dividends on our stock, may elect to only pay dividends on an infrequent or irregular basis, or may elect not to make any additional stock repurchases. As a result, any return on your investment may be limited to the value of our stock. In addition, the payment of any future dividends or the repurchase of our stock might limit our ability to pursue other growth opportunities.

Our Board may from time to time declare, and we may pay, dividends on our outstanding shares in the manner and upon the terms and conditions permitted under applicable law. However, we may elect to retain all future earnings for the operation and expansion of our business, rather than paying cash dividends on our stock. In addition, under certain circumstances, our Credit Facility may limit our ability to pay cash dividends, repurchase our common stock or make other distributions to stockholders. Any payment of cash dividends on our stock will be at the discretion of our Board and will depend upon our results of operations, earnings, capital requirements, financial condition, business prospects, contractual restrictions and other factors deemed relevant by our Board. In the event our Board declares any dividends, there is no assurance with respect to the amount, timing or frequency of any such dividends.

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Any repurchase of our common stock under the stock repurchase plan authorized by our Board in July 2018 (2018 Repurchase Program) will be at the discretion of a committee comprised of our CEO and Chief Financial Officer, and will depend on several factors, including, but not limited to, results of operations, capital requirements, financial conditions, available capital from operations or other sources and the market price of our common stock. Therefore, there is no assurance with respect to the amount, price or timing of any such repurchases. We may elect to retain all future earnings for the operation and expansion of our business, rather than repurchasing additional outstanding shares. For additional information related to our 2018 Repurchase Program, please see Note 17 to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In the event we pay dividends, or make any stock repurchases in the future, our ability to finance any material expansion of our business, including through acquisitions, investments or increased capital spending, or to fund our operations, may be limited. In addition, any repurchases we may make in the future may not prove to be at optimal prices. Our Board may modify or amend the 2018 Repurchase Program, or adopt a new stock repurchase program, at any time at its discretion without stockholder approval.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Repurchases and Withholdings of Equity Securities

During the three months ended July 3, 2021, we effected stock repurchases pursuant to the 2018 Repurchase Program. In addition, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding a number of shares of our common stock with an aggregate fair market value on the date of vesting equal to the tax withholding obligations from the shares of our common stock being issued in connection with such award. Shares repurchased by us or withheld to satisfy tax withholding obligations during each fiscal month of the quarter ended July 3, 2021 were as follows:

Period	Total Number of Shares Purchased or Withheld	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(1)
April 4, 2021 to May 1, 2021	—	$	—	—	3,722,518
May2, 2021 to May 29, 2021	17	215.47		—	3,722,518
May 30, 2021 to July 3, 2021	120	251.33		—	3,722,518
Total	137	$	246.88	—	3,722,518

_____________

(1)    In July 2018, our Board authorized the 2018 Repurchase Program, whereby we were authorized to repurchase up to 5.0 million shares of our common stock. The 2018 Repurchase Program can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions.

During the three months ended July 3, 2021, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding shares of our common stock, with an aggregate fair market value on the date of vesting equal to the tax withholding obligations, from the shares of our common stock actually issued in connection with such award. Shares withheld to satisfy tax withholding obligations for the three and six months ended July 3, 2021 and June 27, 2020 were as follows:

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Shares withheld	137		—		67,686		9,084
Average cost per share	$	246.88	$	—	$	247.09	$	156.76
Value of shares withheld(1)	$	34	$	—	$	16,724,755	$	1,423,995

_____________

(1)    The value of shares withheld is presented in thousands.

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Item 6. Exhibits

EXHIBIT INDEX
Exhibit Number		Description of Document
3.1	(1)	Amended and Restated Certificate of Incorporation (Exhibit 3.2)
3.2	(2)	Second Amended and Restated Bylaws adopted on October 24, 2019 (Exhibit 3.1)
4.1	(1)	Form of Common Stock Certificate (Exhibit 4.1)
4.2	(1)	Fifth Amended and Restated Registration Rights Agreement made and entered into as of September 14, 1999, between Masimo Corporation and certain of its stockholders (Exhibit 4.2)
4.3#	(3)	Masimo Retirement Savings Plan (Exhibit 4.7)
10.1*†		Fifth Amendment, Lease Agreement effective July 1, 2021, by and among Industrial Vallera de Mexicali, S.A. de C.V. and the Registrant
31.1*		Certification of Joe Kiani, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended
31.2*		Certification of Micah Young, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended
32.1*		Certification of Joe Kiani, Chief Executive Officer, and Micah Young, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended
101.INS*		XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

Attached as Exhibit 101 to this report are the following formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of July 3, 2021 and January 2, 2021, (ii) Condensed Consolidated Statements of Income for the three and six months ended July 3, 2021 and June 27, 2020, respectively, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended July 3, 2021 and June 27, 2020, respectively, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2021 and June 27, 2020, respectively, and (v) Notes to Condensed Consolidated Financial Statements.

 _____________________________

(1)    Incorporated by reference to the exhibits to the Company’s Registration Statement on Form S-1 (No. 333-142171), originally filed on April 17, 2007. The number given in parentheses indicates the corresponding exhibit number in such Form S-1, as amended.

(2)    Incorporated by reference to the exhibit to the Company’s Current Report on Form 8-K filed on October 30, 2019. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K.

(3)    Incorporated by reference to the exhibit to the Company’s Registration Statement on Form S-8 filed on February 11, 2008. The number given in parentheses indicates the corresponding exhibit number in such Form S-8.

#     Indicates management or compensatory plan.

*     Filed herewith.

†    Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MASIMO CORPORATION
Date: July 27, 2021	By:	/s/ JOE KIANI
		Joe Kiani
		Chief Executive Officer and Chairman
Date: July 27, 2021	By:	/s/ MICAH YOUNG
		Micah Young
		Executive Vice President and Chief Financial Officer

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EX-10.1

Exhibit 10.1

***Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) would likely cause competitive harm to the Registrant if publicly disclosed. Such omitted information is indicated by brackets (“[...***...]”) in this exhibit. ***

FIFTH AMENDMENT TO LEASE AGREEMENT executed as one party, by Mr. FRANCISCO J. MORENO (hereinafter LESSOR), and as second party, INDUSTRIAL VALLERA DE MEXICALI, S.A. DE C.V. (hereinafter referred to as COMPANY and/or LESSEE), represented by Mr. SERGIO TAGLIAPIETRA NASSRI, and which is formalized under the terms of the following DECLARATIONS AND CLAUSES:

DECLARATIONS:

Mr. FRANCISCO J. MORENO declares:

A. - That on July 1st, 2016, as Lessor, he executed a Lease Agreement (“Initial Lease Agreement”,), with INDUSTRIAL VALLERA DE MEXICALI, S. A. DE C. V., the latter as Lessee, with regard to the property identified as building located in Calle Jose Lopez Portillo No. 104 A Corner of Maquiladores Avenue, Block VI, Lot 3, Col. Parque Industrial, San Luis Rio Colorado, Sonora, Zip Code 83455.

B. That Lessee has executed with Lessor, Four Amendments to Lease Agreement, for the expansion the leased area and to update the rental fees.

C. That such Amendments are made a part of this Fifth Amendment by referral, for all corresponding legal purposes, in its order of execution, including the Initial Lease Agreement.

D. - That, under the terms of the Fourth Amendment dated December 1st, 2020, COMPANY (LESSEE) presently, has under lease a total area [...***...] square feet and

described as:

“Property located at Calle Jose Lopez Portillo No. 104 A Corner with Av. Maquiladores block VI, Lot 31, Col. Parque Industrial, San Luis Rio Colorado, Sonora, zip code 83455, as specified in Exhibit “B”, in which the leased areas are clearly indicated which conform the area occurred under the lease and that is added to this document to form a part of the same in ADDITION to the exhibits that are part of the initial Lease Agreement (Exhibit “A”).

E. That each of the Agreements and Amendments referred to in paragraph D) above, contain all the specific termination dates, and such termination dates shall continue in its terms, until the signature of this Fifth Amendment to Initial Lease Agreement, except for the lease term of the area subject matter of the Fourth Amendment, with an area of [...***...] square feet, that will terminate on October 31, 2021.

F. That it has negotiated with Company, the extension of the Initial Lease Term and its Amendments, to unify the leased areas as well as the lease term and rental fees, so that all the lease terms agreed expire on June 30th, 2024, and for the total leased area shown as [...***...]square feet with the exception of the term of the area indicated in paragraph E) above, that will terminate on October 31, 2021.

COMPANY (LESSEE) hereby declares:

G. That it has agreed to amend the Initial Lease Agreement and its Amendments to refer the Leased Property as one sole area, and to have the lease terms of all the Amendments executed in different dates, and for different areas, to terminate in the same date, adjusting also the rental fees, with the exception of the term of the area indicated in paragraph E) above, for the [...***...] sq. ft., that will terminate on October 31, 2021.

Both parties declare:

G. That with the exceptions of this Fifth Amendment and all other Amendments not related to term, area and rental fee, all other terms and conditions of the Initial Lease Agreement will remain effective in its terms.

H. That it is their intention to level the Principal Lease Agreement both in prices and total areas, as per Amendments to it, by means of this FIFTH AMENDMENT TO LEASE AGREEMENT, so that the leased area and rental fees be set as follows:

Amendment	Area	Rental Fee Sq Ft	Total Rental Fee US$
Original lease	[...***...]	[...***...]	[...***...]
1	[...***...]	[...***...]	[...***...]
2	[...***...]	[...***...]	[...***...]
2	[...***...]	[...***...]	[...***...]
Subtotal	[...***...]	[...***...]	[...***...]
4	[...***...]	[...***...]	[...***...]
Grand Total	[...***...]	[...***...]	[...***...]

I.- That further, it is its intention to extend the lease term that is presently in effect, and that will terminate precisely on June 30, 2021, in order to extend the same for THIRTY SIX (36) additional months, all of the leased area as mentioned in the immediately preceding paragraph at the agreed rental fees, except for the Fourth Amendment with an area of 27,000 square feet, that will terminate on the 3rd of October of the year 2021.

Pursuant to the above the parties agree as follows:

CLAUSES:

FIRST.- SCOPE OF THIS AGREEMENT - LESSOR, FRANCISCO J. MORENO, under the terms of this FIFTH Amendment to Lease Agreement, grants and ratifies the lease in

favor of COMPANY (LESSEE) of a total area of [...***...] square feet, located within a larger area, and described as “Property located at Calle Jose Lopez Portillo No. 104 A Corner with Av. Maquiladores block VI, Lot 3, Col. Parque Industrial, San Luis Rio Colorado, Sonora, zip code 83455, as specified in Exhibit “B-1” of the Initial Lease Agreement, that is attached to this Amendment Agreement to form a part of the same, in ADDITION to those exhibits that are a part of the Initial Lease Agreement (Exhibit “"A”).

SECOND.- INTEGRATION OF LEASED LAND.- The total leased area of [...***...] square feet, as per Clause First above, is comprised by the following areas and updated

as to adjustments in the rental fee:

1. The area of [...***...] square feet at the rate of [...***...] per square foot, leased under the terms of the Initial Lease Agreement.

2. The area of [...***...] square feet, at the rate of [...***...] per square foot, leased under the terms of the First Amendment to Lease Agreement.

3. The area of [...***...] square feet, at the rate of [...***...] per square foot, leased under Second Amendment to Lease Agreement.

4. The area of [...***...] square feet at the rate of [...***...] per square foot, which is the leased under the Third Amendment to Lease Agreement.

5. The area of [...***...] square feet, at the rate of [...***...]per square foot, as per Fourth Amendment to Lease Agreement, that terminates precisely on October 31, 2021.

THIRD.- TERM OF THE LEASE AND DATE OF INITIATION.- A. - In accordance with this Fifth Amendment, the lease term for all the leased area, described and referred in Clause First above, will be THIRTY-SIX MONTHS counted as of the 1st day of JULY OF THE YEAR TWO THOUSAND TWENTY-ONE, and will expire, precisely, on JUNE 30TH OF THE YEAR 2024 (TWO THOUSAND TWENTY-FOUR), except for the Fourth Amendment to Lease for [...***...] sq. ft., that will expire on October 31, 2021.

B.- it is understood all the lease periods established in the Initial Lease Agreement, and

all the pertinent Amendments, will terminate precisely on the 30th day of June of the year two thousand twenty-one, to begin its term on June 1st of the year 2021, under the terms of paragraph A) above, and to expire, as indicated, on June 30th, 2024, except for the Fourth Amendment to Lease for [...***...] sq. ft., that will expire on October 31, 2021.

C.- The term "Lease Year", as used hereinafter, shall mean a period of twelve (12) calendar months, consecutive and complete. The first Year of the Lease shall begin on the "Initial Term", if the date of initiation is on the first day of the first calendar month, otherwise, the Lease Year, shall commence as of the calendar day following that of the Initial Date of the Term of this Amendment to Agreement. The rental fee for any partial month shall be prorated. In the event of inconsistency as to the duration of the lease term, the stipulations of the Original Lease Agreement will prevail.

D.- It is understood and agreed that COMPANY shall have the right to extend the lease term under the stipulations of the Initial Lease Agreement.

FOURTH. - RENT

A. - Rental Fee. - As price of the Lease, for the full leased area of [...***...] square feet, under the terms and conditions of this FIFTH AMENDMENT, during the Lease Term of THIRTY SIX (36) MONTHS, LESSEE shall pay LESSOR the amount of [...***...] per month, considering as unit prices for the leased area, those stipulated in Clause Second above, which are broken down as follows:

1) For the areas of [...***...] sq.ft., [...***...] sq.ft., [...***...] sq. ft., and [...***...] sq.ft, representing a total of [...***...] sq.ft, the amount of [...***...] (currency of legal tender in the United States of America) per square foot.

b) For the area of [...***...] sq. ft., the amount of [...***...] (currency of legal tender in the United States of America) per square foot, until October 31, 2021.

B. - The total amount of the rental fee, plus the Value Added Tax, shall be payable in advance to LESSOR, at the latter 's address, within the first five days of each month, within the first five days of each month as of the 1st of July of the year 2021.

FIFTH.- TERMS AND CONDITIONS OF THE INITIAL AGREEMENT AND AMENDMENTS FORMALIZED.

It is understood that all other terms and conditions of the Initial Lease Agreement and its Amendments as may be applicable, will continue as agreed, unless otherwise expressly

stipulated.

SIXTH.- MISCELLANEOUS STIPULATIONS.

A. - If such is the case COMPANY shall update the amount of the guaranty deposit under the terms of the initial Lease Agreement, if so required by LESSOR.

B. - Any reference to Mr. FRANCISCO J. MORENO in any of the Amendments to Lease

Agreement or in the Lease Agreement shall be understood to refer to LESSOR.

C.- Any reference to COMPANY in any of the Amendment to Amendments to Lease Agreements or in the Initial Lease Agreement shall be understood to refer to LESSEE.

SEVENTH.- PRESENT TERMS AND CONDITIONS.

All other terms and conditions of the Initial Lease Agreement executed, and that is a part

of the Amendments, that have not been expressly modified shall continue in effect.

IN WITNESS WHEREOF, this FIFTH Amendment to Lease Agreement, is executed

and signed in the City of Mexicali, State of Baja California, Mexico, on this day of JULY 2021.

LESSOR:

/s/ Francisco J. Moreno

Francisco J. Moreno

LESSEE (COMPANY):

INDUSTRIAL VALLERA DE MEXICALI, S.A. DE C.V

/s/ Sergio Tagliapietra Nassri

Legal Representative

WITNESS:

/s/ Alfredo Garcia

Alfredo Garcia

Exhibit B-1/ANEXO B-1

[...***...]

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Joe Kiani, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Masimo Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ JOE KIANI
Date: July 27, 2021	Joe Kiani
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Micah Young, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Masimo Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)     All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ MICAH YOUNG
Date: July 27, 2021	Micah Young
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Joe Kiani, Chief Executive Officer of Masimo Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the period ended July 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ JOE KIANI
Date: July 27, 2021	Joe Kiani
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

I, Micah Young, Executive Vice President and Chief Financial Officer of Masimo Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge:

1. The Quarterly Report on Form 10-Q of the Company for the period ended July 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ MICAH YOUNG
Date: July 27, 2021	Micah Young
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

A signed original of these certifications has been provided to Masimo Corporation and will be retained by Masimo Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

These certifications are being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Masimo Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

Document and Entity Information	6 Months Ended
	Jul. 03, 2021 shares
Document And Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jul. 03, 2021
Document Transition Report	false
Entity File Number	001-33642
Entity Registrant Name	MASIMO CORP
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	33-0368882
Entity Address, Address Line One	52 Discovery
Entity Address, City or Town	Irvine,
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92618
City Area Code	(949)
Local Phone Number	297-7000
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	MASI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Smaller Reporting Company	false
Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	55,056,901
Amendment Flag	false
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Entity Central Index Key	0000937556
Current Fiscal Year End Date	--01-01

XML

Condensed Consolidated Balance Sheets - USD ($)	Jul. 03, 2021	Jan. 02, 2021
Current assets
Cash and cash equivalents	$ 575,955,000	$ 641,447,000
Trade accounts receivable, net of allowance for credit losses	179,354,000	141,350,000
Inventories	206,607,000	215,952,000
Other current assets	89,920,000	102,416,000
Total current assets	1,051,836,000	1,101,165,000
Lease receivable, noncurrent	65,198,000	57,666,000
Deferred costs and other contract assets	21,704,000	20,076,000
Property and equipment, net	274,723,000	272,511,000
Intangible assets, net	75,025,000	73,923,000
Goodwill	102,486,000	103,206,000
Deferred tax assets	39,312,000	39,363,000
Other non-current assets	51,404,000	44,642,000
Total assets	1,681,688,000	1,712,552,000
Current liabilities
Accounts payable	66,248,000	64,061,000
Accrued compensation	55,043,000	71,601,000
Deferred revenue and other contract liabilities, current	44,158,000	44,935,000
Other current liabilities	54,580,000	53,239,000
Total current liabilities	220,029,000	233,836,000
Other non-current liabilities	70,424,000	71,076,000
Total liabilities	290,453,000	304,912,000
Commitments and contingencies - (Note 21)
Stockholders’ equity
Preferred Stock, Value, Outstanding	0	0
Common Stock, Value, Outstanding	55,000	55,000
Treasury Stock, Value	(767,653,000)	(638,736,000)
Additional paid-in capital	714,267,000	703,693,000
Accumulated other comprehensive (loss) income	(267,000)	1,413,000
Retained earnings	1,444,833,000	1,341,215,000
Stockholders' Equity Attributable to Parent	1,391,235,000	1,407,640,000
Total liabilities and equity	$ 1,681,688,000	$ 1,712,552,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 1,962	$ 1,603
Preferred stock, par value	$ 1.000	$ 1.000
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 1.000	$ 1.000
Common stock, shares authorized	100,000,000	100,000,000
Common Stock, Shares, Outstanding	55,057,000	55,251,000
Treasury Stock, Shares	16,540,000	15,993,000

XML

Condensed Consolidated Statements of Operations Condensed Consolidated Statement of Operations - USD ($) shares in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Income Statement [Abstract]
Product revenue	$ 305,118,000	$ 300,953,000	$ 604,161,000	$ 570,578,000
Cost of goods sold	112,206,000	109,369,000	214,374,000	193,365,000
Gross profit	192,912,000	191,584,000	389,787,000	377,213,000
Selling, general and administrative	93,833,000	98,461,000	190,533,000	188,338,000
Research and development	33,943,000	30,878,000	68,454,000	58,119,000
Litigation settlements and (awards)	0	25,000	0	(474,000)
Total operating expenses	127,776,000	129,364,000	258,987,000	245,983,000
Operating income	65,136,000	62,220,000	130,800,000	131,230,000
Non-operating income (loss)	80,000	1,405,000	(657,000)	4,751,000
Income before provision for income taxes	65,216,000	63,625,000	130,143,000	135,981,000
Provision for income taxes	14,981,000	7,853,000	26,525,000	15,753,000
Net income	$ 50,235,000	$ 55,772,000	$ 103,618,000	$ 120,228,000
Basic	$ 0.91	$ 1.02	$ 1.88	$ 2.21
Diluted	$ 0.88	$ 0.96	$ 1.80	$ 2.08
Basic	55,032	54,764	55,116	54,316
Diluted	57,379	58,204	57,630	57,913

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Income Statement [Abstract]
Net income	$ 50,235	$ 55,772	$ 103,618	$ 120,228
Other comprehensive income, net of tax:
Unrealized gains (losses) from foreign currency translation adjustments	1,204	1,314	(1,680)	(1,149)
Comprehensive income	$ 51,439	$ 57,086	$ 101,938	$ 119,079

XML

Consolidated Statement of Stockholders' Equity Consolidated Statement of Stockholders' Equity - USD ($) shares in Thousands	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (loss)	Retained Earnings
Shares, Issued, Beginning Balance at Dec. 28, 2019		53,696	15,530
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Dec. 28, 2019	$ 1,167,874,000	$ 54,000	$ (526,580,000)	$ 600,624,000	$ (6,718,000)	$ 1,100,494,000
Stock options exercised, shares		384
Stock options exercised, value	13,495,000	$ 0		13,495,000
Restricted/Performance stock units vested		46
Shares paid for tax withholding, shares		(8)
Shares paid for tax withholding, value	(1,424,000)			(1,424,000)
Share-based Compensation Expense				11,272,000
Share-based Compensation Expense	11,272,000
Repurchases of common stock, shares		(3)	(3)
Repurchases of common stock, value	(371,000)		$ (371,000)
Income Tax Effects Allocated Directly to Equity, Cumulative Effect of Change in Accounting Principle	439,000
Income Tax Effects Allocated Directly to Equity, Cumulative Effect of Change in Accounting Principle | Cumulative effect of adoption of ASU 2016-13						439,000
Net income	64,456,000					64,456,000
Unrealized gains (losses) from foreign currency translation adjustments	(2,463,000)				(2,463,000)
Shares, Issued, Ending Balance at Mar. 28, 2020		54,115	15,533
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Mar. 28, 2020	1,253,278,000	$ 54,000	$ (526,951,000)	623,967,000	(9,181,000)	1,165,389,000
Shares, Issued, Beginning Balance at Dec. 28, 2019		53,696	15,530
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Dec. 28, 2019	$ 1,167,874,000	$ 54,000	$ (526,580,000)	600,624,000	(6,718,000)	1,100,494,000
Repurchases of common stock, shares	(4)
Repurchases of common stock, value	$ (591,000)
Net income	120,228,000
Unrealized gains (losses) from foreign currency translation adjustments	(1,149,000)
Shares, Issued, Ending Balance at Jun. 27, 2020		54,948	15,534
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Jun. 27, 2020	1,344,545,000	$ 55,000	$ (527,171,000)	658,367,000	(7,867,000)	1,221,161,000
Shares, Issued, Beginning Balance at Mar. 28, 2020		54,115	15,533
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Mar. 28, 2020	1,253,278,000	$ 54,000	$ (526,951,000)	623,967,000	(9,181,000)	1,165,389,000
Stock options exercised, shares		825
Stock options exercised, value	21,213,000	$ 1,000		21,212,000
Restricted/Performance stock units vested		9
Share-based Compensation Expense				13,188,000
Share-based Compensation Expense	$ 13,188,000
Repurchases of common stock, shares	(1)	(1)	(1)
Repurchases of common stock, value	$ (220,000)		$ (220,000)
Net income	55,772,000					55,772,000
Unrealized gains (losses) from foreign currency translation adjustments	1,314,000				1,314,000
Shares, Issued, Ending Balance at Jun. 27, 2020		54,948	15,534
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Jun. 27, 2020	1,344,545,000	$ 55,000	$ (527,171,000)	658,367,000	(7,867,000)	1,221,161,000
Shares, Issued, Beginning Balance at Jan. 02, 2021		55,251	15,993
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Jan. 02, 2021	1,407,640,000	$ 55,000	$ (638,736,000)	703,693,000	1,413,000	1,341,215,000
Stock options exercised, shares		61
Stock options exercised, value	2,886,000	$ 0		2,886,000
Restricted/Performance stock units vested		303
Shares paid for tax withholding, shares		(68)
Shares paid for tax withholding, value	(16,691,000)			(16,691,000)
Share-based Compensation Expense				12,708,000
Share-based Compensation Expense	12,708,000
Repurchases of common stock, shares		(547)	(547)
Repurchases of common stock, value	(128,917,000)		$ (128,917,000)
Net income	53,383,000					53,383,000
Unrealized gains (losses) from foreign currency translation adjustments	(2,884,000)				(2,884,000)
Shares, Issued, Ending Balance at Apr. 03, 2021		55,000	16,540
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Apr. 03, 2021	1,328,125,000	$ 55,000	$ (767,653,000)	702,596,000	(1,471,000)	1,394,598,000
Shares, Issued, Beginning Balance at Jan. 02, 2021		55,251	15,993
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Jan. 02, 2021	$ 1,407,640,000	$ 55,000	$ (638,736,000)	703,693,000	1,413,000	1,341,215,000
Stock options exercised, shares	113
Repurchases of common stock, shares	(547)
Repurchases of common stock, value	$ (128,917,000)
Net income	103,618,000
Unrealized gains (losses) from foreign currency translation adjustments	(1,680,000)
Shares, Issued, Ending Balance at Jul. 03, 2021		55,057	16,540
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Jul. 03, 2021	1,391,235,000	$ 55,000	$ (767,653,000)	714,267,000	(267,000)	1,444,833,000
Shares, Issued, Beginning Balance at Apr. 03, 2021		55,000	16,540
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Beginning Balance at Apr. 03, 2021	1,328,125,000	$ 55,000	$ (767,653,000)	702,596,000	(1,471,000)	1,394,598,000
Stock options exercised, shares		52
Stock options exercised, value	3,442,000	$ 0		3,442,000
Restricted/Performance stock units vested		4
Shares paid for tax withholding, shares		1
Shares paid for tax withholding, value	(33,000)			(33,000)
Share-based Compensation Expense				8,262,000
Share-based Compensation Expense	$ 8,262,000
Repurchases of common stock, shares	0
Repurchases of common stock, value	$ 0
Net income	50,235,000					50,235,000
Unrealized gains (losses) from foreign currency translation adjustments	1,204,000				1,204,000
Shares, Issued, Ending Balance at Jul. 03, 2021		55,057	16,540
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance at Jul. 03, 2021	$ 1,391,235,000	$ 55,000	$ (767,653,000)	$ 714,267,000	$ (267,000)	$ 1,444,833,000

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Condensed Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Cash flows from operating activities:
Net income	$ 103,618,000	$ 120,228,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,314,000	13,587,000
Stock-based compensation	20,970,000	24,460,000
Loss on disposal of equipment, intangibles and other assets	166,000	196,000
Provision (Benefit) for credit losses	497,000	(170,000)
Benefit from deferred income taxes	0	77,000
Changes in operating assets and liabilities:
Increase in accounts receivable	(38,700,000)	(41,295,000)
Decrease (increase) in inventories	8,627,000	(37,548,000)
Decrease (increase) in other current assets	6,456,000	(12,004,000)
Increase in lease receivable, net	(7,544,000)	(2,183,000)
Increase in deferred costs and other contract assets	(1,652,000)	(2,105,000)
Increase in other non-current assets	(166,000)	(442,000)
Increase in accounts payable	1,974,000	32,798,000
Decrease in accrued compensation	(16,303,000)	(2,025,000)
(Decrease) increase in accrued liabilities	(5,998,000)	5,876,000
(Decrease) increase in income tax payable	(2,034,000)	248,000
(Decrease) increase in deferred revenue and other contract-related liabilities	(1,231,000)	6,920,000
Decrease in other non-current liabilities	(736,000)	(558,000)
Net cash provided by operating activities	85,258,000	106,060,000
Cash flows from investing activities:
Maturities of short-term investments	0	(70,000,000)
Purchases of property and equipment, net	(14,242,000)	(51,263,000)
Increase in intangible assets	(2,977,000)	(4,322,000)
Business combinations, net of cash acquired	0	78,310,000
Other strategic investing activities	0	(6,750,000)
Net cash used in investing activities	(17,219,000)	(70,645,000)
Cash flows from financing activities:
Proceeds from issuance of common stock	9,137,000	34,629,000
Payroll tax withholdings on behalf of employees for vested equity awards	(16,724,000)	(1,424,000)
Repurchases of common stock	(128,917,000)	(591,000)
Net cash (used in) provided by financing activities	(136,504,000)	32,614,000
Effect of foreign currency exchange rates on cash	804,000	(847,000)
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect	(67,661,000)	67,182,000
Cash, cash equivalents and restricted cash at end of period	575,955,000	631,881,000
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	$ 577,343,000	$ 635,257,000

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Description of the Company

6 Months Ended

Jul. 03, 2021

Accounting Policies [Abstract]

Description of the Company

1. Description of the Company

Masimo Corporation (the Company) is a global medical technology company that develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation solutions, home monitoring devices and consumer products. The Company’s mission is to improve patient outcomes, reduce the cost of care and take noninvasive monitoring to new sites and applications. The Company’s patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software and/or cables. The Company primarily sells its products to hospitals, emergency medical service providers, home care providers, physician offices, veterinarians, long-term care facilities, and consumers through its direct sales force, distributors and original equipment manufacturer (OEM) partners.

Masimo’s core measurement technologies are based on Measure-through Motion and Low Perfusion™ pulse oximetry, known as Masimo Signal Extraction Technology® (SET®) pulse oximetry, and advanced rainbow® Pulse CO-Oximetry parameters such as noninvasive hemoglobin (SpHb®), alongside many other modalities, including brain function monitoring, hemodynamic monitoring, regional oximetry, acoustic respiration rate monitoring, capnography, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology for the reduction of symptoms associated with opioid withdrawal. Masimo’s measurement technologies are available on many types of devices, from bedside hospital monitors like the Root® Patient Monitoring and Connectivity Hub, to various handheld and portable devices, and to the tetherless Masimo SafetyNet™ remote patient surveillance solution. The Masimo Hospital Automation™ Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™(1), Replica®, and UniView™ to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely. Leveraging the Company’s expertise in hospital-grade technologies, the Company has also expanded its suite of products intended for use outside the hospital to products for consumers, including Sleep™, a sleep quality solution and the Radius Tº™ wireless, wearable continuous thermometer.

______________

(1)    The use of the trademark Patient SafetyNet™ is under license from the University HealthSystem Consortium.

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Summary of Significant Accounting Policies

6 Months Ended

Jul. 03, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, including normal recurring accruals, necessary to present fairly the Company’s condensed consolidated financial statements. The accompanying condensed consolidated balance sheet as of January 2, 2021 was derived from the Company’s audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (fiscal year 2020), filed with the SEC on February 23, 2021. The results for the three and six months ended July 3, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending January 1, 2022 (fiscal year 2021) or for any other interim period or for any future year.

Fiscal Periods

The Company follows a conventional 52/53 week fiscal year. Under a conventional 52/53 week fiscal year, a 52 week fiscal year includes four quarters of 13 weeks while a 53 week fiscal year includes three 13 week fiscal quarters and one 14 week fiscal quarter. The Company’s last 53 week fiscal year was fiscal year 2020. Fiscal year 2021 is a 52 week fiscal year ending January 1, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

Reclassifications

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Use of Estimates

The Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the determination of standalone selling prices, variable consideration, total consideration allocated to each performance obligation within a contract, inventory valuation, valuation of the Company’s equity awards, valuation of identifiable assets and liabilities connected with business combinations, deferred taxes and any associated valuation allowances, deferred revenue, uncertain income tax positions, and litigation costs and related accruals. Actual results could differ from such estimates.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition. The excess of the purchase price over fair values of identifiable assets, liabilities and noncontrolling interests in the acquired entity, if applicable, is recorded as goodwill. The Company finalizes the purchase price allocation within one year from the acquisition date.

Fair Value Measurements

Authoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

●    Level 1—Quoted prices in active markets for identical assets or liabilities.

●    Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Pursuant to current authoritative guidance, entities are allowed an irrevocable option to elect the fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to apply the fair value option under this guidance to specific assets or liabilities on a contract-by-contract basis. There were no transfers between Level 1, Level 2 and Level 3 inputs during either the six months ended July 3, 2021 or June 27, 2020. The Company carries cash and cash equivalents, at cost, which approximates fair value.

For certain other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances. The Company also measures certain non-financial assets at fair value on a non-recurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or highly liquid investments that are readily convertible into known amounts of cash, to be cash equivalents.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consist of trade receivables recorded at the time of invoicing of product sales, reduced by reserves for estimated bad debts and returns. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of the customer’s financial condition. Collateral is generally not required. The Company records an allowance for credit losses that it does not expect to collect based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Accounts are charged off against the allowance when the Company believes they are uncollectible.

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates the first in, first out method, and includes material, labor and overhead costs. Inventory valuation adjustments are recorded for inventory items that have become excess or obsolete or are no longer used in current production and for inventory items that have a market price less than carrying value in inventory. The Company generally determines inventory valuation adjustments based on an evaluation of the expected future use of its inventory on an item by item basis and applies historical obsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. The Company also records other specific inventory valuation adjustments when it becomes aware of unique events or circumstances that result in an expected recovery value below cost. For inventory items that have been written down, the reduced value becomes the new cost basis.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:

	Useful Lives
Building and building improvements	7 to 39 years
Computer equipment and software	2 to 12 years
Demonstration units	3 years
Furniture and office equipment	2 to 6 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 10 years
Transportation, vehicles and other	4 to 20 years

Land is not depreciated and construction-in-progress is not depreciated until placed in service. Normal repair and maintenance costs are expensed as incurred, whereas significant improvements that materially increase values or extend useful lives are capitalized and depreciated over the remaining estimated useful lives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss on the sale or retirement is recognized in income.

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships and acquired technology. Costs related to patents and trademarks, which include legal and application fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Patent and trademark amortization commences once final approval of the patent or trademark has been obtained. Patent costs are amortized over the lesser of 10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. For intangibles purchased in an asset acquisition or business combination, which mainly include patents, trademarks, customer relationships and acquired technologies, the useful life is determined largely by valuation estimates of remaining economic life. The Company’s policy is to renew its patents and trademarks. Costs to renew patents and trademarks are capitalized and amortized over the remaining useful life of the intangible asset. The Company periodically evaluates the amortization period and carrying basis of patents, trademarks and other intangible assets to determine whether any events or circumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined that the patent or trademark will not be obtained or is abandoned.

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of a reporting unit is less than its carrying amount, then a quantitative analysis is unnecessary. However, if the Company concludes otherwise, or if the Company elects to bypass the qualitative analysis, then the Company must perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

The Company derives the majority of its product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where the Company provides up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to OEM customers who incorporate the Company’s embedded software technology into their multiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standard payment terms based on the geography within which the specific customer is located.

The Company generally recognizes revenue following a single, principles-based five-step model to be applied to all contracts with customers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, when control over the promised goods or services are transferred to the customer. Revenue related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease.

While the majority of the Company’s revenue contracts and transactions contain standard business terms and conditions, there are some transactions that contain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriate accounting, including: (i) the amount of the total consideration, as well as variable consideration, (ii) whether the arrangement contains an embedded lease, and if so, whether such embedded lease is a sales-type lease or an operating lease, (iii) the identification of the distinct performance obligations contained within the arrangement, (iv) how the arrangement consideration should be allocated to each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, and (v) when to recognize revenue on the performance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition.

The Company enters into agreements to sell its monitoring solutions and services, sometimes as a part of arrangements with multiple performance obligations that include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that the total consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is not readily observable, the Company estimates the standalone selling price by considering multiple factors including, but not limited to, features and functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, the Company’s pricing and discount practices, and other market conditions.

Sales under deferred equipment agreements are generally structured such that the Company agrees to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three years to six years. The Company allocates contract consideration under deferred equipment agreements containing fixed annual sensor purchase commitments to the underlying lease and non-lease components at contract inception. In determining whether any underlying lease components are related to a sales-type lease or an operating lease, the Company evaluates the customer’s rights and ability to control the use of the underlying equipment throughout the contract term, including any equipment substitution rights retained by the Company, as well as the Company’s expectations surrounding potential contract/lease extensions or renewals and the customer’s likelihood to exercise any purchase options. Revenue allocable to non-lease performance obligations is generally recognized as such non-lease performance obligations are satisfied. Revenue allocable to lease components under sales-type lease arrangements is generally recognized when control over the equipment is transferred to the customer. Revenue allocable to lease components under operating lease arrangements is generally recognized over the term of the operating lease. The Company generally does not expect to derive any significant value in excess of such asset’s unamortized book value from equipment underlying its operating lease arrangements after the end of the agreement.

Revenue from the sale of products to end-user hospitals, emergency medical response organizations, other direct customers, distributors and OEM customers, is recognized by the Company when control of such products transfer to the customer based upon the terms of the contract or underlying purchase order.

Revenue related to OEM rainbow® parameter software licenses is recognized by the Company upon the OEM’s shipment of its product to its customer, as reported to the Company by the OEM.

The Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company records estimates related to these programs as a reduction to revenue at the time of sale. In general, customers do not have a right of return for credit or refund. However, the Company allows returns under certain circumstances. At the end of each period, the Company estimates and accrues for these returns as a reduction to revenue. The Company estimates the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations.

Shipping and Handling Costs and Fees

All shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. Charges for shipping and handling billed to customers are included as a component of product revenue.

Taxes Collected From Customers and Remitted to Governmental Authorities

The Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities.

Deferred Costs and Other Contract Assets

The costs of monitoring-related equipment provided to customers under operating lease arrangements within the Company’s deferred equipment agreements are generally deferred and amortized to cost of goods sold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain allowances to be made directly to the end-user hospital customer at the inception of the arrangement. These allowances are generally allocated to the lease and non-lease components and recognized as a reduction to revenue as the underlying performance obligations are satisfied.

The Company generally invoices its customers under deferred equipment agreements as sensors are provided to the customer. However, the Company may recognize revenue for certain non-lease performance obligations under deferred equipment agreements with fixed annual commitments at the time such performance obligations are satisfied and prior to the customer being invoiced. When this occurs, the Company records an unbilled contract receivable related to such revenue until the customer has been invoiced pursuant to the terms of the underlying deferred equipment agreement.

The incremental costs of obtaining a contract with a customer are capitalized and deferred if the Company expects such costs to be recoverable over the life of the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by the Company’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term of the underlying contract.

Product Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from three months to forty-eight months, depending on the product type. In traditional sales activities, including direct and OEM sales, the Company establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to cost of goods sold. Customers may also purchase extended warranty coverage or service level upgrades separately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage and service level upgrades is generally recognized over the life of the contract, which reasonably approximates the period over which such services will be provided. The related extended warranty and service level upgrade costs are expensed as incurred.

Changes in the product warranty accrual were as follows (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Warranty accrual, beginning of period	$	2,740	$	3,395
Accrual for warranties issued	2,172		1,019
Changes in pre-existing warranties (including changes in estimates)	(1,454)		(270)
Settlements made	(662)		(508)
Warranty accrual, end of period	$	2,796	$	3,636

Litigation Costs and Contingencies

The Company records a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements, and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigation settlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and other litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigation expenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries are only recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and any related tax benefits that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

A computation of basic and diluted net income per share is as follows (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Basic net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Net income per basic share	$	0.91	$	1.02	$	1.88	$	2.21
Diluted net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Diluted share equivalent: stock options, RSUs and PSUs	2,347		3,440		2,514		3,597
Weighted-average shares outstanding - diluted	57,379		58,204		57,630		57,913
Net income per diluted share	$	0.88	$	0.96	$	1.80	$	2.08

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income per diluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if the effect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of both restricted share units (RSUs) and performance share units (PSUs). For the three months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.4 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the six months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.2 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. Certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain future events. Since such events had not occurred and were not considered probable of occurring as of each of July 3, 2021 and June 27, 2020, 2.7 million weighted-average shares related to such RSUs have been excluded from the calculation of potential shares for each of the three and six month periods then ended.

Supplemental Cash Flow Information

Supplemental cash flow information includes the following (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Cash paid during the year for:
Interest expense	$	196	$	130
Income taxes	24,152		10,049
Operating lease liabilities	3,676		3,038
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	4,423	$	7,394
Non-cash investing activities:
Unpaid purchases of property and equipment	$	2,381	$	3,135
Unpaid purchases of intangible assets	3,000		—
Settlement of promissory note receivable in connection with business combination	—		5,100
Unpaid strategic investments	6,000		—
Deposit release to acquire noncontrolling interest(1)	3,374		—
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	202	$	94
Fair value of common stock received for payment of stock option exercise price	—		220
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	575,955	$	631,881
Restricted cash	1,388		3,376
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	577,343	$	635,257

______________

(1)     See Note 5.

Segment Information

The Company uses the “management approach” in determining reportable business segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Based on this assessment, management has determined it operates in one reportable business segment, which is comprised of patient monitoring and related products.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The new standard simplifies the accounting for income taxes by removing exceptions to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the standard requires that an entity recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The new guidance provides updates for technical corrections, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements across various areas of accounting within GAAP. ASU No. 2020-10 is effective after December 15, 2020 on a retrospective basis. Early adoption is permitted. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The new guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply this guidance prospectively through December 31, 2022. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new guidance clarified the scope and application of the original guidance. ASU No. 2021-01 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

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Related Party Disclosures

6 Months Ended

Jul. 03, 2021

Related Party Transactions [Abstract]

Related Party Transactions Disclosure

3. Related Party Transactions

The Company’s Chairman and Chief Executive Officer (CEO) is also the Chairman and CEO of Cercacor Laboratories, Inc. (Cercacor). The Company is a party to the following agreements with Cercacor:

•Cross-Licensing Agreement - The Company and Cercacor are parties to a cross-licensing agreement (Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $3.2 million and $3.1 million for the three months ended July 3, 2021 and June 27, 2020, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $6.7 million and $6.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), which governs certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million for each of the three months ended July 3, 2021 and June 27, 2020. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million and $0.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Lease and Sublease Agreements - Effective December 2019, the Company entered into a lease agreement with Cercacor for approximately 34,000 square feet of office, research and development space at one of the Company’s owned facilities in Irvine (Cercacor Lease). The term of the Cercacor Lease expires on December 31, 2024. In March 2016, the Company entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California (Cercacor Sublease). The Cercacor Sublease began on May 1, 2016 and expired on December 15, 2019. The Company recognized approximately $0.3 million of lease income for each of the three months ended July 3, 2021 and June 27, 2020. The Company recognized approximately $0.6 million and $0.5 million of lease income for the six months ended July 3, 2021 and June 27, 2020, respectively.

Net amounts due to Cercacor at each of July 3, 2021 and January 2, 2021 were approximately $3.1 million and $3.6 million, respectively.

The Company’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’s Executive Vice President (EVP), Chief Financial Officer (CFO) serves as the Treasurer of the Masimo Foundation and the Company’s EVP, General Counsel and Corporate Secretary serves as the Secretary for the Masimo Foundation. During the three months ended July 3, 2021 and June 27, 2020, the Company made no cash contributions to the Masimo Foundation. During the six months ended July 3, 2021, the Company made no contributions to the Masimo Foundation. During the six months ended June 27, 2020, the Company made cash contributions of approximately $1.5 million to the Masimo Foundation. During the three and six months ended July 3, 2021 and June 27, 2020, the Company made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.

The Company’s CEO is also a co-founder and a member of the board of directors of Like Minded Media Ventures (LMMV), a team of storytellers that create content focused in the areas of true stories, social causes and science. LMMV creates stories with a multi-platform strategy, bridging the gap between film, television, digital and social media. The Company entered into a marketing service agreement with LMMV for audiovisual production services promoting brand awareness, including television commercials and digital advertising, during the second quarter of 2020. During the three and six months ended July 3, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the three and six months ended June 27, 2020, the Company incurred $3.3 million in marketing expenses to LMMV under the marketing service agreement. At July 3, 2021 and January 2, 2021, there was no amount due to LMMV for services rendered.

The Company entered into a software license and professional services agreement with Like Minded Labs (LML), a subsidiary of LMMV, during the second quarter of 2021. Pursuant to the software license agreement, LML granted the Company a perpetual, non-exclusive and fully paid-up right and license to integrate LML’s software into the Company’s products in exchange for a $3.0 million one-time license fee. Pursuant to the professional services agreement, LML will provide professional services to the Company, including the development of custom software intended to support the integration of the licensed software into the Company’s products, as well as future support services upon the Company’s acceptance of deliverables.

In July 2021, the Company entered into a patent purchase and option agreement with Vantrix Corporation (Vantrix), an acquiree of LML, for certain patents for $0.5 million, and the right to purchase two pools of additional patents from Vantrix for an exercise fee of up to $1.1 million. The agreements with LML and Vantrix include sublicensing provisions whereby the software and patents are licensed back to LML or Vantrix, respectively, for further advancement of the technologies.

The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates. For each of the three and six months ended July 3, 2021 and June 27, 2020, the Company charged the Company’s CEO less than $0.1 million related to such disbursements.

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Inventories

6 Months Ended

Jul. 03, 2021

Inventory Disclosure [Abstract]

Inventories

4. Inventories

Inventories consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Raw materials	$	133,921	$	133,098
Work-in-process	18,185		15,985
Finished goods	54,501		66,869
Total inventories	$	206,607	$	215,952

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Other Current Assets

6 Months Ended

Jul. 03, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Current Assets

5. Other Current Assets

Other current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Prepaid expenses	$	32,636	$	30,235
Lease receivable, current	26,650		23,206
Indirect taxes receivable	11,258		14,545
Prepaid income taxes	10,315		14,782
Prepaid rebates and royalties, current	3,186		3,081
Customer notes receivable	1,554		2,283
Restricted cash(1)	1,299		3,397
Deposit to acquire noncontrolling interest(2)	—		3,374
Other current assets	3,022		7,513
Total other current assets	$	89,920	$	102,416

______________

(1)     Restricted cash includes funds received from the Bill and Melinda Gates Foundation. As the Company incurs costs associated with research and development related to this project, on a quarterly basis, the Company reclasses amounts from the grant to offset costs incurred.

(2)     During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The Company made a deposit to acquire the noncontrolling interest of the acquiree. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

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Lease Receivable

6 Months Ended

Jul. 03, 2021

Leases [Abstract]

Lease Receivable

6. Lease Receivable

The Company recognizes revenue and costs, as well as a lease receivable, at the time the lease commences pursuant to deferred equipment agreements containing embedded sales-type leases. Lease revenue related to both operating-type and sales-type leases for the three months ended July 3, 2021 and June 27, 2020 was approximately $18.0 million and $8.0 million, respectively, and is included within product revenue in the accompanying condensed consolidated statements of operations. Lease revenue related to both operating-type and sales-type leases for the six months ended July 3, 2021 and June 27, 2020 was approximately $28.0 million and $18.0 million, respectively, and is included within product revenue in the accompanying condensed consolidated statements of operations. Costs related to embedded leases within the Company’s deferred equipment agreements are included in cost of goods sold in the accompanying condensed consolidated statements of operations.

Lease receivable consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Lease receivable	$	92,078	$	81,074
Allowance for credit loss	(230)		(202)
Lease receivable, net	91,848		80,872
Less: current portion of lease receivable	(26,650)		(23,206)
Lease receivable, noncurrent	$	65,198	$	57,666

As of July 3, 2021, estimated future maturities of customer sales-type lease receivables for each of the following fiscal years are as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	26,650
2022	22,526
2023	17,572
2024	11,971
2025	8,026
Thereafter	5,103
Total	$	91,848

Estimated future operating lease payments expected to be received from customers under deferred equipment agreements are not material as of July 3, 2021.

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Deferred Costs and Other Contract Assets

6 Months Ended

Jul. 03, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Deferred Costs and Other Contract Assets

7. Deferred Costs and Other Contract Assets

Deferred costs and other contract assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred commissions	$	8,849	$	7,477
Prepaid contract allowances	7,074		7,336
Unbilled contract receivables	4,343		3,925
Equipment leased to customers, net	1,438		1,338
Deferred costs and other contract assets	$	21,704	$	20,076

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Property and Equipment, net

6 Months Ended

Jul. 03, 2021

Property, Plant and Equipment [Abstract]

Property and Equipment, net

8. Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Building and building improvements	$	141,856	$	122,310
Machinery, equipment and tooling	100,682		90,843
Land	57,255		57,151
Transportation, vehicles and other	33,111		33,175
Computer equipment and software	31,510		24,693
Leasehold improvements	20,476		19,295
Furniture and office equipment	14,103		13,567
Demonstration units	1,046		1,024
Construction-in-progress (CIP)	19,443		44,589
Total property and equipment	419,482		406,647
Accumulated depreciation	(144,759)		(134,136)
Property and equipment, net	$	274,723	$	272,511

For the three months ended July 3, 2021 and June 27, 2020, depreciation expense of property and equipment was $6.4 million and $5.3 million, respectively. For the six months ended July 3, 2021 and June 27, 2020, depreciation expense of property and equipment was $12.3 million and $10.2 million, respectively.

The balance in CIP at July 3, 2021 related primarily to the capitalized implementation costs related to a new enterprise resource planning software system and costs related to equipment and other facility improvements, the underlying assets for which have not been completed or placed into service. The decrease in CIP balance from January 2, 2021 primarily relates to the Company’s European headquarters building in Switzerland being placed into service along with a phase of the new enterprise resource planning software system for certain subsidiaries being placed into service.

The balance in CIP at January 2, 2021 related primarily to acquisition and improvement costs for a portion of the Company’s European headquarters building in Switzerland, capitalized implementation costs related to a new enterprise resource planning software system and costs related to manufacturing equipment and other facility improvements, the underlying assets for which had not been placed into service.

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Intangible Assets

6 Months Ended

Jul. 03, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

9. Intangible Assets, net

Intangible assets, net, consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Acquired technologies	$	29,011	$	29,039
Patents	28,839		26,875
Customer relationships	24,667		24,666
Trademarks	12,072		11,708
Licenses-related party	7,500		7,500
Other	14,166		10,801
Total intangible assets	116,255		110,589
Accumulated amortization	(41,230)		(36,666)
Intangible assets, net	$	75,025	$	73,923

Intangible assets have a weighted-average amortization period of twelve years. Total amortization expense for the three months ended July 3, 2021 and June 27, 2020 was $2.4 million and $2.1 million, respectively. Total amortization expense for the six months ended July 3, 2021 and June 27, 2020 was $5.0 million and $3.5 million, respectively.

Total renewal costs for patents and trademarks for each of the three months ended July 3, 2021 and June 27, 2020 were $0.2 million and $0.3 million, respectively. Total renewal costs for patents and trademarks for the six months ended July 3, 2021 and June 27, 2020 were $0.4 million and $0.5 million, respectively. As of July 3, 2021, the weighted-average number of years until the next renewal was two years for patents and four years for trademarks.

Estimated amortization expense for each of the next fiscal years is as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	9,377
2022	8,304
2023	7,817
2024	7,455
2025	6,173
Thereafter	35,899
Total	$	75,025

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Goodwill

6 Months Ended

Jul. 03, 2021

Goodwill [Abstract]

Goodwill

10. Goodwill

Changes in goodwill were as follows (in thousands):

	Six Months Ended July 3, 2021
Goodwill, beginning of period	$	103,206
Foreign currency translation adjustment	(720)
Goodwill, end of period	$	102,486

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Lessee ROU Assets and Lease Liabilities

6 Months Ended

Jul. 03, 2021

Leases [Abstract]

Lessee, ROU Assets and Lease Liabilities

11. Lessee ROU Assets and Lease Liabilities

The Company leases certain facilities in North and South America, Europe, the Middle East and Asia-Pacific regions under operating lease agreements expiring at various dates through January 2032. In addition, the Company leases equipment in the U.S. and Europe, and these leases are classified as operating leases and expire at various dates through May 2026. The majority of these leases are non-cancellable and generally do not contain any material restrictive covenants, material residual value guarantees or other material guarantees. The Company recognizes lease costs under these agreements using a straight-line method based on total lease payments. Certain facility leases contain predetermined price escalations and in some cases renewal options, the longest of which is for five years.

The Company generally estimates the applicable discount rate used to determine the net present value of lease payments based on available information at the lease commencement date. As of July 3, 2021, the weighted-average discount rate used by the Company for all operating leases was approximately 2.5%.

The balance sheet classifications for amounts related to the Company’s operating leases for which it is the lessee are as follows (in thousands):

	Balance sheet classification	July 3, 2021		January 2, 2021
Lessee ROU assets	Other non-current assets	$	33,031	$	32,324
Lessee current lease liabilities	Other current liabilities	6,248		5,975
Lessee non-current lease liabilities	Other non-current liabilities	28,940		28,373
Total operating lease liabilities		$	35,188	$	34,348

As of July 3, 2021 and January 2, 2021, accumulated amortization for lessee ROU assets was $12.0 million and $9.2 million, respectively. The weighted-average remaining lease term for the Company’s operating leases was 6.9 years as of July 3, 2021.

As of July 3, 2021, estimated future operating lease payments for each of the following fiscal years were as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	3,693
2022	6,719
2023	6,522
2024	5,120
2025	4,007
Thereafter(1)	12,387
Total	38,448
Imputed interest	(3,260)
Present value	$	35,188

______________

(1)     Includes optional renewal period for certain leases.

During the three months ended July 3, 2021 and June 27, 2020, operating lease costs were approximately $2.2 million and $1.7 million, respectively. During the six months ended July 3, 2021 and June 27, 2020, operating lease costs were approximately $4.1 million and $3.4 million, respectively.

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Other Non-Current Assets

6 Months Ended

Jul. 03, 2021

Other Assets, Longterm [Abstract]

Other Non-Current Assets

12. Other Non-Current Assets

Other non-current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee ROU assets, net	$	33,031	$	32,324
Strategic investments	13,928		8,002
Prepaid deposits and other	4,445		4,316
Total other non-current assets	$	51,404	$	44,642

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Deferred Revenue and Other Contract Liabilities

6 Months Ended

Jul. 03, 2021

Revenue Recognition and Deferred Revenue [Abstract]

Deferred Revenue and Other Contract Liabilities

13. Deferred Revenue and Other Contract Liabilities, Current

Deferred revenue and other contract liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred revenue	$	33,132	$	33,221
Accrued rebates and allowances	9,583		12,127
Accrued customer reimbursements	5,218		3,829
Total deferred revenue and other contract liabilities	47,933		49,177
Less: Non-current portion of deferred revenue	(3,775)		(4,242)
Deferred revenue and other contract liabilities - current	$	44,158	$	44,935

Deferred revenue relates to contracted amounts that have been invoiced to customers for which remaining performance obligations must be completed before the Company can recognize the revenue. These amounts primarily relate to undelivered equipment, sensors and services under deferred equipment agreements, extended warranty agreements and maintenance agreements.

Changes in deferred revenue were as follows (in thousands):

	Six Months Ended July 3, 2021
Deferred revenue, beginning of the period	$	33,221
Revenue deferred during the period	16,888
Recognition of revenue deferred in prior periods	(16,977)
Deferred revenue, end of the period	$	33,132

Expected revenue from remaining contractual performance obligations (Unrecognized Contract Revenue) includes deferred revenue, as well as other amounts that will be invoiced and recognized as revenue in future periods, when the Company completes its performance obligations. While Unrecognized Contract Revenue is similar in concept to backlog, Unrecognized Contract Revenue excludes revenue allocable to monitoring-related equipment that is effectively leased to customers under deferred equipment agreements and other contractual obligations for which neither party has performed.

As of July 3, 2021, the Company had approximately $949.1 million of Unrecognized Contract Revenue related to executed contracts with an original duration of five years or more. The Company expects to recognize approximately $265.6 million of this amount as revenue within the next twelve months and the remaining balance thereafter.

The estimated timing of this revenue is based, in part, on management’s estimates and assumptions about when its performance obligations will be completed. As a result, the actual timing of this revenue in future periods may vary, possibly materially

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Other Current Liabilities

6 Months Ended

Jul. 03, 2021

Accrued Liabilities [Abstract]

Other Current Liabilities

14. Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Accrued expenses	$	17,746	$	6,794
Accrued indirect taxes payable	9,627		14,365
Lessee lease liabilities, current	6,248		5,975
Accrued legal fees	4,124		4,058
Income tax payable	3,871		5,910
Related party payables	3,155		3,655
Accrued warranty	2,796		2,740
Noncontrolling interest(1)	—		3,469
Accrued donations	1,307		495
Accrued property taxes	2,420		1,682
Other current liabilities	3,286		4,096
Total other current liabilities	$	54,580	$	53,239

______________

(1)During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The noncontrolling interest of the acquiree was recorded within other current liabilities as of January 2, 2021, as the noncontrolling interest shares were mandatorily redeemable. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

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Credit Facility

6 Months Ended

Jul. 03, 2021

Debt Disclosure [Abstract]

Credit Facility

15. Credit Facility

The Company currently maintains a credit facility with various lenders that provides for up to $150.0 million of unsecured borrowings, with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity up to $550.0 million in the future with such lenders and additional lenders, as required. The credit facility also provides for a sublimit of up to $25.0 million for the issuance of letters of credit and a sublimit of $75.0 million for borrowings in specified foreign currencies. All unpaid principal under the credit facility will become due and payable on December 17, 2023. Proceeds from the credit facility are expected to be used for general corporate, capital investment and working capital needs. As of July 3, 2021 and January 2, 2021, the credit facility had no outstanding draws and $1.8 million and $1.7 million of outstanding letters of credit, respectively. The Company was in compliance with all covenants under the credit facility as of July 3, 2021 and January 2, 2021.

For each of the three months ended July 3, 2021 and June 27, 2020, the Company incurred total interest expense of $0.1 million under the credit facility.

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Other Non-Current Liabilities

6 Months Ended

Jul. 03, 2021

Other Liabilities, Long Term [Abstract]

Other Non-Current Liabilities

16. Other Non-Current Liabilities

Other non-current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee non-current lease liabilities	$	28,940	$	28,373
Income tax payable, non-current	16,980		19,245
Unrecognized tax benefits	13,659		11,777
Deferred tax liabilities	6,157		6,247
Other	4,688		5,434
Total other non-current liabilities	$	70,424	$	71,076

Unrecognized tax benefits relate to the Company’s long-term portion of tax liability associated with uncertain tax positions. Authoritative guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. See Note 20 to these condensed consolidated financial statements for further details.

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Stock Repurchase Program

6 Months Ended

Jul. 03, 2021

Equity [Abstract]

Stock Repurchase Program

17. Stock Repurchase Program

In July 2018, the Company’s Board of Directors (Board) approved a stock repurchase program, authorizing the Company to purchase up to 5.0 million additional shares of its common stock over a period of up to three years (2018 Repurchase Program). The Company expects to fund the 2018 Repurchase Program through its available cash, cash expected to be generated from future operations, the credit facility and other potential sources of capital. The 2018 Repurchase Program can be carried out at the discretion of a committee comprised of the Company’s CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. As of July 3, 2021, 3.7 million shares remained available for repurchase pursuant to the 2018 Repurchase Program.

The following table provides a summary of the Company’s stock repurchase activities (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Shares repurchased(1)	—		1		547		4
Average cost per share	$	—	$	213.91	$	235.88	$	164.44
Value of shares repurchased	$	—	$	220	$	128,917	$	591

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(1)     Excludes shares withheld from the shares of its common stock actually issued in connection with the vesting of PSU or RSU awards to satisfy certain U.S. federal and state tax withholding obligations.

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Stock-Based Compensation

6 Months Ended

Jul. 03, 2021

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

18. Stock-Based Compensation

Total stock-based compensation expense for the three months ended July 3, 2021 and June 27, 2020 was $8.3 million and $13.2 million, respectively. Total stock-based compensation expense for the six months ended July 3, 2021 and June 27, 2020 was $21.0 million and $24.5 million, respectively. As of July 3, 2021, an aggregate of 10.9 million shares of common stock were reserved for future issuance under the Company’s equity plans, of which 4.4 million shares were available for future grant under the Masimo Corporation 2017 Equity Incentive Plan (2017 Equity Plan). Additional information related to the Company’s current equity incentive plans, stock-based award activity and valuation of stock-based awards is included below.

Equity Incentive Plans

2017 Equity Incentive Plan

On June 1, 2017, the Company’s stockholders ratified and approved the 2017 Equity Plan. The 2017 Equity Plan permits the grant of stock options, restricted stock, RSUs, stock appreciation rights, PSUs, performance shares, performance bonus awards and other stock or cash awards to employees, directors and consultants of the Company and employees and consultants of any parent or subsidiary of the Company. Upon its effectiveness, an aggregate of 5.0 million shares were available for issuance under the 2017 Equity Plan. In May 2020, the Company’s stockholders approved an increase of 2.5 million shares to the 2017 Equity Plan. The aggregate number of shares that may be awarded under the 2017 Equity Plan is 7.5 million shares. The 2017 Equity Plan provides that at least 95% of the equity awards issued under the 2017 Equity Plan must vest over a period of not less than one year following the date of grant. The exercise price per share of each option granted under the 2017 Equity Plan may not be less than the fair market value of a share of the Company’s common stock on the date of grant, which is generally equal to the closing price of the Company’s common stock on the Nasdaq Global Select Market on the grant date.

2007 Stock Incentive Plan

Effective June 1, 2017, upon the approval and ratification of the 2017 Equity Plan, the Company’s 2007 Stock Incentive Plan (2007 Equity Plan) terminated, provided that awards outstanding under the 2007 Equity Plan will continue to be governed by the terms of that plan. In addition, upon the effectiveness of the 2017 Equity Plan, an aggregate of 5.0 million shares of the Company’s common stock registered under prior registration statements for issuance pursuant to the 2007 Equity Plan were deregistered and concurrently registered under the 2017 Equity Plan.

Stock-Based Award Activity

Stock Options

The number and weighted-average exercise price of options issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average exercise prices):

	Six Months Ended July 3, 2021
	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3,448	$	77.44
Granted	85	250.15
Canceled	(128)	146.51
Exercised	(113)	56.02
Options outstanding, end of period	3,292	$	79.92
Options exercisable, end of period	2,311	$	53.95

Total stock option expense for the three months ended July 3, 2021 and June 27, 2020 was $2.9 million and $4.1 million, respectively. Total stock option expense for the six months ended July 3, 2021 and June 27, 2020 was $6.7 million and $8.1 million, respectively. As of July 3, 2021, the Company had $34.9 million of unrecognized compensation cost related to non-vested stock options that are expected to vest over a weighted-average period of approximately 2.7 years. The weighted-average remaining contractual term of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was 5.4 years. The weighted-average remaining contractual term of options exercisable, with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021, was 4.5 years.

RSUs

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2,862	$	99.66
Granted	82	246.67
Canceled	(10)	197.13
Expired	—	—
Vested	(34)	163.57
RSUs outstanding, end of period	2,900	$	102.71

Total RSU expense for the three months ended July 3, 2021 and June 27, 2020 was $2.4 million and $1.5 million, respectively. Total RSU expense for the six months ended July 3, 2021 and June 27, 2020 was $4.4 million and $2.5 million, respectively. As of July 3, 2021, the Company had $36.6 million of unrecognized compensation cost related to non-vested RSU awards expected to be recognized and vest over a weighted-average period of approximately 3.8 years.

PSUs

The number of PSUs outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	444	$	120.28
Granted(1)	148	162.99
Canceled	(17)	166.84
Expired	—	—
Vested	(273)	86.95
PSUs outstanding, end of period	302	$	168.68

______________

(1)     On February 22, 2021, the Audit Committee approved the weighted payout percentage for the 2018 PSU awards (three-year performance period), which were based upon the actual fiscal 2020 performance against pre-established performance objectives. Included in the granted amount are those additional PSUs earned based on actual performance achieved. These PSUs were originally awarded at target.

During the six months ended July 3, 2021, the Company awarded 68,600 PSUs that will vest three years from the award date, based on the achievement of certain 2024 performance criteria approved by the Board. If earned, the PSUs granted will vest upon achievement of the performance criteria after the year in which the performance achievement level has been determined. The number of shares that may be earned can range from 0% to 200% of the target amount; therefore, the maximum number of shares that can be issued under these awards is twice the original award of 68,600 PSUs, or 137,200 shares. Based on management’s estimate of the number of units expected to vest, total PSU expense for the three months ended July 3, 2021 and June 27, 2020 was $3.0 million and $7.6 million, respectively. Based on management’s estimate of the number of units expected to vest, total PSU expense for the six months ended July 3, 2021 and June 27, 2020 was $9.9 million and $13.9 million, respectively. As of July 3, 2021, the Company had $48.7 million of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 1.3 years.

Valuation of Stock-Based Award Activity

The fair value of each RSU and PSU is determined based on the closing price of the Company’s common stock on the grant date.

The Black-Scholes option pricing model is used to estimate the fair value of options granted under the Company’s stock-based compensation plans. The range of assumptions used and the resulting weighted-average fair value of options granted at the date of grant were as follows:

	Three Months Ended		Six Months Ended
	July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020
Risk-free interest rate	0.4%	0.3% to 0.6%	0.3% to 0.9%	0.3% to 1.7%
Expected term (in years)	5.1	5.1	5.6	5.1
Estimated volatility	32.9%	26.9% to 35.5%	30.9% to 34.7%	26.9% to 35.5%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$66.53	$60.12	$75.72	$49.82

The aggregate intrinsic value of options is calculated as the positive difference, if any, between the market value of the Company’s common stock on the date of exercise or the respective period end, as appropriate, and the exercise price of the options. The aggregate intrinsic value of options outstanding with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was $566.5 million. The aggregate intrinsic value of options exercisable with an exercise price less than the closing price of the Company’s common stock as of July 3, 2021 was $457.7 million. The aggregate intrinsic value of options exercised during the three months ended July 3, 2021 was $8.7 million.

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Non-operating income

6 Months Ended

Jul. 03, 2021

Nonoperating Income (Expense) [Abstract]

Non-operating income

19. Non-operating (loss) income

Non-operating (loss) income consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Interest income	$	218	$	1,478	$	435	$	4,323
Interest expense	(88)		(83)		(172)		(167)
Realized and unrealized foreign currency (losses) gains	(50)		11		(920)		599
Other	—		(1)		—		(4)
Total	$	80	$	1,405	$	(657)	$	4,751

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Income Taxes

6 Months Ended

Jul. 03, 2021

Income Tax Disclosure [Abstract]

Income Taxes

20. Income Taxes

The Company has provided for income taxes in fiscal year 2020 interim periods based on the estimated effective income tax rate for the complete fiscal year, as adjusted for discrete tax events, including excess tax benefits or deficiencies related to stock-based compensation, in the period such events occur. The estimated annual effective tax rate is computed based on the expected annual pretax income of the consolidated entities located within each taxing jurisdiction based on legislation enacted as of the balance sheet date. For the three months ended July 3, 2021 and June 27, 2020, the Company recorded discrete tax benefits of approximately $1.3 million and $7.5 million, respectively, related to excess tax benefits realized from stock-based compensation. For the six months ended July 3, 2021 and June 27, 2020, the Company recorded discrete tax benefits of approximately $5.6 million and $17.1 million, respectively, related to excess tax benefits realized from stock-based compensation.

Deferred tax assets and liabilities are determined based on the future tax consequences associated with temporary differences between income and expenses reported for accounting and tax purposes. A valuation allowance for deferred tax assets is recorded to the extent that the Company cannot determine that the ultimate realization of the net deferred tax assets is more likely than not. Realization of deferred tax assets is principally dependent upon the achievement of future taxable income, the estimation of which requires significant judgment by the Company’s management. The judgment of the Company’s management regarding future profitability may change due to many factors, including future market conditions and the Company’s ability to successfully execute its business plans or tax planning strategies. These changes, if any, may require material adjustments to these deferred tax asset balances.

As of July 3, 2021, the liability for income taxes associated with uncertain tax positions was approximately $19.9 million. If fully recognized, approximately $18.0 million (net of federal benefit on state taxes) would impact the Company’s effective tax rate. It is reasonably possible that the amount of unrecognized tax benefits in various jurisdictions may change in the next twelve months due to the expiration of statutes of limitation and audit settlements. However, due to the uncertainty surrounding the timing of these events, an estimate of the change within the next twelve months cannot currently be made.

The Company conducts business in multiple jurisdictions and, as a result, one or more of the Company’s subsidiaries files income tax returns in U.S. federal, various state, local and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters through fiscal year 2016. All material state, local and foreign income tax matters have been concluded through fiscal year 2012. The Company does not believe that the results of any tax authority examination would have a significant impact on its consolidated financial statements.

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Commitments and Contingencies

6 Months Ended

Jul. 03, 2021

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

21. Commitments and Contingencies

Employee Retirement Savings Plan

The Company sponsors a qualified defined contribution plan or 401(k) plan, the Masimo Retirement Savings Plan (MRSP), covering the Company’s full-time U.S. employees who meet certain eligibility requirements. In general, the Company matches an employee’s contribution up to 3% of the employee’s compensation, subject to a maximum amount. The Company may also contribute to the MRSP on a discretionary basis. The Company contributed $0.9 million and $0.8 million to the MRSP for the three months ended July 3, 2021 and June 27, 2020, respectively, all in the form of matching contributions. The Company contributed $1.9 million and $1.6 million to the MRSP for the six months ended July 3, 2021 and June 27, 2020, respectively, all in the form of matching contributions. In addition, the Company sponsors various defined contribution plans in certain locations outside of the United States, the contributions to which were not material for any period.

Employment and Severance Agreements

In July 2017, the Company entered into the First Amendment to the certain Amended and Restated Employment Agreement entered into between the Company and Mr. Kiani on November 4, 2015 (as amended, the Amended Employment Agreement). Pursuant to the terms of the Amended Employment Agreement, upon a “Qualifying Termination” (as defined in the Amended Employment Agreement), Mr. Kiani will be entitled to receive a cash severance benefit equal to two times the sum of his then-current base salary and the average annual bonus paid to Mr. Kiani during the immediately preceding three years, the full amount of the “Award Shares” (as defined in the Amended Employment Agreement) and the full amount of the “Cash Payment” (as defined in the Amended Employment Agreement). In addition, in the event of a “Change in Control” (as defined in the Amended Employment Agreement) prior to a Qualifying Termination, on each of the first and second anniversaries of the Change in Control, 50% of the Cash Payment and 50% of the Award Shares will vest, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date; however, in the event of a Qualifying Termination or a termination of Mr. Kiani’s employment due to death or disability prior to either of such anniversaries, any unvested amount of the Cash Payment and all of the unvested Award Shares shall vest and be paid in full.

Additionally, in the event of a Change in Control prior to a Qualifying Termination, Mr. Kiani’s stock options and any other equity awards will vest in accordance with their terms, but in no event later than in two equal installments on each of the one year and two year anniversaries of the Change in Control, subject in each case to Mr. Kiani’s continuous employment through each such anniversary date. As of July 3, 2021, the expense related to the Award Shares and Cash Payment that would be recognized in the Company’s consolidated financial statements upon the occurrence of a Qualifying Termination under the Restated Employment Agreement was approximately $292.9 million.

As of July 3, 2021, the Company had severance plan participation agreements with five executive officers. The participation agreements (the Agreements) are governed by the terms and conditions of the Company’s 2007 Severance Protection Plan (the Severance Plan), which became effective on July 19, 2007 and which was amended effective December 31, 2008. Under each of the Agreements, the applicable executive officer may be entitled to receive certain salary, equity, medical and life insurance benefits if he is terminated by the Company without cause or if he terminates his employment for good reason under certain circumstances. The executive officers are also required to give the Company six months’ advance notice of their resignation under certain circumstances.

Purchase Commitments

Pursuant to contractual obligations with vendors, the Company had $143.9 million of purchase commitments as of July 3, 2021 that are expected to be purchased within one year. These purchase commitments have been made for certain inventory items in order to secure sufficient levels of those items, other critical inventory and manufacturing supplies, and to achieve better pricing.

Other Contractual Commitments

In the normal course of business, the Company may provide bank guarantees to support government hospital tenders in certain foreign jurisdictions. As of July 3, 2021, the Company had approximately $2.8 million in outstanding unsecured bank guarantees.

In certain circumstances, the Company also provides limited indemnification within its various customer contracts whereby the Company indemnifies the parties to whom it sells its products with respect to potential infringement of intellectual property, and against bodily injury caused by a defective Company product. It is not possible to predict the maximum potential amount of future payments under these or similar agreements, due to the conditional nature of the Company’s obligations and the unique facts and circumstances involved. As of July 3, 2021, the Company had not incurred any significant costs related to contractual indemnification of its customers.

Concentrations of Risk

The Company is exposed to credit loss for the amount of its cash deposits with financial institutions in excess of federally insured limits. The Company invests a portion of its excess cash with major financial institutions. As of July 3, 2021, the Company had $576.0 million of bank balances, of which $4.2 million was covered by either the U.S. Federal Deposit Insurance Corporation limit or foreign countries’ deposit insurance organizations.

The Company’s ability to sell its products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential customers for the Company’s products become members of GPOs. GPOs negotiate pricing arrangements and contracts, sometimes exclusively, with medical supply manufacturers and distributors, and these negotiated prices are made available to a GPO’s affiliated hospitals and other members. During the three months ended July 3, 2021 and June 27, 2020, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 49.0% and 45.9% of product revenue, respectively. During the six months ended July 3, 2021 and June 27, 2020, revenue from the sale of the Company’s products to customers that are members of GPOs approximated 50.1% and 50.3% of product revenue, respectively.

For the three months ended July 3, 2021, the Company had sales through two just-in-time distributors that represented 15.0% and 9.9% of product revenue, respectively. For the three months ended June 27, 2020, the Company had sales through the same two just-in-time distributors that represented 8.8% and 8.3% of product revenue, respectively.

For the six months ended July 3, 2021, the Company had sales through two just-in-time distributors that represented 14.4% and 10.4% of product revenue, respectively. For the six months ended June 27, 2020, the Company had sales through the same two just-in-time distributors that represented 11.3% and 10.4% of product revenue, respectively.

As of July 3, 2021 and January 2, 2021, one customer represented 11.9% and 9.1%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by a letter of credit.

Litigation

During the third quarter of fiscal year 2017, the Company became aware that certain amounts had been paid by a foreign government customer to the Company’s former appointed foreign agent in connection with a foreign government tender, but had not been remitted by such agent to the Company in accordance with the agency agreement. On December 28, 2017, the Company initiated arbitration proceedings against this foreign agent after unsuccessful attempts to recover such remittances. As a result, the Company recorded a net charge of approximately $10.5 million during the fourth quarter of fiscal year 2017 in connection with this dispute, of which $2.0 million was recovered during the year ended December 28, 2019. An arbitration hearing was held on February 11, 2019. On July 8, 2019, the arbitrator awarded the Company $10.5 million in damages, fees and costs. On January 12, 2020, the Company received notice that bankruptcy restructuring proceedings had been initiated for the foreign agent. The Company filed its claim with the bankruptcy trustee on January 16, 2020. In July 2020, the Company was notified that a bankruptcy reorganization proposal had been submitted for voting by creditors in August 2020. The reorganization proposal was rejected by a vote of the creditors on August 26, 2020. On October 22, 2020, the Company filed a petition seeking to enforce the arbitration award. Although the Company intends to vigorously pursue the collection of the arbitration award, there is no guarantee that the Company will be successful in these efforts.

On January 2, 2014, a putative class action complaint was filed against the Company in the U.S. District Court for the Central District of California (District Court) by Physicians Healthsource, Inc. The complaint alleges that the Company sent unsolicited facsimile advertisements in violation of the Junk Fax Protection Act of 2005 and related regulations. The complaint seeks $500 for each alleged violation, treble damages if the District Court finds the alleged violations to be knowing, plus interest, costs and injunctive relief. On March 26, 2019, an amended complaint was filed adding Radha Geismann, M.D. PC as an additional named plaintiff. On June 17, 2019, the plaintiffs filed their motion for class certification. On September 10, 2019, the parties filed motions for summary judgment. On September 30, 2019, the Company filed its opposition to the motion for class certification, and the plaintiffs filed their reply on October 7, 2019. On November 21, 2019, the District Court issued an order denying the plaintiffs’ motion for class certification and granting in part and denying in part the Company’s motion for summary judgment, and deferring ruling on the plaintiffs’ motion for summary judgment. On December 5, 2019, the plaintiffs filed a petition for permission to appeal the order denying class certification, which was denied on January 24, 2020. Trial of the individual plaintiffs’ claims was scheduled for June 2, 2020, but on April 1, 2020, the District Court vacated the trial date and directed the parties to conduct an in-person mediation. The mediation has not occurred and no new trial date has been set. On July 13, 2020, the District Court issued an order granting in part and denying in part the plaintiffs’ motion for summary judgment.

The Company believes it has good and substantial defenses to the claims, but there is no guarantee that the Company will prevail. The Company is unable to determine whether any loss will ultimately occur or to estimate the range of such loss; therefore, no amount of loss has been accrued by the Company in the accompanying condensed consolidated financial statements.

On January 9, 2020, the Company filed a complaint against Apple Inc. (Apple) in the District Court for infringement of a number of patents, for trade secret misappropriation, and for ownership and correction of inventorship of a number of Apple patents listing one of its former employees as an inventor. Apple filed petitions for Inter Partes review of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO has instituted Inter Partes review of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the Inter Partes review proceedings. On February 5, 2021, the Company filed a fourth amended complaint. On February 26, 2021, Apple filed a partial motion to dismiss the trade secrets claim in the fourth amended complaint. On April 21, 2021, the District Court issued an order granting in part and denying in part the motion to dismiss. On May 5, 2021, Apple filed its answer to the fourth amended complaint. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents.

On June 30, 2021, the Company filed a complaint with the U.S. International Trade Commission (ITC) against Apple for infringement of a number of other patents. The ITC has not yet initiated a formal investigation of the Company’s claims. The Company is seeking an exclusion order and a permanent cease and desist order. Although the Company intends to vigorously pursue all of its legal remedies, there is no guarantee that the Company will be successful in these efforts.

From time to time, the Company may be involved in other litigation and investigations relating to claims and matters arising out of its operations in the normal course of business. The Company believes that it currently is not a party to any other legal proceedings which, individually or in the aggregate, would have a material adverse effect on its consolidated financial position, results of operations or cash flows.

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Segment Information and Enterprise Reporting

6 Months Ended

Jul. 03, 2021

Segment Reporting [Abstract]

Segment Information and Enterprise Reporting

22. Segment Information and Enterprise Reporting

The Company operates in one segment based upon the Company’s organizational structure and the way in which the Company’s chief operating decision maker, the CEO, reviews financial information, including gross profit, operating expenses, operating income and net income presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region, for purposes of making operating decisions and assessing financial performance. In addition, the Company’s assets are primarily located in the U.S. The Company does not produce reports for, or measure the performance of, its geographic regions on any asset-based metrics. Therefore, geographic information is presented only for revenues and long-lived assets.

The following schedule presents an analysis of the Company’s product revenues based upon the geographic area to which the product was shipped (in thousands, except percentages):

	Three Months Ended								Six Months Ended
	July 3, 2021				June 27, 2020				July 3, 2021				June 27, 2020
Geographic area by destination:
United States (U.S.)	$	201,874	66.2	%	$	194,721	64.7	%	$	406,137	67.2	%	$	384,240	67.3	%
Europe, Middle East and Africa	61,207		20.1		68,167		22.7		120,830		20.0		122,524		21.5
Asia and Australia	32,423		10.6		26,259		8.7		59,256		9.8		45,572		8.0
North and South America (excluding the U.S.)	9,614		3.1		11,806		3.9		17,938		3.0		18,242		3.2
Product revenue	$	305,118	100.0	%	$	300,953	100.0	%	$	604,161	100.0	%	$	570,578	100.0	%

The Company’s consolidated long-lived assets (tangible non-current assets) by geographic area are (in thousands, except percentages):

	July 3, 2021				January 2, 2021
Long-lived assets by geographic area:
United States	$	238,638	86.4	%	$	238,094	86.9	%
International	37,523		13.6		35,755		13.1
Total long-lived assets	$	276,161	100.0	%	$	273,849	100.0	%

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jul. 03, 2021

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, including normal recurring accruals, necessary to present fairly the Company’s condensed consolidated financial statements. The accompanying condensed consolidated balance sheet as of January 2, 2021 was derived from the Company’s audited consolidated financial statements at that date. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2021 (fiscal year 2020), filed with the SEC on February 23, 2021. The results for the three and six months ended July 3, 2021 are not necessarily indicative of the results to be expected for the fiscal year ending January 1, 2022 (fiscal year 2021) or for any other interim period or for any future year.

Fiscal Periods

Fiscal Periods

The Company follows a conventional 52/53 week fiscal year. Under a conventional 52/53 week fiscal year, a 52 week fiscal year includes four quarters of 13 weeks while a 53 week fiscal year includes three 13 week fiscal quarters and one 14 week fiscal quarter. The Company’s last 53 week fiscal year was fiscal year 2020. Fiscal year 2021 is a 52 week fiscal year ending January 1, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

Reclassifications

Reclassifications

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Use of Estimates

Use of Estimates

The Company prepares its financial statements in conformity with GAAP, which requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the determination of standalone selling prices, variable consideration, total consideration allocated to each performance obligation within a contract, inventory valuation, valuation of the Company’s equity awards, valuation of identifiable assets and liabilities connected with business combinations, deferred taxes and any associated valuation allowances, deferred revenue, uncertain income tax positions, and litigation costs and related accruals. Actual results could differ from such estimates.

Business Combinations

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired, liabilities assumed and noncontrolling interests in the acquired entity, if applicable, are recorded at their respective fair values at the date of acquisition. The excess of the purchase price over fair values of identifiable assets, liabilities and noncontrolling interests in the acquired entity, if applicable, is recorded as goodwill. The Company finalizes the purchase price allocation within one year from the acquisition date.

Fair Value of Measurements

Fair Value Measurements

Authoritative guidance describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

●    Level 1—Quoted prices in active markets for identical assets or liabilities.

●    Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●    Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Pursuant to current authoritative guidance, entities are allowed an irrevocable option to elect the fair value for the initial and subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to apply the fair value option under this guidance to specific assets or liabilities on a contract-by-contract basis. There were no transfers between Level 1, Level 2 and Level 3 inputs during either the six months ended July 3, 2021 or June 27, 2020. The Company carries cash and cash equivalents, at cost, which approximates fair value.

For certain other financial assets and liabilities, including restricted cash, accounts receivable, accounts payable and other current assets and liabilities, the carrying amounts approximate their fair value primarily due to the relatively short maturity of these balances. The Company also measures certain non-financial assets at fair value on a non-recurring basis, primarily goodwill, intangible assets and operating lease right-of-use assets, in connection with periodic evaluations for potential impairment.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from date of purchase of three months or less, or highly liquid investments that are readily convertible into known amounts of cash, to be cash equivalents.

Accounts Receivable and Allowance for Credit Losses

Accounts Receivable and Allowance for Credit Losses

Accounts receivable consist of trade receivables recorded at the time of invoicing of product sales, reduced by reserves for estimated bad debts and returns. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of the customer’s financial condition. Collateral is generally not required. The Company records an allowance for credit losses that it does not expect to collect based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts. Accounts are charged off against the allowance when the Company believes they are uncollectible.

Inventory

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is determined using a standard cost method, which approximates the first in, first out method, and includes material, labor and overhead costs. Inventory valuation adjustments are recorded for inventory items that have become excess or obsolete or are no longer used in current production and for inventory items that have a market price less than carrying value in inventory. The Company generally determines inventory valuation adjustments based on an evaluation of the expected future use of its inventory on an item by item basis and applies historical obsolescence rates to estimate the loss on inventory expected to have a recovery value below cost. The Company also records other specific inventory valuation adjustments when it becomes aware of unique events or circumstances that result in an expected recovery value below cost. For inventory items that have been written down, the reduced value becomes the new cost basis.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:

	Useful Lives
Building and building improvements	7 to 39 years
Computer equipment and software	2 to 12 years
Demonstration units	3 years
Furniture and office equipment	2 to 6 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 10 years
Transportation, vehicles and other	4 to 20 years

Land is not depreciated and construction-in-progress is not depreciated until placed in service. Normal repair and maintenance costs are expensed as incurred, whereas significant improvements that materially increase values or extend useful lives are capitalized and depreciated over the remaining estimated useful lives of the related assets. Upon sale or retirement of depreciable assets, the related cost and accumulated depreciation or amortization are removed from the accounts and any gain or loss on the sale or retirement is recognized in income.

Intangible Assets

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships and acquired technology. Costs related to patents and trademarks, which include legal and application fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Patent and trademark amortization commences once final approval of the patent or trademark has been obtained. Patent costs are amortized over the lesser of 10 years or the patent’s remaining legal life, which assumes renewals, and trademark costs are amortized over 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. For intangibles purchased in an asset acquisition or business combination, which mainly include patents, trademarks, customer relationships and acquired technologies, the useful life is determined largely by valuation estimates of remaining economic life. The Company’s policy is to renew its patents and trademarks. Costs to renew patents and trademarks are capitalized and amortized over the remaining useful life of the intangible asset. The Company periodically evaluates the amortization period and carrying basis of patents, trademarks and other intangible assets to determine whether any events or circumstances warrant a revised estimated useful life or reduction in value. Capitalized application costs are charged to operations when it is determined that the patent or trademark will not be obtained or is abandoned.

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the acquired net tangible and intangible assets. Goodwill is not amortized, but instead is tested annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. In assessing goodwill impairment, the Company has the option to first assess the qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company’s qualitative assessment of the recoverability of goodwill considers various macroeconomic, industry-specific and Company-specific factors, including: (i) severe adverse industry or economic trends; (ii) significant Company-specific actions; (iii) current, historical or projected deterioration of the Company’s financial performance; or (iv) a sustained decrease in the Company’s market capitalization below its net book value. If, after assessing the totality of events or circumstances, the Company determines it is unlikely that the fair value of a reporting unit is less than its carrying amount, then a quantitative analysis is unnecessary. However, if the Company concludes otherwise, or if the Company elects to bypass the qualitative analysis, then the Company must perform a quantitative analysis that compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, a goodwill impairment loss is recognized for the lesser of: (a) the amount that the carrying amount of a reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to that reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

The Company reviews long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.

Revenue Recognition, and Deferred Revenue and Other Contract Liabilities

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

The Company derives the majority of its product revenue from four primary sources: (i) direct sales under deferred equipment agreements with end-user hospitals where the Company provides up-front monitoring equipment at no up-front charge in exchange for a multi-year sensor purchase commitment; (ii) other direct sales of noninvasive monitoring solutions to end-user hospitals, emergency medical response organizations and other direct customers; (iii) sales of noninvasive monitoring solutions to distributors who then typically resell to end-user hospitals, emergency medical response organizations and other customers; and (iv) sales of integrated circuit boards to OEM customers who incorporate the Company’s embedded software technology into their multiparameter monitoring devices. Subject to customer credit considerations, the majority of such sales are made on open account using industry standard payment terms based on the geography within which the specific customer is located.

The Company generally recognizes revenue following a single, principles-based five-step model to be applied to all contracts with customers and generally provides for the recognition of revenue in an amount that reflects the consideration to which the Company expects to be entitled, net of allowances for estimated returns, discounts or sales incentives, as well as taxes collected from customers that are remitted to government authorities, when control over the promised goods or services are transferred to the customer. Revenue related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease.

While the majority of the Company’s revenue contracts and transactions contain standard business terms and conditions, there are some transactions that contain non-standard business terms and conditions. As a result, contract interpretation, judgment and analysis is required to determine the appropriate accounting, including: (i) the amount of the total consideration, as well as variable consideration, (ii) whether the arrangement contains an embedded lease, and if so, whether such embedded lease is a sales-type lease or an operating lease, (iii) the identification of the distinct performance obligations contained within the arrangement, (iv) how the arrangement consideration should be allocated to each performance obligation when multiple performance obligations exist, including the determination of standalone selling price, and (v) when to recognize revenue on the performance obligations. Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition.

The Company enters into agreements to sell its monitoring solutions and services, sometimes as a part of arrangements with multiple performance obligations that include various combinations of product sales, equipment leases and services. In the case of contracts with multiple performance obligations, the authoritative guidance provides that the total consideration be allocated to each performance obligation on the basis of relative standalone selling prices. When a standalone selling price is not readily observable, the Company estimates the standalone selling price by considering multiple factors including, but not limited to, features and functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, the Company’s pricing and discount practices, and other market conditions.

Sales under deferred equipment agreements are generally structured such that the Company agrees to provide certain monitoring-related equipment, software, installation, training and/or warranty support at no up-front charge in exchange for the customer’s commitment to purchase sensors over the term of the agreement, which generally ranges from three years to six years. The Company allocates contract consideration under deferred equipment agreements containing fixed annual sensor purchase commitments to the underlying lease and non-lease components at contract inception. In determining whether any underlying lease components are related to a sales-type lease or an operating lease, the Company evaluates the customer’s rights and ability to control the use of the underlying equipment throughout the contract term, including any equipment substitution rights retained by the Company, as well as the Company’s expectations surrounding potential contract/lease extensions or renewals and the customer’s likelihood to exercise any purchase options. Revenue allocable to non-lease performance obligations is generally recognized as such non-lease performance obligations are satisfied. Revenue allocable to lease components under sales-type lease arrangements is generally recognized when control over the equipment is transferred to the customer. Revenue allocable to lease components under operating lease arrangements is generally recognized over the term of the operating lease. The Company generally does not expect to derive any significant value in excess of such asset’s unamortized book value from equipment underlying its operating lease arrangements after the end of the agreement.

Revenue from the sale of products to end-user hospitals, emergency medical response organizations, other direct customers, distributors and OEM customers, is recognized by the Company when control of such products transfer to the customer based upon the terms of the contract or underlying purchase order.

Revenue related to OEM rainbow® parameter software licenses is recognized by the Company upon the OEM’s shipment of its product to its customer, as reported to the Company by the OEM.

The Company provides certain customers with various sales incentives that may take the form of discounts or rebates. The Company records estimates related to these programs as a reduction to revenue at the time of sale. In general, customers do not have a right of return for credit or refund. However, the Company allows returns under certain circumstances. At the end of each period, the Company estimates and accrues for these returns as a reduction to revenue. The Company estimates the revenue constraints related to these forms of variable consideration based on various factors, including expected purchasing volumes, prior sales and returns history, and specific contractual terms and limitations.

Shipping and Handling Costs and Fees

Shipping and Handling Costs and Fees

All shipping and handling costs are expensed as incurred and are recorded as a component of cost of goods sold in the accompanying condensed consolidated statements of operations. Charges for shipping and handling billed to customers are included as a component of product revenue.

Taxes Collected From Customers And Remitted To Governmental Authorities

Taxes Collected From Customers and Remitted to Governmental Authorities

The Company’s policy is to present revenue net of taxes collected from customers and remitted to governmental authorities.

Deferred Costs and Other Contract Assets

Deferred Costs and Other Contract Assets

The costs of monitoring-related equipment provided to customers under operating lease arrangements within the Company’s deferred equipment agreements are generally deferred and amortized to cost of goods sold over the life of the underlying contracts. Some of the Company’s deferred equipment agreements also contain provisions for certain allowances to be made directly to the end-user hospital customer at the inception of the arrangement. These allowances are generally allocated to the lease and non-lease components and recognized as a reduction to revenue as the underlying performance obligations are satisfied.

The Company generally invoices its customers under deferred equipment agreements as sensors are provided to the customer. However, the Company may recognize revenue for certain non-lease performance obligations under deferred equipment agreements with fixed annual commitments at the time such performance obligations are satisfied and prior to the customer being invoiced. When this occurs, the Company records an unbilled contract receivable related to such revenue until the customer has been invoiced pursuant to the terms of the underlying deferred equipment agreement.

The incremental costs of obtaining a contract with a customer are capitalized and deferred if the Company expects such costs to be recoverable over the life of the contract and the contract term is greater than one year. Such deferred costs generally relate to certain incentive sales commissions earned by the Company’s internal sales team in connection with the execution of deferred equipment agreements and are amortized to expense over the expected term of the underlying contract.

Product Warranty

Product Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from three months to forty-eight months, depending on the product type. In traditional sales activities, including direct and OEM sales, the Company establishes an accrued liability for the estimated warranty costs at the time of revenue recognition, with a corresponding provision to cost of goods sold. Customers may also purchase extended warranty coverage or service level upgrades separately or as part of a deferred equipment agreement. Revenue related to extended warranty coverage and service level upgrades is generally recognized over the life of the contract, which reasonably approximates the period over which such services will be provided. The related extended warranty and service level upgrade costs are expensed as incurred.

Changes in the product warranty accrual were as follows (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Warranty accrual, beginning of period	$	2,740	$	3,395
Accrual for warranties issued	2,172		1,019
Changes in pre-existing warranties (including changes in estimates)	(1,454)		(270)
Settlements made	(662)		(508)
Warranty accrual, end of period	$	2,796	$	3,636

Litigation Costs and Contingencies

Litigation Costs and Contingencies

The Company records a charge equal to at least the minimum estimated liability for a loss contingency or litigation settlement when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements, and (ii) the range of loss can be reasonably estimated. The determination of whether a loss contingency or litigation settlement is probable or reasonably possible involves a significant amount of management judgment, as does the estimation of the range of loss given the nature of contingencies. Liabilities related to litigation settlements with multiple elements are recorded based on the fair value of each element. Legal and other litigation related expenses are recognized as the services are provided. The Company records insurance and other indemnity recoveries for litigation expenses when both of the following conditions are met: (a) the recovery is probable, and (b) collectability is reasonably assured. Insurance recoveries are only recorded to the extent the litigation costs to which they relate have been incurred and recognized in the financial statements.

Comprehensive Income

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments and any related tax benefits that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

Net Income Per Share

A computation of basic and diluted net income per share is as follows (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Basic net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Net income per basic share	$	0.91	$	1.02	$	1.88	$	2.21
Diluted net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Diluted share equivalent: stock options, RSUs and PSUs	2,347		3,440		2,514		3,597
Weighted-average shares outstanding - diluted	57,379		58,204		57,630		57,913
Net income per diluted share	$	0.88	$	0.96	$	1.80	$	2.08

Basic net income per share is computed by dividing net income by the weighted-average number of shares outstanding during the period. Net income per diluted share is computed by dividing the net income by the weighted-average number of shares and potential shares outstanding during the period, if the effect of potential shares is dilutive. Potential shares include incremental shares of stock issuable upon the exercise of stock options and the vesting of both restricted share units (RSUs) and performance share units (PSUs). For the three months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.4 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. For the six months ended July 3, 2021 and June 27, 2020, weighted options to purchase 0.2 million and 0.3 million shares of common stock, respectively, were outstanding but not included in the computation of diluted net income per share because the effect of including such shares would have been antidilutive in the applicable period. Certain RSUs are considered contingently issuable shares as their vesting is contingent upon the occurrence of certain future events. Since such events had not occurred and were not considered probable of occurring as of each of July 3, 2021 and June 27, 2020, 2.7 million weighted-average shares related to such RSUs have been excluded from the calculation of potential shares for each of the three and six month periods then ended.

Segment Reporting, Policy

Segment Information

The Company uses the “management approach” in determining reportable business segments. The management approach designates the internal organization used by management for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. Based on this assessment, management has determined it operates in one reportable business segment, which is comprised of patient monitoring and related products.

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The new standard simplifies the accounting for income taxes by removing exceptions to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the standard requires that an entity recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date, and specifies that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; however, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The new guidance provides updates for technical corrections, clarifications to guidance, simplifications to wording or structure of guidance, and other minor improvements across various areas of accounting within GAAP. ASU No. 2020-10 is effective after December 15, 2020 on a retrospective basis. Early adoption is permitted. The Company’s adoption of this standard, effective as of January 3, 2021, did not have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). The new guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Entities can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020, and the Company may elect to apply this guidance prospectively through December 31, 2022. The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new guidance clarified the scope and application of the original guidance. ASU No. 2021-01 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04). The new guidance addresses modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. ASU No. 2021-04 is effective after December 15, 2021 on a prospective basis, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period and should be applied as of the beginning of the fiscal year that includes the interim period. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jul. 03, 2021

Accounting Policies [Abstract]

Property, Plant and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:

	Useful Lives
Building and building improvements	7 to 39 years
Computer equipment and software	2 to 12 years
Demonstration units	3 years
Furniture and office equipment	2 to 6 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 10 years
Transportation, vehicles and other	4 to 20 years

Property and equipment, net, consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Building and building improvements	$	141,856	$	122,310
Machinery, equipment and tooling	100,682		90,843
Land	57,255		57,151
Transportation, vehicles and other	33,111		33,175
Computer equipment and software	31,510		24,693
Leasehold improvements	20,476		19,295
Furniture and office equipment	14,103		13,567
Demonstration units	1,046		1,024
Construction-in-progress (CIP)	19,443		44,589
Total property and equipment	419,482		406,647
Accumulated depreciation	(144,759)		(134,136)
Property and equipment, net	$	274,723	$	272,511

Changes in Product Warranty Accrual

Changes in the product warranty accrual were as follows (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Warranty accrual, beginning of period	$	2,740	$	3,395
Accrual for warranties issued	2,172		1,019
Changes in pre-existing warranties (including changes in estimates)	(1,454)		(270)
Settlements made	(662)		(508)
Warranty accrual, end of period	$	2,796	$	3,636

Reconciliation of Basic and Diluted Net Income Per Share

A computation of basic and diluted net income per share is as follows (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net income	$	50,235	$	55,772	$	103,618	$	120,228
Basic net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Net income per basic share	$	0.91	$	1.02	$	1.88	$	2.21
Diluted net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116		54,316
Diluted share equivalent: stock options, RSUs and PSUs	2,347		3,440		2,514		3,597
Weighted-average shares outstanding - diluted	57,379		58,204		57,630		57,913
Net income per diluted share	$	0.88	$	0.96	$	1.80	$	2.08

Supplemental Cash Flow Information

Supplemental cash flow information includes the following (in thousands):

	Six Months Ended
	July 3, 2021		June 27, 2020
Cash paid during the year for:
Interest expense	$	196	$	130
Income taxes	24,152		10,049
Operating lease liabilities	3,676		3,038
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	4,423	$	7,394
Non-cash investing activities:
Unpaid purchases of property and equipment	$	2,381	$	3,135
Unpaid purchases of intangible assets	3,000		—
Settlement of promissory note receivable in connection with business combination	—		5,100
Unpaid strategic investments	6,000		—
Deposit release to acquire noncontrolling interest(1)	3,374		—
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	202	$	94
Fair value of common stock received for payment of stock option exercise price	—		220
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	575,955	$	631,881
Restricted cash	1,388		3,376
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	577,343	$	635,257

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Inventories (Tables)

6 Months Ended

Jul. 03, 2021

Inventory Disclosure [Abstract]

Components of Inventory

Inventories consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Raw materials	$	133,921	$	133,098
Work-in-process	18,185		15,985
Finished goods	54,501		66,869
Total inventories	$	206,607	$	215,952

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Other Current Assets (Tables)

6 Months Ended

Jul. 03, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Non-Current Assets

Other current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Prepaid expenses	$	32,636	$	30,235
Lease receivable, current	26,650		23,206
Indirect taxes receivable	11,258		14,545
Prepaid income taxes	10,315		14,782
Prepaid rebates and royalties, current	3,186		3,081
Customer notes receivable	1,554		2,283
Restricted cash(1)	1,299		3,397
Deposit to acquire noncontrolling interest(2)	—		3,374
Other current assets	3,022		7,513
Total other current assets	$	89,920	$	102,416

______________

(1)     Restricted cash includes funds received from the Bill and Melinda Gates Foundation. As the Company incurs costs associated with research and development related to this project, on a quarterly basis, the Company reclasses amounts from the grant to offset costs incurred.

(2)     During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The Company made a deposit to acquire the noncontrolling interest of the acquiree. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

Other non-current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee ROU assets, net	$	33,031	$	32,324
Strategic investments	13,928		8,002
Prepaid deposits and other	4,445		4,316
Total other non-current assets	$	51,404	$	44,642

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Lease Receivable (Tables)

6 Months Ended

Jul. 03, 2021

Leases [Abstract]

Sale-Type Lease Receivable

Lease receivable consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Lease receivable	$	92,078	$	81,074
Allowance for credit loss	(230)		(202)
Lease receivable, net	91,848		80,872
Less: current portion of lease receivable	(26,650)		(23,206)
Lease receivable, noncurrent	$	65,198	$	57,666

Sales-type Lease, Lease Receivable, Maturity

As of July 3, 2021, estimated future maturities of customer sales-type lease receivables for each of the following fiscal years are as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	26,650
2022	22,526
2023	17,572
2024	11,971
2025	8,026
Thereafter	5,103
Total	$	91,848

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Deferred Costs and Other Contract Assets (Tables)

6 Months Ended

Jul. 03, 2021

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Deferred Costs and Other Contract Assets

Deferred costs and other contract assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred commissions	$	8,849	$	7,477
Prepaid contract allowances	7,074		7,336
Unbilled contract receivables	4,343		3,925
Equipment leased to customers, net	1,438		1,338
Deferred costs and other contract assets	$	21,704	$	20,076

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Property and Equipment (Tables)

6 Months Ended

Jul. 03, 2021

Property, Plant and Equipment [Abstract]

Schedule of Property, Plant and Equipment

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over estimated useful lives as follows:

	Useful Lives
Building and building improvements	7 to 39 years
Computer equipment and software	2 to 12 years
Demonstration units	3 years
Furniture and office equipment	2 to 6 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 10 years
Transportation, vehicles and other	4 to 20 years

Property and equipment, net, consists of the following (in thousands):

	July 3, 2021		January 2, 2021
Building and building improvements	$	141,856	$	122,310
Machinery, equipment and tooling	100,682		90,843
Land	57,255		57,151
Transportation, vehicles and other	33,111		33,175
Computer equipment and software	31,510		24,693
Leasehold improvements	20,476		19,295
Furniture and office equipment	14,103		13,567
Demonstration units	1,046		1,024
Construction-in-progress (CIP)	19,443		44,589
Total property and equipment	419,482		406,647
Accumulated depreciation	(144,759)		(134,136)
Property and equipment, net	$	274,723	$	272,511

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Intangible Assets (Tables)

6 Months Ended

Jul. 03, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

Intangible assets, net, consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Acquired technologies	$	29,011	$	29,039
Patents	28,839		26,875
Customer relationships	24,667		24,666
Trademarks	12,072		11,708
Licenses-related party	7,500		7,500
Other	14,166		10,801
Total intangible assets	116,255		110,589
Accumulated amortization	(41,230)		(36,666)
Intangible assets, net	$	75,025	$	73,923

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Estimated amortization expense for each of the next fiscal years is as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	9,377
2022	8,304
2023	7,817
2024	7,455
2025	6,173
Thereafter	35,899
Total	$	75,025

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Goodwill (Table)

6 Months Ended

Jul. 03, 2021

Goodwill [Abstract]

Schedule of Goodwill

Changes in goodwill were as follows (in thousands):

	Six Months Ended July 3, 2021
Goodwill, beginning of period	$	103,206
Foreign currency translation adjustment	(720)
Goodwill, end of period	$	102,486

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Lessee ROU Assets and Lease Liabilities (Tables)

6 Months Ended

Jul. 03, 2021

Leases [Abstract]

Lessee Operating Lease Balance Sheet Classification

The balance sheet classifications for amounts related to the Company’s operating leases for which it is the lessee are as follows (in thousands):

	Balance sheet classification	July 3, 2021		January 2, 2021
Lessee ROU assets	Other non-current assets	$	33,031	$	32,324
Lessee current lease liabilities	Other current liabilities	6,248		5,975
Lessee non-current lease liabilities	Other non-current liabilities	28,940		28,373
Total operating lease liabilities		$	35,188	$	34,348

Lessee, Operating Lease, Liability, Maturity

As of July 3, 2021, estimated future operating lease payments for each of the following fiscal years were as follows (in thousands):

Fiscal year	Amount
2021 (balance of year)	$	3,693
2022	6,719
2023	6,522
2024	5,120
2025	4,007
Thereafter(1)	12,387
Total	38,448
Imputed interest	(3,260)
Present value	$	35,188

______________

(1)     Includes optional renewal period for certain leases.

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Other Non-Current Assets (Tables)

6 Months Ended

Jul. 03, 2021

Other Assets, Longterm [Abstract]

Schedule of Other Non-Current Assets

Other current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Prepaid expenses	$	32,636	$	30,235
Lease receivable, current	26,650		23,206
Indirect taxes receivable	11,258		14,545
Prepaid income taxes	10,315		14,782
Prepaid rebates and royalties, current	3,186		3,081
Customer notes receivable	1,554		2,283
Restricted cash(1)	1,299		3,397
Deposit to acquire noncontrolling interest(2)	—		3,374
Other current assets	3,022		7,513
Total other current assets	$	89,920	$	102,416

______________

(1)     Restricted cash includes funds received from the Bill and Melinda Gates Foundation. As the Company incurs costs associated with research and development related to this project, on a quarterly basis, the Company reclasses amounts from the grant to offset costs incurred.

(2)     During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The Company made a deposit to acquire the noncontrolling interest of the acquiree. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

Other non-current assets consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee ROU assets, net	$	33,031	$	32,324
Strategic investments	13,928		8,002
Prepaid deposits and other	4,445		4,316
Total other non-current assets	$	51,404	$	44,642

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Deferred Revenue and Other Contract Liabilities (Tables)

6 Months Ended

Jul. 03, 2021

Revenue Recognition and Deferred Revenue [Abstract]

Contract with Customer, Asset and Liability

Deferred revenue and other contract liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Deferred revenue	$	33,132	$	33,221
Accrued rebates and allowances	9,583		12,127
Accrued customer reimbursements	5,218		3,829
Total deferred revenue and other contract liabilities	47,933		49,177
Less: Non-current portion of deferred revenue	(3,775)		(4,242)
Deferred revenue and other contract liabilities - current	$	44,158	$	44,935

Changes in deferred revenue were as follows (in thousands):

	Six Months Ended July 3, 2021
Deferred revenue, beginning of the period	$	33,221
Revenue deferred during the period	16,888
Recognition of revenue deferred in prior periods	(16,977)
Deferred revenue, end of the period	$	33,132

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Other Current Liabilities (Tables)

6 Months Ended

Jul. 03, 2021

Accrued Liabilities [Abstract]

Schedule Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Accrued expenses	$	17,746	$	6,794
Accrued indirect taxes payable	9,627		14,365
Lessee lease liabilities, current	6,248		5,975
Accrued legal fees	4,124		4,058
Income tax payable	3,871		5,910
Related party payables	3,155		3,655
Accrued warranty	2,796		2,740
Noncontrolling interest(1)	—		3,469
Accrued donations	1,307		495
Accrued property taxes	2,420		1,682
Other current liabilities	3,286		4,096
Total other current liabilities	$	54,580	$	53,239

______________

(1)During the year ended January 2, 2021, the Company obtained a controlling interest in a provider of advanced hemodynamic monitoring solutions. The noncontrolling interest of the acquiree was recorded within other current liabilities as of January 2, 2021, as the noncontrolling interest shares were mandatorily redeemable. During the three months ended April 3, 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

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Other Non-Current Liabilities (Tables)

6 Months Ended

Jul. 03, 2021

Other Liabilities, Long Term [Abstract]

Schedule of Components Of Other Liabilities Long Term Table

Other non-current liabilities consist of the following (in thousands):

	July 3, 2021		January 2, 2021
Lessee non-current lease liabilities	$	28,940	$	28,373
Income tax payable, non-current	16,980		19,245
Unrecognized tax benefits	13,659		11,777
Deferred tax liabilities	6,157		6,247
Other	4,688		5,434
Total other non-current liabilities	$	70,424	$	71,076

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Stock Repurchase Program (Tables)

6 Months Ended

Jul. 03, 2021

Class of Stock [Line Items]

Treasury Stock

The following table provides a summary of the Company’s stock repurchase activities (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Shares repurchased(1)	—		1		547		4
Average cost per share	$	—	$	213.91	$	235.88	$	164.44
Value of shares repurchased	$	—	$	220	$	128,917	$	591

______________

(1)     Excludes shares withheld from the shares of its common stock actually issued in connection with the vesting of PSU or RSU awards to satisfy certain U.S. federal and state tax withholding obligations.

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Stock-Based Compensation (Tables)

6 Months Ended

Jul. 03, 2021

Share-based Payment Arrangement [Abstract]

Schedule of Number and Weighted Average Exercise Price of Options Issued and Outstanding under all Stock Option Plans

The number and weighted-average exercise price of options issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average exercise prices):

	Six Months Ended July 3, 2021
	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3,448	$	77.44
Granted	85	250.15
Canceled	(128)	146.51
Exercised	(113)	56.02
Options outstanding, end of period	3,292	$	79.92
Options exercisable, end of period	2,311	$	53.95

Schedule of Share-based Compensation, Restricted Stock Units Award Activity

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2,862	$	99.66
Granted	82	246.67
Canceled	(10)	197.13
Expired	—	—
Vested	(34)	163.57
RSUs outstanding, end of period	2,900	$	102.71

Schedule of Nonvested Performance-based Units Activity

The number of PSUs outstanding under all of the Company’s equity plans are as follows (in thousands, except for weighted-average grant date fair value amounts):

	Six Months Ended July 3, 2021
	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	444	$	120.28
Granted(1)	148	162.99
Canceled	(17)	166.84
Expired	—	—
Vested	(273)	86.95
PSUs outstanding, end of period	302	$	168.68

______________

(1)     On February 22, 2021, the Audit Committee approved the weighted payout percentage for the 2018 PSU awards (three-year performance period), which were based upon the actual fiscal 2020 performance against pre-established performance objectives. Included in the granted amount are those additional PSUs earned based on actual performance achieved. These PSUs were originally awarded at target.

Schedule of Range of Assumptions Used and Resulting Weighted-Average Fair Value of Options Granted at Date of Grant

The range of assumptions used and the resulting weighted-average fair value of options granted at the date of grant were as follows:

	Three Months Ended		Six Months Ended
	July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020
Risk-free interest rate	0.4%	0.3% to 0.6%	0.3% to 0.9%	0.3% to 1.7%
Expected term (in years)	5.1	5.1	5.6	5.1
Estimated volatility	32.9%	26.9% to 35.5%	30.9% to 34.7%	26.9% to 35.5%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$66.53	$60.12	$75.72	$49.82

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Non-operating income (Tables)

6 Months Ended

Jul. 03, 2021

Nonoperating Income (Expense) [Abstract]

Schedule of Other Nonoperating Income (Expense)

Non-operating (loss) income consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Interest income	$	218	$	1,478	$	435	$	4,323
Interest expense	(88)		(83)		(172)		(167)
Realized and unrealized foreign currency (losses) gains	(50)		11		(920)		599
Other	—		(1)		—		(4)
Total	$	80	$	1,405	$	(657)	$	4,751

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Segment Information and Enterprise Reporting (Tables)

6 Months Ended

Jul. 03, 2021

Segment Reporting [Abstract]

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area

The following schedule presents an analysis of the Company’s product revenues based upon the geographic area to which the product was shipped (in thousands, except percentages):

	Three Months Ended								Six Months Ended
	July 3, 2021				June 27, 2020				July 3, 2021				June 27, 2020
Geographic area by destination:
United States (U.S.)	$	201,874	66.2	%	$	194,721	64.7	%	$	406,137	67.2	%	$	384,240	67.3	%
Europe, Middle East and Africa	61,207		20.1		68,167		22.7		120,830		20.0		122,524		21.5
Asia and Australia	32,423		10.6		26,259		8.7		59,256		9.8		45,572		8.0
North and South America (excluding the U.S.)	9,614		3.1		11,806		3.9		17,938		3.0		18,242		3.2
Product revenue	$	305,118	100.0	%	$	300,953	100.0	%	$	604,161	100.0	%	$	570,578	100.0	%

Schedule of Long-lived Assets by Geographic Areas

The Company’s consolidated long-lived assets (tangible non-current assets) by geographic area are (in thousands, except percentages):

	July 3, 2021				January 2, 2021
Long-lived assets by geographic area:
United States	$	238,638	86.4	%	$	238,094	86.9	%
International	37,523		13.6		35,755		13.1
Total long-lived assets	$	276,161	100.0	%	$	273,849	100.0	%

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Summary of Significant Accounting Policies - Revenue, Performance Obligation (Details)	Jul. 03, 2021
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-04-03
Summary Of Significant Accounting Policies [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-07-03 | Minimum
Summary Of Significant Accounting Policies [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-04-03
Summary Of Significant Accounting Policies [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	5 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-07-03 | Maximum
Summary Of Significant Accounting Policies [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	6 years

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Summary of Significant Accounting Policies - Changes in Product Warranty Accrual (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Movement in Standard and Extended Product Warranty Accrual, Increase (Decrease) [Roll Forward]
Warranty accrual, beginning of period	$ 2,740	$ 3,395
Accrual for warranties issued	2,172	1,019
Changes in pre-existing warranties (including changes in estimates)	(1,454)	(270)
Settlements made	(662)	(508)
Warranty accrual, end of period	$ 2,796	$ 3,636

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Summary of Significant Accounting Policies - Reconciliation of Basic and Diluted Net Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020	Mar. 28, 2020	Jul. 03, 2021	Jun. 27, 2020
Net income attributable to stockholders of Masimo Corporation:
Net income	$ 50,235	$ 53,383	$ 55,772	$ 64,456	$ 103,618	$ 120,228
Basic net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116	54,316
Net income per basic share	$ 0.91		$ 1.02		$ 1.88	$ 2.21
Diluted net income per share:
Weighted-average shares outstanding - basic	55,032		54,764		55,116	54,316
Diluted share equivalent: stock options, RSUs and PSUs	2,347		3,440		2,514	3,597
Weighted-average shares outstanding - diluted	57,379		58,204		57,630	57,913
Net income per diluted share	$ 0.88		$ 0.96		$ 1.80	$ 2.08

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Summary of Significant Accounting Policies - Supplemental Cash Flow Information (Detail) - USD ($)	6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021	Dec. 28, 2019
Accounting Policies [Abstract]
Interest expense	$ 196,000	$ 130,000
Income taxes	24,152,000	10,049,000
Operating lease liabilities	3,676,000	3,038,000
ROU assets obtained in exchange for lease liabilities	4,423,000	7,394,000
Unpaid purchases of property and equipment	2,381,000	3,135,000
Noncash or Part Noncash Acquisition, Intangible Assets Acquired	3,000,000
Settlement of promissory note receivable in connection with business combination	$ 0	5,100,000
Transfer to Investments	6,000
Deposit release to acquire noncontrolling interest(1)	$ 3,374,000	0
Unsettled common stock proceeds from option exercises	202,000	94,000
Fair value of common stock received for payment of stock option exercise price	0	220,000
Cash and cash equivalents	575,955,000	631,881,000	$ 641,447,000
Restricted cash	1,388,000	3,376,000
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents	$ 577,343,000	$ 635,257,000	$ 645,004,000	$ 568,075,000

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Summary of Significant Accounting Policies - Additional Information (Detail) shares in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021 shares	Jun. 27, 2020 shares	Jul. 03, 2021 segment shares	Jun. 27, 2020 shares
Summary Of Significant Accounting Policies [Line Items]
Number of Sources of Product Revenue | segment			4
Options to purchase of shares of common stock	400	300	200	300
Patents
Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life			10 years
Trademarks
Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life			17 years
Demonstration units
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Restricted Stock Units (RSUs)
Summary Of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			82
Restricted Stock Units (RSUs) | Chief Executive Officer
Summary Of Significant Accounting Policies [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			2,700	2,700
Minimum
Summary Of Significant Accounting Policies [Line Items]
Warranty period for defects in material and workmanship			3 months
Minimum | Building and building improvements
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			7 years
Minimum | Computer equipment and software
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			2 years
Minimum | Furniture and office equipment
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			2 years
Minimum | Machinery, equipment and tooling
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Minimum | Transportation, vehicles and other
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			4 years
Maximum
Summary Of Significant Accounting Policies [Line Items]
Warranty period for defects in material and workmanship			48 months
Maximum | Building and building improvements
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			39 years
Maximum | Computer equipment and software
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			12 years
Maximum | Furniture and office equipment
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			6 years
Maximum | Machinery, equipment and tooling
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			10 years
Maximum | Transportation, vehicles and other
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			20 years

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Related Party Transactions Related Party Transactions - (Details)

3 Months Ended

6 Months Ended

Jul. 08, 2021

USD ($)

Jul. 03, 2021

USD ($)

Jun. 27, 2020

USD ($)

Jul. 03, 2021

USD ($)

ft²

Jun. 27, 2020

USD ($)

Jan. 02, 2021

USD ($)

Related Party Transaction [Line Items]

Related Party Transactions Disclosure

3. Related Party Transactions

The Company’s Chairman and Chief Executive Officer (CEO) is also the Chairman and CEO of Cercacor Laboratories, Inc. (Cercacor). The Company is a party to the following agreements with Cercacor:

•Cross-Licensing Agreement - The Company and Cercacor are parties to a cross-licensing agreement (Cross-Licensing Agreement), which governs each party’s rights to certain intellectual property held by the two companies. The Company is subject to certain annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $3.2 million and $3.1 million for the three months ended July 3, 2021 and June 27, 2020, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $6.7 million and $6.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Administrative Services Agreement - The Company is a party to an administrative services agreement with Cercacor (G&A Services Agreement), which governs certain general and administrative services that the Company provides to Cercacor. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million for each of the three months ended July 3, 2021 and June 27, 2020. Amounts charged by the Company pursuant to the G&A Services Agreement were less than $0.1 million and $0.2 million for the six months ended July 3, 2021 and June 27, 2020, respectively.

•Lease and Sublease Agreements - Effective December 2019, the Company entered into a lease agreement with Cercacor for approximately 34,000 square feet of office, research and development space at one of the Company’s owned facilities in Irvine (Cercacor Lease). The term of the Cercacor Lease expires on December 31, 2024. In March 2016, the Company entered into a sublease agreement with Cercacor for approximately 16,830 square feet of excess office and laboratory space located at 40 Parker, Irvine, California (Cercacor Sublease). The Cercacor Sublease began on May 1, 2016 and expired on December 15, 2019. The Company recognized approximately $0.3 million of lease income for each of the three months ended July 3, 2021 and June 27, 2020. The Company recognized approximately $0.6 million and $0.5 million of lease income for the six months ended July 3, 2021 and June 27, 2020, respectively.

Net amounts due to Cercacor at each of July 3, 2021 and January 2, 2021 were approximately $3.1 million and $3.6 million, respectively.

The Company’s CEO is also the Chairman of the Masimo Foundation for Ethics, Innovation and Competition in Healthcare (Masimo Foundation), a non-profit organization that was founded in 2010 to provide a platform for encouraging ethics, innovation and competition in healthcare. In addition, the Company’s Executive Vice President (EVP), Chief Financial Officer (CFO) serves as the Treasurer of the Masimo Foundation and the Company’s EVP, General Counsel and Corporate Secretary serves as the Secretary for the Masimo Foundation. During the three months ended July 3, 2021 and June 27, 2020, the Company made no cash contributions to the Masimo Foundation. During the six months ended July 3, 2021, the Company made no contributions to the Masimo Foundation. During the six months ended June 27, 2020, the Company made cash contributions of approximately $1.5 million to the Masimo Foundation. During the three and six months ended July 3, 2021 and June 27, 2020, the Company made various in-kind contributions to the Masimo Foundation, mainly in the form of donated administrative services.

The Company’s CEO is also a co-founder and a member of the board of directors of Like Minded Media Ventures (LMMV), a team of storytellers that create content focused in the areas of true stories, social causes and science. LMMV creates stories with a multi-platform strategy, bridging the gap between film, television, digital and social media. The Company entered into a marketing service agreement with LMMV for audiovisual production services promoting brand awareness, including television commercials and digital advertising, during the second quarter of 2020. During the three and six months ended July 3, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the three and six months ended June 27, 2020, the Company incurred $3.3 million in marketing expenses to LMMV under the marketing service agreement. At July 3, 2021 and January 2, 2021, there was no amount due to LMMV for services rendered.

The Company entered into a software license and professional services agreement with Like Minded Labs (LML), a subsidiary of LMMV, during the second quarter of 2021. Pursuant to the software license agreement, LML granted the Company a perpetual, non-exclusive and fully paid-up right and license to integrate LML’s software into the Company’s products in exchange for a $3.0 million one-time license fee. Pursuant to the professional services agreement, LML will provide professional services to the Company, including the development of custom software intended to support the integration of the licensed software into the Company’s products, as well as future support services upon the Company’s acceptance of deliverables.

In July 2021, the Company entered into a patent purchase and option agreement with Vantrix Corporation (Vantrix), an acquiree of LML, for certain patents for $0.5 million, and the right to purchase two pools of additional patents from Vantrix for an exercise fee of up to $1.1 million. The agreements with LML and Vantrix include sublicensing provisions whereby the software and patents are licensed back to LML or Vantrix, respectively, for further advancement of the technologies.

The Company maintains an aircraft time share agreement, pursuant to which the Company has agreed from time to time to make its aircraft available to the Company’s CEO for lease on a time-sharing basis. The Company charges the Company’s CEO for personal use based on agreed upon reimbursement rates. For each of the three and six months ended July 3, 2021 and June 27, 2020, the Company charged the Company’s CEO less than $0.1 million related to such disbursements.

Cercacor Laboratories

Related Party Transaction [Line Items]

Payments for Royalties

$ 3,200,000

$ 3,100,000

$ 6,700,000

$ 6,200,000

Payment for Administrative Fees

100,000

100,000

$ 100,000

200,000

Related Party Transaction, Date

Dec. 31, 2024

Operating Leases, Income Statement, Sublease Revenue

300,000

300,000

$ 600,000

500,000

Related Party Transaction, Due from (to) Related Party

(3,100,000)

$ (3,100,000)

$ (3,600,000)

Leased Property

Related Party Transaction [Line Items]

Property Plant and Equipment, Occupied Square Feet | ft²

34,000

Subleased Property

Related Party Transaction [Line Items]

Property Plant and Equipment, Occupied Square Feet | ft²

16,830

Not for Profit Organization

Related Party Transaction [Line Items]

Related Party Transaction, Amounts of Transaction

0

$ 0

1,500,000

Like Minded Media Ventures

Related Party Transaction [Line Items]

Related Party Transaction, Due from (to) Related Party

0

0

$ 0

Related Party Transaction, Expenses from Transactions with Related Party

0

3,300,000

0

$ 3,300,000

Reimbursement Fee

Related Party Transaction [Line Items]

Related Party Transaction, Expenses from Transactions with Related Party

100,000

$ 100,000

Like Minded Labs

Related Party Transaction [Line Items]

Finite-Lived License Agreements, Gross

$ 3,000,000.0

3,000,000.0

Vantrix Corp | Subsequent Event | Purchase Commitment

Related Party Transaction [Line Items]

Related Party Transaction, Purchases from Related Party

$ 500,000

Vantrix Corp | Subsequent Event | Options Held

Related Party Transaction [Line Items]

Related Party Transaction, Purchases from Related Party

$ 1,100,000

Minimum

Related Party Transaction [Line Items]

Payments for Royalties

$ 5,000,000.0

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Inventories - Components of Inventory (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Inventory Disclosure [Abstract]
Raw materials	$ 133,921	$ 133,098
Work-in-process	18,185	15,985
Finished goods	54,501	66,869
Total inventories	$ 206,607	$ 215,952

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Other Current Assets (Details) - USD ($)	Jul. 03, 2021	Jan. 02, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid expenses	$ 32,636,000	$ 30,235,000
Lease receivable, current	26,650,000	23,206,000
Indirect taxes receivable	11,258,000	14,545,000
Prepaid income taxes	10,315,000	14,782,000
Prepaid rebates and royalties, current	3,186,000	3,081,000
Customer notes receivable	1,554,000	2,283,000
Restricted cash(1)	1,299,000	3,397,000
Deposit to acquire noncontrolling interest(2)	0	3,374,000
Other current assets	3,022,000	7,513,000
Total other current assets	$ 89,920,000	$ 102,416,000

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Lease Receivable (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Leases [Abstract]
Operating Lease, Variable Lease Income	$ 18.0	$ 8.0	$ 28.0	$ 18.0

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Lease Receivable Sales-Type (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Leases [Abstract]
Lease receivable	$ 92,078	$ 81,074
Allowance for credit loss	(230)	(202)
Lease receivable, net	91,848	80,872
Less: current portion of lease receivable	(26,650)	(23,206)
Lease receivable, noncurrent	$ 65,198	$ 57,666

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Lease Receivable Sales-type Lease, Maturity (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Leases [Abstract]
2021 (balance of year)	$ 26,650
2022	22,526
2023	17,572
2024	11,971
2025	8,026
Thereafter	5,103
Total	$ 91,848	$ 80,872

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Deferred Costs and Other Contract Assets (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred commissions	$ 8,849	$ 7,477
Prepaid contract allowances	7,074	7,336
Unbilled contract receivables	4,343	3,925
Equipment leased to customers, net	1,438	1,338
Deferred costs and other contract assets	$ 21,704	$ 20,076

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Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 419,482		$ 419,482		$ 406,647
Accumulated depreciation	(144,759)		(144,759)		(134,136)
Property and equipment, net	274,723		274,723		272,511
Depreciation	6,400	$ 5,300	12,300	$ 10,200
Building and building improvements
Property, Plant and Equipment [Line Items]
Total property and equipment	141,856		141,856		122,310
Machinery, equipment and tooling
Property, Plant and Equipment [Line Items]
Total property and equipment	100,682		100,682		90,843
Land
Property, Plant and Equipment [Line Items]
Total property and equipment	57,255		57,255		57,151
Transportation, vehicles and other
Property, Plant and Equipment [Line Items]
Total property and equipment	33,111		33,111		33,175
Computer equipment and software
Property, Plant and Equipment [Line Items]
Total property and equipment	31,510		31,510		24,693
Leasehold improvements
Property, Plant and Equipment [Line Items]
Total property and equipment	20,476		20,476		19,295
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Total property and equipment	14,103		14,103		13,567
Demonstration units
Property, Plant and Equipment [Line Items]
Total property and equipment	1,046		1,046		1,024
Construction-in-progress (CIP)
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 19,443		$ 19,443		$ 44,589

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Intangible Assets - Schedule of Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	$ 116,255	$ 110,589
Accumulated amortization	(41,230)	(36,666)
Intangible assets, net	75,025	73,923
Acquired technologies
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	29,011	29,039
Patents
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	28,839	26,875
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	24,667	24,666
Trademarks
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	12,072	11,708
Licenses-related party
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	7,500	7,500
Other
Finite-Lived Intangible Assets [Line Items]
Total intangible assets	$ 14,166	$ 10,801

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Intangible Assets - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life			12 years
Amortization of Intangible Assets	$ 2.4	$ 2.1	$ 5.0	$ 3.5
Patents
Finite-Lived Intangible Assets [Line Items]
Weighted average number of years until the next renewal			2 years
Trademarks
Finite-Lived Intangible Assets [Line Items]
Weighted average number of years until the next renewal			4 years
Patents And Trademarks
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Cost Incurred to Renew or Extend	0.2	0.3	$ 0.4	0.5
Acquired Indefinite-lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Cost Incurred to Renew or Extend	$ 0.2	$ 0.3	$ 0.4	$ 0.5

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Intangible Assets - Future Amortization Expense (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
2021 (balance of year)	$ 9,377
2022	8,304
2023	7,817
2024	7,455
2025	6,173
Thereafter	35,899
Intangible assets, net	$ 75,025	$ 73,923

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Goodwill (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 03, 2021	Jan. 02, 2021
Goodwill [Line Items]
Goodwill	$ 102,486	$ 103,206
Foreign currency translation adjustment	$ (720)

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Lessee ROU Assets and Lease Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021
Leases [Abstract]
Lessee, Operating Lease, Renewal Term	5 years		5 years
Operating Lease, Weighted Average Discount Rate, Percent	2.50%		2.50%
Operating Lease, Right-of-Use Asset, Accumulated Amortization	$ 12,000		$ 12,000		$ 9,200
Operating Lease, Weighted Average Remaining Lease Term	6 years 10 months 24 days		6 years 10 months 24 days
Operating lease costs	$ 2,200	$ 1,700	$ 4,100	$ 3,400

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Lessee ROU Assets and Lease Liabilities Lessee Operating Lease Balance Sheet Classification (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Leases [Abstract]
Lessee ROU assets, net	$ 33,031	$ 32,324
Lessee lease liabilities, current	6,248	5,975
Lessee non-current lease liabilities	28,940	28,373
Present value	$ 35,188	$ 34,348
Operating Lease, Liability, Current, Statement of Financial Position [Extensible List]	us-gaap:OtherLiabilitiesCurrent	us-gaap:OtherLiabilitiesCurrent
Operating Lease, Liability, Noncurrent, Statement of Financial Position [Extensible List]	us-gaap:LiabilitiesNoncurrentAbstract	us-gaap:LiabilitiesNoncurrentAbstract
Operating Lease, Liability, Statement of Financial Position [Extensible List]	us-gaap:OtherLiabilities	us-gaap:OtherLiabilities

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Lessee ROU Assets and Lease Liabilities Future Maturities Operating Lease Payments (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Leases [Abstract]
2021 (balance of year)	$ 3,693
2022	6,719
2023	6,522
2024	5,120
2025	4,007
Thereafter(1)	12,387
Total	38,448
Imputed interest	(3,260)
Present value	$ 35,188	$ 34,348

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Other Non-Current Assets (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Other Assets, Longterm [Abstract]
Lessee ROU assets, net	$ 33,031	$ 32,324
Strategic investments	13,928	8,002
Prepaid deposits and other	4,445	4,316
Other non-current assets	$ 51,404	$ 44,642

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Deferred Revenue and Other Contract Liabilities (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Unrecognized contract revenue	$ 949,100
Deferred revenue	33,132	$ 33,221
Accrued rebates and allowances	9,583	12,127
Accrued customer reimbursements	5,218	3,829
Total deferred revenue and other contract liabilities	47,933	49,177
Less: Non-current portion of deferred revenue	(3,775)	(4,242)
Deferred revenue and other contract liabilities - current	44,158	$ 44,935
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-04-03
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Unrecognized contract revenue	$ 265,600
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2026-04-03
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	5 years

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Deferred Revenue and Other Contract Liabilities - Changes in Deferred Revenue (Details) $ in Thousands	6 Months Ended
	Jul. 03, 2021 USD ($)
Movement in Deferred Revenue [Roll Forward]
Deferred revenue, beginning of the period	$ 33,221
Revenue deferred during the period	16,888
Recognition of revenue deferred in prior periods	(16,977)
Deferred revenue, end of the period	$ 33,132

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Other Current Liabilities (Details) - USD ($)	Jul. 03, 2021	Jan. 02, 2021
Accrued Liabilities [Abstract]
Accrued expenses	$ 17,746,000	$ 6,794,000
Accrued indirect taxes payable	9,627,000	14,365,000
Lessee lease liabilities, current	6,248,000	5,975,000
Accrued legal fees	4,124,000	4,058,000
Income tax payable	3,871,000	5,910,000
Related party payables	3,155,000	3,655,000
Accrued warranty	2,796,000	2,740,000
Noncontrolling interest(1)	0	3,469,000
Accrued donations	1,307,000	495,000
Accrued property taxes	2,420,000	1,682,000
Other current liabilities	3,286,000	4,096,000
Total other current liabilities	$ 54,580,000	$ 53,239,000

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Credit Facility (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021	Dec. 17, 2018
Debt Instrument [Line Items]
Letters of Credit Outstanding, Amount	$ 1,800,000		$ 1,800,000		$ 1,700,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Sublimit						$ 25,000,000.0
Foreign Line of Credit [Member]
Debt Instrument [Line Items]
Line of Credit Facility, Maximum Sublimit						75,000,000.0
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Current Borrowing Capacity						150,000,000.0
Line of Credit Facility, Maximum Borrowing Capacity						$ 550,000,000.0
Long-term Line of Credit, Noncurrent	0		0		$ 0
Interest Expense, Debt	$ 100,000	$ 100,000	$ 200,000	$ 200,000

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Other Non-Current Liabilities - (Detail) - USD ($) $ in Thousands	Jul. 03, 2021	Jan. 02, 2021
Other Liabilities, Long Term [Abstract]
Lessee non-current lease liabilities	$ 28,940	$ 28,373
Income tax payable, non-current	16,980	19,245
Unrecognized tax benefits	13,659	11,777
Deferred tax liabilities	6,157	6,247
Other	4,688	5,434
Total other non-current liabilities	$ 70,424	$ 71,076

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Stock Repurchase Program - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended		36 Months Ended
	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020	Mar. 28, 2020	Jul. 03, 2021	Jun. 27, 2020	Sep. 11, 2021	Jul. 01, 2018
Class of Stock [Line Items]
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 3,700				$ 3,700
Shares repurchased(1)	0		1,000		547,000	4,000
Average cost per share	$ 0		$ 213.91		$ 235.88	$ 164.44
Value of shares repurchased	$ 0	$ 128,917	$ 220	$ 371	$ 128,917	$ 591
2018 Repurchase Program | Common Stock
Class of Stock [Line Items]
Number of common shares authorized to be repurchased under new stock repurchase program								5,000,000.0
Forecast [Member] | 2018 Repurchase Program | Common Stock
Class of Stock [Line Items]
Stock Repurchase Program, Period							3 years

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Payment Arrangement, Expensed and Capitalized, Amount	$ 8.3	$ 13.2	$ 21.0	$ 24.5
Common Stock, Capital Shares Reserved for Future Issuance	10,900,000		10,900,000
Options available for grant, end of period	4,400,000		4,400,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	3,292,000		3,292,000		3,448,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights			three years
Aggregate intrinsic value of options outstanding	$ 566.5		$ 566.5
Aggregate intrinsic value of options exercisable	457.7		457.7
Aggregate intrinsic value of options exercised	8.7		21.4
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Payment Arrangement, Expensed and Capitalized, Amount	2.9	4.1	6.7	8.1
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount	34.9		$ 34.9
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition			2 years 8 months 12 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			5 years 4 months 24 days
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term			4 years 6 months
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Payment Arrangement, Expensed and Capitalized, Amount	2.4	1.5	$ 4.4	2.5
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount	$ 36.6		$ 36.6
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms			3 years 9 months 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	2,900,000		2,900,000		2,862,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			82,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period			10,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired in Period			0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 102.71		$ 102.71		$ 99.66
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value			246.67
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value			197.13
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value			$ 163.57
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Payment Arrangement, Expensed and Capitalized, Amount	$ 3.0	$ 7.6	$ 9.9	$ 13.9
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount	$ 48.7		$ 48.7
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms			1 year 3 months 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	302,000		302,000		444,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period			17,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired in Period			0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 168.68		$ 168.68		$ 120.28
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value			162.99
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value			166.84
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value			$ 86.95
Performance Shares | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			148,000
Performance Shares | Minimum | 2021 PSU Grant [Domain]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			68,600
Share-based compensation arrangement by share-based payment award, range of percentage payout	0.00%		0.00%
Performance Shares | Maximum | 2021 PSU Grant [Domain]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			137,200
Share-based compensation arrangement by share-based payment award, range of percentage payout	200.00%		200.00%
Chief Executive Officer | Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			2,700,000	2,700,000
2017 Equity Incentive Plan [Domain]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	2,500,000
2017 Equity Incentive Plan [Domain] | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period	5,000,000.0		5,000,000.0
2017 Equity Incentive Plan [Domain] | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period	7,500,000		7,500,000
2007 Stock Incentive Plan [Domain] | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period	5,000,000.0		5,000,000.0

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Stock-Based Compensation - Number and Weighted Average Exercise Price of Options Issued and Outstanding under all Stock Option Plans (Detail) - $ / shares shares in Thousands	6 Months Ended
	Jul. 03, 2021
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options outstanding, beginning of period	3,448
Granted	85
Canceled	(128)
Exercised	(113)
Options outstanding, end of period	3,292
Options exercisable, end of period	2,311
Weighted-Average Exercise Price
Options outstanding, beginning of period	$ 77.44
Granted	250.15
Canceled	146.51
Exercised	56.02
Options outstanding, end of period	79.92
Options exercisable, end of period	$ 53.95

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Stock-Based Compensation Stock-Based Compensation - Summary of Unvested RSU Activity (Details) - USD ($) $ / shares in Units, $ in Millions	6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	2,900,000		2,862,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	82,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	(10,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(34,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 102.71		$ 99.66
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	246.67
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value	197.13
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired, Weighed Average Grant Date Fair Value	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 163.57
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount	$ 36.6
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms	3 years 9 months 18 days
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	302,000		444,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	(17,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(273,000)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 168.68		$ 120.28
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	162.99
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeitures, Weighted Average Grant Date Fair Value	166.84
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Expired, Weighed Average Grant Date Fair Value	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 86.95
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount	$ 48.7
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms	1 year 3 months 18 days
Chief Executive Officer | Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	2,700,000	2,700,000

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Stock-Based Compensation - Range of Assumptions Used and Resulting Weighted-Average Fair Value of Options Granted at Date of Grant (Detail) - $ / shares	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Range of assumptions used and resulting weighted-average fair value of options granted at the date of grant
Risk-free interest rate, minimum	0.40%	0.30%	0.30%	0.30%
Risk-free interest rate, maximum		0.60%	0.90%	1.70%
Expected term (in years)	5 years 1 month 6 days	5 years 1 month 6 days	5 years 7 months 6 days	5 years 1 month 6 days
Estimated volatility, minimum	32.90%	26.90%	30.90%	26.90%
Estimated volatility, maximum		35.50%	34.70%	35.50%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Weighted-average fair value of options granted	$ 66.53	$ 60.12	$ 75.72	$ 49.82

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Non-operating income (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Nonoperating Income (Expense) [Abstract]
Interest income	$ 218,000	$ 1,478,000	$ 435,000	$ 4,323,000
Interest expense	(88,000)	(83,000)	(172,000)	(167,000)
Realized and unrealized foreign currency (losses) gains	(50,000)	11,000	(920,000)	599,000
Other	0	(1,000)	0	(4,000)
Non-operating income (loss)	$ 80,000	$ 1,405,000	$ (657,000)	$ 4,751,000

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Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Income Tax Disclosure [Abstract]
Other Tax Expense (Benefit)	$ 1.3	$ 7.5	$ 5.6	$ 17.1
Gross unrecognized tax benefit	19.9		19.9
Unrecognized tax benefit that would affect effective tax rate	$ 18.0		$ 18.0

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Commitments and Contingencies - Additional Information (Detail)				3 Months Ended				6 Months Ended
	Jul. 08, 2019 USD ($)	Jul. 27, 2017	Jan. 03, 2014 USD ($)	Jul. 03, 2021 USD ($) Customer distributor Agreement	Jun. 27, 2020 USD ($) distributor	Mar. 28, 2020 USD ($)	Mar. 31, 2018 USD ($)	Jul. 03, 2021 USD ($) Customer Agreement distributor	Jun. 27, 2020 USD ($) distributor	Jan. 02, 2021
Contingencies And Commitments [Line Items]
Company contribution percentage based on employee contribution of up to 3% of employee's compensation								3.00%
Company's contribution to employee retirement savings plan				$ 900,000	$ 800,000			$ 1,900,000	$ 1,600,000
Severance plan participation agreements | Agreement				5				5
Supplemental Unemployment Benefits, Severance Benefits, Required Notice of Resignation								6 months
Purchase Commitment, Remaining Minimum Amount Committed				$ 143,900,000				$ 143,900,000
Other Commitment				2,800,000				2,800,000
Bank Balances				576,000,000.0				576,000,000.0
Bank balance covered by Federal Deposit Insurance Corporation limit				$ 4,200,000				$ 4,200,000
Percentage Of Revenue One Customer				15.00%	8.80%			14.40%	11.30%
Percentage Of Revenue Two Customer				9.90%	8.30%			10.40%	10.40%
Concentration Risk, AR Balance One Customer | Customer				1				1
Loss Contingency, Damages Awarded, Value	$ 10,500,000
Sales
Contingencies And Commitments [Line Items]
Concentration Risk, Just-in-time Distributors | distributor				2	2			2	2
Accounts Receivable
Contingencies And Commitments [Line Items]
Percentage of Accounts Receivable Balance				11.90%				11.90%		9.10%
Sales Revenue, Product Line
Contingencies And Commitments [Line Items]
Percentage of Revenue - Customer Concentration				49.00%	45.90%			50.10%	50.30%
Masimo vs Former Agency Tender
Contingencies And Commitments [Line Items]
Litigation Settlement, Expense							$ 10,500,000
Proceeds from Legal Settlements						$ 2,000,000.0
Masimo vs. Physicians Healthsource, Inc.
Contingencies And Commitments [Line Items]
Loss contingency, damages sought			$ 500
Chief Executive Officer
Contingencies And Commitments [Line Items]
Employment Agreement, Severance Benefits, Special Payment, Qualifying Termination								$ 292,900,000
Chief Executive Officer | Cash Distribution
Contingencies And Commitments [Line Items]
Employment Agreement, Severance Terms		50.00%
Chief Executive Officer | Restricted Stock Units (RSUs)
Contingencies And Commitments [Line Items]
Employment Agreement, Severance Terms		50.00%

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Segment Information and Enterprise Reporting - Analysis of Product Revenues Based upon Geographic Area Shipped (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020
Revenue, Major Customer [Line Items]
Product revenue	$ 305,118	$ 300,953	$ 604,161	$ 570,578
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
United States (U.S.) | Reportable Geographical Components
Revenue, Major Customer [Line Items]
Product revenue	$ 201,874	$ 194,721	$ 406,137	$ 384,240
Europe, Middle East and Africa | Reportable Geographical Components
Revenue, Major Customer [Line Items]
Product revenue	61,207	68,167	120,830	122,524
Asia and Australia | Reportable Geographical Components
Revenue, Major Customer [Line Items]
Product revenue	32,423	26,259	59,256	45,572
North and South America (excluding the U.S.) | Reportable Geographical Components
Revenue, Major Customer [Line Items]
Product revenue	$ 9,614	$ 11,806	$ 17,938	$ 18,242

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Segment Information and Enterprise Reporting Long-lived assets by geographic area (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Jul. 03, 2021	Jun. 27, 2020	Jan. 02, 2021
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	$ 276,161		$ 276,161		$ 273,849
Concentration Risk, Long-lived Asset Geographic Area, Percentage	100.00%		100.00%		100.00%
Product	$ 305,118	$ 300,953	$ 604,161	$ 570,578
Concentration Risk, Percentage	100.00%	100.00%	100.00%	100.00%
United States (U.S.) | Geographic Concentration Risk | Revenue Benchmark
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration Risk, Percentage	66.20%	64.70%	67.20%	67.30%
EMEA [Member] | Geographic Concentration Risk | Revenue Benchmark
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration Risk, Percentage	20.10%	22.70%	20.00%	21.50%
Asia Pacific [Member] | Geographic Concentration Risk | Revenue Benchmark
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration Risk, Percentage	10.60%	8.70%	9.80%	8.00%
North and South America (excluding the U.S.) | Geographic Concentration Risk | Revenue Benchmark
Revenues from External Customers and Long-Lived Assets [Line Items]
Concentration Risk, Percentage	3.10%	3.90%	3.00%	3.20%
Reportable Geographical Components | United States (U.S.)
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	$ 238,638		$ 238,638		$ 238,094
Concentration Risk, Long-lived Asset Geographic Area, Percentage	86.40%		86.40%		86.90%
Product	$ 201,874	$ 194,721	$ 406,137	$ 384,240
Reportable Geographical Components | International
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-Lived Assets	$ 37,523		$ 37,523		$ 35,755
Concentration Risk, Long-lived Asset Geographic Area, Percentage	13.60%		13.60%		13.10%
Reportable Geographical Components | EMEA [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Product	$ 61,207	68,167	$ 120,830	122,524
Reportable Geographical Components | Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Product	32,423	26,259	59,256	45,572
Reportable Geographical Components | North and South America (excluding the U.S.)
Revenues from External Customers and Long-Lived Assets [Line Items]
Product	$ 9,614	$ 11,806	$ 17,938	$ 18,242