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 October 1, 2022

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
Rights to Purchase Series A Junior Participating Preferred Stock			N/A		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 October 1, 2022
Common stock, $0.001 par value					52,564,663

MASIMO CORPORATION

FORM 10-Q FOR THE QUARTER ENDED OCTOBER 1, 2022

TABLE OF CONTENTS

PART I. Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of October 1, 2022 and January 1, 2022	3
	Condensed Consolidated Statements of Operations for the three and nine months ended October 1, 2022 and October 2, 2021	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2022 and October 2, 2021	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended October 1, 2022 and October 2, 2021	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended October 1, 2022 and October 2, 2021	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 4.	Controls and Procedures	58
PART II. Other Information
Item 1.	Legal Proceedings	58
Item 1A.	Risk Factors	58
Item 6.	Exhibits	90
Signatures		92

2

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements

MASIMO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions, except par values)

	October 1, 2022		January 1, 2022
ASSETS
Current assets
Cash and cash equivalents	$	219.5	$	745.3
Trade accounts receivable, net of allowance for credit losses of $3.8 million and $2.2 million at October 1, 2022 and January 1, 2022, respectively	371.6		200.8
Inventories	495.4		201.4
Other current assets	159.1		91.0
Total current assets	1,245.6		1,238.5
Lease receivable, noncurrent	79.6		73.6
Deferred costs and other contract assets	37.0		28.1
Property and equipment, net	372.2		272.8
Customer relationships, net - (Note 9)	204.5		15.3
Acquired technologies, net - (Note 9)	163.9		19.7
Other intangible assets, net	78.2		37.5
Trademarks - (Note 9)	262.0		—
Goodwill	446.3		100.3
Deferred tax assets	56.5		52.6
Other non-current assets	110.6		48.6
Total assets	$	3,056.4	$	1,887.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	267.8	$	75.5
Accrued compensation	90.4		70.8
Deferred revenue and other contract liabilities, current	77.6		50.9
Other current liabilities	151.5		70.4
Total current liabilities	587.3		267.6
Long-term debt	951.4		—
Deferred tax liabilities	139.2		5.1
Other non-current liabilities	125.9		64.0
Total liabilities	1,803.8		336.7
Commitments and contingencies - (Note 24)
Stockholders’ equity
Preferred stock, $0.001 par value; 5.0 million shares authorized; 0 shares issued and outstanding	—		—
Common stock, $0.001 par value; 100.0 million shares authorized; 52.6 million and 55.3 million shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively	0.1		0.1
Treasury stock, 19.5 million and 16.5 million shares at October 1, 2022 and January 1, 2022, respectively	(1,169.1)		(767.7)
Additional paid-in capital	775.0		752.5
Accumulated other comprehensive loss	(26.9)		(5.5)
Retained earnings	1,673.5		1,570.9
Total stockholders’ equity	1,252.6		1,550.3
Total liabilities and stockholders’ equity	$	3,056.4	$	1,887.0

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

3

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in millions, except per share amounts)

 

	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Revenue	$	549.3	$	307.4	$	1,418.8	$	911.6
Cost of goods sold	266.8		103.8		673.4		318.1
Gross profit	282.5		203.6		745.4		593.5
Operating expenses:
Selling, general and administrative	174.6		100.6		471.6		291.2
Research and development	53.1		35.4		137.1		103.9
Total operating expenses	227.7		136.0		608.7		395.1
Operating income	54.8		67.6		136.7		198.4
Non-operating (loss) income	(2.8)		—		1.0		(0.7)
Income before provision for income taxes	52.0		67.6		137.7		197.7
Provision for income taxes	14.1		9.8		35.1		36.3
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Net income per share:
Basic	$	0.72	$	1.05	$	1.90	$	2.93
Diluted	$	0.70	$	1.00	$	1.85	$	2.80
Weighted-average shares used in per share calculations:
Basic	52.5		55.1		54.0		55.1
Diluted	54.1		57.7		55.6		57.7

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

4

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, in millions)

	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Other comprehensive income, net of tax:
Unrealized losses from foreign currency translation adjustments	(17.8)		(3.2)		(34.7)		(4.9)
Change in pension benefits	(0.7)		—		(1.4)		—
Unrealized gains on cash flow hedges (1)	14.7		—		14.7		—
Total comprehensive income	$	34.1	$	54.6	$	81.2	$	156.5

______________

(1)    See Note 17, “Derivative Instruments and Hedging Activities”, for further details.

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

5

MASIMO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in millions)
	Three and Nine Months Ended October 1, 2022
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at January 1, 2022	55.3	$	0.1	16.5	$	(767.7)	$	752.5	$	(5.5)	$	1,570.9	$	1,550.3
Stock options exercised	0.1	—		—	—		2.7		—		—		2.7
Restricted/Performance stock units vested	0.2	—		—	—		—		—		—		—
Shares paid for tax withholding	(0.1)	—		—	—		(25.4)		—		—		(25.4)
Stock-based compensation	—	—		—	—		10.9		—		—		10.9
Net income	—	—		—	—		—		—		46.6		46.6
Foreign currency translation adjustment	—	—		—	—		—		(2.9)		—		(2.9)
Balance at April 2, 2022	55.5	0.1		16.5	(767.7)		740.7		(8.4)		1,617.5		1,582.2
Stock options exercised	—	—		—	—		1.2		—		—		1.2
Stock-based compensation	—	—		—	—		17.3		—		—		17.3
Repurchases of common stock	(3.0)	—		3.0	(401.4)		—		—		—		(401.4)
Net income	—	—		—	—		—		—		18.1		18.1
Foreign currency translation adjustment	—	—		—	—		—		(14.0)		—		(14.0)
Unrealized loss on pension plan	—	—		—	—		—		(0.7)		—		(0.7)
Balance at July 2, 2022	52.5	0.1		19.5	(1,169.1)		759.2		(23.1)		1,635.6		1,202.7
Stock options exercised	0.1	—		—	—		2.3		—		—		2.3
Stock-based compensation	—	—		—	—		13.5		—		—		13.5
Net income	—	—		—	—		—		—		37.9		37.9
Foreign currency translation adjustment	—	—		—	—		—		(17.8)		—		(17.8)
Unrealized loss on pension plan	—	—		—	—		—		(0.7)		—		(0.7)
Unrealized gain on cash flow hedge	—	—		—	—		—		14.7		—		14.7
Balance at October 1, 2022	52.6	$	0.1	19.5	$	(1,169.1)	$	775.0	$	(26.9)	$	1,673.5	$	1,252.6

6

	Three and Nine Months Ended October 2, 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	55.3	$	0.1	16.0	$	(638.7)	$	703.7	$	1.4	$	1,341.2	$	1,407.7
Stock options exercised	—	—		—	—		2.9		—		—		2.9
Restricted/Performance stock units vested	0.3	—		—	—		—		—		—		—
Shares paid for tax withholding	—	—		—	—		(16.7)		—		—		(16.7)
Stock-based compensation	—	—		—	—		12.7		—		—		12.7
Repurchases of common stock	(0.5)	—		0.5	(128.9)		—		—		—		(128.9)
Net income	—	—		—	—		—		—		53.4		53.4
Foreign currency translation adjustment	—	—		—	—		—		(2.9)		—		(2.9)
Balance at April 3, 2021	55.1	0.1		16.5	(767.6)		702.6		(1.5)		1,394.6		1,328.2
Stock options exercised	—	—		—	—		3.4		—		—		3.4
Stock-based compensation	—	—		—	—		8.3		—		—		8.3
Net income	—	—		—	—		—		—		50.2		50.2
Foreign currency translation adjustment	—	—		—	—		—		1.2		—		1.2
Balance at July 3, 2021	55.1	0.1		16.5	(767.6)		714.3		(0.3)		1,444.8		1,391.3
Stock options exercised	0.2	—		—	—		9.7		—		—		9.7
Stock-based compensation	—	—		—	—		12.6		—		—		12.6
Net income	—	—		—	—		—		—		57.8		57.8
Foreign currency translation adjustment	—	—		—	—		—		(3.2)		—		(3.2)
Balance at October 2, 2021	55.3	$	0.1	16.5	$	(767.6)	$	736.6	$	(3.5)	$	1,502.6	$	1,468.2

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

7

MASIMO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)

	Nine Months Ended
	October 1, 2022		October 2, 2021
Cash flows from operating activities:
Net income	$	102.6	$	161.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	56.6		26.5
Stock-based compensation	41.7		33.5
Gain on disposal of equipment, intangibles and other assets	0.1		0.3
Provision for credit losses	1.2		0.6
Amortization of debt issuance cost	0.9		—
Changes in operating assets and liabilities:
Increase in accounts receivable	(66.7)		(51.0)
(Increase) decrease in inventories	(71.0)		12.3
Decrease in other current assets	11.7		4.4
Increase in lease receivable, net	(5.9)		(9.3)
Increase in deferred costs and other contract assets	(31.6)		(2.6)
(Increase) decrease in other non-current assets	(22.2)		0.1
Increase (decrease) in accounts payable	69.6		(4.3)
Decrease in accrued compensation	(6.9)		(1.3)
Decrease in accrued liabilities	(26.5)		(4.0)
Decrease in income tax payable	(8.4)		(1.5)
Increase in deferred revenue and other contract-related liabilities	19.7		1.4
(Decrease) increase in other non-current liabilities	(28.9)		0.6
Net cash provided by operating activities	36.0		167.1
Cash flows from investing activities:
Purchases of property and equipment, net	(36.0)		(20.7)
Increase in intangible assets	(13.9)		(8.2)
Business combinations, net of cash acquired	(985.0)		—
Other strategic investing activities	—		(2.6)
Net cash used in investing activities	(1,034.9)		(31.5)
Cash flows from financing activities:
Borrowings under line of credit	1,050.6		—
Repayments on line of credit	(96.3)		—
Debt issuance costs	(9.3)		—
Proceeds from issuance of common stock	6.9		19.0
Payroll tax withholdings on behalf of employees for vested equity awards	(25.4)		(16.7)
Repurchases of common stock	(401.4)		(128.9)
Net cash provided by (used in) financing activities	525.1		(126.6)
Effect of foreign currency exchange rates on cash	(52.5)		(0.1)
Net (decrease) increase in cash, cash equivalents and restricted cash	(526.3)		8.9
Cash, cash equivalents and restricted cash at beginning of period	748.4		645.0
Cash, cash equivalents and restricted cash at end of period	$	222.1	$	653.9

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 is a global medical technology company dedicated to improving lives, taking noninvasive monitoring to new sites and applications while improving patient outcomes and reducing the cost of care. The Company invented Masimo Signal Extraction Technology® (SET®), which provides the capabilities of Measure-through Motion and Low Perfusion™ pulse oximetry to address the primary limitations of conventional pulse oximetry. Historically, the Company has been focused on the core healthcare businesses derived from its SET® technology. During the early stages of the COVID-19 pandemic, the Company strategically expanded into the fast evolving remote patient monitoring and home wellness markets as well as the therapeutics markets.

On April 11, 2022, the Company acquired Viper Holdings Corporation, the parent company of DEI Sales, Inc., d/b/a Sound United (Sound United), via the Company’s wholly-owned subsidiary, Sonic Boom Acquisition Corp (Sonic). For more information on Masimo’s acquisition of Sound United, see Note 18, “Business Combinations”. In addition, the Company updated its financial reporting segments to align with the way it manages the business units post-acquisition. See Note 25, “Segment and Enterprise Reporting”, for additional details.

The terms “the Company” and “Masimo” refer to Masimo Corporation and, where applicable, its consolidated subsidiaries.

______________

(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 1, 2022 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 1, 2022 (fiscal year 2021), filed with the SEC on February 15, 2022. The results for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 (fiscal year 2022) 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 2022 is a 52 week fiscal year ending December 31, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

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. The Company’s use of estimates includes 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, derivative instruments, deferred taxes and any associated valuation allowances, deferred revenue, accounting for pensions, uncertain income tax positions, litigation costs and related accruals. Actual results could differ from such estimates.

9

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) Topic 805, Business Combinations, which requires that once control is obtained, 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, with the exception of acquired contract assets and contract liabilities (i.e., deferred revenue) from contracts with customers. These are recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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.

Fair Value Measurements

The Company accounts for certain financial instruments at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its financial instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, and considers the estimated amount the Company would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and the Company’s creditworthiness for unrealized loss positions. In certain instances, the Company may utilize financial models to measure the fair value of its financial instruments. In doing so, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

Recurring Fair Value Measurement

On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. 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.

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at October 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	162.5	$	162.5	$	—	$	—
Money market funds	57.0		57.0		—		—
Derivative instruments - cash flow hedges	19.4		—		19.4		—
Total assets	$	238.9	$	219.5	$	19.4	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

10

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at January 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	745.3	$	745.3	$	—	$	—
Money market funds	—		—		—		—
Total assets	$	745.3	$	745.3	$	—	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The Company invests in checking, savings and money market fund accounts, which are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices. These investments are classified as cash and cash equivalents within the Company’s accompanying condensed consolidated balance sheets, in accordance with GAAP and its accounting policies.

Non-Recurring Fair Value Measurements

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.

Furthermore, the Company did not elect to apply the fair value option to specific assets or liabilities on a contract-by-contract basis. The Company did not have any transfers between Level 2 and Level 3 during the nine months ended October 1, 2022.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the 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. The Company carries cash and cash equivalents at cost, which approximates fair value, and are Level 1 under the fair value hierarchy.

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. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified receivables for U.S. customers and receivables from international customers each as a portfolio, and measures expected credit losses on such receivables using an aging methodology.

11

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
Buildings and building improvements	7 to 39 years
Computer equipment and software	1 to 12 years
Demonstration units	2 to 3 years
Furniture and office equipment	2 to 15 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 20 years
Operating lease assets	Lesser of useful life or term of lease
Transportation, vehicles and other	1 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.

Lessee Right-of-Use (ROU) Assets and Lease Liabilities

The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an asset underlying an operating lease for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. 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. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its lease terms unless they are reasonably certain to be exercised. The Company utilizes a portfolio approach to account for the ROU assets and liabilities associated with certain equipment leases.

The Company has also made an accounting policy election not to separate lease and non-lease components for its real estate leases and to exclude short-term leases with a term of twelve months or less from its ROU assets and lease liabilities. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships, licenses 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 a range of 10 years to 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

12

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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 and trademarks 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.

Intangibles purchased as part of an asset acquisition or business combination historically have included patents, trademarks, customer relationships, developed technologies and contractual licenses. In certain circumstances the Company also has acquired non-compete agreements tied to certain employment relationships. The useful life for all of these is largely determined by valuation estimates of remaining economic life. In connection with the Sound United acquisition, the Company acquired certain trademarks/tradenames, which are intangible assets with indefinite useful lives. These brands are expected to maintain brand value for an indefinite period of time.

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 the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, or if the Company elects to bypass the qualitative analysis, then the Company performs 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 such reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to such reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

Similar to Goodwill, indefinite-lived intangible assets are not amortized but instead are subject to annual impairment testing, unless circumstances dictate more frequent testing, if impairment indicators exist. Impairment for indefinite-lived assets exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. Determining whether impairment indicators exist and estimating the fair value of the Company’s indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors.

The Company reviews finite lived intangible assets and long-lived assets 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.

Employee Defined Benefit Plans

The Company maintains noncontributory defined benefit pension plans that cover employees in various countries throughout Europe and Asia. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the condensed consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, the difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the condensed consolidated statement of operations. The liabilities and annual income or expense is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices. See Note 21, “Employee Benefits”, for further details.

13

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold are recognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-not recognition threshold is recorded at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in that period. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in the period they become known. The Company records potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

As a multinational corporation, the Company is subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets when, in the judgment of management, it is more likely than not that all or part of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies.

Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about the Company’s future income over the lives of its deferred tax assets (DTA) and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could result in changes to the Company’s results of operations.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

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.

Healthcare segment

While the majority of the Company’s Healthcare segment 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. Revenue from fixed lease payments related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue from fixed lease payments related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease and variable lease payments are recognized as they occur.

14

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company derives the majority of its Healthcare segment 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 original equipment manufacturer (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 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. Beginning January 2, 2022, for contracts that contain variable lease payments, the Company also classifies as operating leases any components that would result in a day one selling loss should they be otherwise classified as a sales-type lease. 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.

Non-healthcare segment

Non-healthcare segment revenue is related to hardware and embedded software that is integrated into final products that are manufactured and sold by the Company. Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. Non-healthcare segment revenue is recognized upon transfer of control of promised products or service to customers, which is either upon shipment or upon delivery to the customers, depending on delivery terms.

15

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company offers sales incentives and has customer programs consisting primarily of discounts and market development fund programs, and records them as a contra revenue. Estimates for sales incentives are developed using most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. In developing its estimates, the Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts. Reductions in revenue related to discounts are allocated to products on a relative basis based on their respective standard selling price if there are undelivered products in a contract. Judgement is required to determine the timing and amount of recognition of marketing funds which the Company estimates based on past practice of providing similar funds.

Payment terms and conditions vary among the Company’s distribution channels although terms generally include a requirement of payment within 30 to 60 days of product shipment. Sales directly to customers from the Company’s website are paid at the time of product shipment. Prior to determining payment terms for each customers, an evaluation of such customer’s credit risk is performed. Contractual allowances are an offset to accounts receivable.

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 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.

In connection with the Sound United acquisition, the Company recognized non-healthcare royalty revenue associated with certain prepaid license arrangements. The Company recognizes non-healthcare revenue from the prepaid license arrangements based upon sales-based royalties when a subsequent sale occurs.

Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from six 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.

16

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Changes in the warranty accrual were as follows:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Warranty accrual, beginning of period	$	2.5	$	2.7
Increase related to acquisition, net of reserve	8.0		—
Accrual for warranties issued	1.9		3.4
Changes in pre-existing warranties (including changes in estimates)	1.5		(2.3)
Settlements made	(4.5)		(0.9)
Warranty accrual, end of period	$	9.4	$	2.9

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.

Foreign Currency Translation

The Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries, and the largest transactions in foreign currency translations occur in Japanese Yen, the British Pound, Chinese Yuan and the European Euro.

The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the average exchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect as of the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functional currency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying condensed consolidated balance sheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are not denominated in the underlying functional currency are included as a component of non-operating income (loss) within the accompanying condensed consolidated statements of operations.

Derivatives Instruments & Hedging Activities

The Company addresses market risk from changes in foreign currency and interest rates risks through risk management programs which include the use of derivative and nonderivative instruments. The Company’s exposure to the counterparty’s credit risk is generally limited to the amounts of the net obligation to the counterparty. The Company established policies to enter into contracts only with major investment-grade financial institutions to mitigate such counterparty credit risk. The Company also established a policy to further monitor the counterparty risks throughout the life of the instruments. None of the derivative instruments currently held by the Company were entered into for speculative trading purposes.

17

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

All derivative financial instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the tenor of the instrument. The Company has elected not to separate a derivative instrument into current and long-term portions. A derivative instrument whose fair value is a net liability is classified as current in total. A derivative instrument whose fair value is a net asset and whose current portion is an asset is classified as noncurrent in total. For a derivative instrument that meets the criteria to qualify for hedge accounting, the Company marks the fair value of the derivative instrument to market periodically through other comprehensive income (loss). When the hedged items hit income (expense), associated deferred gains (losses) of the derivatives in accumulated other comprehensive income (loss) will be reclassified into earnings. For a derivative instrument that does not meet the criteria for hedge accounting, any fluctuation in the fair value is reflected in earnings in the period it occurs.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments, changes to pension benefits, unrealized gains or (losses) on cash flow hedges and any related tax benefits (expenses) that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

Computation of basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Basic net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Net income per basic share	$	0.72	$	1.05	$	1.90	$	2.93
Diluted net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Diluted share equivalents: stock options, RSUs and PSUs	1.6		2.6		1.6		2.6
Weighted-average shares outstanding - diluted	54.1		57.7		55.6		57.7
Net income per diluted share	$	0.70	$	1.00	$	1.85	$	2.80

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 stock units (PSUs). For the three months ended October 1, 2022 and October 2, 2021, weighted options to purchase 1.0 million and 0.1 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 nine months ended October 1, 2022 and October 2, 2021, weighted options to purchase 0.8 million and 0.2 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 October 1, 2022 and October 2, 2021, 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 nine month periods then ended.

18

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Supplemental Cash Flow Information

Supplemental cash flow information includes the following:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Cash paid during the year for:
Interest expense	$	11.9	$	0.2
Income taxes	71.1		36.9
Operating lease liabilities	12.0		5.6
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	9.8	$	4.9
Non-cash investing activities:
Unpaid purchases of property and equipment	$	4.8	$	3.2
Unpaid strategic investments	1.5		3.4
Deposit release to acquire noncontrolling interest(1)	—		3.4
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	—	$	0.1
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	219.5	$	652.3
Restricted cash	2.6		1.6
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	222.1	$	653.9

______________

(1)     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 first quarter of 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

19

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). The standard requires companies to apply ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC Topic 805. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022, and for interim periods within those years, and should be adopted prospectively. Early adoption is permitted. The Company’s early adoption of this standard, effective January 3, 2021, did not have a material impact on its consolidated financial statements. Subsequently, upon the closing of the Sound United acquisition, the Company recognized and measured acquired contract assets and contract liabilities (i.e., deferred revenue) in accordance with the ASC Topic 606.

In July 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). The new standard amends the original ASU No. 2016-02 lease standard by requiring lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement if they were classified as sales-type. ASU 2021-05 is effective for annual reporting periods beginning after December 15, 2021, and for interim periods within those years, and may be adopted either prospectively or on a retrospective basis for leases that commenced or were modified after the date of initial adoption of ASC 842.

On January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption. As a result, certain leases which would have previously been classified as lease receivables (sales-type leases) were classified as operating leases, as they were determined to have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement. For leases that are classified as operating leases, the Company recorded these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis, rather than being immediately recognized upon lease commencement. Similarly, revenue associated with such new operating leases is now being recognized over the term of the lease, rather than being immediately recognized at the date of the lease commencement. See Notes 6, 8 and 11 of these condensed consolidated financial statements for further details.

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 standard 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 standard 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.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new standard clarified the scope and application of the original guidance. ASU 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.

On April 11, 2022, the Company adopted ASU 2020-04 and ASU 2021-01 prospectively, in conjunction with the termination of the Company’s Credit Facility and execution of a new Credit Facility, which included both term loans and a revolving line of credit. At the time of transition, the Company no longer held any debt based upon the then-current reference rate, thus, it did not elect any optional practical expedients for contract modifications. Ultimately, the Company transitioned away from an interest rate based on LIBOR to SOFR, and such adoption did not have a material impact on its condensed consolidated financial statements.

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:

20

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

•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 $4.5 million and $2.9 million for the three months ended October 1, 2022 and October 2, 2021, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $13.1 million and $9.6 million for the nine months ended October 1, 2022 and October 2, 2021, 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 $0.1 million and less than $0.1 million for the three months ended October 1, 2022 and October 2, 2021, respectively. Amounts charged by the Company pursuant to the G&A Services Agreement were $0.3 million and $0.2 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.

•Lease Agreement - 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. The Company recognized approximately $0.3 million of lease income for each of the three months ended October 1, 2022 and October 2, 2021. The Company recognized approximately $0.9 million of lease income for each of the nine months ended October 1, 2022 and October 2, 2021.

Net amounts due to Cercacor at October 1, 2022 and January 1, 2022 were approximately $4.7 million and $3.5 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 October 1, 2022 and October 2, 2021, the Company made no cash contributions to the Masimo Foundation. During the nine months ended October 1, 2022, the Company made cash contributions of approximately $1.0 million to the Masimo Foundation. During the nine months ended October 2, 2021, the Company made no cash contributions to the Masimo Foundation.

During the three and nine months ended October 1, 2022 and October 2, 2021, 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 months ended October 1, 2022 and October 2, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the nine months ended October 1, 2022 the Company incurred $0.6 million in marketing expenses to LMMV under the marketing service agreement. During the nine months ended October 2, 2021 the Company incurred no marketing expenses to LMMV under the marketing service agreement. At October 1, 2022, $0.1 million was due to LMMV for services rendered. At January 1, 2022, 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.

21

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 nine months ended October 1, 2022, the Company’s CEO did not incur any charges pursuant to this agreement. For each of the three and nine months ended October 2, 2021, the Company charged the Company’s CEO less than $0.1 million, pursuant to this agreement.

4. Inventories

Inventories consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Raw materials	$	205.5	$	128.3
Work-in-process	30.4		17.1
Finished goods	259.5		56.0
Total inventories(1)	$	495.4	$	201.4

______________

(1)    Included in the October 1, 2022 ending total inventories balance was approximately $53.3 million of step-up amortization related to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

5. Other Current Assets

Other current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Prepaid expenses	$	66.1	$	30.9
Lease receivable, current	30.1		28.7
Indirect taxes receivable	27.1		12.8
Prepaid income taxes	19.8		7.0
Prepaid rebates and royalties, current	3.7		2.8
Contract assets, current	2.7		2.1
Restricted cash(1)	2.5		3.0
Customer notes receivable	0.8		2.4
Other current assets	6.3		1.3
Total other current assets	$	159.1	$	91.0

______________

(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.

6. Lease Receivable

Effective January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption, resulting in the Company recording these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis.

22

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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 October 1, 2022 and October 2, 2021 was approximately $16.0 million and $12.0 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 each of the nine months ended October 1, 2022 and October 2, 2021 was approximately $40.0 million, and is included within 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 from sales-type leases consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Lease receivable	$	110.0	$	102.6
Allowance for credit loss	(0.3)		(0.3)
Lease receivable, net	109.7		102.3
Less: current portion of lease receivable	(30.1)		(28.7)
Lease receivable, noncurrent	$	79.6	$	73.6

As of October 1, 2022, estimated future maturities of customer sales-type lease receivables and operating lease payments for each of the following fiscal years are as follows:

	Future Lease Receivables/Payments (in millions)
Fiscal year	Sales-Type Leases		Operating Leases
2022 (balance of year)	$	7.8	$	0.7
2023	29.1		2.6
2024	25.4		2.5
2025	19.9		2.5
2026	13.4		2.3
Thereafter	14.1		4.8
Total	$	109.7	$	15.4
Less: imputed interest(1)	—
Present value of total lease payments	$	109.7

______________

(1)     The calculation of the rates implicit in the leases resulted in negative discount rates. Therefore, the Company as a lessor used a 0% discount rate to measure the net investment in the lease.

7. Deferred Costs and Other Contract Assets

Deferred costs and other contract assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Deferred commissions	$	16.0	$	11.9
Prepaid contract allowances	12.5		8.6
Unbilled contract receivables	7.3		5.0
Deferred equipment agreements, net	1.2		2.6
Deferred costs and other contract assets	$	37.0	$	28.1

23

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

8. Property and Equipment, net

Property and equipment, net, consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Building and building improvements	$	150.0	$	142.1
Machinery, equipment and tooling	140.0		103.5
Land	64.0		57.0
Computer equipment and software	41.6		32.5
Transportation, vehicles and other	32.7		33.1
Leasehold improvements	30.9		21.9
Operating lease assets(1)	22.8		—
Furniture and office equipment	17.8		14.2
Demonstration units	10.4		0.9
Construction-in-progress (CIP)	45.9		25.1
Total property and equipment	556.1		430.3
Accumulated depreciation	(183.9)		(157.5)
Property and equipment, net	$	372.2	$	272.8

______________

(1)    Effective January 2, 2022, the Company adopted ASU 2021-05, resulting in the Company recording these operating lease assets within property, plant, and equipment.

A significant portion of the increase in property and equipment was attributable to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

For the three months ended October 1, 2022 and October 2, 2021, depreciation expense of property and equipment was $12.6 million and $6.5 million, respectively. For the nine months ended October 1, 2022 and October 2, 2021, depreciation expense of property and equipment was $31.1 million and $18.8 million, respectively.

For the three months ended October 1, 2022 and October 2, 2021, depreciation expense of operating lease assets was $0.9 million and $0.0 million, respectively. For the nine months ended October 1, 2022 and October 2, 2021, depreciation expense of operating lease assets was $1.0 million and $0.0 million, respectively.

The balance in CIP at October 1, 2022 and January 1, 2022 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 at the Company’s corporate headquarters, as well as at a new research and development facility, the underlying assets for which have not been completed or placed into service.

On February 14, 2022, the Company’s wholly owned subsidiary, Masimo Canada ULC, entered into a Purchase and Sale Agreement (Purchase Agreement) with Keltic (Prior) Development Limited Partnership (Vendor) for the purchase of a property in Vancouver, British Columbia, Canada for a purchase price of CAD 123.0 million, plus GST (Purchase Price), subject to certain adjustments. The Company has paid CAD 21.0 million as a deposit towards the purchase. The balance of the Purchase Price will be due and payable upon the closing of the transaction, which is currently expected to occur during the second half of 2024.

24

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

9. Intangible Assets, net

Intangible assets, net, consist of the following:

	October 1, 2022						January 1, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	220.6	$	(16.1)	$	204.5	$	24.6	$	(9.3)	$	15.3
Acquired technologies	183.5		(19.6)		163.9		28.4		(8.7)		19.7
Patents	33.9		(13.3)		20.6		31.5		(12.2)		19.3
Licenses	37.8		(3.6)		34.2		8.1		(2.0)		6.1
Trademarks	18.7		(5.2)		13.5		12.2		(4.1)		8.1
Licenses-related party	7.5		(6.3)		1.2		7.5		(6.0)		1.5
Non-compete agreements(1)	6.3		(0.7)		5.6		0.3		—		0.3
Capitalized software development costs	5.3		(2.8)		2.5		4.3		(2.6)		1.7
Other	1.6		(1.0)		0.6		1.6		(1.1)		0.5
Total intangible assets subject to amortization, net	$	515.2	$	(68.6)	$	446.6	$	118.5	$	(46.0)	$	72.5
Intangible assets not subject to amortization:
Trademarks					262.0						—
Intangible assets, net					$	708.6					$	72.5

_______________

(1)    In connection with the Sound United acquisition, the Company also acquired non-compete agreements with a gross carrying amount equal to $6.0 million.

A significant portion of the increase in intangible assets was attributable to the Sound United acquisition. Please refer to Note 18, “Business Combinations”, for further details.

Finite lived intangible assets have a weighted-average amortization period ranging from twelve years to fourteen years. Total amortization expense for the three months ended October 1, 2022 and October 2, 2021 was $10.3 million and $2.7 million, respectively. Total amortization expense for the nine months ended October 1, 2022 and October 2, 2021 was $25.5 million and $7.6 million, respectively.

Total renewal costs for patents and trademarks for the three months ended October 1, 2022 and October 2, 2021 were $0.3 million and $0.9 million, respectively. Total renewal costs for patents and trademarks for the nine months ended October 1, 2022 and October 2, 2021 were $1.0 million and $1.3 million, respectively. As of October 1, 2022, the weighted-average number of years until the next renewal was two years for patents and six years for trademarks.

Estimated amortization expense for each of the next fiscal years is as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	14.1
2023	28.7
2024	28.4
2025	27.4
2026	25.6
Thereafter	322.4
Total	$	446.6

25

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

10. Goodwill

Changes in goodwill were as follows:

	Nine Months Ended October 1, 2022
(in millions)	Healthcare		Non-healthcare		Total
Goodwill, beginning of period	$	100.3	$	—	$	100.3
Increase from business combinations	—		351.5		351.5
Foreign currency translation adjustment	(5.5)		—		(5.5)
Goodwill, end of period	$	94.8	$	351.5	$	446.3

A significant portion of the increase in goodwill at October 1, 2022 was attributable to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

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 pursuant to leases that are classified as operating leases and expire at various dates through August 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 October 1, 2022, the weighted-average discount rate used by the Company for all operating leases was approximately 3.8%.

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

(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Lessee ROU assets	Other non-current assets	$	69.8	$	30.5
Lessee current lease liabilities	Other current liabilities	18.5		6.4
Lessee non-current lease liabilities	Other non-current liabilities	54.5		26.3
Total operating lease liabilities		$	73.0	$	32.7

As of October 1, 2022 and January 1, 2022, accumulated amortization for lessee ROU assets was $31.9 million and $15.2 million, respectively. The weighted-average remaining lease term for the Company’s operating leases was 5.9 years as of October 1, 2022.

26

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of October 1, 2022, estimated future operating lease payments for each of the following fiscal years were as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	5.0
2023	19.4
2024	16.0
2025	12.1
2026	8.5
Thereafter(1)	21.0
Total	82.0
Imputed interest	(9.0)
Present value	$	73.0

______________

(1)     Includes optional renewal period for certain leases.

During the three months ended October 1, 2022 and October 2, 2021, operating lease costs were approximately $4.8 million and $2.1 million, respectively. During the nine months ended October 1, 2022 and October 2, 2021, operating lease costs were approximately $12.6 million and $6.2 million, respectively.

12. Other Non-Current Assets

Other non-current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee ROU assets, net	$	69.8	$	30.5
Derivative assets - non-current	19.4		—
Strategic investments	13.8		13.8
Prepaid deposits and other	7.2		3.9
Other non-current assets	0.4		0.4
Total non-current assets	$	110.6	$	48.6

13. Deferred Revenue and Other Contract Liabilities, Current

Deferred revenue and other contract liabilities, current, consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Deferred revenue	$	56.7	$	35.1
Accrued rebates and allowances	36.4		13.6
Accrued customer reimbursements	7.2		7.4
Total deferred revenue and other contract liabilities	100.3		56.1
Less: Non-current portion of deferred revenue	(22.7)		(5.2)
Deferred revenue and other contract liabilities - current	$	77.6	$	50.9

27

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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 revenue. Generally, both healthcare and non-healthcare segments record deferred revenue when revenue is to be recognized subsequent to invoicing.

Healthcare Deferred Revenue

Healthcare deferred revenue primarily relates to undelivered equipment, sensors and services under deferred equipment agreements, extended warranty agreements, and maintenance agreements. 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. 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. 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. As of October 1, 2022, the Company had approximately $1,238.1 million of Unrecognized Contract Revenue related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately $347.8 million of this amount as revenue within the next twelve months and the remaining balance thereafter.

Non-Healthcare Deferred Revenue

In October 2020, Bowers and Wilkins (B&W), a subsidiary of Sound United, entered into an amendment to a licensing agreement, whereby B&W received a $20.0 million royalty prepayment in relation to sound system units manufactured by B&W for various high-end car manufacturers with a total commitment of $35.0 million to be received by September 30, 2028. As of October 1, 2022, deferred revenue was $22.0 million.

Changes in deferred revenue were as follows:

(in millions)	Nine Months Ended October 1, 2022
Deferred revenue, beginning of the period	$	35.1
Increase from business combinations	18.6
Revenue deferred during the period	29.2
Recognition of revenue deferred in prior periods	(26.2)
Deferred revenue, end of the period	$	56.7

14. Other Current Liabilities

Other current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Accrued expenses	$	40.5	$	12.1
Accrued indirect taxes payable	26.5		16.3
Income tax payable	18.7		12.0
Lessee lease liabilities, current	18.5		6.4
Current portion of long-term debt	13.8		—
Accrued warranty	9.4		2.5
Accrued property taxes	6.0		2.0
Accrued legal fees	5.8		7.1
Related party payables	4.7		3.6
Accrued donations	1.6		3.7
Other current liabilities	6.0		4.7
Total other current liabilities	$	151.5	$	70.4

28

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

15. Debt

(in millions)	October 1, 2022		January 1, 2022
Term loan - current portion	$	7.5	$	—
Japanese loans - current portion	6.3		—
Short-term debt	13.8		—
Term loan - long-term	280.3		—
Revolver - long-term	660.6		—
Japanese loans - long-term	10.5		—
Long-term debt	951.4		—
Total debt	$	965.2	$	—

Prior Credit Facility

Until April 11, 2022, the Company maintained a credit agreement (Prior Credit Facility) with JPMorgan Chase Bank, N.A., as the Administrative Agent and a Lender, and Bank of the West, a Lender (collectively, the Lenders). The Prior Credit Facility provided 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 the Lenders and additional lenders, as required. The Prior Credit Facility also provided 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.

On April 11, 2022, the Company paid off all obligations owing under the Prior Credit Facility, and terminated it. As a result of the repayment, the Company expensed $0.1 million of previously capitalized debt issuance costs.

Credit Facility

On April 11, 2022, concurrently with the closing of the Sound United acquisition, as disclosed in Note 18, “Business Combinations”, the Company entered into a new credit agreement (Credit Facility) with financial institutions party thereto as initial lenders (collectively, the Initial Lenders), Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as co-syndication agents.

The Credit Facility provides for an unsecured term loan of $300.0 million (Term Loan) and $500.0 million of ongoing unsecured revolving commitments (Revolver), with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity by an additional $400.0 million (plus additional unlimited amounts if certain incurrence tests are met) in the future with the Initial Lenders and additional lenders, as required. Debt issuance costs of $8.4 million were recorded as a reduction to the carrying amount of the Credit Facility, and are being amortized to interest expense using the effective interest method.

The Credit Facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit.

Borrowings under the Credit Facility will be deemed, at the Company’s election, either: (a) an Alternate Base Rate (ABR) Loan, which bears interest at the ABR, plus a spread of 0.000% to 0.750% based upon a Company leverage ratio, or (b) a Term SOFR Loan, which bears interest at the Adjusted Term SOFR Rate (as defined below), plus a spread of 1.000% to 1.750% based upon a Company net leverage ratio. Pursuant to the terms of the Credit Facility, the ABR is equal to the greatest of (i) the prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50%, and (iii) the one-month Adjusted Term SOFR plus 1.0%. The Adjusted Term SOFR Rate is equal to the Term SOFR Rate (as defined in the Credit Facility) for the applicable interest period plus a spread adjustment of 0.10%, 0.15% and 0.25% for the interest periods ending one, three and six months, respectively.

The Company is also obligated under the Credit Facility to pay an unused fee ranging from 0.150% to 0.275% per annum, based upon a Company leverage ratio, with respect to any non-utilized portion of the Credit Facility.

29

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company is subject to certain covenants, including financial covenants related to a net leverage ratio and an interest charge coverage ratio, and other customary negative covenants. The Credit Facility also includes customary events of default which, upon the occurrence of any such event of default, provide the Initial Lenders (and any additional lenders) with the right to take either or both of the following actions: (a) immediately terminate the commitments, and (b) declare the loans then outstanding immediately due and payable in full. All unpaid principal under the Credit Facility will become due and payable on April 12, 2027.

On May 16, 2022, the Company entered into the First Amendment to the Credit Agreement (First Amendment) with the Initial Lenders and Citibank, N.A., as the administrative agent, which amended the Credit Facility. The First Amendment provides for an additional $205 million of unsecured revolving commitments, increasing the aggregate amount of the Revolver from $500 million to $705 million.

Borrowing rates, financial covenants, affirmative and negative covenants and other restricted terms remain unchanged from the Credit Facility. All unpaid principal under the First Amendment will become due and payable on April 12, 2027. The Company was in compliance with the financial covenants as of October 1, 2022.

For each of the three and nine months ended October 1, 2022, the Company incurred total interest expense of $9.7 million and $14.3 million under the Credit Facility, respectively.

For each of the three and nine months ended October 2, 2021, the Company incurred total interest expense of $0.1 million and $0.3 million under the Credit Facility, respectively.

Furthermore, in connection with the Sound United acquisition, the Company assumed three outstanding loans as follows:

Japanese Revolving Loan

In March 2020, Sound United entered into a secured revolving loan (Japanese Revolving Loan) with Mizuho bank, which allows Sound United to borrow up to ¥800 million (approximately $5.5 million). The Japanese Revolving Loan is an evergreen agreement that terminates upon request by either the financial institution or the borrower and is collateralized with land and buildings in Shirakawa-Shi owned by the borrower. Interest accrues at a rate equal to the Mizuho Tokyo Interbank Offered Rate (TIBOR) plus a fixed spread of 0.50% per annum. In connection with the execution of the Japanese Revolving Loan, the Company incurred debt issuance costs of ¥7.2 million (approximately $0.1 million). As of October 1, 2022, the Company had ¥800 million (approximately $5.5 million) of outstanding borrowing under the Japanese Revolving Loan, which is presented under short-term loans on the accompanying condensed consolidated balance sheets.

The Japanese Revolving Loan agreement contains customary affirmative and negative covenants, such as financial reporting requirements and customary covenants that restrict the borrower’s ability to, among other things, provide collateral for obligations borne by the borrower, and determine the eligibility to declare, and amount of potential dividends to be paid during a given fiscal year. The Company was in compliance with the financial covenants as of October 1, 2022.

Japanese Government Loans

In May and June 2020, Sound United received ¥1.48 billion (approximately $10.2 million in non-collateralized Japanese Government Loan facilities (Japanese Government Loans) as part of its local Japanese stimulus program. Interest accrues at a weighted average rate of 1.33% and is repayable in installments with various maturities through June 2035. The non-current portion of the Japanese Government Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with the Japanese Government Loans.

Japanese Equipment Loans

In April and May 2021, Sound United entered into collateralized Japanese Equipment Loans of ¥150 million (approximately $1.0 million), payable in installments through March 2031 with an interest of 0.58%, and ¥80 million (approximately $0.5 million) payable in installments through April 2028 with interest of 1.2%. The non-current portion of the Japanese Equipment Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with these Japanese Equipment Loans.

30

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of October 1, 2022, the aggregate maturities of principal on all debt for each of the next five years and thereafter is as follows:

Fiscal year	Amount (in millions)
2022 (balance of the year)	$	7.5
2023	8.6
2024	14.8
2025	16.6
2026	16.6
Thereafter	901.1
Total	$	965.2

16. Other Non-Current Liabilities

Other non-current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee non-current lease liabilities	$	54.5	$	26.3
Deferred revenue, non-current	22.7		5.2
Unrecognized tax benefits	17.5		14.9
Income tax payable, non-current	12.7		17.0
Retirement allowance	10.9		—
Indirect tax payable, non-current	7.5		—
Other	0.1		0.6
Total other non-current liabilities	$	125.9	$	64.0

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 23, “Income Taxes”, to these condensed consolidated financial statements for further details.

17. Derivative Instruments and Hedging Activities

Derivative Instruments - Cash Flow Hedges

The Company’s cash flow hedges are designed to mitigate the risk of exposure to variability in expected future cash flows of recognized assets, liabilities, or any unrecognized forecasted transactions. In July 2022, the Company entered into various interest rate swaps that are designated as cash flow hedges on a substantial portion of the outstanding debt the Company issued to fund the Sound United acquisition. The interest rate swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt to an average fixed interest rate of 2.75%. These contracts, carried at fair value, have maturities of approximately five years. All hedging relationships were highly effective at achieving offsetting changes in cash flows attributable to the risk being hedged. The Company used a regression analysis at hedge inception to assess the effectiveness of cash flow hedge and periodically hereafter.

The Company records gains and losses from the changes in the fair value of these instruments as a component of other comprehensive income (loss). Deferred gains or losses from these designated cash flow hedges are reclassified into earnings in the period that the hedged items affects earnings. The Company does not offset fair value amounts recognized for derivative instruments in its condensed consolidated balance sheets for presentation purposes. The following table summarizes the fair value of the hedging instruments, presented on a gross basis, as of October 1, 2022 and January 1, 2022.

31

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

		Condensed Consolidated Balance Sheets
(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Interest rate contracts	Other non-current assets	$	19.4	$	—
Total		$	19.4	$	—

The following table summarizes the gains (losses) reclassified from accumulated other comprehensive income to the condensed consolidated financial statements for the three and nine months ended October 1, 2022.

		Condensed Consolidated Statement of Operations
(in millions)	Location of gain (loss)	Three Months Ended October 1, 2022		Nine Months Ended October 1, 2022
Cash flow hedges - interest rate contracts	Non-operating loss (income)	$	0.8	$	0.8
Total		$	0.8	$	0.8

The following tables summarize the changes in accumulated other comprehensive income related to the hedging instruments:

(in millions)	Amounts
Beginning balance as of July 3, 2022	$	—
Amount recognized in other comprehensive income	18.6
Amount reclassified into earnings	0.8
Ending Balance as of October 1, 2022	$	19.4

The net of tax gain was $14.7 million as of October 1, 2022.

Derivative Instruments - Foreign Currency Forwards

The Company used foreign currency derivative instruments in the form of forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables denominated in foreign currencies. The Company’s objective is to partially offset gains or losses resulting from these exposures with opposing gains or losses on the forward contracts, thereby reducing volatility of earnings created by these foreign currency exposures. In conjunction with the Sound United acquisition, the Company acquired multiple foreign currency forward contracts. The fair values of the forward contracts are estimated at each period end based on quoted market prices and are recorded as either net asset or liability on the accompanying condensed consolidated balance sheets. These contracts are considered economic hedges but were not designated as hedges. These contracts are recorded net at fair value on the condensed consolidated balance sheets, classified as Level 2 in the fair value hierarchy. As of October 1, 2022, all derivative contracts have matured and were terminated. The gains and losses were recognized in the condensed consolidated statement of operations and were immaterial for the three and nine months ended October 1, 2022.

18. Business Combinations

Sound United Acquisition

On April 11, 2022, the Company completed the previously announced acquisition of Sound United, pursuant to a Merger Agreement dated as of February 15, 2022 (Merger Agreement), by and among the Company, Sonic Boom Acquisition Corp., a wholly-owned subsidiary of the Company (Merger Sub), Viper Holdings Corporation (Sound United), and, solely in its capacity as the Seller Representative, Viper Holdings, LLC, Merger Sub merged with and into Sound United, with Sound United continuing as a wholly-owned subsidiary of the Company (Merger).

32

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Sound United is a leading innovator of premium, high-performance audio products for consumers around the world, which operates iconic consumer brands: Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®. The brands are linked by a commitment to the highest production standards and a focus on unparalleled audio quality and audio performance. Sound United delivers significant competitive benefits through its platform advantages including global distribution across online, retail and custom installation channels; a cloud-connected home ecosystem; and a state-of-the-art research and development function focused on creating the highest-quality consumer products with world-class industrial design.

The Company acquired 100% of the equity interests of Sound United for $1.065 billion in cash, subject to adjustments based on Sound United’s net working capital, transaction expenses, cash and debt as of the closing of the Merger (Closing), payable by the Company in cash. The transaction was primarily funded with the proceeds from the Credit Facility. See Note 15, “Debt”, for additional information about the Credit Facility. There was no contingent consideration resulting from the transaction.

The results of operations of Sound United subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the non-healthcare segment, including revenue of $430.3 million and a net loss of $26.7 million for the period of April 11, 2022 to October 1, 2022.

Acquisition costs

The Company recognized transaction costs related to the Sound United acquisition of $16.6 million for the nine months ended October 1, 2022. These costs include investment banker fees, legal, due diligence, and other external costs that the Company recorded within selling, general and administrative expense.

Purchase price allocations

The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments. Based on additional supportable information and changes in assumptions during the period, the Company recorded certain measurement period adjustments during the three months ended October 1, 2022. The valuations of the assets acquired and liabilities assumed have not yet been finalized as of October 1, 2022. The purchase price allocation is preliminary and subject to change, including measurement period adjustments, the valuation of intangible assets, leases, deferred taxes, inventory, property, plant and equipment and goodwill. The purchase price allocation will be finalized as the information necessary to complete the required analysis is obtained, which the Company will complete within one year from the acquisition date. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from intangible assets acquired that do not qualify for separate recognition, including the assembled workforce. Goodwill is not expected to be deductible for tax purposes.

Measurement period adjustments for the period ended October 1, 2022, included changes to the purchase price allocation and total consideration, resulting in a net increase of $14.0 million to goodwill. The measurement period adjustments resulted primarily from valuation inputs pertaining to certain acquired assets based on facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. The fair values assigned to assets acquired and liabilities assumed as of October 1, 2022 are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation analysis.

33

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed, inclusive of measurement period adjustments as of April 11, 2022:

(in millions)	Sound United
Cash consideration(1)	$	1,065.0
Purchase price	$	1,065.0
Assets acquired:
Cash and cash equivalents	$	82.6
Accounts receivables	111.3
Inventories	233.0
Prepaid expenses and other current assets	37.5
Property, plant and equipment	100.0
Intangible asset	649.0
Goodwill	351.5
Long-term other assets	7.2
Total assets acquired	$	1,572.1
Liabilities assumed:
Accounts payable	$	(118.8)
Accrued liabilities and other current liabilities	(165.0)
Deferred tax liabilities	(157.7)
Other long-term liabilities	(65.6)
Total liabilities assumed	$	(507.1)

______________

(1)    The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments.

Identifiable Intangible Assets

The following table sets forth the components of identifiable intangible assets acquired and the weighted average amortization period as of the acquisition date:

	Weighted average amortization period (in years)	April 11,  2022 (in millions)
Trademarks/tradenames	10	$	268.0
Customer relationships	17	196.0
Developed technology	8	156.0
Contractual license agreements	15	29.0
Total	14 years	$	649.0

In determining the fair value of the identifiable intangible assets, the Company utilized various forms of the income approach, depending on the asset being valued. The estimation of fair value requires significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Other inputs included historical data, current and anticipated market conditions, and growth rates. Contractual license agreements have a weighed average amortization period of five years until the next renewal term.

34

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The intangible assets were valued using the following valuation approaches:

Customer relationships

The fair value of customer relationships was determined using the multi-period excess earnings method. The multi-period excess earnings method involves forecasting the net earnings expected to be generated by the asset, reducing them by appropriate returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Trademarks/tradenames

The fair values of the trademark/tradenames were determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Developed technology

The fair values of the developed technology was determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Contractual licensing agreements

The fair value of the contractual license agreements was determined using a variation of the multi-period excess earnings method. This method involves forecasting the net earnings expected to be generated by the asset and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Unaudited pro forma financial information

The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Masimo and Sound United, assuming the transaction occurred on January 1, 2021. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the acquisition of Sound United been completed on January 1, 2021, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Masimo and Sound United.

The unaudited supplemental pro forma financial information has been calculated after applying Masimo’s accounting policies and adjusting the results of the combined company to reflect incremental amortization and depreciation expense resulting from the fair value adjustments for acquired intangible assets, inventory, property, plant and equipment as well as the net decrease to interest expense resulting from the elimination of the historical interest expense on Sound United’s debt that was paid off at closing partially offset by incremental interest expense resulting from the external debt borrowed by Masimo to fund the acquisition, and the corresponding income tax impact of these adjustments.

Also, during the nine months ended October 1, 2022, Masimo and Sound United incurred $18.1 million and $41.1 million of acquisition-related costs, respectively. Additionally, there were $49.3 million of Profit Interest Units paid out in conjunction with the transaction. These expenses are reflected in pro forma net income for the three months ended October 1, 2022, in the table below and the acquisition related expenses incurred by Masimo are included in selling, general and administrative, in the Company’s condensed consolidated statements of comprehensive income for the three and nine months ended October 2, 2021.

35

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

There are no other material non-recurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and pro forma net income.

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Pro forma net revenue	$	549.3	$	534.6	$	1,676.4	$	1,556.3
Pro forma net income (loss)	$	38.0	$	85.6	$	127.0	$	54.1

19. Equity

Series A Junior Participating Preferred Stock and Stockholder Rights Plan

In September 2022, the Company authorized and declared a dividend of one preferred stock purchase right (Right) for each outstanding share of its common stock to stockholders of record at the close of business on September 20, 2022 (the Record Date) pursuant to a Rights Agreement, dated as of September 9, 2022, with Broadridge Corporate Issuer Solutions, Inc., as Rights Agent. In addition, one Right was issued with each share of common stock that became outstanding after the Record Date. Each Right entitles the registered holder to purchase from the Company one thousandth of one share of the Company’s Series A junior participating preferred stock, par value $0.001 per share, at a purchase price equal to $1,000.00 per Right, subject to adjustment. Generally, the Rights become exercisable in the event any person or group of affiliated or associated persons acquires beneficial ownership of 10% (20% in the case of a passive institutional investor), subject to certain exceptions. The Rights will expire on the earliest of (i) 5:00 p.m., New York City time, on September 8, 2023, (ii) the time at which the Rights are redeemed, and (iii) the time at which the Rights are exchanged in full.

Stock Repurchase Programs

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 shares of its common stock over a period of up to three years (2018 Repurchase Program). A total of 1.3 million shares were purchased by the Company pursuant to the 2018 Repurchase Program prior to its expiration in September 2021.

In October 2021, the Board approved a stock repurchase program, authorizing the Company to purchase up to 3.0 million shares of its common stock over a period of up to three years (2021 Repurchase Program). The 2021 Repurchase Program became effective in October 2021 upon the expiration of the 2018 Repurchase Program. The 2021 Repurchase Program was completed in May 2022.

In June 2022, the Board approved a new stock repurchase program, authorizing the Company to purchase up to 5.0 million shares of its common stock on or before December 31, 2027 (2022 Repurchase Program). The 2022 Repurchase Program became effective in July 2022. The Company expects to fund the 2022 Repurchase Program through its available cash, cash expected to be generated from future operations, the Credit Facility and other potential sources of capital. The 2022 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 October 1, 2022, 5.0 million shares remained available for repurchase pursuant the 2022 Repurchase Program.

36

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The following table provides a summary of the Company’s stock repurchase activities:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Shares repurchased(1)	—		—		3.0		0.5
Average cost per share	$	—	$	—	$	133.82	$	235.88
Value of shares repurchased	$	—	$	—	$	401.4	$	128.9

______________

(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.

20. Stock-Based Compensation

Total stock-based compensation expense for the three months ended October 1, 2022 and October 2, 2021 was $13.5 million and $12.6 million, respectively. Total stock-based compensation expense for the nine months ended October 1, 2022 and October 2, 2021 was $41.7 million and $33.5 million, respectively. As of October 1, 2022, an aggregate of 10.1 million shares of common stock were reserved for future issuance under the Company’s equity plans, of which 3.6 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 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.

37

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average exercise prices)	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3.0	$	81.38
Granted	0.1	150.91
Canceled	(0.1)	160.95
Exercised	(0.1)	57.17
Options outstanding, end of period	2.9	$	83.85
Options exercisable, end of period	2.4	$	65.32

Total stock option expense for the three months ended October 1, 2022 and October 2, 2021 was $2.7 million and $3.2 million, respectively. Total stock option expense for the nine months ended October 1, 2022 and October 2, 2021 was $9.1 million and $9.9 million, respectively. As of October 1, 2022, the Company had $21.6 million of unrecognized compensation cost related to non-vested stock options that are expected to vest over a weighted-average period of approximately 2.5 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 October 1, 2022 was 4.5 years.

RSUs

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2.9	$	104.13
Granted	0.3	149.50
Canceled	—	—
Expired	(0.1)	170.37
Vested	—	183.66
RSUs outstanding, end of period	3.1	$	105.78

Total RSU expense for the three months ended October 1, 2022 and October 2, 2021 was $3.6 million and $2.4 million, respectively. Total RSU expense for the nine months ended October 1, 2022 and October 2, 2021 was $10.7 million and $6.7 million, respectively. As of October 1, 2022, the Company had $57.6 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.

38

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

PSUs

The number of PSUs outstanding under all of the Company’s equity plans are as follows:

	Nine Months Ended October 1,  2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	0.3	$	168.68
Granted(1)	0.3	145.49
Canceled	—	—
Expired	(0.1)	139.73
Vested	(0.2)	127.46
PSUs outstanding, end of period	0.3	$	178.51

______________

(1)     On February 14, 2022, the Audit Committee approved the weighted payout percentage for the 2019 PSU awards (three-year performance period), which were based upon the actual fiscal 2021 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 nine months ended October 1, 2022, the Company awarded 142,900 PSUs that will vest three years from the award date, based on the achievement of certain 2025 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 142,900 PSUs, or 162,800 shares. Based on management’s estimate of the number of units expected to vest, total PSU expense for the three months ended October 1, 2022 and October 2, 2021 was $7.2 million and $7.0 million, respectively. Based on management’s estimate of the number of units expected to vest, total PSU expense for the nine months ended October 1, 2022 and October 2, 2021 was $21.9 million and $16.9 million, respectively. As of October 1, 2022, the Company had $60.5 million of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 1.6 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		Nine Months Ended
	October 1,  2022(1)	October 2, 2021	October 1, 2022	October 2, 2021
Risk-free interest rate	—%	—%	1.0% to 1.9%	0.3% to 0.9%
Expected term (in years)	0.0	5.1	5.7	5.6
Estimated volatility	—%	—%	31.2% to 38.9%	30.9% to 34.7%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$—	$66.53	$49.69	$75.72

__________________

(1)    No stock options were granted during the three months ended October 1, 2022.

39

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

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 October 1, 2022 was $190.7 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 October 1, 2022 was $186.1 million. The aggregate intrinsic value of options exercised during the nine months ended October 1, 2022 was $12.1 million.

21. Employee Benefits

Defined Contribution Plans

The Company sponsors one 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.

The MRSP matches a Masimo employee’s contribution up to 3% of the Masimo employee’s compensation, subject to a maximum amount. The Company may also contribute to the MRSP on a discretionary basis. The Company contributed $1.8 million and $0.9 million to the MRSP for the three months ended October 1, 2022 and October 2, 2021, respectively, all in the form of matching contributions. The Company contributed $4.5 million and $2.8 million to the MRSP for the nine months ended October 1, 2022 and October 2, 2021, 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. On April 11, 2022, in connection with the Sound United acquisition, the MRSP was amended to allow for participation by eligible Sound United employees.

Defined Benefit Plans

The Company sponsors several immaterial noncontributory defined benefit plans in Europe and Asia Pacific. In connection with the Sound United acquisition, the Company assumed sponsorship of two additional defined benefit plans which cover employees in Japan and the Netherlands. The Company’s contributions are designed to fund normal costs on a current basis and to fund the estimated prior service cost of benefit improvements. The unit credit actuarial cost method is used to determine the annual cost. The Company pays the entire cost of the defined benefit plan and funds such costs as they accrue. Virtually all of the assets of the defined benefit plan are comprised of equities and participation in equity and fixed income funds.

The service cost component for the defined benefit plans are recorded in cost of sales and operating expenses in the condensed consolidated statement of operations. All other cost components are recorded in other income (expense), net in the condensed consolidated statement of operations. The Company’s net periodic defined benefit costs for each of the three and nine months ended October 1, 2022, and October 2, 2021 were not material. The Company is still determining its contributions to the defined benefit plans for the year. No contributions were made to the defined benefit plans during the three and nine months ended October 1, 2022 and October 2, 2021. The expected rate of return on the Defined Benefit Plans’ assets for determining net periodic benefit plan cost is 0%.

22. Non-operating (loss) income

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

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Interest income	$	0.5	$	0.2	$	1.0	$	0.7
Interest expense	(9.7)		—		(14.3)		(0.2)
Realized and unrealized foreign currency gains (losses)	6.4		(0.2)		14.3		(1.2)
Total non-operating (loss) income	$	(2.8)	$	—	$	1.0	$	(0.7)

40

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

23. Income Taxes

The Company has provided for income taxes in fiscal year 2022 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 October 1, 2022 and October 2, 2021, the Company recorded discrete tax benefits of approximately $0.3 million and $6.4 million, respectively, related to excess tax benefits realized from stock-based compensation. For the nine months ended October 1, 2022 and October 2, 2021, the Company recorded discrete tax benefits of approximately $2.2 million and $12.0 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 October 1, 2022, the liability for income taxes associated with uncertain tax positions was approximately $24.5 million. If fully recognized, approximately $22.4 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 2017. All material state, local and foreign income tax matters have been concluded through fiscal year 2014. The Company does not believe that the results of any tax authority examination would have a significant impact on its consolidated financial statements.

24. Commitments and Contingencies

Employment and Severance Agreements

In July 2017, the Company entered into the First Amendment to that 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.

On January 14, 2022, the Company entered into the Second Amendment to the Amended Employment Agreement (Second Amendment) with Mr. Kiani. The Second Amendment provides that the RSUs granted to Mr. Kiani pursuant to the Amended Employment Agreement will vest in full upon the termination of Mr. Kiani’s employment with the Company pursuant to Mr. Kiani’s death or disability. As of October 1, 2022, 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 Amended Employment Agreement, as amended by the Second Amendment, was approximately $664.3 million.

41

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of October 1, 2022, 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. Each executive officer is also required to give the Company six months’ advance notice of his resignation under certain circumstances.

On September 16, 2022, the Company appointed Blair Tripodi as its Chief Operating Officer (COO), Consumer Division. The offer letter entered into with Mr. Tripodi upon completion of the Sound United acquisition included certain compensation, retention and benefit provisions. In addition, Mr. Tripodi is also a limited participant in the Severance Plan, which provides that, if (a) Mr. Tripodi’s employment is terminated on the date of a Change in Control (as defined in the Severance Plan) specifically because his current job, or similar job, is not offered to him on the date of such Change in Control, or (b) Mr. Tripodi’s employment is terminated by the Company without cause or if he terminates his employment with the Company for Good Reason (as defined in the Severance Plan) upon or within 36 months of a Change in Control, fifty percent of Mr. Tripodi’s unvested and outstanding equity-based awards will immediately vest.

Cercacor Cross-Licensing Agreement Provisions

The Company’s Cross-Licensing Agreement with Cercacor contains annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Upon a change in control (as defined in the Cross-Licensing Agreement) of the Company or Cercacor: (i) all rights to the “Masimo” trademark will be assigned to Cercacor if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark; (ii) the option to license technology developed by Cercacor for use in blood glucose monitoring will be deemed automatically exercised and a $2.5 million license fee for this technology will become immediately payable to Cercacor; and (iii) the minimum aggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and/or glucose measurements will increase to $15.0 million per year until the exclusivity period of the agreement ends, plus up to $2.0 million for each additional vital sign measurement with no maximum ceiling for non-vital sign measurements.

Purchase Commitments

Pursuant to contractual obligations with vendors, the Company had $386.8 million of purchase commitments as of October 1, 2022 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 October 1, 2022, the Company had approximately $4.7 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 October 1, 2022, 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 October 1, 2022, the Company had $219.5 million of bank balances, of which $8.2 million was covered by either the U.S. Federal Deposit Insurance Corporation limit or foreign countries’ deposit insurance organizations.

42

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company’s ability to sell its healthcare products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential healthcare 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 October 1, 2022 and October 2, 2021, revenue from the sale of the Company’s healthcare products to customers that are members of GPOs approximated 54.0% and 55.0% of healthcare revenue, respectively. During the nine months ended October 1, 2022 and October 2, 2021, revenue from the sale of the Company’s healthcare products to customers that are members of GPOs approximated 52.9% and 51.8% of healthcare revenue, respectively.

For the three months ended October 1, 2022, the Company had sales through one just-in-time distributor that represented 8.9% of revenue. For the three months ended October 2, 2021, the Company had sales through two just-in-time distributors that represented 15.0% and 10.4% of revenue, respectively.

For the nine months ended October 1, 2022, the Company had sales through one just-in-time distributor that represented 10.5% revenue. For the nine months ended October 2, 2021, the Company had sales through two just-in-time distributors that represented 14.6% and 10.4% of revenue, respectively.

As of October 1, 2022 and January 1, 2022, one customer represented 12.2% and 15.7%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by a letter of credit.

Litigation

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 alleged that the Company sent unsolicited facsimile advertisements in violation of the Junk Fax Protection Act of 2005 and related regulations. The complaint sought $500 for each alleged violation, treble damages if the District Court found 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 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. On July 13, 2020, the District Court issued an order granting in part and denying in part the plaintiffs’ motion for summary judgment. On July 27, 2022, the parties filed a joint stipulation to dismiss the case with prejudice.

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. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents. Apple filed petitions for Inter Partes review (IPR) of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO instituted IPR of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the IPR 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. On December 7, 2021, Apple filed a motion for partial summary judgment on the trade secrets claim, which was denied on February 17, 2022. Trial is currently set to begin on March 27, 2023. In the IPR proceedings, one or more of the challenged claims of three of the asserted patents were found valid. The challenged claims of nine of the asserted patents were found invalid. The Company and Apple filed notices of appeal with the U.S. Court of Appeals for the Federal Circuit seeking review of the IPR decisions on all asserted patents. The Company filed an opening brief in one consolidated appeal for five asserted patents on August 5, 2022, and Apple filed a reply brief on October 5, 2022. Apple filed opening briefs in two appeals for two asserted patents on October 19, 2022.

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 Company filed an amended complaint on July 12, 2021. On August 13, 2021, the ITC issued a Notice of Institution of Investigation on the asserted patents. From June 6, 2022 to June 10, 2022, the ITC conducted an evidentiary hearing. The current target date for completion of the ITC investigation is April 19, 2023, with an initial determination due December 19, 2022. The Company is seeking an exclusion order and a permanent cease and desist order. Apple filed petitions for IPR of the asserted patents in the PTO and the Company has responded and will continue to respond to each of the petitions before the PTO determines whether to institute IPRs.

43

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

On October 20, 2022, Apple filed two complaints against the Company in the District Court of Delaware alleging that the Masimo W1™ watch infringes a number of patents. Apple is seeking damages, injunctive relief and declaratory relief. On October 20, 2022, Apple also filed a motion seeking expedited discovery that allegedly relates to a potential motion for a preliminary injunction against the Masimo W1™ watch. The Company intends to vigorously pursue all of its legal remedies in its litigation against Apple and believes the Company has good and substantial defenses to Apple’s claims, but there is no guarantee that the Company will be successful in these efforts.

On October 21, 2022, a complaint was filed in the Delaware Court of Chancery against the Company and the members of the Company’s Board (Director Defendants) by Politan Capital Management LP and Politan Capital NY LLC (Activist Plaintiffs). The complaint seeks relief to (i) declare certain amendments to the Company’s bylaws that became effective on September 9, 2022 (Bylaw Amendments) unenforceable, (ii) find that the Director Defendants breached their fiduciary duties by approving and implementing the Bylaw Amendments and the shareholder rights plan adopted by the Company on September 9, 2022, and refusing to invalidate certain change of control provisions in the Company’s employment agreement with Joe Kiani, the Company’s Chief Executive Officer (CEO), (iii) invalidate certain change of control provisions in Mr. Kiani’s employment agreement, (iv) permanently enjoin the Company and its Board from taking any actions to prevent the Activist Plaintiffs from exercising their rights in accordance with the Company’s prior bylaws to nominate directors, and (v) award the Activist Plaintiffs their fees, costs and expenses in connection with the action covered by the complaint. In response to the complaint, on October 24, 2022, the Company and the Director Defendants filed a counterclaim, answer and defense in the Delaware Court of Chancery against the Activist Plaintiffs, seeking relief to (i) have the court declare that the Bylaw Amendments are valid and enforceable and that the Company is permitted to invalidate any director nominations by the Activist Plaintiffs that are not made in accordance with the amended bylaws and (ii) award the Company reasonable costs, including attorneys’ fees and expenses. The Company stated in the counterclaim that, among other things, the Bylaw Amendments were adopted by the Board after thoughtful deliberation and were designed to increase transparency to ensure that stockholders are sufficiently informed regarding who is being nominated to the Board and who is backing the nomination so that they may have a reasonable opportunity to thoughtfully consider the nominations. On October 28, 2022, the Activist Plaintiffs filed a counterclaim and answer generally denying substantially all of the allegations raised in the Company’s counterclaim and raising a number of affirmative defenses against the Company’s counterclaim. The Company intends to vigorously pursue all of its legal remedies in its litigation against the Activist Plaintiffs and believes that the Company and the Director Defendants have good and substantial defenses to the claims (including those raised in the counterclaim), but there is no guarantee that the Company and the Director Defendants will be successful in these efforts. 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.

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.

25. Segment and Enterprise Reporting

The Company’s reportable segments are determined based upon the Company’s new organizational structure and the way in which the Company’s Chief Operating Decision Maker (CODM), the CEO, makes operating decisions and assesses financial performance. The CODM considered several factors including, but not limited to, customer base, technology, and homogeneity of products. The two segments are:

•Healthcare - develops, manufactures, and markets a variety of noninvasive monitoring technologies and hospital automation solutions and therapeutics. This segment includes the Company’s core legacy hospital business and new Masimo-technology-enabled consumer products that are distributed through many channels including e-commerce sites, leading national retailers and specialty chains globally.

•Non-healthcare - designs, develops, manufactures, markets and sells a broad portfolio of premium, high-performance audio products and services. This is a new reportable segment comprised primarily of Sound United’s operations.

44

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. The Company uses operating income, as presented in the Company’s financial reports, as the primary measure of segment profitability. The Company does not allocate costs from corporate functions to segment operating income. Items below operating income are not considered when measuring the profitability of a segment. The Company uses the same accounting policies to generate segment results as the Company does for consolidated results. Non-reportable operating segment and unallocated corporate expenses are reported within “Corporate overhead, and Other”. Segment information presented herein reflects the impact of these changes for all periods presented. There was no inter-segment revenue for any of the periods presented.

Selected information by reportable segment is presented below for the three and nine months ended October 1, 2022 and October 2, 2021:

	Three Months Ended						Nine Months Ended
(in millions)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenues by segment:
Healthcare	$	327.2		$	307.4		$	988.5		$	911.6
Non-healthcare	222.1			—			430.3			—
Total revenue by segment	$	549.3		$	307.4		$	1,418.8		$	911.6
Gross profit:
Healthcare	$	211.4		$	204.4		653.5			$	599.6
Non-healthcare	77.7			—			150.3			—
Corporate overhead	—			—			—			—
Other(1)	(6.6)			(0.8)			(58.4)			(6.1)
Gross profit	$	282.5		$	203.6		$	745.4		$	593.5
Gross profit margin:
Healthcare	64.6		%	66.5		%	66.1		%	65.8		%
Non-healthcare	35.0			—			34.9			—
Corporate overhead	—			—			—			—
Other(1)	(1.2)			(0.1)			(10.6)			(1.1)
Gross profit margin:	51.4		%	66.2		%	52.5		%	65.1		%
Operating income (loss):
Healthcare	$	80.9		$	—		$	—		$	—
Non-healthcare	14.7			—			—			—
Corporate overhead	(14.2)			—			—			—
Other(1)	(26.6)			—			—			—
Operating income	$	54.8		$	67.6		$	136.7		$	198.4
Interest income	$	0.5		$	0.2		$	1.0		$	0.7
Interest expense	(9.7)			—			(14.3)			(0.2)
Other expense (income), net	6.4			(0.2)			14.3			(1.2)
Income before income taxes	$	52.0		$	67.6		$	137.7		$	197.7

_______________

(1)     Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. Corporate overhead represents certain costs that are not allocated to the segments for purposes of the CODM assessing performance and allocating resources--for example, the costs of being a publicly traded company.

45

MASIMO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company’s depreciation and amortization by segment:

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Depreciation and amortization by segment:
Healthcare	$	9.0	$	9.2	$	27.1	$	26.4
Non-healthcare	13.9		—		29.5		—
Total depreciation and amortization	$	22.9	$	9.2	$	56.6	$	26.4

The Company’s total assets by segment:

	As of		As of
(in millions)	October 1, 2022		January 1, 2022
Total assets by segment:
Healthcare	$	1,514.2	$	1,866.4
Non-healthcare	1,522.9		—
Corporate overhead	19.3		20.6
Other	—		—
Total assets	$	3,056.4	$	1,887.0

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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 1, 2022, which we filed with the SEC on February 15, 2022. 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 dedicated to improving lives, taking noninvasive monitoring to new sites and applications while improving patient outcomes and reducing the cost of care. In connection with the acquisition of Viper Holdings Corporation d/b/a Sound United, LLC (Sound United), we announced an organizational structure change designed to enable our growth strategies and strengthen our focus on patient care, thereby creating two reportable segments: healthcare and non-healthcare.

We commenced reporting under this new structure effective for the quarter ended July 2, 2022. The core legacy Masimo financial information for the historical periods remains unchanged. However, the new healthcare segment excludes certain corporate overhead costs and other costs that are non-recurring or non-operational in nature. The new non-healthcare segment was created as a result of the Sound United acquisition. Please see Note 18 “Business Combinations”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Healthcare

Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation solutions, home monitoring devices and consumer products. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and/or and other services. We primarily sell our healthcare 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.

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.

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Our 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 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, and the W1™ biosensing health watch.

Non-healthcare

Our non-healthcare business develops, manufactures, markets, sells and licenses premium sound, home integration technologies and accessories, along with complete high performance in-vehicle audio systems under iconic consumer brands such as Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®, which offer products with unparalleled quality and performance to consumers, professional sound studios and audiophiles worldwide. Our products are sold direct-to-consumers, or through authorized retailer and wholesalers. We also license our audio technology to select luxury automotive manufacturers such as BMW®, Maserati®, McLaren®, Polestar® and Volvo®. In addition, we maintain partnerships with certain airlines for bespoke headphones allowing for the best in-flight audio experience.

Our broad portfolio of products leverages the latest technologies to create the very best home theater and audio experience, from revolutionizing the industry with a limitless array of Hi-Fi separates and systems, to engineering the first audio visual (AV) receivers and soundbars that work with Amazon’s Alexa. Each brand boasts its own philosophy and unique approach to bringing audio and home entertainment to life. We pioneer innovation that improves how we enjoy and experience media in all forms.

Outlook & Strategy

We continue to be optimistic about the long-term prospects of patient care, hospital automation and advancing our initiatives of making hospital quality patient monitoring available in the home along with advancing consumer healthcare needs and wellness. Healthcare ecosystems are rapidly evolving and becoming visibly more interconnected. Accelerated by the need to adapt to the post-pandemic world, more and more patient care is moving closer to consumers’ homes. The widespread caregiver shortage demands transformative changes in the current healthcare space. Consumers will naturally gravitate toward products that can extend the reach of physicians without any compromise on the quality of care. We have placed tremendous focus on visionary and strategic moves to solidify our position as a market leader in virtual healthcare. Our goal is to reinvent the next generation of highly capable and digitally connected medical devices that offer customizable preventive patient care while improving patient outcomes and reducing the cost of that care. We believe that it is necessary to collaborate across sectors and value chains and to form new symbiotic key relationships with recognizable highly reputable consumer brands.

We sought differentiated growth opportunities to cross-leverage technologies, bringing our core clinically superior solutions into the “home” and “on-the-go” as well as bringing Sound United’s premium technologies into the hospital to advance hospital automation connectivity and cloud-based technologies. The technology and expertise within Sound United will serve us well as we aim to augment our hospital-to-home strategy, providing innovative solutions to improve patient outcomes, and reducing the cost of care™. Furthermore, Sound United unlocks access to large, well-established consumer channels by offering us immediate scale with leading retail establishments across the U.S. and Europe. The collaboration will translate into products that broaden our access to untapped consumer demographics around the world.

Recent Developments & Product Releases

In February 2022, we announced a major expansion of Masimo SafetyNet® that brings robust, secure video conferencing to the remote patient management and connectivity platform to offer a comprehensive telehealth and telemonitoring solution – and for patients, a better “hospital at home” experience.

Also in February 2022, we announced the FDA 510(k) clearance of SedLine® brain function monitoring for pediatric patients (1-17 years of age) and the SedLine® Pediatric EEG Sensor. With this clearance, the potential benefits of SedLine® have been expanded to all patients one year old and above in the United States.

__________________

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

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In April 2022, we completed the acquisition of Sound United. Sound United operates iconic consumer brands including Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®. Sold worldwide, these brands offer customers products with unparalleled quality and performance, ranging from high-resolution wireless audio to high-performance stereo to multichannel home theater.

Also in April 2022, we announced the introduction of the Denon® DHT-S217 Soundbar with built in subwoofers. The sleek DHT-S217 delivers superb clarity including crystal-clear dialogue with authoritative bass response from two onboard subwoofers that will certainly please both music and movie enthusiasts. The DHT-S217 also incorporates Dolby Atmos 3D® audio technology for a lifelike, cinematic surround sound experience sure to elevate the performance of the latest 4K televisions.

In May 2022, we celebrated our 33rd anniversary by announcing the limited market release of the W1™ biosensing health watch for consumers. The Masimo W1™ is the first of its kind to offer accurate, continuous measurements in a personal, discreet, lifestyle-friendly wrist-worn wearable. The W1™ provides accurate, continuous monitoring of multiple health parameters, including SpO2, PR, PI, PVi®, and RR, alongside step count and fall detection.

Also in May 2022, we announced the FDA 510(k) clearance of O3® regional oximetry for use in monitoring adult somatic tissue oxygen saturation. With this clearance, O3® is now indicated for use in monitoring both absolute and trending regional oxygen saturation (rSO2) in the U.S. in both cerebral and somatic applications for adults. Unlike somatic oximetry solutions that are indicated only for trending measurement, O3® with absolute rSO2 offers clinicians greater confidence that displayed values correlate with tissue oxygenation.

In August 2022, we announced the full market release of the Masimo W1™ health watch for consumer use. The first of its kind, the Masimo W1™ offers accurate, continuous measurements and insightful health data in a personal, lifestyle-friendly, wrist-worn wearable. Launching alongside the Masimo W1™ is Personal SafetyNet™, a paid subscription service integrated within the Masimo Health app that gives users access to sophisticated reporting tools to help them review their physiological status over time.

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, and mandatory screening for symptoms associated with COVID-19 for 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. As a federal contractor, we expect that our employees are vaccinated per the federal mandate, and current employees and candidates seeking employment with Masimo may be opposed to being vaccinated and may risk possible termination or may seek employment with an employer that is not required to follow the federal mandate. 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.

Supply Chain and Inflationary Pressures

Despite on-going supply chain uncertainties, logistical challenges and the global staffing challenges caused by COVID-19, we are optimistic about our long-term growth opportunities in both the healthcare and non-healthcare segments as our broad portfolio of products and solutions are well suited to address patient and customer needs.

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While we anticipate some volatility in our business due to inflationary pressures and continued global supply chain challenges, we are optimistic about continued growth across both segments in the long-term from both our new product launches and our recent acquisitions, but also as we continue to invest in expanding and improving our technologies and embedding them into our direct to consumer markets.

Russian-Ukraine Conflict

In response to the ongoing conflict in Ukraine, we continue to monitor the developing situation with respect to ongoing business in Russia and the Ukraine, and are working on appropriate contingency plans that will support our desire to serve existing patient populations while remaining compliant with all applicable U.S. and EU sanctions and regulations. While Russia and Ukraine do not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could have an impact on our business. In the interim, order acceptance for these countries has been halted. For the three and nine months ended October 1, 2022, sales derived from customers based in Russia represented an immaterial percentage of our total revenue.

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, “Related Party Transactions”, 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.

	Three Months Ended (in million, except percentages)								Nine Months Ended (in millions, except percentages)
	October 1, 2022		Percentage of Revenue		October 2, 2021		Percentage of Revenue		October 1, 2022		Percentage of Revenue		October 2, 2021		Percentage of Revenue
Revenue	$	549.3	100.0	%	$	307.4	100.0	%	$	1,418.8	100.0	%	$	911.6	100.0	%
Cost of goods sold	266.8		48.6		103.8		33.8		673.4		47.5		318.1		34.9
Gross profit	282.5		51.4		203.6		66.2		745.4		52.5		593.5		65.1
Operating expenses:
Selling, general and administrative	174.6		31.8		100.6		32.7		471.6		33.2		291.2		31.9
Research and development	53.1		9.7		35.4		11.5		137.1		9.7		103.9		11.4
Total operating expenses	227.7		41.5		136.0		44.2		608.7		42.9		395.1		43.3
Operating income	54.8		10.0		67.6		22.0		136.7		9.6		198.4		21.8
Non-operating (loss) income	(2.8)		(0.5)		—		—		1.0		0.1		(0.7)		(0.1)
Income before provision for income taxes	52.0		9.5		67.6		22.0		137.7		9.6		197.7		21.7
Provision for income taxes	14.1		2.6		9.8		3.2		35.1		2.5		36.3		4.0
Net income	$	37.9	6.8	%	$	57.8	18.8	%	$	102.6	7.1	%	$	161.4	17.7	%

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Comparison of the Three Months ended October 1, 2022 to the Three Months ended October 2, 2021

Revenue. Revenue increased $241.9 million, or 78.7%, to $549.3 million for the three months ended October 1, 2022 from $307.4 million for the three months ended October 2, 2021. Contributing to the increase in revenue was approximately $222.1 million, or 80.1% from the Sound United acquisition and $19.8 million, or 6.4% from the growth in our healthcare business.

Revenue by segment: Revenue by segment is comprised of healthcare and non-healthcare segments. The healthcare segment consists of hospital products and services. The non-healthcare segment consists of consumer audio visual and sound related products. The following table details our revenues by segment for each of the three months ended October 1, 2022 and October 2, 2021:

	Three Months Ended (in millions, except percentage)
	October 1, 2022				October 2, 2021				Increase/ (Decrease)		Percentage Change
Healthcare	$	327.2	59.6	%	$	307.4	100.0	%	$	19.8	6.4	%
Non-healthcare	222.1		40.4		—		—		222.1		100.0
Revenue by segment	$	549.3	100.0	%	$	307.4	100.0	%	$	241.9	78.7	%

The increase in healthcare segment revenue was partially attributable to higher sales of consumables and parameters, offset by the impact of approximately $31.6 million of unfavorable 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. Revenue generated through our direct and distribution sales channels increased $16.7 million, or 6.1%, to $292.4 million for the three months ended October 1, 2022 compared to $275.7 million for the three months ended October 2, 2021. Revenues from our OEM channel increased $3.1 million, or 9.8%, to $34.8 million for the three months ended October 1, 2022 as compared to $31.7 million for the three months ended October 2, 2021.

During the three months ended October 1, 2022, we shipped approximately 76,100 noninvasive technology boards and instruments.

The non-healthcare revenue segment is a new reportable segment resulting from the Sound United acquisition. The non-healthcare segment saw strong demand for consumer audio products, which were partially offset by the impact of unfavorable foreign exchange rate movements from the prior year that decreased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies. Despite the improvement of supply of certain component parts, we still maintain a product backlog due to industry-wide supply chain challenges.

Gross Profit. Gross profit consists of revenue less cost of goods sold. Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products. Our gross profit for the three months ended October 1, 2022 and October 2, 2021 was as follows:

Gross Profit (in millions, except percentages)
Three Months Ended October 1, 2022	Percentage of  Net Revenues	Three Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$282.5	51.4%	$203.6	66.2%	$78.9	38.8%

Cost of goods sold increased $163.0 million for the three months ended October 1, 2022, compared to the three months ended October 2, 2021, primarily due to higher material, manufacturing and distribution costs associated with the overall increase in sales, the impact of the higher proportion of these types of costs inherent in the newly added non-healthcare segment, and transaction costs incurred related to the Sound United acquisition. Also impacting the increase in cost of goods sold are various expense inefficiencies related to the continued global supply chain constraints in the current logistics environment.

Gross profit decreased to 51.4% for the three months ended October 1, 2022, compared to 66.2% for the three months ended October 2, 2021, primarily due to a change in product revenue mix from the inclusion of non-healthcare product sales.

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 October 1, 2022 and October 2, 2021 were as follows:

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Selling, General and Administrative (in millions, except percentages)
Three Months Ended October 1, 2022	Percentage of  Net Revenues	Three Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$174.6	31.8%	$100.6	32.7%	$74.0	73.6%

Selling, general and administrative expenses increased $74.0 million, or 73.6%, for the three months ended October 1, 2022, compared to the three months ended October 2, 2021. This increase was primarily attributable to the Sound United acquisition in the form of higher compensation and other employee-related costs of approximately $22.6 million, higher advertising and marketing-related costs of approximately $14.3 million, higher transaction-related costs of approximately $10.7 million, higher occupancy and other office-related costs of approximately $12.0 million and higher legal and professional fees of $8.3 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 October 1, 2022 and October 2, 2021 were as follows:

Research and Development (in millions, except percentages)
Three Months Ended October 1, 2022	Percentage of  Net Revenues	Three Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$53.1	9.7%	$35.4	11.5%	$17.7	50.0%

Research and development expenses increased $17.7 million, or 50.0%, for the three months ended October 1, 2022, compared to the three months ended October 2, 2021, primarily due to the Sound United acquisition in the form of higher compensation and employee-related costs of approximately $11.4 million, higher engineering project costs of approximately $3.6 million, higher occupancy and other office-related costs of approximately $1.2 million and higher professional fees of approximately $0.6 million.

Non-operating Loss. Non-operating loss consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating loss for the three months ended October 1, 2022 and October 2, 2021 was as follows:

Non-operating Loss (in millions, except percentages)
Three Months Ended October 1, 2022	Percentage of  Net Revenues	Three Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$(2.8)	(0.5)%	$—	—%	$(2.8)	—%

Non-operating loss was $2.8 million for the three months ended October 1, 2022, as compared to zero non-operating loss for the three months ended October 2, 2021, primarily due to the net impact of realized and unrealized foreign currency transactions incurred during the period of approximately $6.4 million, which was offset by interest expense incurred under our Credit Facility of approximately $9.7 million.

Provision for Income Taxes. Our provision for income taxes for the three months ended October 1, 2022 and October 2, 2021 was as follows:

Provision for Income Taxes (in millions, except percentages)
Three Months Ended October 1, 2022	Percentage of  Net Revenues	Three Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$14.1	2.6%	$9.8	3.2%	$4.3	43.9%

For the three months ended October 1, 2022, we recorded a provision for income taxes of approximately $14.1 million, or an effective tax provision rate of 27.1%, as compared to a provision for income taxes of approximately $9.8 million, or an effective tax provision rate of 14.5%, for the three months ended October 2, 2021. The increase in our effective tax rate for the three months ended October 1, 2022 resulted primarily from the impact of the Sound United acquisition. Also contributing to the increase in our effective tax provision rate was a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $6.1 million compared to the three months ended October 2, 2021.

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Comparison of the Nine Months ended October 1, 2022 to the Nine Months ended October 2, 2021

Revenue. Revenue increased $507.2 million, or 55.6%, to $1,418.8 million for the nine months ended October 1, 2022 from $911.6 million for the nine months ended October 2, 2021. Contributing to the increase in revenue was approximately $430.3 million, or 30.3% from the Sound United acquisition and $76.9 million, or 8.4% from the growth in our healthcare business.

Revenue by segment: Revenue by segment is comprised of healthcare and non-healthcare segments. The healthcare segment consists of hospital products and services. The non-healthcare segment consists of consumer audio visual and sound related products. The following table details our revenues by segment for each of the nine months ended October 1, 2022 and October 2, 2021:

	Nine Months Ended (in millions, except percentages)
	October 1, 2022				October 2, 2021				Increase/ (Decrease)		Percentage Change
Healthcare	$	988.5	69.7	%	$	911.6	100.0	%	$	76.9	8.4	%
Non-healthcare	430.3		30.3		—		—		430.3		100.0
Revenue by segment	$	1,418.8	100.0	%	$	911.6	100.0	%	$	507.2	55.6	%

The increase in healthcare segment revenue was partially attributable to higher sales of consumables, parameters and services offset by the impact of approximately $53.8 million of unfavorable 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.

Revenue generated through our direct and distribution sales channels increased $72.8 million, or 9.0%, to $883.2 million for the nine months ended October 1, 2022, compared to $810.4 million for the nine months ended October 2, 2021. Revenues from our OEM channel increased $4.1 million, or 4.1%, to $105.3 million for the nine months ended October 1, 2022 as compared to $101.2 million for the nine months ended October 2, 2021.

During the nine months ended October 1, 2022, we shipped approximately 228,900 noninvasive technology boards and instruments.

The non-healthcare revenue segment is a new reportable segment resulting from the Sound United acquisition. Non-healthcare revenue represented below is from April 11, 2022 through October 1, 2022. The non-healthcare segment saw strong demand for consumer audio products during the nine months ended October 1, 2022, which were partially offset by the impact of unfavorable foreign exchange rate movements from the prior year that decreased the U.S. Dollar translation of foreign sales that were denominated in various foreign currencies. Despite the improvement of supply, we still maintain a product backlog due to industry-wide supply chain challenges.

Gross Profit. Gross profit consists of total revenue less cost of goods sold. Our gross profit for the nine months ended October 1, 2022 and October 2, 2021 was as follows:

Gross Profit (in millions, except percentages)
Nine Months Ended October 1, 2022	Percentage of  Net Revenues	Nine Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$745.4	52.5%	$593.5	65.1%	$151.9	25.6%

Cost of goods sold increased $355.3 million for the nine months ended October 1, 2022 compared to the nine months ended October 2, 2021, primarily due to higher material, manufacturing and distribution costs associated with the overall increase in sales, the impact of the higher proportion of these types of costs inherent in the newly added non-healthcare segment, and transaction costs incurred related to the Sound United acquisition. Also impacting the increase in cost of goods sold are various expense inefficiencies related to the continued global supply chain constraints in the current logistics environment.

Gross profit decreased to 52.5% for the nine months ended October 1, 2022 compared to 65.1% for the nine months ended October 2, 2021, primarily due to costs associated with an elevated level of customer installations and higher material, manufacturing and distribution costs, along with the inclusion of non-healthcare product costs.

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Selling, General and Administrative. Selling, general and administrative expenses for the nine months ended October 1, 2022 and October 2, 2021 were as follows:

Selling, General and Administrative (in millions, except percentages)
Nine Months Ended October 1, 2022	Percentage of  Net Revenues	Nine Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$471.6	33.2%	$291.2	31.9%	$180.4	62.0%

Selling, general and administrative expenses increased $180.4 million, or 62.0%, for the nine months ended October 1, 2022, compared to the nine months ended October 2, 2021. This increase was primarily due to the Sound United acquisition in the form of higher compensation and other employee-related costs of approximately $58.6 million, higher transaction-related costs of approximately $32.1 million, and higher advertising and marketing-related costs of approximately $28.2 million, higher legal and professional fees of approximately $25.8 million and higher occupancy and other office-related costs of approximately $24.6 million.

Research and Development. Research and development expenses for the nine months ended October 1, 2022 and October 2, 2021 were as follows:

Research and Development (in millions, except percentages)
Nine Months Ended October 1, 2022	Percentage of  Net Revenues	Nine Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$137.1	9.7%	$103.9	11.4%	$33.2	32.0%

Research and development expenses increased $33.2 million, or 32.0%, for the nine months ended October 1, 2022 compared to the nine months ended October 2, 2021, primarily due to the Sound United acquisition in the form of higher compensation-related costs of approximately $21.0 million, higher engineering project costs of approximately $6.4 million and higher occupancy and other office-related costs of approximately $3.4 million.

Non-operating Income (Loss). Non-operating income (loss) consists primarily of interest income, interest expense and foreign exchange gains and losses. Non-operating income (loss) for the nine months ended October 1, 2022 and October 2, 2021 was as follows:

Non-operating Income (Loss) (in millions, except percentages)
Nine Months Ended October 1, 2022	Percentage of  Net Revenues	Nine Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$1.0	0.1%	$(0.7)	(0.1)%	$1.7	(242.9)%

Non-operating income increased by $1.7 million for the nine months ended October 1, 2022, compared to the nine months ended October 2, 2021, primarily due to interest income on cash deposits of approximately $0.9 million in combination with the net impact on realized and unrealized foreign currency denominated transactions incurred during the period of approximately $14.3 million, which were offset by interest expense incurred under our Credit Facility of approximately $14.3 million.

Provision for Income Taxes. Our provision for income taxes for the nine months ended October 1, 2022 and October 2, 2021 was as follows:

Provision for Income Taxes (in millions, except percentages)
Nine Months Ended October 1, 2022	Percentage of  Net Revenues	Nine Months Ended October 2, 2021	Percentage of Net Revenues	Increase/ (Decrease)	Percentage Change
$35.1	2.5%	$36.3	4.0%	$(1.2)	(3.3)%

For the nine months ended October 1, 2022, we recorded a provision for income taxes of approximately $35.1 million, or an effective tax rate of 25.5%, as compared to a provision for income taxes of approximately $36.3 million, or an effective tax rate of 18.4%, for the nine months ended October 2, 2021. The increase in our tax rate for the nine months ended October 1, 2022 resulted primarily from the impact of the Sound United acquisition. Also contributing to the increase in our effective tax provision rate was a decrease in the amount of excess tax benefits realized from stock-based compensation of approximately $9.8 million as compared to the nine months ended October 2, 2021.

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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 October 1, 2022, we had approximately $658.3 million in working capital, of which approximately $219.5 million was in cash and cash equivalents. In addition to net working capital, we had approximately $40.5 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 October 1, 2022, we had cash totaling $111.0 million held outside of the U.S., of which approximately $41.2 million was accessible without additional tax cost and approximately $39.2 million was accessible at an incremental estimated tax cost of up to $0.4 million. The tax cost on the remaining $30.6 million is not determinable at this time. 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:

	Nine Months Ended (in millions)
	October 1, 2022		October 2, 2021
Net cash provided by (used in):
Operating activities	$	36.0	$	167.1
Investing activities	(1,034.9)		(31.5)
Financing activities	525.1		(126.6)
Effect of foreign currency exchange rates on cash	(52.5)		(0.1)
Decrease in cash, cash equivalents and restricted cash	$	(526.3)	$	8.9

Operating Activities. Cash provided by operating activities was approximately $36.0 million for the nine months ended October 1, 2022, generated primarily from net income from operations of $102.6 million. Non-cash activity included depreciation and amortization of $56.6 million and stock-based compensation of approximately $41.7 million.

Additional uses of cash included changes in operating assets and liabilities, including an increase in inventories of approximately $71.0 million, an increase in accounts receivable of approximately $66.7 million, an increase in deferred costs and other contract assets of approximately $31.6 million, an increase in other non-current assets of approximately $22.2 million, an increase in lease receivables, net of approximately $5.9 million. a decrease in other non-current liabilities of approximately $28.9 million, a decrease in accrued liabilities of approximately $26.5 million, a decrease in income tax payable of approximately $8.4 million, and a decrease in accrued compensation of approximately $6.9 million. These uses of cash were offset by other changes in operating assets and liabilities, including an increase in accounts payable of approximately $69.6 million, an increase in deferred revenue and other contract-related liabilities of approximately $19.7 million, and a decrease in other current assets of approximately $11.7 million.

For the nine months ended October 2, 2021, cash provided by operating activities was approximately $167.1 million, generated primarily from net income from operations of $161.4 million. Non-cash activity included stock-based compensation of $33.5 million and depreciation and amortization of $26.5 million. Additional sources of cash included a decrease in inventories, other current assets, an increase in deferred revenue and other contract-related liabilities and other non-current liabilities of $12.3 million, $4.4 million, $1.4 million and $0.6 million, respectively. These sources of cash were partially offset by other changes in operating assets and liabilities, including a decrease in accounts payable, accrued liabilities, income tax payable and accrued compensation of approximately $4.3 million, $4.0 million, $1.5 million and $1.3 million, respectively, primarily due to the timing of payments; an increase in accounts receivable of approximately $51.0 million, primarily due to the timing of cash receipts; an increase in lease receivable of approximately $9.3 million and an increase in deferred costs and other contract assets of approximately $2.6 million.

Investing Activities. Cash used in investing activities for the nine months ended October 1, 2022 was approximately $1,034.9 million, consisting primarily of approximately $985.0 million for business combinations, net of cash acquired, approximately $36.0 million for purchases of property and equipment, approximately $13.9 million of capitalized intangible asset costs related primarily to patent and trademark costs and license fees.

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For the nine months ended October 2, 2021, cash used in investing activities was approximately $31.5 million, consisting primarily of approximately $20.7 million for purchases of property and equipment, approximately $8.2 million of capitalized intangible asset costs related primarily to patent and trademark costs and approximately $2.6 million for strategic investments.

Financing Activities. Cash provided by financing activities for the nine months ended October 1, 2022 was approximately $525.1 million, consisting primarily of proceeds from borrowings under the line of credit of approximately $1,050.6 million, the issuance of common stock related to employee equity awards of approximately $6.9 million, which were partially offset by the repurchases of our common stock of approximately $401.4 million, withholding of shares for employee payroll taxes for vested equity awards of approximately $25.4 million and debt issuance costs of approximately $9.3 million.

For the nine months ended October 2, 2021, cash used in financing activities was approximately $126.6 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 proceeds from the issuance of common stock related to employee equity awards of approximately $19.0 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 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 common stock, general market conditions, the trading price of our common stock, availability of 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, any 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, “Debt”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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, 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 on the condensed consolidated financial statements may be material.

There have been no material changes to any of our critical accounting policies during the nine months ended October 1, 2022. 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 1, 2022, which was filed with the SEC on February 15, 2022.

Recent Accounting Pronouncements

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

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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 maintain a derivative instrument for cash flow hedging, but 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 October 1, 2022, the carrying value of our cash equivalents approximated fair value. We manage our risk associated with interest rates fluctuations related to interest expenses under our Credit Facility by engaging in hedging activities. In July 2022, we entered into various interest rate swap contracts to hedge our exposure to changes in cash flows associated with our outstanding debt with variable interest rates. The interest rate swap contracts became effective in the third quarter of fiscal year 2022 with maturities averaging five years or less. See Note 17, “Derivative Instruments and Hedging Activities” for further details.

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, interest income and credit facilities by approximately $0.1 million for each $10.0 million in interest-bearing investments and by $0.1 million for each additional $10.0 million of debt.

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.

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 nine months ended October 1, 2022, we estimate fluctuations in the exchange rates between the U.S. Dollar and other foreign currencies, including the Euro, the Japanese Yen, the British Pound, the South Korean Won, Turkish Lira and the Australian Dollar, have unfavorably impacted our revenues by $21.4 million.

We currently enter into forward exchange contracts to hedge foreign currency exposures, but 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 October 1, 2022 would have resulted in an estimated reduction of $25.0 million in reported pre-tax income for the nine months ended October 1, 2022. 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

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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.

The Sound United acquisition was completed on April 11, 2022. The financial results of Sound United are included in our unaudited condensed consolidated financial statements for the quarter ended October 1, 2022. The Sound United business represented approximately $222.1 million of revenue and $0.5 million of net loss for the third quarter of fiscal year 2022. As this acquisition occurred in the second quarter of fiscal year 2022, the scope of our assessment of our internal control over financial reporting does not include Sound United. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from our scope during the first year following the date of acquisition.

During the three months ended October 1, 2022, there were no 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 24, “Commitments and Contingencies”, 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.

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 1, 2022, filed with the SEC on February 15, 2022.

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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 healthcare 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.

•*If we are not able to maintain and enhance the value and reputation of our non-healthcare brands, or if our reputation is otherwise damaged, our business and operating results could be harmed.

•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 healthcare products would decline.

•*Inadequate levels of coverage or reimbursement from governmental or other third-party payers for our healthcare products, or for procedures using our healthcare 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.

•*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 and adversely affect our business, financial condition and results of operations.

•*A regional or global recession and other negative macro-economic trends could adversely affect our non-healthcare business.

•*Competition and other conflicts with our non-healthcare distribution partners could harm our business and operating results.

•*Certain of our non-healthcare products are dependent on integrations with third-party technology.

•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.

•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 medical devices in the U.S., which could severely harm our business.

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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.

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

•*If our healthcare 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 other applicable laws, and may need to initiate voluntary or mandatory corrective actions, such as the recall of our healthcare products.

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

•*The regulatory environment governing information, data security and privacy is increasingly demanding and evolving.

•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.

•*U.S. and international legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance.

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

•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.

•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 and their employees successfully into our existing operations or achieve the desired results of our initiatives.

•*Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results.

•*Our Credit Facility 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, Delaware law and our stockholder rights plan 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.

•*Shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price.

•Exclusive forum provisions in our bylaws 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 healthcare 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.

Our healthcare business is 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 healthcare 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 healthcare 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 our products. For example, our recent acquisition of Viper Holdings Corporation d/b/a Sound United, LLC (Sound United) expanded our business and product strategy to additionally focus on non-healthcare products to integrate with our successful medical technology. See the risk factor with the heading “Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results” for additional risks related to this expansion of our business.

We are continuing to invest in sales and marketing resources to achieve market acceptance of our products, but are unable to guarantee that our technologies will achieve general market acceptance.

The degree of market acceptance of our healthcare 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.

Further, market acceptance of our non-healthcare products will depend on certain additional factors, including but not limited to:

•perceived quality of our non-healthcare brands and technology;

•our ability to accurately forecast consumer demand and maintain manufacturing capacity to meet such demand;

•our ability to introduce new innovative products that align with rapidly changing consumer tastes; and

•implementation of pricing and marketing strategies that drive consumer adoption without eroding our premium market position.

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.

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*If we are not able to maintain and enhance the value and reputation of our non-healthcare brands, or if our reputation is otherwise damaged, our business and operating results could be harmed.

Our non-healthcare business in the premium audio market depends on the reputation associated with our brands, including Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®, for providing high-quality products and consumer experiences. The reputation of our brands is dependent on a number of factors, including product quality, research and development, trademark protection and sales and marketing initiatives, each of which requires a wide variety of talented professionals and significant expenditures.

The value of our brands could be damaged by a number of factors, including defects or other quality issues, perceived lack of innovation, evolving consumer tastes, or ineffective marketing strategies. Further, certain third-parties, such as installers of home audio systems or independent retailers over which we exert no control may damage our reputation if their services or business practices negatively impact the consumer experience with our products. Damage to our brands’ reputation or other negative consumer perceptions may 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”.

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 industries in which we compete are intensely competitive and 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.

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Continuing technological advances and new product introductions in the industries in which we compete 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. In our non-healthcare business, we face significant risks associated with new product introductions, including accurately forecasting initial consumer demand, effectively managing any third-party strategic alliances related to manufacturing and commercialization, as well as the risk that new products may not achieve market acceptance or, if acceptance is achieved, may negatively impact the sales of older products. Accordingly, if we cannot properly manage the introduction of new products, our operating results and financial condition may be adversely impacted. In addition, 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 healthcare products for applications other than arterial blood oxygen saturation and pulse rate monitoring, such as for respiration rate, hemoglobin, carboxyhemoglobin and methemoglobin monitoring.

If we do not successfully adapt our products and applications, 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 healthcare 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., Amazon.com, 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 2021, Apple, Inc. announced that its Apple Watch Series 7 includes a blood oxygen level monitoring feature and a sleep tracking function, both of which compete with our existing products. In addition, in October 2022, Apple, Inc. announced that its Apple Watch Series 8 includes an ECG app, as well as fall detection and temperature sensing capabilities, which may compete with certain of our existing products and products in development. In our non-healthcare business, our competition includes the technology companies referenced above as well as sellers of consumer audio products, such as Bang & Olufsen®, Bose®, Harman International®, JBL®, Sonos® and Sony®. Many of these companies have substantially greater capital, research and development, and sales resources than we have. To effectively compete, we may need to expand our product offerings and distribution channels, which in the interim could increase our research and development costs and decrease our operating margins, thereby adversely impacting our business, 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.

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 healthcare products would decline.

Our ability to sell our healthcare 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.

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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 95% of our U.S. healthcare product sales. Our failure to renew our contracts with GPOs may cause us to lose market share in our healthcare business 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 healthcare products, or for procedures using our healthcare products, may cause our revenue to decline or prevent us from realizing revenues from future products.

Sales of our healthcare 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 healthcare products or the procedures in which our healthcare 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 healthcare products or the procedures in which our healthcare 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. In addition, we may incur significant expenses to generate clinical data to demonstrate not only the safety and efficacy, but also the cost-effectiveness of our products in order to obtain favorable reimbursement policies from payers.

These trends could lead to pressure to reduce prices for our current and future healthcare 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.

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 healthcare products and adversely impact our business, financial condition and results of operations.

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Our healthcare 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 healthcare 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 ongoing COVID-19 pandemic, may be short lived. If the increased demand results in a stockpiling of our healthcare 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.

Our healthcare business has a concentration of OEM, distributor and direct customers. For example, sales to one just-in-time distributor represented 10% or more of our healthcare product sales for the fiscal quarter ended October 1, 2022. Similarly, within our non-healthcare business, we sell products through distributors, resellers, direct-to-consumer and to large retailers. No individual retailer represented more than 10% of our non-healthcare product sales for the fiscal quarter ended October 1, 2022.

We cannot provide any assurances that we will retain our current customers, groups of customers or distributors, that they will maintain their current or forecasted demand for our products, 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 or loss of market share, which would adversely impact our operating results.

Our revenues 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 just-in-time distributors of our healthcare products 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.

Counterfeit Masimo sensors and third-party reprocessed single-patient-use Masimo sensors may harm our reputation and 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.

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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.

*A regional or global recession and other negative macro-economic trends could adversely affect our non-healthcare business.

Our non-healthcare products are generally considered non-essential, discretionary products. As such, many of these products can be especially sensitive to general downturns in the economy. Negative macroeconomic conditions, such as high inflation, recession, changes to monetary policy, increasing interest rates and decreasing consumer confidence can adversely impact demand for these products, which could negatively impact our business, financial condition and results of operations.

*Competition and other conflicts with our non-healthcare distribution partners could harm our business and operating results.

Several of our existing non-healthcare products compete, and future products may compete, with the product offerings of some of our significant channel and distribution partners. These partners may choose to market and promote their own products over ours or could cease or reduce selling or promotion of our products. Any reduction in our ability to place and promote our non-healthcare products, or increased competition from our distribution partners for available shelf or website placement, especially during peak retail sales periods, could adversely affect our non-healthcare business. In addition, the expansion of our direct-to-consumer channel in our non-healthcare business through our brand websites could increase our competition with our channel partners and cause these partners to reduce their purchases of our non-healthcare products. Conflicts in our sales channels could arise and cause channel partners to divert resources away from the promotion and sale of our products. Any of these situations could adversely impact our business, financial condition and results of operations.

*Certain of our non-healthcare products are dependent on integrations with third-party technology.

We integrate our non-healthcare products with technologies from third-parties, some of which have developed or may develop and sell competitive products. If these third-parties view us as a competitive threat, they may cease doing business with us or disable (or require us to disable) the technology they integrate into our products. If one or more of these third-parties do not maintain their integration with our products or seek to adversely modify the terms under which they provide integration in a manner that is unacceptable to us, our products may lose important functionality, our reputation may be harmed, and our business, financial condition and results of operations may be damaged.

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. As a result, we believe large technology companies may be pursuing an “efficient infringement” strategy, having concluded that it is cheaper to infringe third-party intellectual property rights than to acquire, license or otherwise respect them. 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.

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In addition, third-parties have challenged, and may continue to 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.

We rely on the use of registered and common law trademarks with respect to our brands and the 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 our competitors. 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.

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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. In addition, on June 30, 2021, we filed a complaint with the ITC against Apple Inc. for infringement of a number of other patents. On October 20, 2022, Apple filed two complaints against us and Sound United alleging that the Masimo W1™ watch infringes a number of patents. For additional information related to these litigations, please see Note 24, “Commitments and Contingencies”, to our accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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.

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 medical devices 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 medical devices 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.

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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 previously 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 healthcare technologies could have a negative impact on our revenue.

Our healthcare OEM partners are required to obtain their own FDA clearances in the U.S. for most products incorporating our 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 our technologies that our OEM partners propose to market.

*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 healthcare products, along with the manufacturing processes, labeling and promotional activities for those 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 healthcare 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

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•operating restrictions.

In addition, many of our healthcare and non-healthcare products are subject to various laws, regulations and legal requirements, including those governing consumer protection, product import and export, hazardous materials usage and discharge, product related energy consumption, electrical safety, wireless emissions, e-commerce, packaging and recycling. Compliance with these requirements, which vary widely depending on jurisdiction, is time consuming and expensive.

If we fail to comply with applicable legal requirements, 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 our healthcare products 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 EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a new regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU (Brexit).

Modifications to our marketed medical 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 medical devices in the past and we may make additional modifications in the future. Any modification to a medical 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.

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Regulatory reforms may impact our ability to develop and commercialize our healthcare 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 new MDR became applicable to our medical devices on 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.

*If our healthcare 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 other applicable laws, and may need to initiate voluntary or mandatory corrective actions, such as the recall of our healthcare products.

Regulatory agencies in many countries require us to report anytime our healthcare 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 healthcare 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.

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In addition, our non-healthcare products, including components we source from third parties, may be found to have design or manufacturing defects. Such defects may result in additional costs for product modifications, voluntary or mandated product recalls or other liabilities resulting from product malfunctions. For example, defects in our audio products may result in overheating or electrical shock, creating a risk of personal injury or property damage.

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, physician and consumer 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 healthcare 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 of a device outside its cleared or approved indications is known as “off-label” use. 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.

*The regulatory environment governing information, data security and privacy is increasingly demanding and evolving.

Personal privacy and data security have become significant issues in the U.S., Europe, the Middle East, Canada, China 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.

Several U.S. states have passed comprehensive privacy laws that will go into effect in 2023. Of note among them is the California Consumer Privacy Rights Act (CPRA), which amends and expands the California Consumer Privacy (CCPA). The CPRA, which will go into effect on January 1, 2023, along with the CCPA, governs the transmission, security and privacy of California residents’ personal information. The CPRA has a twelve month look-back period for enforcement purposes. Among many new requirements, the CPRA creates a category for sensitive data including health and other personal information that requires additional safeguards and disclosures. In addition, the CPRA expands consumers’ rights and has enhanced enforcement mechanisms such as the creation of a California Privacy Protection Agency that will investigate and enforce the CPRA and its promulgating regulations. The CPRA also requires us to make disclosures to consumers about our data collection, use and sharing practices, allows consumers to opt out of certain data sales to third parties, affords new consumer rights, and provides a 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.

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We continue to be subject to federal privacy laws such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA) in connection with any personal health information or medical information that we may obtain or have access to in connection with the operation of our business. Moreover, a comprehensive federal data privacy bill, the American Data Privacy and Protection Act, has been proposed and, if passed, will further change the privacy and data security compliance landscape. In addition, the SEC recently passed a cybersecurity rule that may go into effect as early as the first half of 2023. The new cybersecurity rule will require, among other things, increased monitoring and reporting of data security incidents.

All 50 U.S. states have data breach notification laws that, if violated, could result in penalties, fines and litigation. In addition, many states have implemented or are in the process of implementing related legislation, including state-specific biometric privacy laws that have resulted in class-action lawsuits against businesses. The full impact of these laws 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 European Data Protection Board recently released new guidelines on enforcement and fines related to the General Data Protection Regulation (GDPR). The new guidelines suggest a tougher stance on enforcement and stiffer fines for companies that violate the GDPR. This is in addition to the continued complexities involving the transfer of personal data from Europe to the U.S. following the Schrems II decision. The U.S. and the European Commission have been in discussions for a new Trans-Atlantic data privacy framework, Privacy Shield 2.0, which is anticipated to go into effect at the end of 2022 or the beginning of 2023, which will require additional compliance efforts from our company. In March 2022, the U.S. and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not yet been implemented beyond an executive order signed by President Biden on October 7, 2022 on Enhancing Safeguards for United States Signals Intelligence Activities.

Further, Brexit has led and could also lead to legislative and regulatory changes that may increase our compliance costs. As of January 1, 2021 and the expiry of transitional arrangements agreed to between the UK and the EU, data processing in the UK is governed by a UK version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which authorizes similar fines and other potentially divergent enforcement actions for certain violations. On June 28, 2021, the European Commission adopted an Adequacy Decision for the UK, allowing for the relatively free exchange of personal information between the EU and the UK, however, the European Commission may suspend the Adequacy Decision if it considers that the UK no longer provides for an adequate level of data protection.

Other international jurisdictions, including Canada, China, Saudi Arabia, the UAE, and Brazil, among others, 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.

We may be required to make costly system modifications to comply with applicable data privacy and security laws. Violations of these laws, or allegations of such violations, could subject us to criminal or civil, monetary or and non-monetary penalties, 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.

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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.

*U.S. and international legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance.

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.

Although we cannot predict the ultimate content or timing of any healthcare reform legislation or other 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 the healthcare 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.

Risks Related to Our Business and Operations

*Our business, financial condition and results of operations may be adversely affected by the 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. Government-imposed travel restrictions and business closures arising from the COVID-19 pandemic 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 U.S. and other countries. Further, sales of our non-healthcare products have been, and may continue to be, negatively affected by forced closures of retail stores, insufficient retail staffing and decreased retail foot traffic.

If we are required or otherwise elect to mandate vaccines for our employees, we may experience workforce constraints due to shortages of vaccinated personnel. In addition, our suppliers who are subject to similar vaccination mandates or regulations may experience similar constraints, thereby affecting their ability to provide to us with sufficient inventory or material to meet our demands and needs in a timely manner. All of these factors could negatively affect our business and operations.

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Furthermore, global supply chains and the timely availability of raw materials, component parts and products may be materially disrupted by the COVID-19 pandemic and measures taken to combat COVID-19, such as quarantines, government mandates surrounding vaccinations, factory slowdowns or shutdowns, border closings and travel restrictions. In addition, our suppliers have experienced, and may continue to experience, difficulties in delivering raw materials, components and products to us as transportation networks and distribution facilities have been disrupted, resulting in delays at ports of arrival. Furthermore, the availability of shipping containers has decreased and there have been global changes in the types of goods being shipped, all of which have resulted in increased shipping costs and shipping delays, which may affect the availability of raw materials, component parts and products to meet our sales demand. For example, we utilize semiconductor chips in certain products that we manufacture. Semiconductor chips have been subject to an ongoing global supply shortage and our ability to source semiconductor chips or the components that use semiconductor chips was adversely affected in the first three quarters of 2022 and may continue to be adversely affected in the future. Component delivery lead times have increased and are expected to continue 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 or shortages of other component parts continues, we may continue to 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.

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.

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.

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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.

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.

Accordingly, we may not 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 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 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. Further, 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 certain products. These suppliers are located around the world, and the production and shipment of such materials and components may be constrained globally due to freight carrier delays and other disruptions to the supply chain, as well as a reduction in employees associated with 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. We have experienced supply constraints with regard to certain digital signal processor chips and other components during the pandemic, which adversely affected our sales during the first three quarters of 2022 and may adversely affect our future sales. In addition, from time to time there have been industry-wide shortages of certain components that we use in certain products. We may also experience price increases for materials, components and shipping 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 and their employees successfully into our existing operations or achieve the desired results of our initiatives.

We have acquired several businesses since our inception and we may acquire additional businesses in the future. For example, on April 11, 2022, we completed our acquisition of Sound United. In connection with the Sound United acquisition, on April 11, 2022 we entered into a Credit Agreement (Credit Facility) to partially fund the acquisition. Future acquisitions may require additional debt or equity financing, which could be dilutive to our existing stockholders or reduce our earnings per share or other financial metrics. Even if we complete acquisitions, there are many factors that could affect whether such acquisition, including our recently completed acquisition of Sound United, 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-based compensation 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 and becoming subject to additional regulatory requirements;

•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, customers or collaborators;

•intellectual property and other 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 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.

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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.

*Our new products and changes to existing products as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits. Further, we may not be successful in our non-healthcare expansion, which could adversely affect our business, reputation or financial results.

In connection with the Sound United acquisition, we have expanded our business and product strategy to additionally focus on non-healthcare consumer products to integrate with our successful medical technology businesses. Further, we may introduce certain changes to our existing healthcare products or introduce new and unproven products. Prior to the Sound United acquisition, we did not have significant experience with consumer hardware products, and Sound United does not have experience with healthcare products, which may adversely affect our ability to successfully develop and market these products and technologies and integrate them with our existing products and platforms. We expect this will be a complex, evolving, and long-term strategic initiative that will involve the development of new and emerging technologies, continued investment in medical technology and consumer products, and collaboration with other companies, developers, partners and other participants. However, our non-healthcare business may not develop in accordance with our vision and expectations, and market acceptance of features, products or services we build for our consumer business may be uncertain. We may be unsuccessful in our research and product development efforts, including if we are unable to develop relationships with key participants in the consumer products business. Our new strategic efforts may also divert resources and management attention from other areas of our business. In addition, as our non-healthcare business continues to evolve, we may be subject to a variety of laws and regulations in the U.S. and international jurisdictions, which we were not previously affected by, including in the areas of privacy, which may delay or impede the development of our products and services, increase our operating costs, require significant management time and attention, or otherwise harm our business. As a result of these or other factors, our non-healthcare expansion and investments may not be successful in the foreseeable future, or at all, which could adversely affect our business, reputation, or financial results.

*Our Credit Facility contains certain covenants and restrictions that may limit our flexibility in operating our business.

Our Credit Facility contains various affirmative covenants and restrictions that limit our ability to engage in specified types of transactions, including:

•incurring specified types of additional indebtedness, there can be no assurance that we will be able to obtain any additional debt or equity financing at the time needed or that such financing will be available on terms that are favorable or acceptable to us (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 customary affirmative and negative covenants. Our ability to meet those financial ratios and affirmative and negative 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 our 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, “Debt”, 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.

Further, if we do not achieve the anticipated benefits from the recent Sound United acquisition, our ability to service our indebtedness may be adversely impacted. Even if we achieve the anticipated benefits from the acquisition, we may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions, or other general corporate purposes. Our ability to arrange additional financing and make payments of principal and interest on our indebtedness will depend on our future performance, which will be subject to general economic, financial, and business conditions as well as other factors affecting our operations, many of which are beyond our control.

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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 October 1, 2022, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 9.7% 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 proposals that are subject to stockholder approval, such as amendments to our employee stock plans and approvals of significant financing transactions.

*Our corporate documents, Delaware law and our stockholder rights plan 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, such as those underlying the Rights Agreement we adopted on September 9, 2022. The Rights Agreement may have the effect of discouraging or preventing a change in control by, among other things, making it uneconomical for a third party to acquire us without the consent of our Board. With these rights, preferred stockholders could make it more difficult for a third-party to acquire us. The rights of holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any such class or series of preferred stock that may be issued pursuant to the Rights Agreement.

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 (DGCL). 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 DGCL.

*Shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or litigation and impact our stock price.

We have been subject to shareholder activism and may be subject to such activism in the future, which could result in substantial costs and divert management’s and our Board’s attention and resources from our business. Such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers, or suppliers and make it more difficult to attract and retain qualified personnel. We may be required to incur significant fees and other expenses related to activist shareholder matters, including for third-party advisors.

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We may be subjected to a proxy contest or to litigation by activist investors, including litigation related to the Rights Agreement adopted on September 9, 2022. For example, on October 21, 2022, a complaint was filed in the Delaware Court of Chancery against us and members of our Board by Politan Capital Management LP and Politan Capital NY LLC (Activist Plaintiffs). The complaint seeks relief to (i) declare certain amendments to our bylaws that became effective on September 9, 2022 (Bylaw Amendments) unenforceable, (ii) find that our Board breached their fiduciary duties by approving and implementing the Bylaw Amendments and the shareholder rights plan adopted by us on September 9, 2022, and refusing to invalidate certain change of control provisions in our employment agreement with Joe Kiani, (iii) invalidate certain change of control provisions in our CEO, Mr. Kiani’s employment agreement, (iv) permanently enjoin us and our Board from taking any actions to prevent the Activist Plaintiffs from exercising their rights in accordance with our prior bylaws to nominate directors, and (v) award the Activist Plaintiffs their fees, costs and expenses in connection with the action covered by the complaint. In response to the complaint, on October 24, 2022, we filed a counterclaim, answer and defense against the Activist Plaintiffs, seeking relief to (a) have the court declare that the Bylaw Amendments are valid and enforceable and that we are permitted to invalidate any director nominations by Activist Plaintiffs that are not made in accordance with the amended bylaws and (b) award us reasonable costs, including attorneys’ fees and expenses. On October 28, 2022, the Activist Plaintiffs filed a counterclaim and answer generally denying substantially all of the allegations raised in our counterclaim and raising a number of affirmative defenses against our counterclaim. We intend to vigorously pursue all of our legal remedies in our litigation against the Activist Plaintiffs, but there is no guarantee that we will be successful in these efforts. Our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties related to any shareholder activism.

Exclusive forum provisions in our bylaws 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 DGCL, our certificate of incorporation or our bylaws or as to which the DGCL 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 uncertainty in the U.S. economy may result in continued inflationary pressures globally and in the U.S. in particular, which may contribute to future interest rate volatility.

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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; changes in consumer spending during a recession; 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 healthcare 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.

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, “Summary of Significant Accounting Policies”, 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 the implementation of these changes 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. We believe certain of our competitors with greater financial resources than us have targeted our key personnel for recruitment and will likely continue to do so in the future. To the extent that key personnel depart, we may be required to bring on new hires that require training and take time before they achieve full productivity. New employees may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals. 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.

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*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. In addition, we may become subject to claims against companies we acquire based on circumstances arising prior to the acquisition, and the sellers of the acquired company may have no obligation to reimburse us for any resulting damages or expenses. Any litigation, proceedings or dispute, 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.

*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 44% 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. We have historically engaged in transactions with entities related to or located in countries subject to certain U.S. export restrictions. For example, we have had sales of medical products destined for Iran.

In addition, changes in policy in the U.S. and other countries regarding international trade, including import and export regulation and international trade agreements, could negatively impact our business. In recent years, the U.S. has imposed tariffs on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Changes or uncertainty in tariffs or further retaliatory trade measures taken by China or other countries in response could affect the demand for our products and services, impact the competitive position of our products, prevent us from being able to sell products in certain countries or otherwise adversely impact our results of operations. The implementation of more restrictive trade policies, such as more detailed inspections, higher tariffs or new barriers to entry, could negatively impact our business, results of operations and financial condition.

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;

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•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, including the ongoing conflict between Ukraine and Russia and the global impact of restrictions and sanctions imposed on Russia;

•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.

The U.S. government initiated substantial changes in U.S. trade policy and U.S. trade agreements, including 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.

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 U.S.. 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.

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.

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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 are denominated in local currency. 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, Mexico, Asia and Europe 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, hurricanes 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.

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 and other shortages 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 multiple countries, and the expedient importation of raw materials and exportation of finished goods between the U.S. and these facilities. Undue delays and/or closures of cross-border transit facilities, or any restrictions by local governments related to the movement of goods to the U.S., may adversely affect our ability to fulfill orders and supply our customers, as well as adversely impact our business, operating results and financial condition.

In addition, delays and closures of shipping ports, or ports of entry into the U.S., including as a result of labor strikes or shortages, may delay our ability to fulfill order and supply of our non-healthcare consumer products, which could also adversely impact our business, operating results and financial condition.

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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.

In addition, we may experience seasonal demand for our non-healthcare products and demand for such products could decrease significantly during a recession. Any shortfalls in expected revenue due to a mismatch in supply of and demand for our products, could cause our operating results to suffer significantly.

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.

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 in certain instances have not approved 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.

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

Our products 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, which 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. In addition, with the Sound United acquisition, we added multiple broadly distributed premium audio brands to our product portfolio and significantly expanded our consumer base worldwide, which could expose us to increased product liability claims.

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.

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.

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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.

*The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the U.S. and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers. For example, a prolonged conflict may result in challenges associated with timely receipt of customer payments and banking transactions, increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. In addition, as a result of the current conflict, we have stopped selling non-healthcare products in Russia indefinitely. We will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop. To the extent the war in Ukraine may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our product prices; disruptions in global supply chains; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business and financial condition.

*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 equity securities. For example, our closing stock price ranged from $112.97 to $284.87 per share from January 2, 2022 to October 1, 2022. 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, including those relating to our earnings or financial guidance, 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;

•ongoing legal proceedings;

•our inability to raise additional capital as needed;

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

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•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;

•shareholder activism;

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

•short selling or other hedging activity in our stock.

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 October 1, 2022, approximately 10.1 million shares of our common stock were reserved for issuance under our equity incentive plans, of which approximately 2.9 million shares were subject to options outstanding at such date at a weighted-average exercise price of $83.85 per share, approximately 3.1 million shares were subject to outstanding RSUs, approximately 0.3 million shares were subject to outstanding PSUs and approximately 3.6 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 addition, our Credit Facility places limitations on our ability to pay dividends. 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 June 2022 (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, including debt, and the market price of our common stock. In addition, on August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, imposes an excise tax of 1% tax on the fair market value of net stock repurchases made after December 31, 2022. 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 Repurchase Program, please see Note 19, “Equity”, 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 Repurchase Program, or adopt a new stock repurchase program, at any time at its discretion without stockholder approval.

*Environmental, social and corporate governance (ESG) regulations, global climate change, corporate citizenship and related matters/provisions may make our supply chain more complex, and our reporting of such matters and may adversely affect our business.

There is an increasing focus on the governance of environmental and social risks. Our customers, including distributors and retail partners have adopted, or may adopt, procurement policies that include ESG provisions that their suppliers or manufacturers must comply with, or they may seek to include such provisions in their terms and conditions. An increasing number of participants in our industries are also joining voluntary ESG groups or organizations. These ESG provisions and initiatives are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain and the outsourced manufacturing of certain components of our products. If we are unable to comply, or are unable to cause our suppliers to comply, with such policies or provisions, a customer may cease purchasing products from us, and may take legal action against us, which could harm our reputation, revenue and results of operations.

Further, increased public awareness and concern regarding global climate change may result in new or enhanced legal requirements. There continues to be a lack of consistent climate legislation, which creates economic and regulatory uncertainty. Such uncertainty may have an impact on our business, from the demand for our products to our costs of compliance in the manufacturing and servicing of our products, all of which may impact our results of operations. In addition, climate change initiatives and legislation could also disrupt our operations by impacting the availability and cost of materials within our supply chain, and could also increase insurance and other operating costs. In addition, the SEC has announced proposed rules that, among other matters, will establish a framework for reporting climate related risks. To the extent that any proposed rules impose additional reporting obligations, we could face increased costs. Separately, the SEC has also announced that it is scrutinizing existing climate change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege our existing climate disclosures are misleading or deficient.

Investors, stockholders, consumers, customers, suppliers and other third-parties are increasingly focusing on ESG and corporate social responsibility endeavors and reporting and transparency. Certain institutional investors, investment funds, other influential investors, customers, suppliers and other third-parties are also increasingly focused on ESG practices. Companies that do not adapt to or comply with the evolving investor or stakeholder expectations and standards, or which are perceived to have not responded appropriately, may suffer from reputational damage and result in the business, financial condition and/or stock price of a company being materially and adversely affected. Further, this increased focus on ESG issues may result in new regulations and/or third-party requirements that could adversely impact our business, or certain shareholders reducing or eliminating their holdings of our stock. Additionally, an allegation or perception that we have not taken sufficient action in these areas could negatively harm our reputation.

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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)	Third Amended and Restated Bylaws adopted on September 9, 2022 (Exhibit 3.2)
3.3	(2)	Certification of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of the Company (Exhibit 3.1)
4.1	(1)	Amended Form of Common Stock Certificate
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 4.3)
4.4	(2)	Rights Agreement dated as of September 9, 2022, by and between the Company and Broadridge Corporate Issuer Solutions, Inc., as rights agent, which includes as Exhibit B the Form of Rights Certificate (Exhibit 4.1)
10.1#	(4)	Offer Letter, dated April 1, 2022, between the Company and Blair Tripodi (Exhibit 10.1).
10.2#	(4)	Amended and Restated 2007 Severance Protection Plan, Limited Participation Agreement, dated September 16, 2022 between the Company and Blair Tripodi (Exhibit 10.2)
10.3*†		Manufacturing and Purchase Agreement, dated October 2, 2008, by and between Analog Devices, Inc. and the Registrant
10.4*†		Lease agreement, dated as of August 15, 2022, by and between SJ Holdings SDN BHD, and Masimo Medical Technologies (Malaysia) SDN BHD
10.5*†		Monetary Consumption Loan Agreement Certificate, dated June 30, 2019, by and between JFC Corporation and D&M Holdings
10.6*		Special Overdraft Agreement, dated February 27, 2020, by and between Mizuho Bank and D&M Holding Co., Ltd.
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.INS*		XBRL Taxonomy Extension Schema Document
101.SCH*		XBRL Taxonomy Extension Calculation Linkbase Document
101.CAL*		XBRL Taxonomy Extension Definition Linkbase Document
101.DEF*		XBRL Taxonomy Extension Label Linkbase Document
101.LAB*		XBRL Taxonomy Extension Presentation Linkbase Document
101.PRE*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
104

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 October 1, 2022 and January 1, 2022, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended October 1, 2022 and October 2, 2021, respectively, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2022 and October 2, 2021, respectively, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended October 1, 2022 and October 2, 2021, 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.

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(2)    Incorporated by reference to the exhibit to the Company’s Current Report on Form 8-K filed on September 9, 2022. 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 Quarterly Report on Form 10-Q filed on August 10, 2022. The number given in parentheses indicates the corresponding exhibit number in such Form 10-Q.

(4)    Incorporated by reference to the exhibit to the Company’s Current Report on Form 8-K filed on September 19, 2022. The number given in parentheses indicates the corresponding exhibit number in such Form 8-K.

#     Indicates management or compensatory plan.

*     Filed herewith.

**    Furnished herewith.

+    Non-material schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.

†    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) of the type that the Company treats as private or confidential. 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: November 8, 2022	By:	/s/ JOE KIANI
		Joe Kiani
		Chief Executive Officer and Chairman
Date: November 8, 2022	By:	/s/ MICAH YOUNG
		Micah Young
		Executive Vice President and Chief Financial Officer

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EX-10.3

Exhibit 10.3

*** Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[…***…]”) in this exhibit. ***

MANUFACTURING AND PURCHASE AGREEMENT

This manufacturing and purchase agreement (“Agreement”), by and between Masimo Corporation (“Masimo”), a Delaware corporation having principal offices at 40 Parker, Irvine, CA 92618, and Analog Devices, Inc., a Massachusetts corporation having a principal address at One Technology Way, Norwood, MA 02062 (“ADI”), is effective as of October 2, 2008 (the “Effective Date”).

“Labs” shall mean Masimo Laboratories, Inc., with offices at 30 Fairbanks, Suite 100, Irvine, CA 92618.

Masimo and ADI desire to enter into a relationship in which ADI will develop and manufacture the following products for Masimo a […***…] SHARC digital signal processor as specified in Schedule 1 (the “DSP Product(s)”). The parties agree as follows:

1.Agreement Term: This Agreement shall become effective on the Effective Date set forth above and shall remain in effect until September 30, 2015, unless terminated earlier or extended as a result of delay in initial delivery of production-level DSP Products (the “Term”).

2.Scope: ADI agrees to develop, manufacture and sell DSP Products to Masimo at the prices specified in Schedule 2, subject to all volume purchase commitments and other pricing terms set forth in Schedule 2. Upon Masimo’s written instruction, ADI shall also sell DSP Products directly to contract manufacturers to use for the benefit of Masimo, provided that such contract manufacturer has entered into an agreement with Masimo under which it is subject to the payment obligations set forth in this Agreement and is contractually precluded from using the DSP Products for any other purpose. ADI shall furnish the DSP Products or services in accordance with the delivery schedule set forth in Schedule 3. Unless otherwise stated, prices include all charges for inspection, and packaging, including, but not limited to, all federal, state and municipal sales, use and excise taxes, and any customs duties not otherwise paid or provided for by Masimo, and shall remain fixed until completion of the deliveries contemplated hereunder. The price in this Agreement is a direct OEM price when procured in the United States of America by Masimo. For sales of the DSP Products outside of the United States of America or to a third party on behalf of Masimo, the parties shall by mutual agreement adjust the pricing contained in Schedule 2 by an amount equal to the differential cost associated with delivery to the third party or international delivery location, taking into consideration all factors such as taxes, import duties and differential transportation costs.

3.Purchase Order: The purchase and sale of DSP Products between the Parties shall be made by means of purchase orders placed by Masimo to ADI (“PO(s)”) during the term of this Agreement in accordance with the provisions hereof. POs and change orders may be placed by facsimile or email. ADI will confirm PO deliveries to Masimo within five (5) working days after receipt. Masimo shall have an acceptance period of one (1) week following each delivery to confirm that the DSP Products delivered (i) match the part numbers and quantities ordered, (ii) have arrived undamaged and (iii) are the correct part numbers. Masimo’s failure to reject DSP Products during the acceptance period shall not affect its warranty rights as set forth in this Agreement. Confirmation of deliveries and acceptance may be by facsimile or email. All POs for products submitted by Masimo shall state the following: (I) price in U.S. dollars, (II) quantities ordered, (III) the delivery dates, (IV) destination, and (V) requested method of shipment, in accordance with the terms and conditions hereof.

4.ADI’s Rights Regarding Custom Analog Products. Before accepting an offer from any other potential supplier, Masimo shall negotiate in good faith with ADI for a period of thirty (30) days for the development and supply of any custom analog circuitry product that Masimo may require for use in of any commercially available product that Masimo makes that includes linear circuitry during the Term. If Masimo in its discretion determines that ADI has made a proposal that is competitive in features, pricing and terms of sale in the best alternative offer, then Masimo shall include ADI as a preferred supplier for that product. Masimo has an agreement with Labs in which Labs has agreed during the Term of this Agreement to also […***…] and, if Labs in its discretion determines that […***…]. In such event and if the product is a custom analog circuitry product, the parties agree to negotiate in good faith a separate agreement at that time.

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5.Masimo’s Obligations Regarding the DSP Product. Masimo has an agreement with Labs in which Labs has agreed during the Term of this Agreement to […***…] first commercial sale of such product, given that Labs in its discretion determines that the DSP Product meets Labs’ requirements for features and power consumption. […***…]

6.Exclusivity, Use and Use Limitation:

a.Exclusivity. During the Term of this Agreement and for a period of five (5) years thereafter (the “Exclusivity Period”), ADI shall not promote or knowingly build, sell or distribute DSP Product, or any products manufactured in accordance with Masimo’s specifications or using Technology Developed (hereinafter defined) pursuant to this Agreement to any third party for use in blood constituent monitoring applications. For the purpose of this Agreement, the term “Technology Developed” shall mean (i) the […***…], excluding breakthrough designs, and (ii) any logic developed in compliance with, or derived from Masimo’s specified intellectual property, including […***…] contained in the Specifications. In addition, ADI shall prominently (i.e., capitalized or boldfaced in such manner as to cause it to stand out from adjacent text) include in the collaterals discussing these DSP Products, including in their datasheets, the following:

“NOT FOR USE IN IN-VIVO APPLICATIONS FOR BODY FLUID CONSTITUENT MONITORING, INCLUDING MONITORING ONE OR MORE OF THE COMPONENTS THAT FORM OR MAY BE A PART OF, OR CONTAMINATE HUMAN BLOOD OR OTHER BODY FLUIDS, SUCH AS, BUT NOT LIMITED TO CARBOXYHEMOGLOBIN, METHEMOGLOBIN TOTAL HEMOGLOBIN, OXYGEN SATURATION, OXYGEN CONTENT, FRACTIONAL ARTERIAL OXYGEN SATURATION, BILIRUBIN, GLUCOSE, DRUGS, LIPIDS, WATER, PROTEIN, AND PH.”

Without limiting the foregoing and during the Exclusivity Period, ADI agrees not to sell DSP Products to any of the following companies unless such company has agreed in writing not to use the DSP Products for any in vivo application as set forth in the preceding sentence:

[…***…]

b.    Use. Unless otherwise agreed to by the parties, Masimo agrees that it shall use the pre-production version of the DSP Products (“Prototypes”) for testing purposes only. ADI shall appropriately mark all pre-production chips to identify them as Prototypes. Masimo will not sell, deliver, or make the Prototypes available to any third party without ADI’s express written permission.

c.    Use Limitation. THE DSP PRODUCTS SOLD UNDER THIS AGREEMENT ARE NOT DESIGNED, INTENDED OR APPROVED FOR USE IN CRITICAL APPLICATIONS, SUCH AS LIFE SUPPORT, IMPLANTABLE DEVICES, TRANSPORTATION, NUCLEAR, SAFETY OR OTHER EQUIPMENT WHERE MALFUNCTION OF THE PRODUCT CAN REASONABLY BE EXPECTED TO RESULT IN PERSONAL INJURY, DEATH, SEVERE PROPERTY DAMAGE OR SEVERE ENVIRONMENTAL HARM. ADI ACKNOWLEDGES THAT MASIMO INTENDS TO USE THE DSP PRODUCTS IN PRODUCTS THAT HAVE THE PRIMARY FUNCTION OF NON-INVASIVELY MONITORING BLOOD AND/OR OTHER BODILY FLUID CONSTITUENTS (“MASIMO MONITORING PRODUCTS”). EXCEPT FOR MASIMO MONITORING PRODUCTS, IF MASIMO USES OR SELLS PRODUCTS FOR USE IN SUCH CRITICAL APPLICATIONS IDENTIFIED ABOVE, MASIMO WILL DO SO AT MASIMO’S OWN RISK AND MASIMO AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS ADI FROM ANY AND ALL DAMAGES, CLAIMS, SUITS OR EXPENSES RESULTING FROM SUCH USE.

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7.Delivery and Payment: Masimo will provide a minimum six-month rolling demand forecast (“Forecast”) upon execution of this Agreement. Masimo will update the Forecast on a monthly basis, each time for a minimum six-month period. ADI shall use the Forecasts for planning purposes only. ADI shall maintain a safety stock which will be approximately 1 month of usage and be a mutually agreed-upon volume based on the actual monthly usage (“Safety Stock”). Masimo will place a non-cancelable blanket PO for DSP Products based on the Forecast with monthly releases against those POs providing a maximum of 16 weeks of lead-time. ADI shall ship DSP Product orders within following maximum lead times: (i) 4 weeks from Safety Stock and ship within 16 weeks for quantity exceeding Safety Stock but still within the Blanket PO. For requested volumes beyond Safety Stock and Blanket PO, ADI shall ship DSP Product order within 16 weeks after PO release date or as mutually agreed upon. Masimo may provide ADI with written notice that it would like to reschedule a delivery. ADI shall approve such notice request provided (i) the originally scheduled delivery date for the requested DSP Products is not currently scheduled for shipment within thirty (30) days of such notice and (ii) in the case of pushing out a shipment, such reschedule date is not beyond thirty (30) days from the originally scheduled shipment date; or in the case of pulling in a shipment, the Safety Stock is sufficient to cover the request. Masimo may return or store at ADI’s expense any DSP Products delivered more than 1 week in advance of delivery date. Forecasts are for planning purposes only and may vary by amount. ADI shall notify Masimo immediately at such time as ADI has knowledge of any impeding material shortage, governmental regulation, labor dispute or other event or impediment that could result in a delay in the delivery. ADI shall invoice Masimo for DSP Products upon shipment or in the case of services being performed hereunder, in accordance with the milestones outlined in Section 20 of this Agreement. Invoice terms will be net 30 days.

8.Safety Stock: ADI agrees to hold available for sale four (4) weeks of DSP Product requirements (based on a mutually agreed-upon volume based on the actual monthly usage) in the ADI stocking facility currently located in the Philippines (the “Stocking Facility”). This DSP Product shall be available for sale exclusively to Masimo.

9.Transportation: Prices as shown on Schedule 2 are FOB San Francisco point of entry, unless otherwise mutually agreed upon, with shipping (standard ground) prepaid by ADI and added to the invoice. Title and risk of loss shall pass to Masimo at the point of destination. Masimo will pay for incremental costs for expedited shipping unless such shipping is required as a result of ADI’s error.

10.Packaging: The method of packaging shall be specified by Masimo in the Specifications. ADI shall be responsible for packaging, marking and shipping the Products in accordance with good commercial practices and all applicable laws. Each shipment shall include an itemized packing list containing: (I) PO number, (II) model/part number of the product, and (III) quantity, of shipped products, and (V) as well as the results of applicable quality assurance, certificate of conformance (C of C) and other tests performed with respect to the Products being shipped. Masimo reserves the right to reject any shipment not meeting these requirements.

11.POST PRODUCTION DSP PRODUCT WARRANTY AND DISCLAIMER:

a.Warranty. ADI represents and warrants that it has good title to the DSP Products and that it will convey such title to Masimo at the point of receipt of the DSP Products. ADI WARRANTS FOR A PERIOD OF ONE (1) YEAR AFTER MASIMO’S ACCEPTANCE OF THE DSP PRODUCTS AS FOLLOWS: (1) THAT ALL DSP PRODUCTS DELIVERED HEREUNDER ARE NEW (EXCEPT FOR REPAIRED DSP PRODUCTS) AND ARE FREE FROM DEFECTS IN DESIGN, MATERIAL AND IN WORKMANSHIP; AND (2) THAT THE DSP PRODUCTS PURCHASED HEREUNDER CONFORM TO APPLICABLE SPECIFICATIONS IDENTIFIED IN SCHEDULE 1. All warranties shall survive any inspection, delivery, acceptance, payment, expiration, or earlier termination of this Agreement and such warranties shall run to Masimo, its successors and assigns.

b.Warranty disclaimer. EXCEPT AS PROVIDED HEREIN, ADI DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ADI BE RESPONSIBLE

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UNDER ITS WARRANTY FOR ANY DEFECT THAT IS CAUSED BY NEGLIGENCE, STATIC DISCHARGE, MISUSE OF A DSP PRODUCT OR MISTREATMENT OF A DSP PRODUCT. ADI SHALL HAVE NO RESPONSIBILITY FOR ANY DSP PRODUCT THAT HAS BEEN ALTERED OR MODIFIED IN ANY WAY. ADI SHALL HAVE NO RESPONSIBILITY TO THE EXTENT ANY DEFECT OR FAILURE IS CAUSED BY NONCOMPATIBILITY OF THE DSP PRODUCTS WITH OTHER COMPONENTS USED BY MASIMO. ADI SHALL HAVE NO RESPONSIBILITY FOR DSP PRODUCTS PURCHASED THROUGH UNAUTHORIZED CHANNELS OR FAILURES/ERRORS IN MASIMO ROM SOFTWARE THAT IS INSTALLED IN THE DSP PRODUCT.

12.SERVICES WARRANTY AND PRE-PRODUCTION DSP PRODUCT (“PROTOTYPES”) WARRANTY DISCLAIMER:

a.Service Warranty. ADI WARRANTS THAT ALL SERVICES PROVIDED HEREUNDER ARE TO BE PERFORMED IN GOOD AND WORKMANLIKE MANNER AND THAT THE SERVICES CONFORM TO THE AGREED TO SPECIFICATIONS.

b.Warranty Disclaimer. UNLESS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT, ADI MAKES NO EXPRESS WARRANTIES AND EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

13.Limitations and Exclusions of Liability:

A.UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN A WRITING SIGNED BY BOTH PARTIES, NEITHER PARTY WILL INDEMNIFY, NOR DOES IT HOLD THE OTHER PARTY HARMLESS, AGAINST ANY LIABILITIES, LOSSES, DAMAGES AND EXPENSES (INCLUDING ATTORNEY’S FEES) RELATING TO ANY CLAIMS WHATSOEVER, INCLUDING WITHOUT LIMITATION, CLAIMS FOR PERSONAL INJURIES, DEATH OR PROPERTY DAMAGE RELATING TO THE DSP PRODUCTS SOLD HEREUNDER. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES DUE TO ANY CAUSE WHATSOEVER.

B.THE PARTIES’ AGGREGATE LIABILITY UNDER THIS AGREEMENT SHALL NOT EXCEED ONE MILLION ($1,000,000) DOLLARS.

C.NOTWITHSTANDING THE FOREGOING, THE PARTIES AGREE THAT THERE WILL BE NO LIMIT ON DIRECT DAMAGES FOR CLAIMS ARISING UNDER SECTIONS 14 (“INDEMNIFICATION”), 20 (“CONFIDENTIALITY”), 23 (“OWNERSHIP”) AND 25 (“RECALLS”).

D.NOTHING IN THIS SECTION (“LIMITATIONS AND EXCLUSIONS OF LIABILITY”) REMOVES OR LIMITS (I) EITHER PARTY’S LIABILITY ARISING OUT OF DIRECT CLAIMS BROUGHT BY THIRD PARTIES OR (II) EITHER PARTY’S OBLIGATIONS AND PENALTIES CONTAINED IN SCHEDULES 2 & 3.

E.SUBJECT TO THE PROCESS OUTLINED BELOW IN THIS SECTION 13E, NOTHING ELSE IN THIS SECTION (“LIMITATIONS AND EXCLUSIONS OF LIABILITY”) REMOVES OR LIMITS ADI’S LIABILITY WITH RESPECT TO A MATERIAL BREACH BY ADI OF SECTION 6(A):

If there is a breach by ADI of its obligations under Section 6(a), whereby ADI unknowingly distributed or sold a DSP Product to a third party in violation of Section 6(a), Masimo must first notify ADI of such breach and offer ADI a reasonable period of time to verify such breach and provide a cure for such breach. A reasonable period of time may vary in each instance, but in no event will exceed ninety (90) days from point of notice by Masimo (the “Cure Period”). If the breach is cured within the Cure

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Period, the parties agree that this exclusion contained in Section 13E to the liability cap contained in this Section 13B will not apply.

14.Indemnification:

a.Infringement: ADI shall indemnify and defend Masimo of and from any claim that the DSP Products purchased hereunder, or any component thereof, as delivered, infringe any patent, trademark, copyright, mask work, or other intellectual property right of a third party, provided ADI is promptly advised of any such claim and has sole control of its defense or settlement. ADI will defend such action at its expense and will pay costs and damages finally awarded in any such action or agreed to in settlement. In the event that any injunction shall be obtained against Masimo’s use of the DSP Products or services, or any component thereof, by reason of infringement, ADI shall, at its sole option and expense, (i) procure for Masimo the right to continue using the DSP Products; (ii) replace or modify the same to become non-infringing but substantially equivalent in form, fit and function; or, if neither option is reasonably available to ADI, (iii) refund to Masimo an amount equal to the fees paid by Masimo to ADI for such enjoined components.

b.Exclusions and Limitations: ADI shall not have any liability to Masimo to the extent that the claim is based upon (i) the use of a component in combination with hardware or software not furnished or specified by ADI in writing; (ii) the use of any component which has been modified or altered; (iii) the ROM code provided by Masimo; (iv) compliance with Masimo’s designs, Specifications or instructions that are specific to Masimo and do not appear in ADI’s commercially available version of the DSP Product; or (v) compliance with an industry standard or communication protocol. Masimo agrees to indemnify and defend ADI and its officers, directors, employees and agents from and against all such claims, provided that Masimo is promptly advised of any such claim and has sole control of its defense or settlement. Neither party shall enter into a settlement which creates an obligation on behalf of the other party or its suppliers without their written consent. THE FOREGOING INDEMNITY STATES MASIMO’S SOLE AND EXCLUSIVE REMEDY FOR INFRINGEMENT AND IS IN LIEU OF ALL EXPRESS, IMPLIED AND STATUTORY WARRANTIES WITH RESPECT TO INFRINGEMENT.

15.Force Majeure: Should delivery of the Product or any obligations of either party be delayed by events beyond the affected party’s control, such as natural disasters, time for performance shall be extended by the period of the delay. ADI shall have a disaster recovery plan in place to minimize the effect of natural disasters. Such a plan should be provided to Masimo for its review upon request. ADI should utilize its best business practices to recover from disasters as quickly as possible and minimize DSP Product shipment delays.

16.DSP Product Changes; Inventory Management:

a.Masimo Change Orders. Masimo may request in writing that ADI incorporate engineering changes into the DSP Product. Such request will include a description of the proposed engineering change sufficient to permit ADI to evaluate its feasibility and cost.

ADI’s evaluation shall be in writing and shall state the costs and time of implementation and the impact on the delivery schedule and pricing of the DSP Product. ADI shall not be obligated to proceed with the engineering change until the parties have agreed upon the changes to the Product’s Specifications, delivery schedule and DSP Product pricing; and upon the implementation costs to be borne by Masimo including, without limitation, the purchase price of the [...***...] DSP Products outlined in Schedule 2, any work in process (“WIP”) for the DSP Products, and the cost of Inventory on hand or on order that becomes obsolete. Unless otherwise agreed by the parties, the following will apply to any ROM code changes required by Masimo:

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If Masimo wishes to request a change order in order to substitute obsolete ROM code, it must do so in writing. The cost of such change shall be $[…***…] plus the incremental commitment by Masimo to purchase an additional […***…] DSP Products over the remaining Term of the Agreement. Unless instructed otherwise by Masimo, ADI shall cease using the obsolete ROM code as of the notification date. Masimo and ADI shall mutually agree upon the disposition of WIP started prior to the date of such notification and for which ADI has not yet begun to imbed the ROM code (generally any time up to but not including the 21st day of production), which does not cancel the order, but, involves one or any combination of the following means of disposing of such cancelled WIP:

(i)enable ADI to complete production of the WIP using updated ROM code if such ROM code is available on a timely basis; or

(ii)instruct ADI to hold the WIP and invoice Masimo for ADI’s reasonable holding costs until Masimo can provide updated ROM code.

(iii)Masimo shall not be entitled to cancel or submit a change order for any WIP for which ADI has begun to imbed ROM code as of the notification date.

b.ADI Product Changes.

i.ADI shall notify Masimo in writing of any proposed DSP Product, process or service change proposed by ADI or an ADI subcontractor (“Proposed Change”), either during the initial DSP Product development phase or after ADI has begun supplying DSP Products to Masimo. ADI shall ensure that its subcontractors are contractually obligated to notify ADI of proposed changes to DSP Product subassemblies or components sufficient to allow ADI to honor its obligations under this paragraph. ADI agrees to provide at least ninety (90) days prior written notice of any such Proposed Change. ADI will use its standard Product Change Notification (PCN) process, which ADI represents is in compliance to JEDEC standard JESD46C.

ii.Subject to the foregoing notice provisions, ADI may, without Masimo consent, implement any Proposed Change under which the DSP Product remains compliant with Masimo’s schedule requirements and specifications for features, power and code compatibility. ADI agrees that it will not proceed with the implementation of any Proposed Change which affects schedule, features, or power until it receives written approval from Masimo.

17.Product End-of-Life.

a.ADI shall not discontinue the DSP Products for 10 years after the Production milestone (as defined in Schedule 3).

b.Thereafter, ADI may discontinue the DSP Product. On notice of termination, the parties shall discuss a solution, which involves the parties agreeing to meet at that point to determine if it would be reasonably necessary for ADI to transfer any ADI designs, mask works, and copyrights to Masimo and grant to Masimo licenses in such ADI patents, trade secrets and know-how as are necessary to enable Masimo to continue to have the DSP Product manufactured. Unless the parties agree otherwise, ADI shall give Masimo a minimum of one (1) year after written notice before discontinuation of any DSP Product offered for sale to Masimo hereunder. At any time before the effective date of such discontinuation or of any termination of this Agreement as set forth below, Masimo shall have the right to make a last time buy of any DSPProduct in cumulative quantities deemed sufficient by Masimo. The last delivery date for shipment of the purchased discontinued DSP Product shall not be more than twelve (12) months after the effective date of the discontinuation. Masimo’s right to make a last time buy as set forth in this paragraph is in addition to and does not limit its right to seek any remedies available to it at law or in equity in the

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event Masimo terminates this Agreement for cause. This paragraph shall survive any expiration or termination of the Agreement.

18.Termination for Cause:

This Agreement may be terminated for cause by either party in the event the other party: (i) ceases to function, (ii) requests a termination due to a force majeure event that continues for more than sixty (60) days as outlined in Section 15 or (iii) fails to perform any of its material obligations hereunder and fails to cure such failure within thirty (30) days written notice to the other party. In the event of a termination by Masimo, the exclusivity provision contain in Section 6 shall remain in effect for the duration of period stated in Section 6. In the event of a termination by ADI, the exclusivity provision contain in Section 6 shall terminate upon the effective date of the termination.

19.Inspection and Failure Analysis Reports: ADI agrees to supply Masimo with the results of any final inspections and/or summary test data performed by ADI with each shipment of DSP Product along with a Certificate of Conformance. In the event of a defect reported to and returned to ADI, upon request by Masimo, ADI will provide a failure analysis report. Masimo reserves the right to conduct an inspection of ADI’s facilities within a mutually agreed upon time during normal business hours to inspect and review the work including any Product in process, raw material management, adherence to quality control procedures and good manufacturing practices. If the results of such inspection indicate that a further inspection of ADI’s subcontract manufacturers is required, Analog will first attempt to obtain authorization from such subcontract manufacturers to provide inspection access to Masimo. If that request is denied, Analog will perform the inspection on behalf of Masimo and provide an inspection report to Masimo.

20.Product Traceability. ADI agrees to establish and maintain procedures for identifying products at date code level during all stages of receipt, production and distribution to customer(s), and to keep records in accordance with such procedures.

21.Confidentiality: The terms of the nondisclosure agreement entitled Mutual Nondisclosure Agreement dated June 29, 2006 and amended November 20, 2006 (as amended the “NDA”) are incorporated herein by reference and apply to the exchange of all proprietary information hereunder, including without limitation the existence and terms of this Agreement and all drawings, blueprints, descriptions, Specifications and pricing provided hereunder.

Notwithstanding Section 4 of the NDA (“Disclosure Period; Confidentiality Period”), the terms of the NDA shall apply to all Confidential Information (as defined in the NDA) exchanged by the parties at any time during the Term hereof.

22.Non Recurring Engineering Services:In connection with its design and manufacture of the DSP Products, ADI shall provide non-recurring engineering services (“Services”) further described as follows. Compensation for such Services shall be as follows: totaling […***…], to be paid in accordance with the following schedule:

Amount	Payment Milestone
$[…***…]	On Execution of Agreement
$[…***…]	Tape Out -- Release of GDS-II database to wafer foundry
$[…***…]	Engineering Samples provided pursuant to Schedule 3
$[…***…]	TOTAL

For the purpose of this Agreement (i) an “Engineering Sample” is defined as: A sample version of the DSP Product that the basic functionality of the design that has yet to be proven and it has not gone though appropriate quality controls to ensure its functionality will adhere to the Specifications; and (ii) “X-Grade Product” is defined as: A sample version of the DSP Product for which the basic functionality of the design

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has been proven but has not yet gone through the appropriate quality controls to ensure its functionality will adhere to the Specifications.

Engineering Samples are not guaranteed to operate in accordance with the Specifications or be error free; Masimo assumes all risks with use of these Engineering Samples in production mode.

X-Grade Products are fully warranted as set forth in Section 11, except that they are warranted to comply with Specifications only for a set of mutually agreed to functionality between Masimo and ADI, as agreed to at the time of X-Grade release by ADI. There is no warranty provided for X-Grade Products with respect to characterization and qualification criteria as these would be subject to change. Subject to the foregoing limitations of warranty and subject to Masimo’s risk for items outside of the warranty coverage, Masimo may use the X-Grade Products for production purposes.

The NRE fee includes (i) […***…] for engineering samples and […***…] with the Masimo code content for production parts and (ii) […***…] quantities of engineering grade samples and […***…] quantities of X-Grade parts. All additional parts need to be purchased separately.

The parties will jointly prepare and present for final sign off by both parties, a detailed development plan with complete schedule, deliverables and Masimo dependencies within 30 days after the Effective Date.

The foregoing fees for Services may be refunded to Masimo upon late completion of the Product by ADI other than Force Majeure delays and to the extent caused by ADI, as set forth in Schedule 3.

23.Ownership: Masimo shall retain and own (i) all Masimo pre-existing or independently developed products and Intellectual Property related thereto, and (ii) the circuit topology of any analog product made under this Agreement that incorporates the DSP Product (excluding the DSP Product itself) and all Intellectual Property related thereto, and (iii) Improvements to Masimo Technology (as defined below); ((i) through (iii) collectively, the “Masimo Materials”). Except for the Masimo Materials, ADI shall retain and own (i) all Intellectual Property related to ADI’s products, including the DSP Products (including the circuit topology of the DSP Products), (ii) all tooling developed under this Agreement, (iii) the library of design elements for the DSP Products and for any analog devices created under this agreement; and (iv) all rights, title, interest and Intellectual Property in all other Services work product and deliverables and all derivatives, enhancements and modifications thereof provided under this Agreement. As used in this paragraph, “Intellectual Property” means designs, discoveries, formulae, processes, manufacturing techniques, trade secrets, know-how, improvements, patents, trademarks, ideas or copyrightable works, business plans, marketing plans, pricing, customer lists, supplier lists, forecasts, strategies, and software, including all rights to obtain, register, perfect and enforce these proprietary interests.

Except as expressly described herein, the parties do not intend that ADI improve, enhance or modify Masimo products in any way; all intellectual property and rights that specifically relate to in-vivo monitoring of blood constituents, hemodynamics or pulmonary properties, or to other patient monitoring technologies, resulting from ADI’s exposure to, evaluation of and contact with Masimo’s Confidential Information disclosed, including but not limited to patents, trade secrets, and copyrights (“Improvements to Masimo Technology”) shall be the exclusive property of Masimo, regardless of the source of improvements or intellectual property.

24.Insurance: At all times during the term of this Agreement each party shall carry and maintain such insurance against risks from actions contemplated under this Agreement as it reasonably believes to be necessary and economical. Such insurance shall be with issuers of recognized responsibility and may be carried under blanket policies maintained by such party. Each party shall, to the extent reasonably possible, include the other party as an additional named insured on such insurance policies.

25.Recalls: ADI shall give Masimo prompt notice of any defective ADI product that may reasonably cause any Masimo product to be subject to a recall. In the event of a recall of Masimo products caused by or

Page 8 of 17

resulting from any defective ADI product, ADI shall provide to Masimo any and all assistance reasonably requested in connection with Masimo’s recall efforts, including, without limitation, providing to Masimo the lot numbers or serial numbers (as applicable), order numbers, and dates and locations of shipment of all defective ADI products. In addition to the warranty remedies outlined in this Agreement and without limiting the foregoing, the parties agree to follow the following process:

A.A Masimo product issue is identified from any source.

B.Masimo investigates the issue to determine the root cause. If the root cause is identified as a result of an ADI part:

i.ADI is notified to determine the cause of the failure of ADI’s part;

ii.ADI performs its analysis; and

iii.Masimo and ADI come to agreement on the cause of the failure

C.Masimo reviews the issue to determine if it merits a product recall within the meaning of the FDA or other regulatory bodies. If the issue results in a recall:

i.Masimo issues recall notice:

ii.Recalled parts are repaired or replaced with acceptable product

iii.If it is determined that ADI’s part is the root cause of the issue Masimo shall negotiate the recall cost with ADI - including material, labor and shipping costs.

26.General:

A.Country of Origin Certificates. ADI shall on Masimo request provide an appropriate certification stating the country of origin for the DSP Products, sufficient to satisfy the requirements of the customs authorities in the country of receipt and any applicable export licensing regulations, including those of the United Sates.

B.Assignment: Except in the case of a sale of all or substantially all of a party’s assets or acquisition of substantially all of the assets of the party making such assignment through merger or acquisition, this Agreement is not assignable by either party and any attempt to assign any rights, duties or obligations arising hereunder shall be void. Notwithstanding the foregoing, ADI may, as it deems necessary and upon written notice to Masimo, subcontract any part of the work or services to be provided pursuant to this Agreement, provided that (i) ADI shall remain responsible for the work of any such subcontractor, (ii) such subcontractor is bound under obligations of confidentiality equivalent to those set forth in this Agreement and (ii) ADI’s obligations and Masimo’s rights under this Agreement, including without limitation Masimo’s right to audit such subcontractors, apply to all such work or services as if ADI had performed such work or services itself.

C.Governing Law: This Agreement shall be governed and construed in accordance with the laws of the State of New York, without regard for its conflict of laws principles. Each party agrees to perform its obligations hereunder in accordance with all applicable laws and rules and regulations now or hereafter in effect.

D.Authority: Each party represents that it has full power and authority to enter into and perform this Agreement, and the person signing this Agreement on behalf of it has been properly authorized and empowered to enter into this Agreement

Page 9 of 17

E.Failure to Enforce: The failure of either party to enforce at any time over any period of time the provisions of this Agreement shall not be construed to be a waiver of such provisions or of the right of such party to enforce each and every such provision.

F.Severability: In the event that any of the provisions of this Agreement shall he held to be unenforceable, the remaining portions of this Agreement shall remain in full force and effect.

G.Notices: All notices required or permitted under this Agreement will be in writing and will be deemed received (i) when delivered personally; (ii) when sent by confirmed facsimile; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a commercial overnight carrier. All communications will be sent to the addresses set forth below or to such other address as may be designated by a party by giving written notice to the other party pursuant to this section:

Masimo:	Masimo Corporation
	Attention: Legal Department
	40 Parker
	Irvine, CA 92618
	Phone: 949-297-7000
	Fax: 949-297-7099
ADI:	Analog Devices, Inc.
	Attention: Legal Department
	One Technology Way
	Norwood, MA 02062
	Phone: 781-461-4000
	Fax: 781-461-3491
Copy to:	Max K. Snapp
	Analog Devices, Inc.
	940 South Coast Dr.
	Suite 230
	Costa Mesa, CA 92626
	Direct: (714) 432-5254
	FAX: (714) 641-3937
Copy to:	Satya Simha
	Analog Devices, Inc.
	3550 N. First St
	San Jose, CA 95134
	Phone: 408-382-3049

H.Compliance with Laws: ADI warrants that in performance of this Agreement or any PO hereunder it has complied with or will comply with all applicable international, federal, state and local laws including, but not limited to, export laws, OSHA, the Fair Labor Standards Act, as amended, and Executive Order 11246, as amended. In addition, ADI shall secure and maintain adequate Worker’s Compensation coverage. Upon request, ADI shall certify compliance with any of the aforementioned laws and regulations.

Page 10 of 17

I.FAR and DFAR Compliance: As a commercial item vendor, FAR 52.244-6, subparagraph (c)(1), identifies the FAR provisions that must be flowed down. DFAR 252-246-700 lists the DFARS that must be flowed down. As a result, ADI warrants that in the performance of this Agreement or any PO hereunder, it has complied with or will comply with the FARs and DFARs outlined in FAR 52.244-6, subparagraph (c)(1) and DFAR 252-246-700.

J.Relationship between Parties: Nothing in this Agreement shall be construed as creating any partnership, joint venture, or agency between the parties.

27.Entire Agreement: This Agreement constitutes the entire agreement between Masimo, and ADI for the manufacture and purchase of Products. There are no other understandings, agreements, representations, express or implied, written or oral, not specified herein. This Agreement may only be amended in writing signed by authorized representatives of Masimo and ADI.

Masimo Corporation	Analog Devices, Inc.
By: /s/ Ammar Al-Ali	/s/ Gerald McGuire
Name: Ammar Al-Ali	Gerald McGuire
Title: CTO	VP – DSP
Date: 10-10-2008	10/7/2008

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Schedule 1

DSP Product Specification

The DSP Product shall comply with the requirements set forth in Design Block Diagram identified below (the “Architecture Diagram”) and the additional requirements set forth in this Schedule. The parties agree that once the final Specifications are signed by both parties, those Specifications shall form the basis for the DSP Product functionality.

A.Power consumption: […***…].

B.Additional Logic (subject to meeting schedule, power, and package requirements).

Minor changes to the Specifications will be agreed to by the parties on a good faith efforts basis.

1. […***…]

2. […***…]

3. […***…]

4. […***…]

5. […***…]

Items 3 and 5 above are new features that will be incorporated into the design. ADI will make all reasonable commercial efforts to ensure that these features are fully functional upon initial Delivery of DSP Product in Production Quantities (as defined in Schedule 3), but the non-functionality of these features will not be a factor for any penalty assessment, provided that ADI ensures these functions are fully functional in all Products delivered within 12 months after it Delivers DSP Product in Production Quantities.

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Architecture Diagram

[…***…]

Page 13 of 17

Schedule 2

Volume Purchase and Pricing Term Sheet

Masimo agrees to buy and ADI guarantees to sell a minimum of […***…] DSP Products in accordance with the following volume purchase pricing and milestone commitments schedule:

Volume Purchase Pricing:
Cumulative DSP Product Purchase Volume to Date(1)	Pricing per DSP Product
[…***…]	$[…***…]
[…***…]	$[…***…]
[…***…]	$[…***…]
[…***…]	$[…***…]
[…***…]	$[…***…]
[…***…]	$[…***…]
[…***…]	$[…***…]

Milestone Commitments Schedule:
Cumulative Purchase Volume Milestone (1)(3)	Date by which Milestone must be achieved(2)
[…***…]	12 months after Production milestone (as defined in Schedule 3)
[…***…]	24 months after Production milestone
[…***…]	36 months after Production milestone
[…***…]	48 months after Production milestone
[…***…]	60 months after Production milestone
n/a	n/a
n/a	n/a

Notes:

1.For purposes of determining Masimo’s cumulative purchase volumes, Labs’ DSP Product purchases and purchases made by Masimo-authorized contract manufacturers will be included with Masimo’s DSP Product purchases.

2.The DSP product schedule is dependent on the release of the first release ROM Code by Masimo to ADI at least four (4) weeks before tapeout. Once the tapeout is completed, there is at least a 16 week lead time from the point of PO receipt by ADI for shipment of production quantities of the DSP Products. For every day’s delay from the required day for ROM Code drop there will be a delay in the deliveries of all the respective DSP Products and the delay could vary depending on the time of year.

3.If ADI misses the Production Milestone Due Date (as defined in Schedule 3, infra) by more than three (3) months, then for each month or partial month by which ADI misses the Production Milestone Due Date, in addition to any penalties outlined in Schedule 3, Masimo shall be entitled to modify the annual volume commitments […***…].

For example, if ADI is 8 months late in achieving the Production milestone, Masimo’s first year volume purchase commitment shall be reduced by […***…].

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Schedule 3

Development Schedule and Late Completion Damages

Date	Milestone	Deliverables
[…***…]	IC Design Completed	Tape out
[…***…]	First ROM Code Delivery	First ROM code
[…***…]	First ROM Code freeze
[…***…]	Silicon fab and test complete	Engineering samples
[…***…]	Second ROM Code Delivery	Second ROM Code
[…***…]	Second ROM Code Freeze
[…***…]	Volume Preproduction(1)	Delivery of (X-Grade) DSP Product in Volume Preproduction Quantities(1)
[…***…]	Production(2)	Delivery of DSP Product in Production Quantities(2)

Notes:

1.The “Volume Preproduction” milestone shall be deemed met when ADI achieves Delivery of DSP Product in Volume Preproduction Quantities (as defined below). The date by which the Production milestone is due (the “Volume Preproduction Milestone Due Date”) shall be the later of (i) […***…] or (ii) such later date as may result from Masimo’s delay in releasing ROM code by the dates set forth in Paragraph (3) below. “Deliver (Delivery of) DSP Product in Volume Preproduction Quantities” means an initial delivery of up to […***…] X-Grade DSP Products as ordered by Masimo in accordance with this Agreement. If Masimo does not place an order for delivery until after the Volume Preproduction Milestone Due Date, then ADI shall be deemed to have timely met the Production milestone if it delivers in accordance with the delivery commitments established by Masimo’s initial order.

2.“The “Production” milestone shall be deemed met when ADI achieves Delivery of DSP Product in Production Quantities (as defined below). The date by which the Production milestone is due (the “Production Milestone Due Date”) shall be the later of (i) […***…] or (ii) such later date as may result from Masimo’s delay in releasing ROM code by the dates set forth in Paragraph (3) below. In good faith, the parties will continue to work towards improving the foregoing schedule. “Deliver (Delivery of) DSP Product in Production Quantities” means an initial delivery of up to […***…] production level DSP Products as ordered by Masimo in accordance with this Agreement. If Masimo does not place an order for delivery until after the Production Milestone Due Date, then ADI shall be deemed to have timely met the Production milestone if it delivers in accordance with the delivery commitments established by Masimo’s initial order.

3.The DSP product schedule is dependent on the release of the first release ROM Code by Masimo to ADI at least four (4) weeks before tapeout. Once the tapeout is completed, there is at least a 16 week lead time from the point of PO receipt by ADI for shipment of production quantities of the DSP Products. For every day’s delay from the required day for ROM Code drop there will be a delay in the deliveries of all the respective DSP Products and the delay could vary depending on the time of year.

If ADI does not timely meet the Production Milestone by the Production Milestone Due Date, and     is also unable to Deliver DSP Product in Production Quantities within a three (3) month grace period after the Production Milestone Due Date, […***…].

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EX-10.4

Exhibit 10.4

*** Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[…***…]”) in this exhibit. ***

AN AGREEMENT made the day and year stated in Section 1 of the First Schedule hereto

Between

(1)The party whose name and description are as stated in Section 2 of the First Schedule hereto (hereinafter referred to as “the Lessor”) of the one part;

And

(2)The party whose name and description are as stated in Section 3 of the First Schedule hereto (hereinafter referred to as “the Lessee”) of the other part.

WHEREAS:

A.The Lessor is the registered proprietor of all that premises described in Section 4 of the First Schedule hereto (hereinafter be referred to as “the Demised Premises”).

B.The Lessor hereby agrees to grant to the Lessee and the Lessee hereby agrees to accept from the Lessor, a Lease of the Demised Premises upon the terms and conditions hereinafter appearing.

NOW IT IS HEREBY AGREED as follows:

1.DEFINITIONS

1.1Unless there be something in the context or subject matter inconsistent therewith,

(a)words importing the singular shall include the plural and vice versa;

(b)words importing the masculine gender shall include the feminine and neuter genders and vice versa;

(c)references to a natural person shall include a body of person corporate of unincorporated;

(d)words “herein”, “hereinafter”, “hereinbefore”, “hereof”, “hereunder” and other words of similar import shall refer to this Agreement as a whole and not to any particular provision;

1.2Where there are two (2) or more persons or parties included or comprised in the expression “the Lessee”, any covenants, terms, stipulations and undertakings expressed to be made by and on the part of the Lessee shall be taken to be made by or binding upon such persons or parties jointly and severally.

1.3Where there are two or more persons included in the terms “the Lessor”, their liabilities under this Agreement shall be joint and several.

1.4The headings to the clauses of this Agreement are for convenience of reference only and shall not affect the construction thereof.

2.AGREEMENT TO LET

2.1.Subject to the terms and conditions herein contained, the Lessor hereby lets and the Lessee hereby accepts a lease of the Demised Premises:

(a)for the period as set out in Section 5(a) of the First Schedule hereto (hereinafter referred to as “the Term”) commencing on the date as stated in Section 5(b) of the First Schedule hereto; and

(b)at a monthly rental as set out in Section 7 of the First Schedule hereto (hereinafter referred to as “the Rental”).

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2A.OPTION

(a)The Lessor, shall upon written request being made by the Lessee at least NINE (9) MONTHS prior to the expiry of the Term and subject to the due observance, compliance and performance of the terms, conditions and stipulations herein on the part of the Lessee, grant the Lessee a further term as stipulated in Section 10 of the First Schedule hereto (hereinafter referred to as “the Further Term”) upon the same terms and conditions herein at a monthly rental stated in Section 11 of the First Schedule hereto save for this Clause for the option to renew.

(b)The Further Term shall commence immediately upon the expiration of the Term Subject to the payment by the Lessee of whatever sums are due and payable by the Lessee for the period prior to commencement of the Further Term.

3.DEPOSIT

3.1The Lessee shall:

(a)upon the execution of this Agreement pay to the Lessor the sum as stated in Section 8(a) of the First Schedule hereto as deposit payable in respect of the Rental (“Rental Deposit”); and

(b) the sum as stated in Section 8(b) of the First Schedule hereto as deposit payable in respect of the water and electricity facilities (“Utilities Deposit”);

(The Rental Deposit and the Utilities Deposit shall hereinafter collectively be referred to as “the Deposit”) as security for the due performance and observance of the covenants on the part of the Lessee herein contained.

3.2(a)    The Deposit shall not be taken or treated as payment towards account of the Rental and shall be retained by the Lessor as security for the payment of Rental throughout the Term, with power to the Lessor without prejudice to any other right or remedy hereunder to deduct therefrom any payments due to the Lessor consequent upon any non-observance or non-performance by the Lessee of any covenant herein contained; provided that Lessor must provide notice to Lessee of its intent to deduct from the Deposit and must afford Lessee a period of thirty (30) days from such notice to rectify such non-observance or non-performance.

(b)    In the event of any deduction being made by the Lessor from the Deposit, the Lessee shall within SEVEN(7) DAYS after the notice of deduction by the Lessor, forthwith top-up the amount so deducted.

3.3Subject to the aforesaid, the Deposit shall be refunded to the Lessee without interest, within THIRTY (30) DAYS after:

(a)the expiration or sooner determination of this Agreement and upon the delivery of vacant possession of the Demised Premises to the Lessor together with receipts evidencing payment of all utilities charges up to the date of delivery of vacant possession; or

(b)the settlement of the last outstanding claim by the Lessor against the Lessee in respect of any breach, non-observance or non-performance of any of the covenants herein contained on the part of the Lessee to be observed and performed;

whichever is later.

4.COVENANT BY LESSEE

THE LESSEE HEREBY COVENANTS WITH THE LESSOR as follows:

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4.1Payment of Rental

Commencing on the date as stated in Section 5(b) of the First Schedule hereto, to pay with or without the Lessor’s demand the Rental herein reserved in advance within SEVEN (7) DAYS of each and every succeeding month during the Term (and the Further Term, if applicable) free from all deductions.

4.2Payment of Utilities

(a)To pay all sewerage (including privatized sewerage collection) and utilities charges in respect of electricity, water, telephone and other telecommunication facilities supplied, consumed, used or incurred by the Lessee in the Demised Premises from the date of delivery of vacant possession.

(b)To furnish to the Lessor upon request the receipts evidencing payment of all utilities charges to the appropriate authorities.

4.3Use of Demised Premises

(a)To use the Demised Premises only for the purpose stated in Section 9 of the First Schedule hereto.

(b)Not to permit or suffer anyone to sleep at the Demised Premises or to use the same or any part thereof wholly or partly as a dwelling.

(c)Not to use the Demised Premises or any part thereof for the storage of goods or merchandise or as a laboratory or workshop save and except for the business of the Lessee.

(d)Not to keep or store or bring upon the Demised Premises arms, ammunition or unlawful goods, gunpowder, saltpeter, kerosene, gas, petrol and generally any inflammable or combustible substance (except as necessary for the manufacture of Lessee’s goods) or any goods which in the reasonable opinion of the Lessor are of a noxious dangerous or hazardous nature.

(e)Not to cause accumulation of dirt, rubbish or debris or any sort in or outside the Demised Premises or place or leave at the entrance or stairway, passages or corridors of the Demised Premises any box or rubbish or otherwise encumber and/or obstruct the same.

(f)Not to dispose of any garbage, rubbish or unused materials except in the manner and at the place as provided by the Lessor or any appropriate authorities and until such time as such garbage rubbish or unused materials is removed from the Demised Premises to keep the same securely sealed.

(g)Not to do or permit to be done upon the Demised Premises the keeping of any illegal drugs, the smoking of opium or ganja or any other illegal drugs or to use the same as a place of entertainment or for illegal or immoral purposes (political gatherings and funerals are strictly prohibited) or anything which may contravene any laws, by-laws, acts, ordinances, enactments or regulations made by any of the appropriate authorities.

(h)Not to overload the floors or walls of the Demised Premises and shall when required by the Lessor to distribute any load on the floors or walls of the Demised Premises in accordance with the requirements of the Lessor communicated to Lessee on or prior to the date hereof.

4.4License and Approval

To apply for and timely obtain, all licences, permits, registration and other approvals necessary for the conduct of the business of the Lessee and shall at all material times:

(i)maintain the licenses, permits and approvals for the conduct of the business of the Lessee;

(ii)comply with and adhere to the conditions of such licences, permits and approvals; and

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(iii)observe and comply with all laws, ordinances, orders, regulations and all requirements of the appropriate authorities governing or affecting the business of the Lessee.

4.5Insurance

(a)To take out a public liability insurance policy at all time during this Agreement and shall punctually pay all premiums thereto.

(b)To insure and keep the Lessee’s own properties and properties of third parties under the Lessee’s possession and control insured from loss and damage by fire and other risks or contingencies with an insurance company as the Lessee shall think fit and shall pay all premiums relating thereto.

(c)Upon demand to forward the Lessor a copy of such original policy of insurance for inspection.

4.6To Permit Inspection and Repairs

(a)Upon reasonable notice (except in the case of emergency whereupon no notice shall be required) to permit the Lessor and/or his agent, employees or workmen at all reasonable times to enter the Demised Premises for the purpose of, inter alia,:

(i)viewing the state and condition of the Demised Premises;

(ii)taking of inventory of the Lessor’s fixtures and fittings therein;

(iii)carrying out structural repairs to the Demised Premises; or

(iv)carrying out repairs to the outer walls or external part of the Demised Premises.

(b)The Lessor may serve the Lessee written notice to effect any reasonable repairs required to be made by Lessee hereunder in a proper and workmanlike manner, provided that if the Lessee shall fail to commence such repairs within THIRTY (30) DAYS after service of such notice, then the Lessor may effect any such repairs in a proper and workmanlike manner, and the reasonable costs thereof shall become a debt due from the Lessee to the Lessor recoverable forthwith (fair wear and tear excepted) and be forthwith recoverable by the Lessor from the Lessee upon demand.

4.7Notice of Defects

To promptly give written notice to the Lessor of any significant defect or damage that may occur to the roof, main structure and outer walls or external part of the Demised Premises and to keep the Lessor informed of any circumstances likely to be of or cause any danger, risk or hazard to the Demised Premises.

4.8Alteration and Additions

(a)Not to make or permit to be made any alteration, addition or improvement to the Demised Premises or any part thereof without prior written approval of the Lessor, which approval will not be unreasonably withheld, conditioned or delayed.

(b)The Lessee shall cause plans and drawings of the alterations, additions or improvements to the Demised Premises to be drawn and submitted to the Lessor and the appropriate authorities for approval and shall comply with the conditions therein.

(c)The Lessee shall nevertheless not carry out any work until and unless the approvals of the appropriate authorities are obtained.

(d)The costs and expenses of the alterations, additions or improvements shall be borne by the Lessee and, except as set forth in the Second Schedule, not claimable from the Lessor upon the expiry or determination of this Agreement.

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(e)Should any damage caused by the Lessee, the Lessee’s employees or agents to the Demised Premises or any part thereof due to the renovations, additions or alterations as aforementioned, the Lessee shall repair forthwith and make good such damage to the reasonable satisfaction of the Lessor. Upon default, it shall be lawful for the Lessor (but not obligatory) to remedy or repair such damage and the reasonable costs and expenses incurred thereby shall be a debt due from the Lessee to the Lessor and be forthwith recoverable by the Lessor from the Lessee upon demand.

(f)Upon the determination of this Agreement, the Lessee shall shall not be required to demolish any alteration, addition or improvement to the Demised Premises carried out pursuant to the Lessor’s and the appropriate authority’s approval.

4.9Upkeep and Maintenance

(a)During the duration of this Agreement and for so long as the Lessee remains in occupation and possession of the Demised Premises, keep and maintain at the Lessee’s own costs and expense, the interior, non-structural elements of the Demised Premises including but not limited to the interior, flooring, finishes and renderings to the walls, ceilings, doors, windows, roller shutters, locks, fastenings, keys, bells, electrical installations and wiring, , toilets and the Lessor’s fixtures and fittings in the Demised Premises in good repair and condition (fair wear and tear and damage not caused by Lessee excepted).

(b)To keep the Demised Premises and every part thereof clean and in the best possible hygienic condition and to keep all pipes, drains, basins, sinks and water closets in the Demised Premises clean and unblocked.

(c)The Lessee shall at its own costs and expense, employ competent and responsible persons to keep and maintain the Demised Premises in good condition.

(d)To take such measures as may be necessary to ensure that any effluent discharged into the drains or sewers from the Demised Premises will not be corrosive or in any way harmful to the said drains or sewers or cause any blockage, obstruction or deposit therein.

(e) Should any damage or breakage be caused by the Lessee to the Demised Premises or any part thereof, the Lessee shall forthwith repair and make good such damage to the reasonable satisfaction of the Lessor, failing which the Lessor shall be entitled to execute the repairs and any reasonable costs and expenses incurred in carrying out such work shall be a debt due from the Lessee to the Lessor and be forthwith recoverable by the Lessor from the Lessee upon demand.

4.10Responsibility for Security

To be responsible for the security and safety of the Demised Premises and in particular the Lessee shall ensure that the windows and doors of the Demised Premises are locked and secured at all times.

4.11Prohibition of Nuisance

(a)Not to do, permit or suffer to be done on the Demised Premises anything hazardous, immoral or which contributes a nuisance to the neighbors, and further to indemnify the Lessor against any loss suffered as a result of any such act or omission.

(b)Not to commit or suffer to be done on the Demised Premises any offensive activity or in any manner which may be a nuisance or annoyance to or in any way interfere with the quiet enjoyment and comfort of the neighbors.

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4.12Compliance with Law

To observe and comply with all laws, statutes, ordinances, proclamations, orders or regulations affecting or relating to the use and occupation of the Demised Premises and with all requirements or directives which may be issued or given by any appropriate authorities and the Lessee shall fully indemnify the Lessor against all claims, demands, actions, fines, penalties and legal proceedings of whatsoever nature whether civil or criminal in respect of any breach by the Lessee of any such laws, statutes, ordinances, proclamations, orders, regulations, requirements or directives.

4.13Statutory Notice

Within SEVEN (7) DAYS of its receipt of any notice or order issued or made to the Lessee from any appropriate authorities in respect of the use or occupation of the Demised Premises, to give full particulars of the same to the Lessor and if so required by the relevant authority to take all reasonable steps or measures (within the period specified by such notice, order or proposal) to comply with the requirements of the same.

4.14Nameplate or Sign

Not to use the outer walls or external part of the Demised Premises or any part of the Demised Premises for the purpose of any public announcement, or to exhibit any indication of business except the nameplate or sign indicating the business of the Lessee Provided That:

(i)the Lessee shall be fully responsible at its own costs and expenses for the putting up and removal of such nameplate or sign and shall make good any damage caused by such affixing, putting up or removal; and

(ii)in the event the Lessor bears any costs in the removal of the nameplate or sign upon the expiration or sooner determination of this Agreement, the Lessee shall indemnify the Lessor on demand for all costs and expenses incurred thereby.

4.15Acts Affecting Fire Risks

Not to do anything whereby any insurance of the Demised Premises against fire may be rendered void or voidable. The Lessee shall make good all damage suffered by the Lessor incurred by Lessor by reason of any breach or non-observance of the provisions of this Clause without prejudice to any other rights of the Lessor.

4.16Assignment of Lease

(a)Not to assign, sublet or part with possession of or share the occupation or use of the Demised Premises or any part thereof without the prior written consent from the Lessor; provided, that such consent will not be required for any sublease of the Demised Premises or assignment of this Agreement to any third party with financial resources substantially comparable to Lessee. In the event of sub-letting, the Lessee shall nevertheless remain liable for the terms and conditions of this Agreement including payment of the Rental and for the full and timely performance of all of the other terms and conditions to be observed by the Lessee under this Agreement.

(b)In the event the Lessee is a limited company, any substantial change during this Agreement in the equity of the Lessee, altering the effective control of the Lessee, shall for the purpose of this Agreement be deemed and construed as an assignment, transfer, disposal or sub-letting of the Demised Premises. For the purpose of this Agreement, “substantial change” means any change in the shareholding of the Lessee or the Lessee’s holding company equivalent to an aggregate of twenty-five per cent (25%) or more of the equity of the Lessee as at the date hereof.

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4.17No Auction

Not to permit or suffer any sale by auction or exhibition to be held at the Demised Premises.

4.18[Intentionally omitted]

4.19Warranties and Representations

The Lessee hereby acknowledges and declares that, except as expressly set forth in this Agreement, no representation, warranty, undertaking or holding out of any nature has been given or made by or on behalf of the Lessor in respect of the suitability of the Demised Premises or the fittings, fixtures, facilities and amenities of the Demised Premises in connection with the business intended to be carried out by the Lessee at the Demised Premises and that this Agreement sets forth the entire legal relationship between the parties hereto in relation to their respective rights, obligations and privileges herein contained and the Lessee hereby agrees and acknowledges that the Lessee has not entered into this Agreement relying on any representation or warranty made by the Lessor or the Lessor’s employees and/or agents other than those made herein.

4.20To Permit Inspection Prior to Determination of Lease

At any time during the last THREE (3) MONTHS immediately preceding the expiration of the Term (or, if Lessee has exercised its option to extend this Agreement, the Further Term) or the sooner determination of this Agreement, the Lessee shall permit the Lessor or the Lessor’s agents or employees to affix and retain on a conspicuous part of the Demised Premises a notice for re-letting or the sale thereof and to permit the intending lessee or others with written permission from the Lessor or the Lessor’s agents or employees, with at least two business days’ notice to Lessee and at all reasonable times of the day, to enter and view the Demised Premises, so long as such entry does not unreasonably interfere with the business operations of Lessee.

4.21On Determination of Lease

(a)The Lessee shall on the expiration or sooner determination of the Term (or the Further Term, if applicable) yield up to the Lessor the Demised Premises together with the fixtures and fittings of Lessor and all locks and keys in good repair and condition (fair wear and tear excepted) and replace at the Lessee’s own costs and expenses any walls, doors, window glass, light fittings, ceilings, sanitary fittings, panels or other fixtures and fittings belonging to the Lessor which have been damaged in any way by the Lessee. If the Lessee fails to yield up the Demised Premises in the manner prescribed upon the expiry of the Term (or the Further Term, if applicable), it shall be lawful for the Lessor’s employees or agents to to repair all damage and breakage caused by the Lessee and all reasonable costs incurred thereby shall be deducted from the Deposit stipulated in Clause 3 herein.

(b)Unless otherwise agreed in writing by the Lessor, if the Lessee continues to occupy the Demised Premises or fails to deliver vacant possession thereof to the Lessor after the expiration of the Term (or the Further Term, if applicable), the Lessee shall pay the Lessor a sum equivalent to ONE AND A HALF (1.5) TIMES of the Rental pro-rated on a daily basis for the period of holding over the Demised Premises and such holding over shall not constitute a renewal of this Agreement.

4.22Conditions Precedent before Yielding Up

Subject to Clause 4.8(f), unless otherwise agreed to in writing by the Lessor, it shall be a condition precedent that the Lessee shall have first reinstated the Demised Premises to its original state and condition, fair wear and tear and any damage not caused by Lessee excepted, prior to the yielding up by the Lessee of the Demised Premises and all damage caused by such reinstatement shall be made good by the Lessee to the reasonable satisfaction of the Lessor.

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4.23Exemption

(a)The Lessor and its officers, employees, agents or contractors shall not be liable or in any way responsible for all claims, demands, actions, suits, proceedings, damages, costs, expenses or any nature whatsoever which the Lessee or any other person may suffer or incur in connection with:

(i)any injury or death of any person (including the Lessee);

(ii)any damage or loss to any property (whether belonging to the Lessee or otherwise); or

(iii)any consequential loss of any person (including the Lessee)

arising within the Demised Premises, except any of the foregoing caused in whole or in part by any act, omission, breach, default or neglect of the Lessor or its officers, employees, agents or contractors.

4.24Indemnity

In addition to and not in derogation of the provisions of Clause 4.23 hereof, the Lessee shall indemnify and keep the Lessor fully indemnify against all actions, claims, proceedings, demands, losses, damage, costs and expenses arising from or in connection with:

(i)all claims, proceedings, actions, costs, losses, charges and expenses which the Lessor may sustain, incur or pay arising out of or in connection with any act, omission, breach, default or neglect on the part of the Lessee;

(ii)any loss or damage to the Demised Premises, its adjoining or neighboring premises caused whether directly or indirectly by the Lessee or the Lessee’s employees, sub-Lesses, agents, licensees, invitees and/or guests, in particular (but without limiting the generality of the foregoing) caused whether directly or indirectly by the use, misuse, waste or abuse of fire, water, electricity or other utilities or faulty fitting or fixtures of the Lessee;

(iii)any loss, damage or injury from any cause whatsoever to property or person or to the Demised Premises caused or contributed by the use of the Demised Premises for purposes not authorized by this Agreement or any neglect, breach or default by the Lessee;

(iv)the overflow, leakage or escape of water, smoke, fire, electricity, fumes or other substance whatsoever in or from the Demised Premises caused or contributed to by any act, omission of the Lessee; or

(v)any breach or non-observance by the Lessee of any of the provisions of this Agreement.

4.25Health and Welfare

To comply with the provisions for the health safety and welfare of persons employed to work in the Demised Premises in accordance with any laws, by-laws, acts, ordinances, enactments or regulations made by any of the appropriate authorities.

5.COVENANTS BY LESSOR

THE LESSOR HEREBY COVENANTS WITH THE LESSEE as follows:

5.1Quiet Enjoyment

That the Lessee paying the Rental herein reserved and performing all covenants on his part shall peacefully hold and enjoy the Demised Premises during the Term without interruption by the Lessor or any person claiming through under or in trust for him or by any other person whosoever and howsoever arising.

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5.2Payment of Outgoings

To pay all quit rent, rates, taxes, outgoings and assessments payable in respect of the Demised Premises save and except those covenanted to be paid by the Lessee under this Agreement.

5.3Insurance by the Lessor

During the duration of this Agreement and for so long as the Lessee remains in occupation and possession of the Demised Premises to keep the Demised Premises insured against loss or damage by all-risks, including fire, flood, act of God, etc. and shall make payments necessary for the aforesaid purpose Provided Always that the provisions of this Clause shall not be deemed to bind the Lessor to insure against consequential loss nor against damage to or destruction of any furniture, fittings, fixtures, stocks in trade or other goods, chattels or effects of the Lessee situated in or upon the Demised Premises or any part of the Demised Premises.

5.4Compliance with Law

To observe and comply with all laws, statutes, ordinances, proclamations, orders or regulations affecting or relating to the construction, ownership and structural maintenance of the Demised Premises and with all requirements or directives which may be issued or given by any appropriate authorities and the Lessor shall fully indemnify the Lessee against all claims, demands, actions, fines, penalties and legal proceedings of whatsoever nature whether civil or criminal in respect of any breach by the Lessor of any such laws, statutes, ordinances, proclamations, orders, regulations, requirements or directives.

5.5Statutory Notice

Within SEVEN (7) DAYS of its receipt of any notice or order issued or made to the Lessor from any appropriate authorities in respect of the construction, ownership or structural maintenance of the Demised Premises, to give full particulars of the same to the Lessee and if so required by the relevant authority to take all reasonable steps or measures (within the period specified by such notice, order or proposal) to comply with the requirements of the same.

5.6Representations and Warranties

Lessor represents and warrants to Lessee that (a) Lessor is the legal and beneficial owner of the Demised Premises, (b) the Demised Premises have been constructed in accordance with all applicable laws, regulations, ordinances, construction codes and the approved building plan, (c) the Certificate of Completion and Compliance for the Demised Premises been issued by the relevant authorities, and (d) Lessor has the power and authority to enter into this Agreement to lease the Demised Premises to the Lessee.

5.7Indemnity

Lessor shall indemnify and keep the Lessor fully indemnify against all actions, claims, proceedings, demands, losses, damage, costs and expenses arising from or in connection with:

(i)all claims, proceedings, actions, costs, losses, charges and expenses which the Lessor may sustain, incur or pay arising out of or in connection with any act, omission, breach, default or neglect on the part of the Lessor or its officers, employees, agents or contractors;

(ii)any loss or damage to the Demised Premises, its adjoining or neighboring premises caused whether directly or indirectly by the Lessor or the Lessor’s employees, agents or contractors;

(iii)any injury, loss or damage which may be caused to or suffered by the Lessee as a result of or in any way connected with the design and construction of the Demised Premises or any material used for the construction or maintenance of the Demised Premises or any of Lessor’s fixtures and fittings therein; or

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(iv)any breach or non-observance by the Lessor of any of the provisions of this Agreement.

5.8Structural Maintenance

During the duration of this Agreement and for so long as the Lessee remains in occupation and possession of the Demised Premises, keep and maintain at the Lessor’s own costs and expense, the exterior and structural elements of the Demised Premises including but not limited to the main structure, drains, walls, floors, roof, pipes, windows, mechanical and electrical systems of the Demised Premises in good repair and condition (fair wear and tear and damage not caused by Lessor excepted).

6.MUTUAL AGREEMENT

PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED as follows:

6.1Damage to Demised Premises

(a)If at any time during this Agreement the Demised Premises (or any part thereof) is destroyed or damaged by fire (except where such fire has been caused by the fault, negligence, act or omission of the Lessee) so as to be unfit for use, then the whole or a fair proportion of the Rental (according to the nature and extent of the damage sustained) shall be immediately suspended until the Demised Premises or such affected part is rendered fit for use (Provided that nothing herein shall render it obligatory on the part of the Lessor to rebuild or reinstate the Demised Premises or such affected part thereof) and the Lessor shall have the absolute discretion to decide whether to rebuild or reinstate the Demised Premises or such affected part thereof; provided, that the Lessor shall give notice to Lessee of its intent to rebuild or reinstate within FOURTEEN (14) DAYS from the occurrence of the destruction or damage. In the event that the Lessor decides to rebuild or reinstate the Demised Premises, the parties shall negotiate in good faith the required time frame for such work. If the parties are unable to agree upon such time frame or if Lessor fails to rebuild or reinstate the Demised Premises within such time frame Lessees shall have the right to terminate this Agreement and vacate the Demised Premises without further liability.

(b)In the event that the Lessor decides not to rebuild or reinstate the Demised Premises or such affected part thereof, then (i) Lessees shall have the right to terminate this Agreement and vacate the Demised Premises without further liability, or (ii) if Lessee elects not to exercise its right to terminate this Agreement, the Rental attributable thereto shall be suspended and shall cease to be payable from the happening of such destruction or damage and the Lessee will peaceably and quietly surrender and yield up to the Lessor vacant possession of the Demised Premises or such affected part thereof which the Lessor has decided not to rebuild or reinstate. If the entire Demised Premises are so affected, the Lessor shall refund the Deposit free of interest to the Lessee less such sum or sums as may be due and outstanding to the Lessor within THIRTY (30) DAYS after the Lessee shall have duly delivered to the Lessor vacant possession of the Demised Premises and photocopies of the receipts evidencing the payment of all utilities charges up to the date of delivery of vacant possession. The determination of this Agreement under this Clause shall not render the either party liable to the other party in any manner whatsoever nor shall the either party have any claim (including but not limited to loss of business or income) against the other party in respect thereof; provided that nothing in this Clause shall limit the either party’s indemnification obligations hereunder.

7.EVENTS OF DEFAULT

7.1If:

(i)the Rental or any part thereof or any payment whatsoever due and payable by the Lessee to the Lessor under the terms of this Agreement is in arrears (following formal demand);

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(ii)the Lessee commits a material breach of any of the terms and conditions contained in this Agreement;

(iii)any step is taken or an order is made or a resolution is passed or legislation is enacted for the winding-up, dissolution, liquidation or bankruptcy, as the case may be, of the Lessee or a petition for winding-up or bankruptcy, as the case may be, is presented against the Lessee;

(iv)any execution or attachment is levied, enforced or issued against any of the Lessee’s assets at the Demised Premises,

(v)the Lessee (being a company) is unable to pay its debts within the ambit of the provisions of the Companies Act 2016;

(vi)the Lessee dies or of unsound mind (in the case of a natural person); or

(vii)the Lessee terminates the lease prior to the Commencement Date or Expiry of the Term (except for as expressly permitted under the terms of this Agreement, including Section 2.2 and Section 6 of the Special Conditions)

then in any of such cases it shall be lawful for the Lessor at any time thereafter to serve a notice under Section 235 of the National Land Code 1965 requiring the Lessee to remedy the breach or default (if the same is capable of being remedied) and it is hereby agreed that a period of THIRTY (30) DAYS shall be regarded as reasonable and sufficient notice for the purposes of Section 235 of the National Land Code 1965 and:

(a)upon the expiration of the aforesaid notice and the Lessee’s failure to remedy the breach or default complained of; or

(b)in the case of an event of breach or default not capable of being remedied by the Lessee,

the Lessor shall be at liberty to re-enter the Demised Premises or any part thereof in the name of the whole and thereupon this Agreement shall be treated as determined and the Deposit shall be forfeited by the Lessor and applied against any unpaid rental. For the avoidance of doubt, if this lease shall be terminated as hereinabove, the Lessor shall in addition to the forfeiture of the Deposit be entitled to claim for the Rental for the whole Term and any antecedent breach by the Lessee of the terms and conditions herein contained, subject at all times to Lessor’s obligation to mitigate its losses.

7.2In the event of re-entry by the Lessor or other legal action taken by the Lessor to enforce the terms herein contained or towards recovery of the arrears of the Rental or any other payments payable under this Agreement or for loss or damage suffered by the Lessor, each party shall pay its own legal costs and expenses ensuing therefrom.

7.3Without prejudice to the rights, powers and remedies of the Lessor as otherwise provided in this Agreement, the Lessee shall pay late payment charges by way of interest calculated on a daily basis at the rate of ONE PER CENTUM (1%) PER MONTH on all moneys due by the Lessee to the Lessor under this Agreement.

7.4Notwithstanding anything to the contrary herein contained, if this Agreement comes to an end whether by effluxion of time or otherwise and the Lessee fails to remove all its properties (which expression shall include personal property of every description) from the Demised Premises, it shall be lawful for the Lessor to sell or otherwise dispose of such properties of the Lessee at the Demised Premises at such time and in such manner as the Lessor may at its absolute discretion consider fit WITHOUT PREJUDICE to any other rights, powers and remedies of the Lessor, the Lessor will, after deducting the expenditure incurred for such sale, apply the net proceeds of sale towards payment of all arrears of the Rental and all other moneys due and owing by the Lessee to the Lessor under this Agreement and the balance thereof (if any) shall be paid to the Lessee.

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7.5If:

(i)the Lessor commits a material breach of any of the terms and conditions contained in this Agreement;

(ii)any step is taken or an order is made or a resolution is passed or legislation is enacted for the winding-up, dissolution, liquidation or bankruptcy, as the case may be, of the Lessor or a petition for winding-up or bankruptcy, as the case may be, is presented against the Lessor;

(iii)any execution or attachment is levied, enforced or issued against any of the Lessor’s assets, including the Demised Premises; or

(iv)the Lessor (being a company) is unable to pay its debts within the ambit of the provisions of the Companies Act 2016;

then in any of such cases it shall be lawful for the Lessee at any time thereafter to serve a notice under requiring the Lessor to remedy the breach or default (if the same is capable of being remedied) and it is hereby agreed that a period of THIRTY (30) DAYS shall be regarded as reasonable and sufficient notice and:

(a)upon the expiration of the aforesaid notice and the Lessor’s failure to remedy the breach or default complained of; or

(b) in the case of an event of breach or default not capable of being remedied by the Lessor,

the Lessee shall be at liberty to vacate the Demised Premises without further liability and thereupon this Agreement shall be treated as determined and the Deposit shall be returned to Lessee by the Lessor.

8.FORCE MAJEURE

Neither party shall be liable for any failure in performing or discharging its obligations hereunder if the performance or discharge thereof is rendered impossible or impracticable by reason of any fire, flood, riot, civil commotion, labour disputes, strike, lock out, Act of God, governmental action or any other cause which is beyond the reasonable control of such party. In the event that an event of force majeure continues for more than SIXTY (60) DAYS, the non-impacted party shall have the right to terminate this Agreement. In the event that Lessee is the terminating party pursuant to this Clause, Lessor shall return the Deposit to Lessee.

9.WAIVER OR INDULGENCE

Delay in exercising or omission to exercise any right, power or remedy accruing to either party or knowledge or acquiescence by the party concerned of any breach of any of the conditions or covenants herein contained or any indulgence given by the party concerned shall not affect, impair or prejudice any such right, power or remedy or to be construed to be a waiver of such conditions or covenants or any of them and notwithstanding such knowledge or acquiescence or indulgence given the party concerned shall be entitled to exercise his right under this Agreement and to require strict performance by the other of the terms and conditions herein nor shall the party concerned be liable to the other in any manner whatsoever for not enforcing any of his rights hereunder.

10.SCHEDULES

The Schedule hereto shall be taken read and construed as an essential part of this Agreement.

11.NOTICE

11.1Any notice required to be served hereunder shall be in writing and shall be considered sufficiently served:

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on the Lessee if:

(i)left at the Demised Premises addressed to the Lessee; and

(ii)forwarded to the Lessee by prepaid registered and/or ordinary post to:

c/o Masimo Corporation

52 Discovery

Irvine, California 92618 USA

Attention: Legal Department; and

on the Lessor if:

(i)sent by prepaid registered post; or

(ii)delivered personally;

to the address of the Lessor herein stated or the Lessor’s last known address notified to the Lessee by the Lessor from time to time.

11.2A notice sent by post shall be deemed to have been given after fifth (5th) day of posting.

11.3Any change of address by either party shall be communicated to the other in writing. Nothing done in reliance on Clause 11.1 hereof shall be affected or prejudiced by any subsequent change in the address over which the other party has no actual knowledge of at the time the act or thing was done or carried out.

12.APPLICABLE LAW AND COMPETENT JURISDICTION OF COURT

This Agreement shall be governed by and construed in all respect in accordance with the laws of Malaysia and the parties hereto hereby agree that they shall submit to the exclusive jurisdiction of the Courts of the States of Malaya in all matters connected with the obligations and liabilities if the parties hereto under or arising out of this Agreement, and the service of writ of summons, statement of claim or other legal process by repaid registered post to his address as hereinafter mentioned or in such manner or mode as a court of competent jurisdiction may order or direct.

13.ENTIRE AGREEMENT

This Agreement sets out the entire agreement and undertaking between the parties hereto and supersedes and cancels in all respects all previous agreements and undertakings, if any, between the parties hereto with respect to the subject matter hereof. No variation of this Agreement of whatever nature shall be made or purported to the made by any party or parties (nor shall any variation or purported variation be valid or enforceable) unless the same is in writing and duly agreed and executed by all the parties concerned.

14.SEVERABILITY

If any provision of this Agreement for any reason shall be declared invalid, void, illegal or otherwise unenforceable, the remaining provisions of this Agreement shall remain in full force and effect. The parties shall amend that provision in such reasonable manner as to achieve the intention of the parties without illegality or where it is not practicable to do so that provision shall be severed from this Agreement.

15.LEGAL COSTS AND DISBURSEMENTS

15.1Each party shall pay his own solicitors’ costs.

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15.2All stamp duties, costs and expenses incurred for the Consents (hereinafter defined), registration fees and other charges payable on this Agreement and all other related documents herein shall be borne and paid by the Lessee, except that (a) Lessor shall pay all costs and expenses of obtaining the Consent of any entity that it has charged the Demised Premise to, including Hong Leong Islamic Bank, and (b) the parties shall split equally the costs and expenses of obtaining the Consent of the applicable authorities to the registration of this Agreement.

16.SALES AND SERVICES TAX AND/OR ANY SIMILAR TAXES

The parties hereto hereby agree that the Rental shall exclude Sales and Services Tax (hereinafter referred to as “Taxes”) and/or any similar taxes imposed by the relevant authority. In the event that any Taxes hereafter required by law to be chargeable in respect of the Demised Premises, it shall be fully borne by the Lessee and the Lessee shall pay the Lessor on demand a sum equivalent to the amount of such Taxes reflected on a tax invoice delivered by Lessor in addition to all other sums payable to the Lessor pursuant to this Agreement.

17.SUCCESSORS BOUND

This Agreement shall be binding on and be for the benefit of the heirs, personal representatives, successors-in-title and assigns of the Lessor and the Lessee.

18.TIME

Time wherever mentioned shall be of the essence of this Agreement.

19.SPECIAL CONDITIONS

It is hereby expressly agreed by the parties hereto that the “SPECIAL CONDITIONS” annexed hereto as Second Schedule shall form part of this Agreement and that should there be an inconsistent term or terms, the term or terms contained and inserted in the “SPECIAL CONDITIONS” herein referred shall prevail over the same contained in the body of this Agreement.

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IN WITNESS WHEREOF the parties hereto have hereunto set their respective hands the day and year first above written.

The Common Seal of the Lessor            

SJ HOLDINGS SDN BHD            

(Registration No. 201101009736(937875-U))    

is hereunto affixed                

in the presence of:                

/s/ ILLEGIBLE		/s/ ILLEGIBLE
Director		Director
Name:	AUTHORIZED SIGNER	Name:	AUTHORIZED SIGNER
NRIC #	[...***...]	NRIC #	[...***...]

The Common Seal of the Lessee             

MASIMO MEDICAL TECHNOLOGIES        

(MALAYSIA) SDN BHD                

(Registration No.202201016720(1462417-V))    

is hereunto affixed                

in the presence of:                

/s/ TOM MCCLENAHAN		/s/ MICAH YOUNG
Director		Director
Name:	Thomas McClenahan	Name:	Micah Young
Passport #	[...***...]	Passport #	[...***...]

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FIRST SCHEDULE

SECTION	ITEM	PARTICULARS
1	DATE OF AGREEMENT
2	LESSOR Address	SJ HOLDINGS SDN. BHD. (Registration No. 201101009736 (937875-U)) PLO 566 Jalan Keluli 11, Zon 12A Kawasan Perindustrian Pasir Gudang 81700 Pasir Gudang, Johor
3	LESSEE Address	MASIMO MEDICAL TECHNOLOGIES (MALAYSIA) SDN BHD (Registration No. 202201016720(1462417-V)) 6th Floor, Menara Boustead, No. 69, Jalan Raja Chulan, 50200 Kuala Lumpur
4	DEMISED PREMISES	A unit of factory, parcel […***…] measuring approximately […***…] square feet on […***…]
5	(a) TERM (b) COMMENCEMENT DATE	Five (5) years from the Commencement Date 1st October, 2022 subject to extension (a) by mutual agreement between the Lessor and the Lessee in the event the Lessor has not modified the Demised Premises to meet the Lessee’s requirements for electricity power supply of […***…] by 1st October, 2022, and (b) on a day-for-day basis in the event of any delay in the Possession Date.
6	COMMENCEMENT OF FIT OUT	Lessor will provide Lessee with rent-free early possession of the Demised Premises no later than 15th August, 2022 (“Possession Date”) for Lessee to initiate improvements

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7	RENTAL	[…***…] only for 1st year of the Term (calculated based on […***…] per square feet) The rental for the Term shall increase […***…] annually based on the preceding year calculating from the Commencement Date including Further Term (if any), ie: (i) […***…] for 2nd year of the Term; (ii) […***…] for 3rd year of the Term; (iii) […***…] for 4th year of the Term; and (iv) […***…] for 5th year of the Term.
8	DEPOSIT (a) Rental Deposit (b) Utilities Deposit	[…***…] only being […***…] months of the Rental […***…] only being […***…] month of the Rental
9	PURPOSE	For any manufacturing, warehouse and/or distribution activities only
10	FURTHER TERM	Five (5) years from the expiry of the Term, at the option of the Lessee
11	RENTAL FOR FURTHER TERM	The rental for the Further Term shall increase […***…] annually based on the preceding year, ie: (i) […***…] for 1st year of the Further Term; (ii) […***…] for 2nd year of the Further Term; (iii) […***…] for 3rd year of the Further Term; (iv) […***…] for 4th year of the Further Term; and (v) […***…] for 5th year of the Further Term.

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SECOND SCHEDULE

SPECIAL CONDITIONS

1. Utilities

The Lessee shall in addition:

(a)apply for its connection of electricity, water, telephone and other communication facilities to be supplied, consumed or used by the Lessee in the Demised Premises;

(b)pay all fees and charges including the deposit payable to the appropriate authority in respect of such connection; and

(c)furnish to the Lessor upon request, the receipts evidencing payment of all utilities charges to the appropriate authorities.

2.Electricity Power Supply

2.1As requested by the Lessee, the Lessor is agreeable to apply with the appropriate authority to secure increment of the electricity power supply up to […***…] amp (“Electricity Power”) subject to the appropriate authority’s approval.

2.2In the event the Lessor shall fail to secure approval and installation of the Electricity Power before the Commencement Date, the Lessee shall have the option to terminate this Agreement or to extend period for the Lessor to secure the said Electricity Power (and such termination right will be applicable to the new period). In the event the Lessee decides to terminate this Agreement, the Lessor shall refund the Rental Deposit to the Lessee and shall reimburse Lessee for all amounts paid by Lessee (a) for alterations, additions and improvements to the Demised Premises and (b) pursuant to Section 4.2(a) of the Lease. Upon such refund and reimbursement, neither party shall have any further claim against the other for costs, damages, compensation.

2.3The parties hereby agree that the Lessor will obtain at least TWO (2) quotation from independent qualified contractors pertaining to upgrading the Electricity Power of the Demised Premises prior to the Commencement Date. The costs and expenses for upgrading the Electricity Power shall be borne equally between the Lessor and the Lessee provided that the Lessee’s cost for upgrading the Electricity Power shall not exceeding […***…]. The Lessee shall pay such costs and expenses to the Lessor within FOURTEEN (14) days of satisfactory completion of the upgrade.

3.Fencing of the Demised Premises

As requested by the Lessee, the Lessor is agreeable for the Lessee to build the brick wall fencing at the Lessee’s own costs and expenses subject to the appropriate authority’s approval. The Lessee shall furnish the Lessor a copy of the appropriate authority’s approval together with the relevant plans pertaining to the fencing of the Demised Premises.

4.Option to Purchase

4.1The parties hereto hereby confirm that the Lessee shall be entitled to exercise an option to purchase the Demised Premises from the Lessor at the Purchase Price of […***…] within SIX (6) months following conclusion / completion of the Term PROVIDED THAT:

(a)the Lessee has exercised its option to extend this Agreement for the Further Term pursuant to Clause 2A(a) hereinabove;

(b)this agreement is still valid and subsisting; and

(c)the Lessee is not in breach of the terms and conditions of this Agreement.

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4.2In the event the Purchaser shall exercise its Option to Purchase hereinabove mentioned, an amount equal to the last THREE (3) years of the Rental received by the Lessor prior to the Lessee’s exercise of this Option to Purchase, shall be deemed as a credit towards the Purchase Price (i.e. a reduction of the total purchase price).

4.3In the event the Purchaser shall exercise its Option to Purchase hereinabove mentioned, the parties will negotiate in good faith to enter into a purchase and sale agreement on terms customary for a transaction of this type. In the event that the parties fail to agree upon terms of such agreement or if the transaction is not completed due to the failure of any condition to completion (including failure to obtain required approvals or consents), Lessee shall have the option to continue the Agreement for the Further Term or to terminate the Agreement and vacate the Demised Premises with no further liability.

5.Possession Date

The parties agree that in the event the Lessor shall fail to deliver possession of the Demised Premises to the Lessee by the Possession Date, the Lessee shall has the option to:-

5.1terminate this Agreement whereby the Rental Deposit and Utilities Deposit shall be refunded to the Lessee within SEVEN (7) DAYS and upon such refund, neither party shall have any further claim against the other for costs, damages, compensation; or

5.2extend time(s) to for the Lessor to deliver possession by a period agreed by the Lessee. In the event the Lessor shall fail to deliver possession of the Demised Premises to the Lessee on or before the said extended period(s) or further extended period(s) agreed by the Lessee, this Agreement shall be terminated whereby the Rental Deposit and Utilities Deposit shall be refunded to the Lessee within SEVEN (7) DAYS. Upon such refund, neither party shall have any further claim against the other for costs, damages, compensation.

6.Right of First Refusal

The parties hereby agree that during the Term of this Agreement, if the Lessor receives an offer from a third party to lease any parcel or building adjacent to the Demised Premises or any two parcels or buildings adjacent to each other within the same development, the Lessor will notify the Lessee of the same. The Lessee shall have a period of FIFTEEN (15) calendar days from receipt of such notice to notify the Lessor whether the Lessee elects to lease such parcels or buildings on terms substantially consistent with this Agreement (except for Section 4 to 11 of the First Schedule and the Special Conditions of this Agreement), to be documented in a separate lease agreement. In the event the Lessee elects not to exercise the option to lease or the Lessor does not receive any writing notice of lease from the Lessee, the Lessee shall be deemed to have elected not to exercise their right to lease such parcel or building adjacent to the Demised Premises whereupon the Lessor shall be at liberty to lease the said parcel or building adjacent to the Demised Premises to any third party without any reference to the Lessee.

7.Consents

7.1The Demised Premises is subject to a restriction-in-interest, namely that it cannot be leased without the prior consent of the Johor State Authority. The Demised Premises is charged to Hong Leong Islamic Bank Berhad (“HLIBB”) for a facility granted to the Lessor wherein the consent from HLIBB is also required. The consent from Johor State Authority and HLIBB shall be collectively referred to as “the Consents”.

7.2The Landlord shall procure the Consents and registration of Lease with land registry within TWELVE (12) months from the date of this Agreement. The parties shall further execute a Memorandum of Lease with the annexure thereto and any other relevant documents as may be required by the land registry for the purpose of the registration of Lease.

7.3In the event Section 8.2 of the Special Conditions hereinabove is unable to be complied or rejected within TWELVE (12) months from the date of this Agreement, the parties shall proceed to enter into a tenancy

19

agreement, as Landlord for the Lessor and as Tenant for the Lessee to continue to rent the Demised Premises with the terms substantial consistent with this Agreement (including First Schedule). In such event, each party shall bare its own costs and expenses and the parties shall split equally any additional stamp duty incurred.

8.Financial / Facility

8.1The Tenant hereby agrees and confirms that the Tenant shall not in any manner whatsoever utilize this Lease to create any facility, charge, mortgage, pledge or lien, or any other form of encumbrances on any of way undertakings or guarantee in favour of any other party including any financial institution nor permit or done any act of thing which will give any other party an interest in this Lease.

20

LAYOUTPLAN

[…***…]

21

EX-10.5

Exhibit 10.5

*** Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[…***…]”) in this exhibit. ***

Monetary Consumption Loan Agreement Certificate

Amount of loan: 1,020,000,000 JPY

Purpose of loan: Long-term Business Operation funds

Redemption date: Reiwa year 1, June 30th

Method of payment: 14,070,000 JPY each shall be paid by the last day of each month between Reiwa year 5 July 31st and Reiwa year 10 June 30th.

2,070,000 JPY each shall be paid by the last day of each month between Reiwa year 10 July 31stand the conclusion date of the contract Reiwa year 17 May 31st.

Applicable interest rate: From total payable loan,

[…***…] per annum for the operation fund of 100,000,000.

From Reiwa year 5 June 23rd:

[…***…] per annum for the operation fund of 200,000,000.

[…***…] per annum for the operation fund of 720,000,000.

Interest payment method and the payment period:

First payment of interest by Reiwa year 2 July 31st,

Thereafter, post-payment for the previous month, by the end of each month for 1 month worth

Monetary damage interest: From total loan,

[…***…] per annum for the operation fund of 100,000,000.

[…***…] per annum for the operation fund of 200,000,000.

[…***…] per annum for the operation fund of 720,000,000.

Additional remarks and notes: None

D&M Holdings Inc (Hereinafter Party B) borrow and receive the amount from Japan Finance Corporation, Hereinafter Party A – handled by the SME small and medium enterprise unit corporate headquarters) by means of a loan on deed according to the terms and conditions set out on the left and the special agreement stipulations set out on the reverse side of this document.

One authenticated copy of the contract is made in testimony of this agreement, and Party A has the authenticated copy and Party B has a copy of it.

Reiwa year 2 June 23

Address:	1-9-4 Otemachi, Chiyoda-ku, Tokyo
Party A	JFC Corporation
	2-21-2 Minaminakadori, Naka-ku, Yokohama-shi, Kanagawa prefecture
	JFC Corporation Yokohama Branch
	SME small and medium enterprise unit –
	Management General Executive Manabu Funayama
Address:	2-1 Nittsumachi Kawasaki-ku, Kawasaki-shi, Kanagawa Prefecture
Party B	D&M Holdings
	Representative Director Keishi Nakagawa (or Keiji Nakagawa or Yoshifumi Nakagawa)

Public finance Processing Section	Time of contract Time of creating
Seal of approval	Contract Confirmation Created by

Special Agreement Stipulations

(Loaned money)

Article 1.    Party A agrees to deposit this loan to Party B, Party B has freely accepted this as a loan payable debt owed to Party A.

2.    Regarding the loan payable debt (hereafter referred to as loaned money) that is to be deposited to Party B upon completion of the designated mortgage pledge documents and so forth as stipulated in this certificate, as per the mutually agreed upon articles Party A agrees to provide funds for the purposes designated in the loan agreement certificate and according to the payment method agreed upon. However, should Party A wish to make changes to the funds amount or the payment periods, Party B agrees not to object to these changes.

3.    Should party B wish to repay the loaned money by cheque, Party A will accept this provided that party B also carries their rubber stamp seal to place their mark on the relevant documents at the designated place specified by party A, Party A will not accept any liability for damages incurred to the debt amount for failure to comply with this stipulation or with the cheque itself.

4.    Party B agrees that the loaned money credit may not be transferred or pledged to other parties.

5.    Party A, during the repayment period of this loaned money, will not charge interest on the corresponding amounts paid back in against this debt.

6.    Should party B be found to be in breach of 4 above by transferring or pledging the loaned money credit to a third party, or should the loaned money credit be marked for provisional seizure, provisional attachment, full seizure, attachment, or an order of foreclosure, Party A naturally reserves the right to demand equivalent offset payment without any prior notice and Party B may not object to the immediate cancellation of the long term loan repayment period regardless of other stipulations in this loan agreement certificate from the point when such a report is found.

(Repayment of debt)

Article 1-2.    Party B may not without permission from Party A return all or part of the loaned money credit before the appointed period time.

2.    In cases where party A has consented to early settlement with party B, from the day after the repayment date party A will calculate the funding interest rates for fiscal loans due based on the time period dating from commencement of the loan to the conclusion date of the contract. “After confirmation of the matter as it relates to finance corporation funds”, the interest rate is calculated according to the stipulations in article 1 and the funding interest rates for fiscal loans will be calculated across the same time period, any payment excess amount paid by party B will be taken as a early repayment of debt handling fee.

3.    Should a guarantor or another party beside party B wish to repay the debt before the due date, the procedure is as outlined in article 2 above.

(Measures to eliminate illegal behavior)

Article 1-3.    Party B, the guarantor and or the collateral provider, attest and evidence that they presently are not and have no links to, the yakuza or other criminal organizations, their members or ex-members who have not left the organization for more than 5 years, associate members with ties to criminal organizations, criminal organization business enterprises, terrorists and anti-social activists and any and all other such criminal elements (hereafter referred to as criminals etc) to the effect that they have no such history nor will become associated with such into the future.

In this definition, criminals etc refer to the following:

A.    Having a relationship with or being one who admits to being part of the management of, or the boss of a criminal enterprise.

B.    Having a relationship with or being one who admits to taking part in or any involvement in criminal activities.

C.    Having oneself or one’s company or even a 3rd party who admits to having illicit goals or involving the use of criminals or their illegal means for profit.

D.    Having a relationship with or being one who admits to taking a loan from a criminal organization, or giving or receiving provision from such.

E.    Having a relationship with or being one who admits to being in a societal position that would realistically necessitate undertaking criminal activities.

2.    Party B, the guarantor and or the collateral provider, by themselves or through the employ of a 3rd party swear to not do any of the following:

A.    Making demands in a violent or criminal manner.

B.    Making improper demands beyond the scope of legal responsibility.

C.    Making use of threats and blackmail or employing violence in business dealings.

D.    Engaging in activities such as illegally influencing stock prices ie. pump and dump, making use of deceptions or influence to defame or damage Party A’s business interests or otherwise interfering with Party A’s normal operations.

E.    Engaging in activities of a similar like to those listed above.

3.    In the case where any damages occur as a result of Party B, the guarantor and or the collateral provider being in breach of the points listed above, Party A will not accept any compensatory claims. Furthermore, should any damages be dealt to party A, Party B, the guarantor and or the collateral provider will bear the compensation responsibility.

(Forfeiture of the benefit of time)

Article 2.    Should Party B breach any of the following conditions marked below, Party A has the right to immediately and without any prior notice, strip party B of their benefit of time related to their debt obligation and claim the repayment of all liabilities in their entirety including all collateral.

A.    Party B ceases to make payments or has allegations of commencing: bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings or any special liquidation proceedings.

B.    Party B receives a disposition or similar order to suspend transactions from: a clearing house, the Japanese Bankers Association’s electronically recorded monetary claims network system or are flagged by other electronically recorded monetary claims systems.

C.    Due to failing to submit a change of address notification or otherwise failing to fulfil obligations in relation to this, party A becomes aware of the fact that party B’s whereabouts can no longer be found.

2.    Should Party B be found to be in breach of or admit to breaching any of the following conditions, party A may immediately demand the repayment of all liabilities in their entirety or part thereof including any collateral regardless of the loan repayment period and party B must follow any instructions given by Party A in respect to this.

A.    Party B uses the borrowed funds in violation of article 3, or fails to make use of the loaned money for a prolonged period, or fails to meet repayment deadlines as prescribed in stipulations of the overview table, or fails to repay the requisite amounts as prescribed in stipulations of the overview table.

A-2. Party B without consent from Party A uses assets purchased with the borrowed funds in ways differing from their initial purpose, or selling off assets initially purchased using the borrowed funds.

B.    Party B fails to repay all of or any part of their debt obligation to party A by the stipulated deadline.

C.    Party B, the guarantor and or the collateral provider fail to abide by any stipulations of this contract or fail to abide by instructions based on these stipulations given by party A.

C-2.    Party B when applicable must also abide by any addendum stipulations noted in “verification of use of finance corporation funds”

D.    Party B, the guarantor and or the collateral provider are found to be negligent in not truthfully presenting information in applications and reports or are willfully withholding the pertinent truthful information from Party A.

E.    Party B, the guarantor and or the collateral provider are found to be or have ties with criminal or their organizations as outlined in Article 1-3 or have taken any illegal actions as described in 1-3-2 or are similarly found to be in breach of the terms as described in Article 2 or there are serious reports of falsehoods pertaining to the information supplied to Party A such as they breach terms outlined in Article 1.

F.    Party B due to other factors is compelled to or given notice of provisional attachment, seizure or foreclosure, are petitioned to auction assets, the company is dissolved or death of a key figure of the company.

G.    The collateral provider does not take the necessary steps to adequately maintain the collateral assets

H.    The guarantor violates one of the previously stipulated contractual terms and those outlined in Article 4 and Article 6

I.    When it becomes clear that other contractual obligations will necessarily cause a breach in any of the previous stipulations.

(Payment obligations regarding difference in interest)

Article 2-2.    In the case that party B falls short of or falls behind on interest as agreed upon on the front page of this deed in (5) (applicable interest rate) or similarly (7) (monetary damage interest), interest will then be recalculated separately from the terms set out in (5) dating from the time period as reasonably specified by party A to the contractual conclusion date and calculating the amounts due for each specific monthly case of violation of the interest rate terms which follow, at the monetary damage interest rate, which is then to be paid separately from the regular applicable interest.

A.    One or more of the previous stipulations from Article 1, Article 1-2, Article 3 (except when applicable to collateral provider) and Article 3-2 are violated.

B.    Party B violates a condition stipulated in addendum 2 “Verification procedures pertaining to use of finance corporation funds”

(Use of capital)

Article 3.    Party B, except in exceptional cases permitted by Party A, may only use the loaned money as stipulated on this deed certificate and may not use the loaned money for other purposes.

2.    In the case where Party B designates all or part of the loaned money as long-term business operation funds, conditionally as long-term business operation funds they agree not to misuse the funds such as outlined in the following clauses.

A.    To make use of the capital in operations deemed as beyond the scope of the loan by Party A, or not directly related to business operations.

B.    To make use of the capital to surrogate a pre-existing debt to a financial institution.

C.    To make use of the capital for market speculation or loaning the funds to a 3rd party or similar uses which greatly differ from the original purpose of the loan.

3.    When party B makes use of this borrowed capital, they must give a clear accounting regarding the use of that capital.

(Changes in interest rates as a consequence of changes in financial circumstances)

Article 4.    Party B agrees to the reasonable changes made to the interest rates applicable to this loan (including both the applicable interest rate set out in (5) and the monetary damage interest (7). In this clause they are treated the same) by Party A in response to fluctuating market interest rates, changes in the financial situation of borrowers and increases or decreases in collateral value.

(Penalty interest)

Article 5.    Party B, except in cases exempted by Party A, when penalized regarding payments on the principal and interest of this loan obligation must pay Party A penalty interest corresponding to the number of days penalized for and calculated at 8.9% per annum.

(Collateral)

Article 6.    The guarantor may not without express consent from Party A, take any actions which would damage or is deemed likely to damage the interests of Party A with regards to this loan obligation, including offering the assets used as collateral against this loan obligation as collateral again even to 3rd parties, moving assets linked to this collateral without notifying party A of their whereabouts, negatively changing the conditions or circumstances of the assets.

2.    The guarantor agrees to cooperate with Party A in unreservedly establishing security rights for assets included in the collateral without delay and making reasonable and necessary measures to protect those assets from 3rd party interference.

3.    Party B agrees to cooperate with Party A in ensuring that reasonable and necessary measures are taken to protect collateral assets from 3rd party interference, and to follow Party A’s guidance in cases where there is a significant loss in asset value below a certain threshold of the collateral as a result of market fluctuations, deterioration, loss etc.

4.    Party B is obligated by the terms of this contract to classify all land, buildings, machinery, and other similar purchases made for business operation, purchased with this borrowed money when deemed necessary by Party A as collateral against this loan obligation until it is fully repaid.

(Disposal of Collateral Assets)

Article 7.    If Party B does not fulfill its loan obligations, Party A may freely dispose of all collateral assets by the method, timing, price, etc. that is generally deemed appropriate, without necessarily following the prescribed procedures. Under such circumstances, Party A can apply the disposal price to the payment of all or part of this loan obligation and any obligations incidental thereto, Party B and the collateral provider shall not have any objection.

(Disposal of Guarantee Assets)

Article 8.    Party B and the collateral provider shall, without delay after the borrowing of the funds, provide collateral for the loan obligations. They shall provide a damage insurance contract for the assets assigned as collateral for the debt obligations of the borrowings, in an amount equal to or greater than the borrowing. The

damage insurance contract shall be entered into with the insurance company approved by Party A for all obligations of this loan and all incidental duties. The contract shall cover the continuation of the borrowing the funds.

Further, the damage insurance contract currently concluded at the time of the borrowing of funds will continue to be effective in the same way.

2.    Upon request by Party A, the collateral provider shall, without delay, transfer to Party A the insurance claims based on the insurance contract set forth in the preceding paragraph as collateral for this borrowing obligation in accordance with the instructions given by Party A. The collateral provider shall, in cooperation with Party A, implement the procedures against any third parties’ claims.

3.    If the collateral provider enters any damage insurance contract other than the damage insurance contract mentioned in paragraph 1 on the same collateral assets, Party B shall report to Party A without delay and follow the instructions given by Party A.

4.    If the subject matter of the damage insurance is damaged, the collateral provider shall submit all the documents to the insurance company. Party A’s acknowledgement of damage compensation amount shall be obtained. If there is no agreement between the collateral provider and the insurance company, Party A will replace the collateral provider to make such agreement and the collateral provider shall not have any objection.

5.    Under the circumstances that the subject matter of the insurance is damaged, regardless the due date for the repayment, Party A will use the insurance money received to repay all or part of this loan obligation according to the method determined by Party A. Party B and the collateral provider shall not have any objection.

(Guarantor)

Article 9.    The guarantor shall be jointly and severally liable for the performance of the loan obligation and all incidental obligations regardless of the validity of the guarantor’s consignment contract.

2.    Party B and the guarantor (excluding corporations, hereinafter the same applies in this section) shall provide the guarantor with an appropriate explanation of the matters listed in the following items, and after the guarantor understands these matters I make a firm commitment to enter this agreement.

a.The status of this property and income and expenditure

b.The presence or absence of debts borne by Party B other than this loan

c.Amount and fulfillment status that fact and its contents

3.    Any claim made by Party A to Party B or a guarantor (including those who have become new guarantors after the conclusion of this contract) for performance of obligations shall be effective against Party B and all guarantors.

4.    Party B shall provide the guarantor with information on whether or not there has been a default on this loan obligation and any obligations incidental thereto, and on the balance of these and the amount of which the repayment period has come.

5.    If Party B receives instructions from Party A to add or replace a guarantor, Party B shall take the necessary procedures without delay.

(The Principles for Implementation of Guaranteed Debt)

Article 9 (2).    Guarantor has organized the guarantee certificate based on the Guideline Study Group on Business Owner Guarantees (Japanese Bankers Association and Japan Chamber of Commerce) announced on December 5, 2013 regarding the arrangement of guarantee obligations (including the revised content after publication, hereinafter referred to as the “Guidelines”). Party A will endeavor to respond to the guarantor’s organization of the guarantee certificate in good faith based on the Guidelines.

(Subrogation, Exemption from Obligation to Preserve Collateral)

Article 10.    The guarantor and collateral provider shall obtain the approval from Party A, if the guarantor or collateral provider repays the part under this Agreement and subrogates to Party A. Except for any rights to be acquired from it shall not be exercised, and the priority of rights shall be transferred to Party A free of charge at the request of Party A.

2.     The guarantor and collateral provider shall have no objection to any arrangement between Party A and Party B or between Party A and Party B or the guarantor insurance provider regarding addition, change, exemption, collateral, replacement, increase or decrease, or redemption periods, and Article 504 of the Civil Code will not be used.

(Appropriation of Repayment)

Article 11.    If multiple payments are to be made for repayment of this loan obligation and all obligations incidental thereto, or if Party B has other obligations from Party A, it is necessary to make payment for all the obligations. But if there was insufficient payment, Party A can appropriate according to the order and method that Party A considers appropriate, and Party B, the guarantor and the collateral provider shall not object to such appropriation.

(Third Party Payment and Claim Assignment)

Article 12.    Party B will not object to Party A receiving payment from or assigning it to any person with respect to this loan claim and any claims incidental thereto.

(The Burden of Risks, etc.)

Article 12 (2).    If the certificate submitted by Party B to Party A is lost, damaged, or delayed due to unavoidable circumstances such as an accident, disaster, or accident during transportation, Party B and the guarantor shall repay the debt based on the records such as book slips, electronic records, etc.

2.    In the case of the preceding paragraph, Party B shall immediately submit a new certificate upon the request of Party A, and any damages incurred at this time shall be borne by Party B and the guarantor, except for the reasons attributable to Party A.

(Notification, Report)

Article 13.    Party B shall inform Party B promptly in writing of the change in address, name, trade name, capital, representative or business content of Party B, its guarantor or collateral provider as death, dissolution, or other similar factors occur.

2.    Party B shall promptly report to Party A if any of the following circumstances happen:

a.When significant changes occur or are likely to occur in Party B or the guarantor’s assets or business conditions.

b.Where there is a change in the asset provided or promise to be provided as collateral, and the value of the asset is likely to decrease due to loss, damage, price fluctuations, or other circumstances.

c.When received the instruction from Party A regarding the matters not listed above.

(Submission of Calculation Books)

Article 14.    Party B shall provide Party A a balance statement of income, a business report, annexed detailed statements, and other materials designated by Party A (hereinafter referred to as the “Calculation Books”) for each accounting period.

2.    If Party B receives instructions from Party A, Party B shall provide Party A with the Calculation Books related to the parent company, subsidiary, other capital relationships, business relationships, management teams, and other business that Party A deems to be closely related to Party B.

(Investigation)

Article 15.    Party A shall be able to enter Party B’s office, factory, workplace, and other necessary places and investigate the business situation, documents, books, and other necessary items when deemed necessary. Under such circumstances, Party B shall provide Party A with reasonable convenience.

2.    Party A shall be able to investigate assets provided or pledged to provide as the collateral for the borrowing obligation. In such case, the collateral provider shall provide Party A with reasonable convenience.

(Burden of Expenses)

Article 16.    Party B shall bear all expenses related to this loan (including expenses related to the notarized certificate of the guarantor).

2.    If Party A, on behalf of Party B or the collateral provider, makes a registration and pays damage insurance premium, or entrusts the preparation of notarial certificate for damage insurance premiums and pays other expenses for the preservation of claims in advance, Party B shall pay Party A the amount equivalent to the advance paid by Party A and compensation for damages at a rate of 8.8% per year according to the number of days for advance payment.

(Method of Calculating Interest When There Is a Fractional Period)

Article 17.    If Party B pays interest on this loan to Party A and there is a fractional period of less than one year or more than one year, the fractional period interest shall be calculated by multiplying the principal amount by the annual interest rate and the number of days of the fractional period, and divided by 365 regardless of a normal year or a leap year. In addition, when calculating the amount equivalent to interest pursuant to the provisions of Article 2-2, this article shall apply.

2.    When Party B pays Party A for the compensation of damages related to this loan, it shall be calculated by multiplying the delayed principal amount by the number of days of delinquency or advance payment and the rate of that year. The calculation is based on 365 days regardless of a normal year or a leap year. In addition, the calculation related to early repayment fees shall also be based on the method described in this article.

(Preparation of Notarial Certification)

Article 18.    Upon receipt of instructions from Party A, Party B and the guarantor shall immediately ask a notary public to acknowledge the loan obligation and all incidental obligations and the compulsory execution. Party B and the guarantor will take the necessary procedures to create a notarized certificate.

(Governing Law, Jurisdiction)

Article 19.    The governing law pertaining to this Agreement law shall be Japanese law.

2.    If a lawsuit arises regarding various transactions based on this agreement, the district court or summary court of 1st trial where Party A’s head office or transaction branch locates (if the transaction branch is changed, the transaction branch after the change) shall be the competent court.

Input number -guarantee classification 6924

Date                 June 23, 2020

Revenue stamp not required                 Japan Finance Corporation

Tax exemption due to special measure             Yokohama Branch SME

Matters To Be Confirmed With The Use Of Finance Corporation

The borrowing of 1,020,000,000 yen (hereafter referred to as the “borrowing”) based on the consumer loan contract dated June 23, 2020 (hereafter referred to as “Original Contract”) will be handled as below.

1.    Handling of prepayment fees (Article 1-2 of special agreement)

(1)    Original Contract back side special agreement (hereafter “special agreement”) Article 1-2-2 defines ‘the fiscal loan fund interest rate on the date of conclusion of this contract as followed by Party A in “Matters To Be Confirmed With The Use Of Finance Corporation” paragraph 1’. If all or part of this loan is repaid before the due date with the consent of Japan Finance Corporation (hereafter referred to as the “JFC” and corresponding department is Small & Medium Enterprise Headquarter) the interest rate will follow the table below.

Of this loan:

100,000,000 yen […***…], (between 14 and 15 years) (note)

200,000,000 yen […***…], (between 14 and 15 years) (note)

720,000,000 yen […***…], (between 7 and 8 years) (note)

(Note)    Of the interest rates published by the Ministry of Finance

(http://www.mof.go.jo/filp/refrence/fif_interest _rate/index htm) as the “fiscal loan fund interest rate” with original loan equal redemption (half-yearly installment), grace period of 0 years, interest rate corresponding to the redemption period of the borrowing, the interest rate (Based on the interest rate that is judged to be reasonable in comparison with the loan interest rate if no loan rate is set to corresponding the borrowing redemption period) is determined by JFC.

(2)    Regarding special agreement Article 1-2-2 ‘Party A determines the interest rate base on financial loan interest rate at redemption time’ the redemption time uses same interest rate based on (1).

2.    Loss of benefit when conditions are violated (special agreement Article 2-2)

(1)The borrowing shall be used only for the purpose stated in the original contract deed and the list of uses of funds and shall not be diverted for other purpose. In this case, if a request is received from JFC for any of following, the redemption date of this loan will be determined based on Article 2-2-1, Item 1, 2 and 3 of the special agreement. Regardless of the redemption date shall immediately repay all or part of this loan obligation and all incidental obligations (hereafter referred to ‘advance redemption’).

I    All or part of this loan shall not be diverted for purpose other than stated in the original contract deed and the list of uses of funds.

II    When all or part of this loan is not used for a long period of time (including when it is not used due to plan cancellation or plan change.

III    When JFC urges to submit a copy of the proof of payment based on the provisions of the list with uses of funds for a specified period of time but does not submit within that period.

IV    When selling the assets acquired with this loan without obtaining the consent of JFC, or use acquired assets for purposes different from the original purpose.

V    When violating each clause set forth in the original contract or instruction of the JFC.

(2)In addition, when receiving a request from JFC for falling under any of the items stipulated in Attachment 1, advance redemption will be required based on Article 2-2-3-2.

3.    Payment of interest on the difference (special agreement Article 2-2)

If any of the following applies and the applicable interest rate stated in (5) on the front side of the original contract is lower than the interest rate for breach of conditions stated in (7) on the front side of contract, upon receipt of a request from JFC, will be required to pay the difference between the amount equivalent to interest based on the

interest rate for breach of conditions calculated retroactively to the date of contract conclusion of the original contract deed and the amount equivalent to interest based on the applicable interest rate according to special agreement Article 2-2.

(1)    When falling under 2(1) (note) or 2(2)(special agreement Article 2-2-1).

(2)    When any of matters specified in Attachment 2 applies (special agreement Article 2-2-2). If interest rate deductions are made for multiple items, each item will be determined individually.

(note)    This excludes cases where the collateral provider falls under special agreement Article 2-2

4.    Interest rate change

In the case of 3(2), along with the payment of interest on the difference, it is agreed to change. The interest rate applicable to the loan until the maturity date to the rate for non-compliance, and perform the required procedures. If the interest rate is deducted for multiple items, each item will be determined individually, and the applicable interest rate after the change will be the applicable interest rate before the change after adding (deducted interest rate (corresponding to each item and canceled)).

Japan Finance Corporation

Yokohama Branch SME Business Unit

I have given my consent to this content.

June 23, 2020

Address 2-1 Nisshin-cho, Kawasaki-ku, Kawasaki

Trade name D&M Holdings Co., Ltd SEAL

Representative Representative Director Keishi Nakagawa

JFC processing column

Confirmation

Responsible person

SEAL

(For direct loan)

List of the funds use (Loan)

(For client)

Reiwa year 2 June 23rd

Address: 2-1 Nittsumachi, Kawasaki-ku, Kawasaki-shi, Kanagawa Prefecture

Trade name or name: D&M Holdings

Name of representative: Representative Director Keishi (or Keiji Nakagawa)

1.Please do not use the loan amount of 1,020,000 ( hereinafter “Loan amount”) lent out dated Reiwa year 2 June 23rd based on the Monetary Consumption Loan Agreement Certificate for the other purposes.

2.    The amount of loan shall be disbursed in the manner requested by the customer. When you wish to change the disbursement method and/or the desired remittance date, please notify us (JFC Corporation) of it in advance.

3.    Please provide us the items marked with a circle below as additional collateral after the completion

Type of claims	Ref. No	Additional Indication	Details of loan	Quantities	Budget Amount (thousand of JPY unit)
COVID 19 (2)			For Long-term		1,020,000
COVID 19 (1)			Business Operation Management changes		—
Total					1,020,000

Transaction No.	Funds name	The amount of load JPY
[…***…]	Special loan for COVID19 infections COVID(2)	100,000
[…***…]	COVID19 infections COVID(1)	200,000
[…***…]	For responding to the business environment change	720,000
Total		1,020,000

JFC Corporation

Yokohama Branch

SME Business Management

General Executive, Manabu Funayama

Notes on the use of funds.

1.    In case you wish to pay with check for the pay-off, please bring your sealing for the disbursement

2.    The amount in this section shall be disbursed after the process completion. ________Thousand JPY

3.    In case charges for transferring funds by bank transfer and for check payments shall be charged to you each time when the funds are transferred or a check is endorsed. The actual amount shall be received after deducting the handling fees.

4.    Special attention should be paid to the followings with regard to equipment financing.

(1) Please pay for the construction of equipment as soon as possible after the loan has been granted.

(2)    Please consult us (JFC Corporation Yokohama Brunch) in advance if the payment of the construction is later than original plan or if the original project (construction details and planned amount, etc.) is needed to change.

(3) If the loaned funds are not used in accordance with the original business plan or for a long period of time (approximately three months) after the loan agreement, the loan will need to be paid back early, regardless of the redemption date. Please inform us (JFC Corporation Yokohama Branch) as soon as possible if any of these cases applies.

Note: If the construction payment shall be made by bill, the date of settlement of the bill (or the date of repurchase if the bill is repurchased) would be the date of payment for the construction, so please settle within approximately three months of the date of the loan agreement

(4) When the construction work is completed or the payment for the construction work is completed, please submit (these copies of) receipts and other payment evidences (receipts, bank transfer receipts, current account reconciliations, registration certificates, construction contract or sales contracts, invoices and bill settlement certificates) within six months from the date of the loan agreement. Please note that the submitted payment documents (copies) may be checked with the originals.

(5) In order to confirm the funds use, you may be asked to submit a copy of the fixed asset register or other evidence of asset recording at a later date, or we may carry out an on-site inspection.

(6) In the event of failure to cooperate with this verification, or in the event of a report that is untrue, the company may ask for early redemption, regardless of the redemption date.

5. Please sign your name and seal on the list of the funds use for JFC Corporation Yokohama Branch after agreeing to each of the above terms and conditions.

EX-10.6

Exhibit 10.6

*** Certain identified information has been omitted from this exhibit because it is both (i) not material and (ii) of the type that the Registrant treats as private or confidential. Such omitted information is indicated by brackets (“[…***…]”) in this exhibit. ***

Special Overdraft Agreement

Mizuho Bank

2/27/2020

Address	2-1 Nisshin-Cho, Kawasaki District, Kawasaki strict
Name	D&M Holding Co., Ltd.
	Representative Director Keiji Nakagawa

I (hereinafter referred to as the Borrower) hereby confirm the following borrowing requirements and agreements regarding overdraft transactions with Mizuho Bank, Ltd. (hereinafter referred to as the Bank) in addition to each of the articles in the separate transaction agreements with contracted bank.

[Main Items of Borrowing]

1	Overdraft Limit	¥ 800,000,000	Please use ¥ before the amount
2	Bank Account	Trading Branch	Account No.	Name
		Ueno Branch	[…***…]	Borrower
3	Transaction Period	March 17, 2020 – Nov 30, 2020
4	Other Agreement

[Consent to receive a special agreement on the application of short-term prime rate linked interest rate]

When the Borrower borrows money from the Bank based on the borrowing conditions above, the Borrower shall comply with the following [Special Agreement on the Application of Short-Term Prime Rate Linked Interest Rate].

Seal (financial seal) is required. If market interest rate = MML rate, seal is not required.

[Special Agreement on Application of Short-Term Prime Rate Linked Interest Rate]

The Special Overdraft Agreement is applicable only if you accept this contract regarding the application of linked interest rate.

Article 1 (Application of Borrowing Interest Rate, Linked Interest Rate)

1.The borrowing interest rate in this transaction shall be the base interest rate set by Mizuho Bank, Ltd. (hereinafter referred to as the Bank) plus a certain margin of addition.

2.Of the borrowing interest rates, the base interest rate shall be raised or lowered by the same amount as the prime rate fluctuations in accordance with the fluctuations in the short-term prime rate.

3.If the base interest rate is abolished, the Bank may change the base interest rate to a level generally accepted.

Article 2 (Base Interest Rate

The above-mentioned base interest rate means the short-term prime rate, which is the most preferential interest rate for short-term loans announced by the Bank.

Article 3 (Date of Change of Base Interest Rate)

The base interest rate changed pursuant to Article 1 shall be effective from the day after the short-term prime rate change date (including the day of change) after the change date of the short-term prime rate shall apply.

Article 4 (Occurrence of Special Circumstances)

If there is a material change in the business relationship between the Bank and the Borrower, regardless of the provisions of Article 1, the Borrower shall decide the borrowing interest rate based on agreement with the Bank.

Article 1(The Overdraft Limit)

The overdraft limited shall be as specified in No 1 of the main items of borrowing.

Article 2(The Method of Transaction)

1.When the Borrower uses an overdraft based on this agreement, the Bank shall be notified in advance.

2.With the Bank’s approval, the Borrower shall receive the loan by submitting the Bank’s prescribed overdraft refund request to the Bank.

3.Transactions under this Agreement shall be limited to overdraft transactions. We do not make withdrawals or acceptances, or automatic payment for utility bills.

Article 3 (Transaction Period)

Transactions based on this Agreement shall be subject to the deadline as described in No. 3 of the Main Items of Borrowing. However, if neither the Borrower not the Bank expresses a particular intention by the deadline, the deadline may be extended for another year, and the same shall apply thereafter.

Article 4 (Interest and Damages)

1.The calculation method, interest rate, payment period for the interest on overdrafts shall be determined by the Bank.

2.Regarding the borrowing interest rate calculated in paragraph 1, if the base interest rate is a negative value, the based interest rate shall be deemed as “zero”.

3.In the event of default, the amount to be repaid calculation method of damages

a.Overdraft account with short-term prime rate as base interest rate: […***…] of damages per year (calculated daily for 365 days a year)

b.Market interest rate linked overdraft account:

Damage that is the higher of the interest rate required by the Bank plus 2% per annum or […***…] per annum. In this case, the calculation method is calculated daily. The number of days (365 or 360 days) shall be the same as the interest calculation method for the applicable current account.

4.Please withdraw from a bank account in your name. In this case, regardless of current account regulations or ordinary deposit regulations, we will not issue a current account check, ordinary deposit passbook, or ordinary deposit withdrawal request.

Article 5 (Repayment)

1.Overdraft repayment shall be made in the amount separately agreed with the Bank on the scheduled repayment.

2.The Bank will withdraw the repayment amount related to the overdraft principal from the bank account in the Borrower’s name in No. 2 of the Main Items of Borrowing. In this case, regardless of current account rules or deposit rules, a current account check or savings account passbook or savings account withdrawal request shall not be submitted.

Article 6 (Prepayment)

1.If the Borrower unavoidably tries to repay all or part of the debt based on this Agreement before the due date for the market interest rate overdraft account, the Bank consent shall be obtained.

2.Regarding the obligations under this Agreement, if the Borrower makes an early repayment with the consent of the Bank, or if the Bank incurs damages with the benefit of time according to the prevision of Article 7, the Borrower shall be liable for the damages, payment shall be made immediately. In this case, damages are the amount due to the interest rate difference when the reinvestment interest rate by the Bank is lower than the contracted interest rate of the relevant overdraft. The calculation of damages shall be based on the calculation method prescribed by the Bank.

Article 7 (Immediate Payment)

1.If any of the following events occur for the principal, the overdraft principal and interest will be paid immediately even if there is no notice demand from the Bank.

a.When there is a petition for suspension of payment, commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate special liquidation.

b.When receiving a transaction suspension disposition from a clearing house or electronic claim recording organization.

c.The Borrower or its guarantor (excluding the electronically recorded guarantor pertaining to the guaranty record recorded together with the transfer record; the same shall apply hereinafter) has an order or notice of provisional seizure, preservation seizure or seizure against its deposits.

d.When the location of the Borrower becomes unknown to the Bank due to the reasons attributable to the Borrower.

2.If any of the following event occur with respect to the Borrower, the overdraft principal and interest shall be repaid upon request from the Bank, and the Borrower shall pay the Bank.

a.When the performance of even a part of the obligation to the Bank is delayed.

b.When seizure or commencement of auction procedures for the subject matter of collateral.

c.When you violate the Agreement with the Bank.

d.When the Borrower’s guarantor falls under any of the items in the preceding paragraph or this paragraph.

e.In addition to the preceding paragraphs or this paragraph, when there is a reasonable cause that interfere with the repayment of the Borrower’s debt.

3.In the preceding paragraph, if the request from the Bank does not arrive due to reasons attributable to the Borrower, such as the Borrower’s failure to notify the Bank of a change of address, the due date for repayment of the overdraft principal and interest will normally arrive. Assure that has arrived.

Article 8 (Reduction, Suspension and Termination)

1.If there is a change in the financial situation, preservation of receivables, or other equivalent reasons, the Bank may at any time reduce the maximum amount and cancel this Agreement at any time without suspending the loan.

2.If the transaction under this Agreement is terminated or the overdraft is suspended, immediately the payment of the overdraft principal and interest shall be made. In addition, if the maximum amount is reduced, the Borrower will immediately pay overdraft amount in excess of the reduced maximum amount.

a.If short-term prime rate linked interest rate is applied, obtain a seal of approval for special agreement on application of short-term prime rate linked interest rate.

b.When specifying the base interest rate or spread, enter it in borrowing requirements.

CIF No.| Person in Charge| Review| Manager

5603Y011 [Special Overdraft Agreement] (return after sign) 18.3

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: November 8, 2022	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: November 8, 2022	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 October 1, 2022 (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: November 8, 2022	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 October 1, 2022 (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: November 8, 2022	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

Cover	9 Months Ended
	Oct. 01, 2022 shares
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Oct. 01, 2022
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
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	52,564,663
Amendment Flag	false
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Entity Central Index Key	0000937556
Current Fiscal Year End Date	--12-31
Common Stock
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	MASI
Security Exchange Name	NASDAQ
Rights to Purchase Series A Junior Participating Preferred Stock
Document Information [Line Items]
Title of 12(b) Security	Rights to Purchase Series A Junior Participating Preferred Stock
Trading Symbol	N/A
Security Exchange Name	NASDAQ

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Current assets
Cash and cash equivalents	$ 219.5	$ 745.3
Trade accounts receivable, net of allowance for credit losses of $3.8 million and $2.2 million at October 1, 2022 and January 1, 2022, respectively	371.6	200.8
Inventories	495.4	201.4
Other current assets	159.1	91.0
Total current assets	1,245.6	1,238.5
Lease receivable, noncurrent	79.6	73.6
Deferred costs and other contract assets	37.0	28.1
Property and equipment, net	372.2	272.8
Intangible assets, net	446.6	72.5
Trademarks - (Note 9)	262.0	0.0
Goodwill	446.3	100.3
Deferred tax assets	56.5	52.6
Other non-current assets	110.6	48.6
Total assets	3,056.4	1,887.0
Current liabilities
Accounts payable	267.8	75.5
Accrued compensation	90.4	70.8
Deferred revenue and other contract liabilities, current	77.6	50.9
Other current liabilities	151.5	70.4
Total current liabilities	587.3	267.6
Long-term debt	951.4	0.0
Deferred tax liabilities	139.2	5.1
Other non-current liabilities	125.9	64.0
Total liabilities	1,803.8	336.7
Commitments and contingencies - (Note 24)
Stockholders’ equity
Preferred stock, $0.001 par value; 5.0 million shares authorized; 0 shares issued and outstanding	0.0	0.0
Common stock, $0.001 par value; 100.0 million shares authorized; 52.6 million and 55.3 million shares issued and outstanding at October 1, 2022 and January 1, 2022, respectively	0.1	0.1
Treasury stock, 19.5 million and 16.5 million shares at October 1, 2022 and January 1, 2022, respectively	(1,169.1)	(767.7)
Additional paid-in capital	775.0	752.5
Accumulated other comprehensive loss	(26.9)	(5.5)
Retained earnings	1,673.5	1,570.9
Total stockholders’ equity	1,252.6	1,550.3
Total liabilities and stockholders’ equity	3,056.4	1,887.0
Customer relationships
Current assets
Intangible assets, net	204.5	15.3
Acquired technologies
Current assets
Intangible assets, net	163.9	19.7
Other intangible assets, net
Current assets
Intangible assets, net	$ 78.2	$ 37.5

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) shares in Millions, $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 3.8	$ 2.2
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	5.0	5.0
Preferred stock, shares issued (in shares)	0.0	0.0
Preferred stock, shares outstanding (in shares)	0.0	0.0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100.0	100.0
Common stock, shares, issued (in shares)	52.6	55.3
Common stock, shares, outstanding (in shares)	52.6	55.3
Treasury stock, shares (in shares)	19.5	16.5

XML

Condensed Consolidated Statements of Operations - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Income Statement [Abstract]
Revenue	$ 549.3	$ 307.4	$ 1,418.8	$ 911.6
Cost of goods sold	266.8	103.8	673.4	318.1
Gross profit	282.5	203.6	745.4	593.5
Selling, general and administrative	174.6	100.6	471.6	291.2
Research and development	53.1	35.4	137.1	103.9
Total operating expenses	227.7	136.0	608.7	395.1
Operating income	54.8	67.6	136.7	198.4
Non-operating (loss) income	(2.8)	0.0	1.0	(0.7)
Income before provision for income taxes	52.0	67.6	137.7	197.7
Provision for income taxes	14.1	9.8	35.1	36.3
Net income	$ 37.9	$ 57.8	$ 102.6	$ 161.4
Net income per share:
Basic (in dollars per share)	$ 0.72	$ 1.05	$ 1.90	$ 2.93
Diluted (in dollars per share)	$ 0.70	$ 1.00	$ 1.85	$ 2.80
Weighted-average shares used in per share calculations:
Basic (in shares)	52.5	55.1	54.0	55.1
Diluted (in shares)	54.1	57.7	55.6	57.7

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Income Statement [Abstract]
Net income	$ 37.9	$ 57.8	$ 102.6	$ 161.4
Other comprehensive income, net of tax:
Unrealized losses from foreign currency translation adjustments	(17.8)	(3.2)	(34.7)	(4.9)
Change in pension benefits	(0.7)	0.0	(1.4)	0.0
Unrealized gain on cash flow hedge	14.7	0.0	14.7	0.0
Total comprehensive income	$ 34.1	$ 54.6	$ 81.2	$ 156.5

XML

Condensed Consolidated Statement of Stockholders' Equity - USD ($) shares in Millions, $ in Millions	Total	Common Stock	Treasury Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Retained Earnings
Beginning balance (in shares) at Jan. 02, 2021		55.3
Beginning balance (in shares) at Jan. 02, 2021			16.0
Beginning balance at Jan. 02, 2021	$ 1,407.7	$ 0.1	$ (638.7)	$ 703.7	$ 1.4	$ 1,341.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised	2.9			2.9
Restricted/Performance stock units vested (in shares)		0.3
Shares paid for tax withholding	(16.7)			(16.7)
Stock-based compensation	12.7			12.7
Repurchases of common stock (in shares)		(0.5)	(0.5)
Repurchases of common stock	(128.9)		$ (128.9)
Net income	53.4					53.4
Foreign currency translation adjustment	(2.9)				(2.9)
Ending balance (in shares) at Apr. 03, 2021		55.1
Ending balance (in shares) at Apr. 03, 2021			16.5
Ending balance at Apr. 03, 2021	1,328.2	$ 0.1	$ (767.6)	702.6	(1.5)	1,394.6
Beginning balance (in shares) at Jan. 02, 2021		55.3
Beginning balance (in shares) at Jan. 02, 2021			16.0
Beginning balance at Jan. 02, 2021	$ 1,407.7	$ 0.1	$ (638.7)	703.7	1.4	1,341.2
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Repurchases of common stock (in shares)	(0.5)
Repurchases of common stock	$ (128.9)
Net income	161.4
Foreign currency translation adjustment	(4.9)
Unrealized loss on pension plan	0.0
Unrealized gain on cash flow hedge	0.0
Ending balance (in shares) at Oct. 02, 2021		55.3
Ending balance (in shares) at Oct. 02, 2021			16.5
Ending balance at Oct. 02, 2021	1,468.2	$ 0.1	$ (767.6)	736.6	(3.5)	1,502.6
Beginning balance (in shares) at Apr. 03, 2021		55.1
Beginning balance (in shares) at Apr. 03, 2021			16.5
Beginning balance at Apr. 03, 2021	1,328.2	$ 0.1	$ (767.6)	702.6	(1.5)	1,394.6
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised	3.4			3.4
Stock-based compensation	8.3			8.3
Net income	50.2					50.2
Foreign currency translation adjustment	1.2				1.2
Ending balance (in shares) at Jul. 03, 2021		55.1
Ending balance (in shares) at Jul. 03, 2021			16.5
Ending balance at Jul. 03, 2021	1,391.3	$ 0.1	$ (767.6)	714.3	(0.3)	1,444.8
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)		0.2
Stock options exercised	9.7			9.7
Stock-based compensation	$ 12.6			12.6
Repurchases of common stock (in shares)	0.0
Repurchases of common stock	$ 0.0
Net income	57.8					57.8
Foreign currency translation adjustment	(3.2)				(3.2)
Unrealized loss on pension plan	0.0
Unrealized gain on cash flow hedge	0.0
Ending balance (in shares) at Oct. 02, 2021		55.3
Ending balance (in shares) at Oct. 02, 2021			16.5
Ending balance at Oct. 02, 2021	$ 1,468.2	$ 0.1	$ (767.6)	736.6	(3.5)	1,502.6
Beginning balance (in shares) at Jan. 01, 2022	55.3	55.3
Beginning balance (in shares) at Jan. 01, 2022			16.5
Beginning balance at Jan. 01, 2022	$ 1,550.3	$ 0.1	$ (767.7)	752.5	(5.5)	1,570.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)		0.1
Stock options exercised	2.7			2.7
Restricted/Performance stock units vested (in shares)		0.2
Shares paid for tax withholding (in shares)		(0.1)
Shares paid for tax withholding	(25.4)			(25.4)
Stock-based compensation	10.9			10.9
Net income	46.6					46.6
Foreign currency translation adjustment	(2.9)				(2.9)
Ending balance (in shares) at Apr. 02, 2022		55.5
Ending balance (in shares) at Apr. 02, 2022			16.5
Ending balance at Apr. 02, 2022	$ 1,582.2	$ 0.1	$ (767.7)	740.7	(8.4)	1,617.5
Beginning balance (in shares) at Jan. 01, 2022	55.3	55.3
Beginning balance (in shares) at Jan. 01, 2022			16.5
Beginning balance at Jan. 01, 2022	$ 1,550.3	$ 0.1	$ (767.7)	752.5	(5.5)	1,570.9
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)	0.1
Repurchases of common stock (in shares)	(3.0)
Repurchases of common stock	$ (401.4)
Net income	102.6
Foreign currency translation adjustment	(34.7)
Unrealized loss on pension plan	(1.4)
Unrealized gain on cash flow hedge	$ 14.7
Ending balance (in shares) at Oct. 01, 2022	52.6	52.6
Ending balance (in shares) at Oct. 01, 2022			19.5
Ending balance at Oct. 01, 2022	$ 1,252.6	$ 0.1	$ (1,169.1)	775.0	(26.9)	1,673.5
Beginning balance (in shares) at Apr. 02, 2022		55.5
Beginning balance (in shares) at Apr. 02, 2022			16.5
Beginning balance at Apr. 02, 2022	1,582.2	$ 0.1	$ (767.7)	740.7	(8.4)	1,617.5
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)		0.0
Stock options exercised	1.2			1.2
Stock-based compensation	17.3			17.3
Repurchases of common stock (in shares)		(3.0)	(3.0)
Repurchases of common stock	(401.4)		$ (401.4)
Net income	18.1					18.1
Foreign currency translation adjustment	(14.0)				(14.0)
Unrealized loss on pension plan	(0.7)				(0.7)
Ending balance (in shares) at Jul. 02, 2022		52.5
Ending balance (in shares) at Jul. 02, 2022			19.5
Ending balance at Jul. 02, 2022	1,202.7	$ 0.1	$ (1,169.1)	759.2	(23.1)	1,635.6
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock options exercised (in shares)		0.1
Stock options exercised	2.3			2.3
Stock-based compensation	$ 13.5			13.5
Repurchases of common stock (in shares)	0.0
Repurchases of common stock	$ 0.0
Net income	37.9					37.9
Foreign currency translation adjustment	(17.8)				(17.8)
Unrealized loss on pension plan	(0.7)				(0.7)
Unrealized gain on cash flow hedge	$ 14.7				14.7
Ending balance (in shares) at Oct. 01, 2022	52.6	52.6
Ending balance (in shares) at Oct. 01, 2022			19.5
Ending balance at Oct. 01, 2022	$ 1,252.6	$ 0.1	$ (1,169.1)	$ 775.0	$ (26.9)	$ 1,673.5

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021
Cash flows from operating activities:
Net income	$ 102.6	$ 161.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	56.6	26.5
Stock-based compensation	41.7	33.5
Gain on disposal of equipment, intangibles and other assets	0.1	0.3
Provision for credit losses	1.2	0.6
Amortization of debt issuance cost	0.9	0.0
Changes in operating assets and liabilities:
Increase in accounts receivable	(66.7)	(51.0)
(Increase) decrease in inventories	(71.0)	12.3
Decrease in other current assets	11.7	4.4
Increase in lease receivable, net	(5.9)	(9.3)
Increase in deferred costs and other contract assets	(31.6)	(2.6)
(Increase) decrease in other non-current assets	(22.2)	0.1
Increase (decrease) in accounts payable	69.6	(4.3)
Decrease in accrued compensation	(6.9)	(1.3)
Decrease in accrued liabilities	(26.5)	(4.0)
Decrease in income tax payable	(8.4)	(1.5)
Increase in deferred revenue and other contract-related liabilities	19.7	1.4
(Decrease) increase in other non-current liabilities	(28.9)	0.6
Net cash provided by operating activities	36.0	167.1
Cash flows from investing activities:
Purchases of property and equipment, net	(36.0)	(20.7)
Increase in intangible assets	(13.9)	(8.2)
Business combinations, net of cash acquired	(985.0)	0.0
Other strategic investing activities	0.0	(2.6)
Net cash used in investing activities	(1,034.9)	(31.5)
Cash flows from financing activities:
Borrowings under line of credit	1,050.6	0.0
Repayments on line of credit	(96.3)	0.0
Debt issuance costs	(9.3)	0.0
Proceeds from issuance of common stock	6.9	19.0
Payroll tax withholdings on behalf of employees for vested equity awards	(25.4)	(16.7)
Repurchases of common stock	(401.4)	(128.9)
Net cash provided by (used in) financing activities	525.1	(126.6)
Effect of foreign currency exchange rates on cash	(52.5)	(0.1)
Net (decrease) increase in cash, cash equivalents and restricted cash	(526.3)	8.9
Cash, cash equivalents and restricted cash at beginning of period	748.4	645.0
Cash, cash equivalents and restricted cash at end of period	$ 222.1	$ 653.9

XML

Description of the Company

9 Months Ended

Oct. 01, 2022

Accounting Policies [Abstract]

Description of the Company

1. Description of the Company

Masimo Corporation is a global medical technology company dedicated to improving lives, taking noninvasive monitoring to new sites and applications while improving patient outcomes and reducing the cost of care. The Company invented Masimo Signal Extraction Technology® (SET®), which provides the capabilities of Measure-through Motion and Low Perfusion™ pulse oximetry to address the primary limitations of conventional pulse oximetry. Historically, the Company has been focused on the core healthcare businesses derived from its SET® technology. During the early stages of the COVID-19 pandemic, the Company strategically expanded into the fast evolving remote patient monitoring and home wellness markets as well as the therapeutics markets.

On April 11, 2022, the Company acquired Viper Holdings Corporation, the parent company of DEI Sales, Inc., d/b/a Sound United (Sound United), via the Company’s wholly-owned subsidiary, Sonic Boom Acquisition Corp (Sonic). For more information on Masimo’s acquisition of Sound United, see Note 18, “Business Combinations”. In addition, the Company updated its financial reporting segments to align with the way it manages the business units post-acquisition. See Note 25, “Segment and Enterprise Reporting”, for additional details.

The terms “the Company” and “Masimo” refer to Masimo Corporation and, where applicable, its consolidated subsidiaries.

______________

(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

9 Months Ended

Oct. 01, 2022

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 1, 2022 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 1, 2022 (fiscal year 2021), filed with the SEC on February 15, 2022. The results for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 (fiscal year 2022) 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 2022 is a 52 week fiscal year ending December 31, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

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. The Company’s use of estimates includes 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, derivative instruments, deferred taxes and any associated valuation allowances, deferred revenue, accounting for pensions, uncertain income tax positions, 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 in accordance with Accounting Standard Codification (ASC) Topic 805, Business Combinations, which requires that once control is obtained, 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, with the exception of acquired contract assets and contract liabilities (i.e., deferred revenue) from contracts with customers. These are recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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.

Fair Value Measurements

The Company accounts for certain financial instruments at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its financial instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, and considers the estimated amount the Company would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and the Company’s creditworthiness for unrealized loss positions. In certain instances, the Company may utilize financial models to measure the fair value of its financial instruments. In doing so, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

Recurring Fair Value Measurement

On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. 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.

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at October 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	162.5	$	162.5	$	—	$	—
Money market funds	57.0		57.0		—		—
Derivative instruments - cash flow hedges	19.4		—		19.4		—
Total assets	$	238.9	$	219.5	$	19.4	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at January 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	745.3	$	745.3	$	—	$	—
Money market funds	—		—		—		—
Total assets	$	745.3	$	745.3	$	—	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The Company invests in checking, savings and money market fund accounts, which are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices. These investments are classified as cash and cash equivalents within the Company’s accompanying condensed consolidated balance sheets, in accordance with GAAP and its accounting policies.

Non-Recurring Fair Value Measurements

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.

Furthermore, the Company did not elect to apply the fair value option to specific assets or liabilities on a contract-by-contract basis. The Company did not have any transfers between Level 2 and Level 3 during the nine months ended October 1, 2022.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the 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. The Company carries cash and cash equivalents at cost, which approximates fair value, and are Level 1 under the fair value hierarchy.

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. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified receivables for U.S. customers and receivables from international customers each as a portfolio, and measures expected credit losses on such receivables using an aging methodology.

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
Buildings and building improvements	7 to 39 years
Computer equipment and software	1 to 12 years
Demonstration units	2 to 3 years
Furniture and office equipment	2 to 15 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 20 years
Operating lease assets	Lesser of useful life or term of lease
Transportation, vehicles and other	1 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.

Lessee Right-of-Use (ROU) Assets and Lease Liabilities

The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an asset underlying an operating lease for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. 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. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its lease terms unless they are reasonably certain to be exercised. The Company utilizes a portfolio approach to account for the ROU assets and liabilities associated with certain equipment leases.

The Company has also made an accounting policy election not to separate lease and non-lease components for its real estate leases and to exclude short-term leases with a term of twelve months or less from its ROU assets and lease liabilities. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships, licenses 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 a range of 10 years to 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

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 and trademarks 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.

Intangibles purchased as part of an asset acquisition or business combination historically have included patents, trademarks, customer relationships, developed technologies and contractual licenses. In certain circumstances the Company also has acquired non-compete agreements tied to certain employment relationships. The useful life for all of these is largely determined by valuation estimates of remaining economic life. In connection with the Sound United acquisition, the Company acquired certain trademarks/tradenames, which are intangible assets with indefinite useful lives. These brands are expected to maintain brand value for an indefinite period of time.

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 the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, or if the Company elects to bypass the qualitative analysis, then the Company performs 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 such reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to such reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

Similar to Goodwill, indefinite-lived intangible assets are not amortized but instead are subject to annual impairment testing, unless circumstances dictate more frequent testing, if impairment indicators exist. Impairment for indefinite-lived assets exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. Determining whether impairment indicators exist and estimating the fair value of the Company’s indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors.

The Company reviews finite lived intangible assets and long-lived assets 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.

Employee Defined Benefit Plans

The Company maintains noncontributory defined benefit pension plans that cover employees in various countries throughout Europe and Asia. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the condensed consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, the difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the condensed consolidated statement of operations. The liabilities and annual income or expense is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices. See Note 21, “Employee Benefits”, for further details.

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold are recognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-not recognition threshold is recorded at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in that period. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in the period they become known. The Company records potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

As a multinational corporation, the Company is subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets when, in the judgment of management, it is more likely than not that all or part of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies.

Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about the Company’s future income over the lives of its deferred tax assets (DTA) and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could result in changes to the Company’s results of operations.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

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.

Healthcare segment

While the majority of the Company’s Healthcare segment 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. Revenue from fixed lease payments related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue from fixed lease payments related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease and variable lease payments are recognized as they occur.

The Company derives the majority of its Healthcare segment 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 original equipment manufacturer (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 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. Beginning January 2, 2022, for contracts that contain variable lease payments, the Company also classifies as operating leases any components that would result in a day one selling loss should they be otherwise classified as a sales-type lease. 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.

Non-healthcare segment

Non-healthcare segment revenue is related to hardware and embedded software that is integrated into final products that are manufactured and sold by the Company. Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. Non-healthcare segment revenue is recognized upon transfer of control of promised products or service to customers, which is either upon shipment or upon delivery to the customers, depending on delivery terms.

The Company offers sales incentives and has customer programs consisting primarily of discounts and market development fund programs, and records them as a contra revenue. Estimates for sales incentives are developed using most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. In developing its estimates, the Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts. Reductions in revenue related to discounts are allocated to products on a relative basis based on their respective standard selling price if there are undelivered products in a contract. Judgement is required to determine the timing and amount of recognition of marketing funds which the Company estimates based on past practice of providing similar funds.

Payment terms and conditions vary among the Company’s distribution channels although terms generally include a requirement of payment within 30 to 60 days of product shipment. Sales directly to customers from the Company’s website are paid at the time of product shipment. Prior to determining payment terms for each customers, an evaluation of such customer’s credit risk is performed. Contractual allowances are an offset to accounts receivable.

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 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.

In connection with the Sound United acquisition, the Company recognized non-healthcare royalty revenue associated with certain prepaid license arrangements. The Company recognizes non-healthcare revenue from the prepaid license arrangements based upon sales-based royalties when a subsequent sale occurs.

Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from six 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 warranty accrual were as follows:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Warranty accrual, beginning of period	$	2.5	$	2.7
Increase related to acquisition, net of reserve	8.0		—
Accrual for warranties issued	1.9		3.4
Changes in pre-existing warranties (including changes in estimates)	1.5		(2.3)
Settlements made	(4.5)		(0.9)
Warranty accrual, end of period	$	9.4	$	2.9

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.

Foreign Currency Translation

The Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries, and the largest transactions in foreign currency translations occur in Japanese Yen, the British Pound, Chinese Yuan and the European Euro.

The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the average exchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect as of the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functional currency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying condensed consolidated balance sheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are not denominated in the underlying functional currency are included as a component of non-operating income (loss) within the accompanying condensed consolidated statements of operations.

Derivatives Instruments & Hedging Activities

The Company addresses market risk from changes in foreign currency and interest rates risks through risk management programs which include the use of derivative and nonderivative instruments. The Company’s exposure to the counterparty’s credit risk is generally limited to the amounts of the net obligation to the counterparty. The Company established policies to enter into contracts only with major investment-grade financial institutions to mitigate such counterparty credit risk. The Company also established a policy to further monitor the counterparty risks throughout the life of the instruments. None of the derivative instruments currently held by the Company were entered into for speculative trading purposes.

All derivative financial instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the tenor of the instrument. The Company has elected not to separate a derivative instrument into current and long-term portions. A derivative instrument whose fair value is a net liability is classified as current in total. A derivative instrument whose fair value is a net asset and whose current portion is an asset is classified as noncurrent in total. For a derivative instrument that meets the criteria to qualify for hedge accounting, the Company marks the fair value of the derivative instrument to market periodically through other comprehensive income (loss). When the hedged items hit income (expense), associated deferred gains (losses) of the derivatives in accumulated other comprehensive income (loss) will be reclassified into earnings. For a derivative instrument that does not meet the criteria for hedge accounting, any fluctuation in the fair value is reflected in earnings in the period it occurs.

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments, changes to pension benefits, unrealized gains or (losses) on cash flow hedges and any related tax benefits (expenses) that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

Computation of basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Basic net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Net income per basic share	$	0.72	$	1.05	$	1.90	$	2.93
Diluted net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Diluted share equivalents: stock options, RSUs and PSUs	1.6		2.6		1.6		2.6
Weighted-average shares outstanding - diluted	54.1		57.7		55.6		57.7
Net income per diluted share	$	0.70	$	1.00	$	1.85	$	2.80

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 stock units (PSUs). For the three months ended October 1, 2022 and October 2, 2021, weighted options to purchase 1.0 million and 0.1 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 nine months ended October 1, 2022 and October 2, 2021, weighted options to purchase 0.8 million and 0.2 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 October 1, 2022 and October 2, 2021, 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 nine month periods then ended.

Supplemental Cash Flow Information

Supplemental cash flow information includes the following:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Cash paid during the year for:
Interest expense	$	11.9	$	0.2
Income taxes	71.1		36.9
Operating lease liabilities	12.0		5.6
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	9.8	$	4.9
Non-cash investing activities:
Unpaid purchases of property and equipment	$	4.8	$	3.2
Unpaid strategic investments	1.5		3.4
Deposit release to acquire noncontrolling interest(1)	—		3.4
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	—	$	0.1
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	219.5	$	652.3
Restricted cash	2.6		1.6
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	222.1	$	653.9

______________

(1)     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 first quarter of 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). The standard requires companies to apply ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC Topic 805. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022, and for interim periods within those years, and should be adopted prospectively. Early adoption is permitted. The Company’s early adoption of this standard, effective January 3, 2021, did not have a material impact on its consolidated financial statements. Subsequently, upon the closing of the Sound United acquisition, the Company recognized and measured acquired contract assets and contract liabilities (i.e., deferred revenue) in accordance with the ASC Topic 606.

In July 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). The new standard amends the original ASU No. 2016-02 lease standard by requiring lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement if they were classified as sales-type. ASU 2021-05 is effective for annual reporting periods beginning after December 15, 2021, and for interim periods within those years, and may be adopted either prospectively or on a retrospective basis for leases that commenced or were modified after the date of initial adoption of ASC 842.

On January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption. As a result, certain leases which would have previously been classified as lease receivables (sales-type leases) were classified as operating leases, as they were determined to have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement. For leases that are classified as operating leases, the Company recorded these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis, rather than being immediately recognized upon lease commencement. Similarly, revenue associated with such new operating leases is now being recognized over the term of the lease, rather than being immediately recognized at the date of the lease commencement. See Notes 6, 8 and 11 of these condensed consolidated financial statements for further details.

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 standard 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 standard 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.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new standard clarified the scope and application of the original guidance. ASU 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.

On April 11, 2022, the Company adopted ASU 2020-04 and ASU 2021-01 prospectively, in conjunction with the termination of the Company’s Credit Facility and execution of a new Credit Facility, which included both term loans and a revolving line of credit. At the time of transition, the Company no longer held any debt based upon the then-current reference rate, thus, it did not elect any optional practical expedients for contract modifications. Ultimately, the Company transitioned away from an interest rate based on LIBOR to SOFR, and such adoption did not have a material impact on its condensed consolidated financial statements.

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Related Party Disclosures

9 Months Ended

Oct. 01, 2022

Related Party Transactions [Abstract]

Related Party Transactions

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 $4.5 million and $2.9 million for the three months ended October 1, 2022 and October 2, 2021, respectively. Aggregate liabilities payable to Cercacor arising under the Cross-Licensing Agreement were $13.1 million and $9.6 million for the nine months ended October 1, 2022 and October 2, 2021, 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 $0.1 million and less than $0.1 million for the three months ended October 1, 2022 and October 2, 2021, respectively. Amounts charged by the Company pursuant to the G&A Services Agreement were $0.3 million and $0.2 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.

•Lease Agreement - 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. The Company recognized approximately $0.3 million of lease income for each of the three months ended October 1, 2022 and October 2, 2021. The Company recognized approximately $0.9 million of lease income for each of the nine months ended October 1, 2022 and October 2, 2021.

Net amounts due to Cercacor at October 1, 2022 and January 1, 2022 were approximately $4.7 million and $3.5 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 October 1, 2022 and October 2, 2021, the Company made no cash contributions to the Masimo Foundation. During the nine months ended October 1, 2022, the Company made cash contributions of approximately $1.0 million to the Masimo Foundation. During the nine months ended October 2, 2021, the Company made no cash contributions to the Masimo Foundation.

During the three and nine months ended October 1, 2022 and October 2, 2021, 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 months ended October 1, 2022 and October 2, 2021, the Company incurred no marketing expenses to LMMV under the marketing service agreement. During the nine months ended October 1, 2022 the Company incurred $0.6 million in marketing expenses to LMMV under the marketing service agreement. During the nine months ended October 2, 2021 the Company incurred no marketing expenses to LMMV under the marketing service agreement. At October 1, 2022, $0.1 million was due to LMMV for services rendered. At January 1, 2022, 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 nine months ended October 1, 2022, the Company’s CEO did not incur any charges pursuant to this agreement. For each of the three and nine months ended October 2, 2021, the Company charged the Company’s CEO less than $0.1 million, pursuant to this agreement.

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Inventories

9 Months Ended

Oct. 01, 2022

Inventory Disclosure [Abstract]

Inventories

4. Inventories

Inventories consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Raw materials	$	205.5	$	128.3
Work-in-process	30.4		17.1
Finished goods	259.5		56.0
Total inventories(1)	$	495.4	$	201.4

______________

(1)    Included in the October 1, 2022 ending total inventories balance was approximately $53.3 million of step-up amortization related to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

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Other Current Assets

9 Months Ended

Oct. 01, 2022

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

Other Current Assets

5. Other Current Assets

Other current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Prepaid expenses	$	66.1	$	30.9
Lease receivable, current	30.1		28.7
Indirect taxes receivable	27.1		12.8
Prepaid income taxes	19.8		7.0
Prepaid rebates and royalties, current	3.7		2.8
Contract assets, current	2.7		2.1
Restricted cash(1)	2.5		3.0
Customer notes receivable	0.8		2.4
Other current assets	6.3		1.3
Total other current assets	$	159.1	$	91.0

______________

(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.

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Lease Receivable

9 Months Ended

Oct. 01, 2022

Leases [Abstract]

Lease Receivable

6. Lease Receivable

Effective January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption, resulting in the Company recording these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis.

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 October 1, 2022 and October 2, 2021 was approximately $16.0 million and $12.0 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 each of the nine months ended October 1, 2022 and October 2, 2021 was approximately $40.0 million, and is included within 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 from sales-type leases consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Lease receivable	$	110.0	$	102.6
Allowance for credit loss	(0.3)		(0.3)
Lease receivable, net	109.7		102.3
Less: current portion of lease receivable	(30.1)		(28.7)
Lease receivable, noncurrent	$	79.6	$	73.6

As of October 1, 2022, estimated future maturities of customer sales-type lease receivables and operating lease payments for each of the following fiscal years are as follows:

	Future Lease Receivables/Payments (in millions)
Fiscal year	Sales-Type Leases		Operating Leases
2022 (balance of year)	$	7.8	$	0.7
2023	29.1		2.6
2024	25.4		2.5
2025	19.9		2.5
2026	13.4		2.3
Thereafter	14.1		4.8
Total	$	109.7	$	15.4
Less: imputed interest(1)	—
Present value of total lease payments	$	109.7

______________

(1)     The calculation of the rates implicit in the leases resulted in negative discount rates. Therefore, the Company as a lessor used a 0% discount rate to measure the net investment in the lease.

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Deferred Costs and Other Contract Assets

9 Months Ended

Oct. 01, 2022

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 millions)	October 1, 2022		January 1, 2022
Deferred commissions	$	16.0	$	11.9
Prepaid contract allowances	12.5		8.6
Unbilled contract receivables	7.3		5.0
Deferred equipment agreements, net	1.2		2.6
Deferred costs and other contract assets	$	37.0	$	28.1

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Property and Equipment, net

9 Months Ended

Oct. 01, 2022

Property, Plant and Equipment [Abstract]

Property and Equipment, net

8. Property and Equipment, net

Property and equipment, net, consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Building and building improvements	$	150.0	$	142.1
Machinery, equipment and tooling	140.0		103.5
Land	64.0		57.0
Computer equipment and software	41.6		32.5
Transportation, vehicles and other	32.7		33.1
Leasehold improvements	30.9		21.9
Operating lease assets(1)	22.8		—
Furniture and office equipment	17.8		14.2
Demonstration units	10.4		0.9
Construction-in-progress (CIP)	45.9		25.1
Total property and equipment	556.1		430.3
Accumulated depreciation	(183.9)		(157.5)
Property and equipment, net	$	372.2	$	272.8

______________

(1)    Effective January 2, 2022, the Company adopted ASU 2021-05, resulting in the Company recording these operating lease assets within property, plant, and equipment.

A significant portion of the increase in property and equipment was attributable to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

For the three months ended October 1, 2022 and October 2, 2021, depreciation expense of property and equipment was $12.6 million and $6.5 million, respectively. For the nine months ended October 1, 2022 and October 2, 2021, depreciation expense of property and equipment was $31.1 million and $18.8 million, respectively.

For the three months ended October 1, 2022 and October 2, 2021, depreciation expense of operating lease assets was $0.9 million and $0.0 million, respectively. For the nine months ended October 1, 2022 and October 2, 2021, depreciation expense of operating lease assets was $1.0 million and $0.0 million, respectively.

The balance in CIP at October 1, 2022 and January 1, 2022 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 at the Company’s corporate headquarters, as well as at a new research and development facility, the underlying assets for which have not been completed or placed into service.

On February 14, 2022, the Company’s wholly owned subsidiary, Masimo Canada ULC, entered into a Purchase and Sale Agreement (Purchase Agreement) with Keltic (Prior) Development Limited Partnership (Vendor) for the purchase of a property in Vancouver, British Columbia, Canada for a purchase price of CAD 123.0 million, plus GST (Purchase Price), subject to certain adjustments. The Company has paid CAD 21.0 million as a deposit towards the purchase. The balance of the Purchase Price will be due and payable upon the closing of the transaction, which is currently expected to occur during the second half of 2024.

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Intangible Assets, net

9 Months Ended

Oct. 01, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets, net

9. Intangible Assets, net

Intangible assets, net, consist of the following:

	October 1, 2022						January 1, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	220.6	$	(16.1)	$	204.5	$	24.6	$	(9.3)	$	15.3
Acquired technologies	183.5		(19.6)		163.9		28.4		(8.7)		19.7
Patents	33.9		(13.3)		20.6		31.5		(12.2)		19.3
Licenses	37.8		(3.6)		34.2		8.1		(2.0)		6.1
Trademarks	18.7		(5.2)		13.5		12.2		(4.1)		8.1
Licenses-related party	7.5		(6.3)		1.2		7.5		(6.0)		1.5
Non-compete agreements(1)	6.3		(0.7)		5.6		0.3		—		0.3
Capitalized software development costs	5.3		(2.8)		2.5		4.3		(2.6)		1.7
Other	1.6		(1.0)		0.6		1.6		(1.1)		0.5
Total intangible assets subject to amortization, net	$	515.2	$	(68.6)	$	446.6	$	118.5	$	(46.0)	$	72.5
Intangible assets not subject to amortization:
Trademarks					262.0						—
Intangible assets, net					$	708.6					$	72.5

_______________

(1)    In connection with the Sound United acquisition, the Company also acquired non-compete agreements with a gross carrying amount equal to $6.0 million.

A significant portion of the increase in intangible assets was attributable to the Sound United acquisition. Please refer to Note 18, “Business Combinations”, for further details.

Finite lived intangible assets have a weighted-average amortization period ranging from twelve years to fourteen years. Total amortization expense for the three months ended October 1, 2022 and October 2, 2021 was $10.3 million and $2.7 million, respectively. Total amortization expense for the nine months ended October 1, 2022 and October 2, 2021 was $25.5 million and $7.6 million, respectively.

Total renewal costs for patents and trademarks for the three months ended October 1, 2022 and October 2, 2021 were $0.3 million and $0.9 million, respectively. Total renewal costs for patents and trademarks for the nine months ended October 1, 2022 and October 2, 2021 were $1.0 million and $1.3 million, respectively. As of October 1, 2022, the weighted-average number of years until the next renewal was two years for patents and six years for trademarks.

Estimated amortization expense for each of the next fiscal years is as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	14.1
2023	28.7
2024	28.4
2025	27.4
2026	25.6
Thereafter	322.4
Total	$	446.6

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Goodwill

9 Months Ended

Oct. 01, 2022

Goodwill [Abstract]

Goodwill

10. Goodwill

Changes in goodwill were as follows:

	Nine Months Ended October 1, 2022
(in millions)	Healthcare		Non-healthcare		Total
Goodwill, beginning of period	$	100.3	$	—	$	100.3
Increase from business combinations	—		351.5		351.5
Foreign currency translation adjustment	(5.5)		—		(5.5)
Goodwill, end of period	$	94.8	$	351.5	$	446.3

A significant portion of the increase in goodwill at October 1, 2022 was attributable to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

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Lessee ROU Assets and Lease Liabilities

9 Months Ended

Oct. 01, 2022

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 pursuant to leases that are classified as operating leases and expire at various dates through August 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 October 1, 2022, the weighted-average discount rate used by the Company for all operating leases was approximately 3.8%.

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

(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Lessee ROU assets	Other non-current assets	$	69.8	$	30.5
Lessee current lease liabilities	Other current liabilities	18.5		6.4
Lessee non-current lease liabilities	Other non-current liabilities	54.5		26.3
Total operating lease liabilities		$	73.0	$	32.7

As of October 1, 2022 and January 1, 2022, accumulated amortization for lessee ROU assets was $31.9 million and $15.2 million, respectively. The weighted-average remaining lease term for the Company’s operating leases was 5.9 years as of October 1, 2022.

As of October 1, 2022, estimated future operating lease payments for each of the following fiscal years were as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	5.0
2023	19.4
2024	16.0
2025	12.1
2026	8.5
Thereafter(1)	21.0
Total	82.0
Imputed interest	(9.0)
Present value	$	73.0

______________

(1)     Includes optional renewal period for certain leases.

During the three months ended October 1, 2022 and October 2, 2021, operating lease costs were approximately $4.8 million and $2.1 million, respectively. During the nine months ended October 1, 2022 and October 2, 2021, operating lease costs were approximately $12.6 million and $6.2 million, respectively.

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Other Non-Current Assets

9 Months Ended

Oct. 01, 2022

Other Assets, Longterm [Abstract]

Other Non-Current Assets

12. Other Non-Current Assets

Other non-current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee ROU assets, net	$	69.8	$	30.5
Derivative assets - non-current	19.4		—
Strategic investments	13.8		13.8
Prepaid deposits and other	7.2		3.9
Other non-current assets	0.4		0.4
Total non-current assets	$	110.6	$	48.6

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Deferred Revenue and Other Contract Liabilities, Current

9 Months Ended

Oct. 01, 2022

Revenue Recognition and Deferred Revenue [Abstract]

Deferred Revenue and Other Contract Liabilities, Current

13. Deferred Revenue and Other Contract Liabilities, Current

Deferred revenue and other contract liabilities, current, consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Deferred revenue	$	56.7	$	35.1
Accrued rebates and allowances	36.4		13.6
Accrued customer reimbursements	7.2		7.4
Total deferred revenue and other contract liabilities	100.3		56.1
Less: Non-current portion of deferred revenue	(22.7)		(5.2)
Deferred revenue and other contract liabilities - current	$	77.6	$	50.9

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 revenue. Generally, both healthcare and non-healthcare segments record deferred revenue when revenue is to be recognized subsequent to invoicing.

Healthcare Deferred Revenue

Healthcare deferred revenue primarily relates to undelivered equipment, sensors and services under deferred equipment agreements, extended warranty agreements, and maintenance agreements. 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. 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. 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. As of October 1, 2022, the Company had approximately $1,238.1 million of Unrecognized Contract Revenue related to executed contracts with an original duration of one year or more. The Company expects to recognize approximately $347.8 million of this amount as revenue within the next twelve months and the remaining balance thereafter.

Non-Healthcare Deferred Revenue

In October 2020, Bowers and Wilkins (B&W), a subsidiary of Sound United, entered into an amendment to a licensing agreement, whereby B&W received a $20.0 million royalty prepayment in relation to sound system units manufactured by B&W for various high-end car manufacturers with a total commitment of $35.0 million to be received by September 30, 2028. As of October 1, 2022, deferred revenue was $22.0 million.

Changes in deferred revenue were as follows:

(in millions)	Nine Months Ended October 1, 2022
Deferred revenue, beginning of the period	$	35.1
Increase from business combinations	18.6
Revenue deferred during the period	29.2
Recognition of revenue deferred in prior periods	(26.2)
Deferred revenue, end of the period	$	56.7

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Other Current Liabilities

9 Months Ended

Oct. 01, 2022

Accrued Liabilities [Abstract]

Other Current Liabilities

14. Other Current Liabilities

Other current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Accrued expenses	$	40.5	$	12.1
Accrued indirect taxes payable	26.5		16.3
Income tax payable	18.7		12.0
Lessee lease liabilities, current	18.5		6.4
Current portion of long-term debt	13.8		—
Accrued warranty	9.4		2.5
Accrued property taxes	6.0		2.0
Accrued legal fees	5.8		7.1
Related party payables	4.7		3.6
Accrued donations	1.6		3.7
Other current liabilities	6.0		4.7
Total other current liabilities	$	151.5	$	70.4

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Debt

9 Months Ended

Oct. 01, 2022

Debt Disclosure [Abstract]

Debt

15. Debt

(in millions)	October 1, 2022		January 1, 2022
Term loan - current portion	$	7.5	$	—
Japanese loans - current portion	6.3		—
Short-term debt	13.8		—
Term loan - long-term	280.3		—
Revolver - long-term	660.6		—
Japanese loans - long-term	10.5		—
Long-term debt	951.4		—
Total debt	$	965.2	$	—

Prior Credit Facility

Until April 11, 2022, the Company maintained a credit agreement (Prior Credit Facility) with JPMorgan Chase Bank, N.A., as the Administrative Agent and a Lender, and Bank of the West, a Lender (collectively, the Lenders). The Prior Credit Facility provided 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 the Lenders and additional lenders, as required. The Prior Credit Facility also provided 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.

On April 11, 2022, the Company paid off all obligations owing under the Prior Credit Facility, and terminated it. As a result of the repayment, the Company expensed $0.1 million of previously capitalized debt issuance costs.

Credit Facility

On April 11, 2022, concurrently with the closing of the Sound United acquisition, as disclosed in Note 18, “Business Combinations”, the Company entered into a new credit agreement (Credit Facility) with financial institutions party thereto as initial lenders (collectively, the Initial Lenders), Citibank, N.A., as Administrative Agent, Citibank, N.A., JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as joint lead arrangers and joint bookrunners, and JPMorgan Chase Bank, N.A., Bank of the West and BofA Securities, Inc., as co-syndication agents.

The Credit Facility provides for an unsecured term loan of $300.0 million (Term Loan) and $500.0 million of ongoing unsecured revolving commitments (Revolver), with an option, subject to certain conditions, for the Company to increase the aggregate borrowing capacity by an additional $400.0 million (plus additional unlimited amounts if certain incurrence tests are met) in the future with the Initial Lenders and additional lenders, as required. Debt issuance costs of $8.4 million were recorded as a reduction to the carrying amount of the Credit Facility, and are being amortized to interest expense using the effective interest method.

The Credit Facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit.

Borrowings under the Credit Facility will be deemed, at the Company’s election, either: (a) an Alternate Base Rate (ABR) Loan, which bears interest at the ABR, plus a spread of 0.000% to 0.750% based upon a Company leverage ratio, or (b) a Term SOFR Loan, which bears interest at the Adjusted Term SOFR Rate (as defined below), plus a spread of 1.000% to 1.750% based upon a Company net leverage ratio. Pursuant to the terms of the Credit Facility, the ABR is equal to the greatest of (i) the prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50%, and (iii) the one-month Adjusted Term SOFR plus 1.0%. The Adjusted Term SOFR Rate is equal to the Term SOFR Rate (as defined in the Credit Facility) for the applicable interest period plus a spread adjustment of 0.10%, 0.15% and 0.25% for the interest periods ending one, three and six months, respectively.

The Company is also obligated under the Credit Facility to pay an unused fee ranging from 0.150% to 0.275% per annum, based upon a Company leverage ratio, with respect to any non-utilized portion of the Credit Facility.

The Company is subject to certain covenants, including financial covenants related to a net leverage ratio and an interest charge coverage ratio, and other customary negative covenants. The Credit Facility also includes customary events of default which, upon the occurrence of any such event of default, provide the Initial Lenders (and any additional lenders) with the right to take either or both of the following actions: (a) immediately terminate the commitments, and (b) declare the loans then outstanding immediately due and payable in full. All unpaid principal under the Credit Facility will become due and payable on April 12, 2027.

On May 16, 2022, the Company entered into the First Amendment to the Credit Agreement (First Amendment) with the Initial Lenders and Citibank, N.A., as the administrative agent, which amended the Credit Facility. The First Amendment provides for an additional $205 million of unsecured revolving commitments, increasing the aggregate amount of the Revolver from $500 million to $705 million.

Borrowing rates, financial covenants, affirmative and negative covenants and other restricted terms remain unchanged from the Credit Facility. All unpaid principal under the First Amendment will become due and payable on April 12, 2027. The Company was in compliance with the financial covenants as of October 1, 2022.

For each of the three and nine months ended October 1, 2022, the Company incurred total interest expense of $9.7 million and $14.3 million under the Credit Facility, respectively.

For each of the three and nine months ended October 2, 2021, the Company incurred total interest expense of $0.1 million and $0.3 million under the Credit Facility, respectively.

Furthermore, in connection with the Sound United acquisition, the Company assumed three outstanding loans as follows:

Japanese Revolving Loan

In March 2020, Sound United entered into a secured revolving loan (Japanese Revolving Loan) with Mizuho bank, which allows Sound United to borrow up to ¥800 million (approximately $5.5 million). The Japanese Revolving Loan is an evergreen agreement that terminates upon request by either the financial institution or the borrower and is collateralized with land and buildings in Shirakawa-Shi owned by the borrower. Interest accrues at a rate equal to the Mizuho Tokyo Interbank Offered Rate (TIBOR) plus a fixed spread of 0.50% per annum. In connection with the execution of the Japanese Revolving Loan, the Company incurred debt issuance costs of ¥7.2 million (approximately $0.1 million). As of October 1, 2022, the Company had ¥800 million (approximately $5.5 million) of outstanding borrowing under the Japanese Revolving Loan, which is presented under short-term loans on the accompanying condensed consolidated balance sheets.

The Japanese Revolving Loan agreement contains customary affirmative and negative covenants, such as financial reporting requirements and customary covenants that restrict the borrower’s ability to, among other things, provide collateral for obligations borne by the borrower, and determine the eligibility to declare, and amount of potential dividends to be paid during a given fiscal year. The Company was in compliance with the financial covenants as of October 1, 2022.

Japanese Government Loans

In May and June 2020, Sound United received ¥1.48 billion (approximately $10.2 million in non-collateralized Japanese Government Loan facilities (Japanese Government Loans) as part of its local Japanese stimulus program. Interest accrues at a weighted average rate of 1.33% and is repayable in installments with various maturities through June 2035. The non-current portion of the Japanese Government Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with the Japanese Government Loans.

Japanese Equipment Loans

In April and May 2021, Sound United entered into collateralized Japanese Equipment Loans of ¥150 million (approximately $1.0 million), payable in installments through March 2031 with an interest of 0.58%, and ¥80 million (approximately $0.5 million) payable in installments through April 2028 with interest of 1.2%. The non-current portion of the Japanese Equipment Loans is presented under long-term debt and the current portion is presented under short-term loans on the accompanying condensed consolidated balance sheets. The Company incurred no debt issuance costs in connection with these Japanese Equipment Loans.

As of October 1, 2022, the aggregate maturities of principal on all debt for each of the next five years and thereafter is as follows:

Fiscal year	Amount (in millions)
2022 (balance of the year)	$	7.5
2023	8.6
2024	14.8
2025	16.6
2026	16.6
Thereafter	901.1
Total	$	965.2

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Other Non-Current Liabilities

9 Months Ended

Oct. 01, 2022

Other Liabilities, Long Term [Abstract]

Other Non-Current Liabilities

16. Other Non-Current Liabilities

Other non-current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee non-current lease liabilities	$	54.5	$	26.3
Deferred revenue, non-current	22.7		5.2
Unrecognized tax benefits	17.5		14.9
Income tax payable, non-current	12.7		17.0
Retirement allowance	10.9		—
Indirect tax payable, non-current	7.5		—
Other	0.1		0.6
Total other non-current liabilities	$	125.9	$	64.0

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 23, “Income Taxes”, to these condensed consolidated financial statements for further details.

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Derivative Instruments and Hedging Activities

9 Months Ended

Oct. 01, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

17. Derivative Instruments and Hedging Activities

Derivative Instruments - Cash Flow Hedges

The Company’s cash flow hedges are designed to mitigate the risk of exposure to variability in expected future cash flows of recognized assets, liabilities, or any unrecognized forecasted transactions. In July 2022, the Company entered into various interest rate swaps that are designated as cash flow hedges on a substantial portion of the outstanding debt the Company issued to fund the Sound United acquisition. The interest rate swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt to an average fixed interest rate of 2.75%. These contracts, carried at fair value, have maturities of approximately five years. All hedging relationships were highly effective at achieving offsetting changes in cash flows attributable to the risk being hedged. The Company used a regression analysis at hedge inception to assess the effectiveness of cash flow hedge and periodically hereafter.

The Company records gains and losses from the changes in the fair value of these instruments as a component of other comprehensive income (loss). Deferred gains or losses from these designated cash flow hedges are reclassified into earnings in the period that the hedged items affects earnings. The Company does not offset fair value amounts recognized for derivative instruments in its condensed consolidated balance sheets for presentation purposes. The following table summarizes the fair value of the hedging instruments, presented on a gross basis, as of October 1, 2022 and January 1, 2022.

		Condensed Consolidated Balance Sheets
(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Interest rate contracts	Other non-current assets	$	19.4	$	—
Total		$	19.4	$	—

The following table summarizes the gains (losses) reclassified from accumulated other comprehensive income to the condensed consolidated financial statements for the three and nine months ended October 1, 2022.

		Condensed Consolidated Statement of Operations
(in millions)	Location of gain (loss)	Three Months Ended October 1, 2022		Nine Months Ended October 1, 2022
Cash flow hedges - interest rate contracts	Non-operating loss (income)	$	0.8	$	0.8
Total		$	0.8	$	0.8

The following tables summarize the changes in accumulated other comprehensive income related to the hedging instruments:

(in millions)	Amounts
Beginning balance as of July 3, 2022	$	—
Amount recognized in other comprehensive income	18.6
Amount reclassified into earnings	0.8
Ending Balance as of October 1, 2022	$	19.4

The net of tax gain was $14.7 million as of October 1, 2022.

Derivative Instruments - Foreign Currency Forwards

The Company used foreign currency derivative instruments in the form of forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables denominated in foreign currencies. The Company’s objective is to partially offset gains or losses resulting from these exposures with opposing gains or losses on the forward contracts, thereby reducing volatility of earnings created by these foreign currency exposures. In conjunction with the Sound United acquisition, the Company acquired multiple foreign currency forward contracts. The fair values of the forward contracts are estimated at each period end based on quoted market prices and are recorded as either net asset or liability on the accompanying condensed consolidated balance sheets. These contracts are considered economic hedges but were not designated as hedges. These contracts are recorded net at fair value on the condensed consolidated balance sheets, classified as Level 2 in the fair value hierarchy. As of October 1, 2022, all derivative contracts have matured and were terminated. The gains and losses were recognized in the condensed consolidated statement of operations and were immaterial for the three and nine months ended October 1, 2022.

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Business Combinations

9 Months Ended

Oct. 01, 2022

Business Combination and Asset Acquisition [Abstract]

Business Combinations

18. Business Combinations

Sound United Acquisition

On April 11, 2022, the Company completed the previously announced acquisition of Sound United, pursuant to a Merger Agreement dated as of February 15, 2022 (Merger Agreement), by and among the Company, Sonic Boom Acquisition Corp., a wholly-owned subsidiary of the Company (Merger Sub), Viper Holdings Corporation (Sound United), and, solely in its capacity as the Seller Representative, Viper Holdings, LLC, Merger Sub merged with and into Sound United, with Sound United continuing as a wholly-owned subsidiary of the Company (Merger).

Sound United is a leading innovator of premium, high-performance audio products for consumers around the world, which operates iconic consumer brands: Bowers & Wilkins®, Denon®, Marantz®, HEOS®, Classé®, Polk Audio®, Boston Acoustics® and Definitive Technology®. The brands are linked by a commitment to the highest production standards and a focus on unparalleled audio quality and audio performance. Sound United delivers significant competitive benefits through its platform advantages including global distribution across online, retail and custom installation channels; a cloud-connected home ecosystem; and a state-of-the-art research and development function focused on creating the highest-quality consumer products with world-class industrial design.

The Company acquired 100% of the equity interests of Sound United for $1.065 billion in cash, subject to adjustments based on Sound United’s net working capital, transaction expenses, cash and debt as of the closing of the Merger (Closing), payable by the Company in cash. The transaction was primarily funded with the proceeds from the Credit Facility. See Note 15, “Debt”, for additional information about the Credit Facility. There was no contingent consideration resulting from the transaction.

The results of operations of Sound United subsequent to the acquisition date and the acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the non-healthcare segment, including revenue of $430.3 million and a net loss of $26.7 million for the period of April 11, 2022 to October 1, 2022.

Acquisition costs

The Company recognized transaction costs related to the Sound United acquisition of $16.6 million for the nine months ended October 1, 2022. These costs include investment banker fees, legal, due diligence, and other external costs that the Company recorded within selling, general and administrative expense.

Purchase price allocations

The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments. Based on additional supportable information and changes in assumptions during the period, the Company recorded certain measurement period adjustments during the three months ended October 1, 2022. The valuations of the assets acquired and liabilities assumed have not yet been finalized as of October 1, 2022. The purchase price allocation is preliminary and subject to change, including measurement period adjustments, the valuation of intangible assets, leases, deferred taxes, inventory, property, plant and equipment and goodwill. The purchase price allocation will be finalized as the information necessary to complete the required analysis is obtained, which the Company will complete within one year from the acquisition date. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination and represents the future economic benefits expected to arise from intangible assets acquired that do not qualify for separate recognition, including the assembled workforce. Goodwill is not expected to be deductible for tax purposes.

Measurement period adjustments for the period ended October 1, 2022, included changes to the purchase price allocation and total consideration, resulting in a net increase of $14.0 million to goodwill. The measurement period adjustments resulted primarily from valuation inputs pertaining to certain acquired assets based on facts and circumstances that existed as of the acquisition date and did not result from events subsequent to the acquisition date. The fair values assigned to assets acquired and liabilities assumed as of October 1, 2022 are based on management’s best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuation analysis.

The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed, inclusive of measurement period adjustments as of April 11, 2022:

(in millions)	Sound United
Cash consideration(1)	$	1,065.0
Purchase price	$	1,065.0
Assets acquired:
Cash and cash equivalents	$	82.6
Accounts receivables	111.3
Inventories	233.0
Prepaid expenses and other current assets	37.5
Property, plant and equipment	100.0
Intangible asset	649.0
Goodwill	351.5
Long-term other assets	7.2
Total assets acquired	$	1,572.1
Liabilities assumed:
Accounts payable	$	(118.8)
Accrued liabilities and other current liabilities	(165.0)
Deferred tax liabilities	(157.7)
Other long-term liabilities	(65.6)
Total liabilities assumed	$	(507.1)

______________

(1)    The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments.

Identifiable Intangible Assets

The following table sets forth the components of identifiable intangible assets acquired and the weighted average amortization period as of the acquisition date:

	Weighted average amortization period (in years)	April 11,  2022 (in millions)
Trademarks/tradenames	10	$	268.0
Customer relationships	17	196.0
Developed technology	8	156.0
Contractual license agreements	15	29.0
Total	14 years	$	649.0

In determining the fair value of the identifiable intangible assets, the Company utilized various forms of the income approach, depending on the asset being valued. The estimation of fair value requires significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Other inputs included historical data, current and anticipated market conditions, and growth rates. Contractual license agreements have a weighed average amortization period of five years until the next renewal term.

The intangible assets were valued using the following valuation approaches:

Customer relationships

The fair value of customer relationships was determined using the multi-period excess earnings method. The multi-period excess earnings method involves forecasting the net earnings expected to be generated by the asset, reducing them by appropriate returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Trademarks/tradenames

The fair values of the trademark/tradenames were determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Developed technology

The fair values of the developed technology was determined using the relief-from-royalty method under the income approach. This involves forecasting avoided royalties, reducing them by taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. Judgment was applied for a number of assumptions in valuing the identified intangible assets including revenue and cash flow forecasts, survival rates, technology life, royalty rate, obsolescence and discount rate.

Contractual licensing agreements

The fair value of the contractual license agreements was determined using a variation of the multi-period excess earnings method. This method involves forecasting the net earnings expected to be generated by the asset and then discounting the resulting net cash flows to a present value using an appropriate discount rate.

Unaudited pro forma financial information

The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Masimo and Sound United, assuming the transaction occurred on January 1, 2021. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the acquisition of Sound United been completed on January 1, 2021, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Masimo and Sound United.

The unaudited supplemental pro forma financial information has been calculated after applying Masimo’s accounting policies and adjusting the results of the combined company to reflect incremental amortization and depreciation expense resulting from the fair value adjustments for acquired intangible assets, inventory, property, plant and equipment as well as the net decrease to interest expense resulting from the elimination of the historical interest expense on Sound United’s debt that was paid off at closing partially offset by incremental interest expense resulting from the external debt borrowed by Masimo to fund the acquisition, and the corresponding income tax impact of these adjustments.

Also, during the nine months ended October 1, 2022, Masimo and Sound United incurred $18.1 million and $41.1 million of acquisition-related costs, respectively. Additionally, there were $49.3 million of Profit Interest Units paid out in conjunction with the transaction. These expenses are reflected in pro forma net income for the three months ended October 1, 2022, in the table below and the acquisition related expenses incurred by Masimo are included in selling, general and administrative, in the Company’s condensed consolidated statements of comprehensive income for the three and nine months ended October 2, 2021.

There are no other material non-recurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and pro forma net income.

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Pro forma net revenue	$	549.3	$	534.6	$	1,676.4	$	1,556.3
Pro forma net income (loss)	$	38.0	$	85.6	$	127.0	$	54.1

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Equity

9 Months Ended

Oct. 01, 2022

Equity [Abstract]

Equity

19. Equity

Series A Junior Participating Preferred Stock and Stockholder Rights Plan

In September 2022, the Company authorized and declared a dividend of one preferred stock purchase right (Right) for each outstanding share of its common stock to stockholders of record at the close of business on September 20, 2022 (the Record Date) pursuant to a Rights Agreement, dated as of September 9, 2022, with Broadridge Corporate Issuer Solutions, Inc., as Rights Agent. In addition, one Right was issued with each share of common stock that became outstanding after the Record Date. Each Right entitles the registered holder to purchase from the Company one thousandth of one share of the Company’s Series A junior participating preferred stock, par value $0.001 per share, at a purchase price equal to $1,000.00 per Right, subject to adjustment. Generally, the Rights become exercisable in the event any person or group of affiliated or associated persons acquires beneficial ownership of 10% (20% in the case of a passive institutional investor), subject to certain exceptions. The Rights will expire on the earliest of (i) 5:00 p.m., New York City time, on September 8, 2023, (ii) the time at which the Rights are redeemed, and (iii) the time at which the Rights are exchanged in full.

Stock Repurchase Programs

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 shares of its common stock over a period of up to three years (2018 Repurchase Program). A total of 1.3 million shares were purchased by the Company pursuant to the 2018 Repurchase Program prior to its expiration in September 2021.

In October 2021, the Board approved a stock repurchase program, authorizing the Company to purchase up to 3.0 million shares of its common stock over a period of up to three years (2021 Repurchase Program). The 2021 Repurchase Program became effective in October 2021 upon the expiration of the 2018 Repurchase Program. The 2021 Repurchase Program was completed in May 2022.

In June 2022, the Board approved a new stock repurchase program, authorizing the Company to purchase up to 5.0 million shares of its common stock on or before December 31, 2027 (2022 Repurchase Program). The 2022 Repurchase Program became effective in July 2022. The Company expects to fund the 2022 Repurchase Program through its available cash, cash expected to be generated from future operations, the Credit Facility and other potential sources of capital. The 2022 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 October 1, 2022, 5.0 million shares remained available for repurchase pursuant the 2022 Repurchase Program.

The following table provides a summary of the Company’s stock repurchase activities:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Shares repurchased(1)	—		—		3.0		0.5
Average cost per share	$	—	$	—	$	133.82	$	235.88
Value of shares repurchased	$	—	$	—	$	401.4	$	128.9

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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

9 Months Ended

Oct. 01, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

20. Stock-Based Compensation

Total stock-based compensation expense for the three months ended October 1, 2022 and October 2, 2021 was $13.5 million and $12.6 million, respectively. Total stock-based compensation expense for the nine months ended October 1, 2022 and October 2, 2021 was $41.7 million and $33.5 million, respectively. As of October 1, 2022, an aggregate of 10.1 million shares of common stock were reserved for future issuance under the Company’s equity plans, of which 3.6 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 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:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average exercise prices)	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3.0	$	81.38
Granted	0.1	150.91
Canceled	(0.1)	160.95
Exercised	(0.1)	57.17
Options outstanding, end of period	2.9	$	83.85
Options exercisable, end of period	2.4	$	65.32

Total stock option expense for the three months ended October 1, 2022 and October 2, 2021 was $2.7 million and $3.2 million, respectively. Total stock option expense for the nine months ended October 1, 2022 and October 2, 2021 was $9.1 million and $9.9 million, respectively. As of October 1, 2022, the Company had $21.6 million of unrecognized compensation cost related to non-vested stock options that are expected to vest over a weighted-average period of approximately 2.5 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 October 1, 2022 was 4.5 years.

RSUs

The number of RSUs issued and outstanding under all of the Company’s equity plans are as follows:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2.9	$	104.13
Granted	0.3	149.50
Canceled	—	—
Expired	(0.1)	170.37
Vested	—	183.66
RSUs outstanding, end of period	3.1	$	105.78

Total RSU expense for the three months ended October 1, 2022 and October 2, 2021 was $3.6 million and $2.4 million, respectively. Total RSU expense for the nine months ended October 1, 2022 and October 2, 2021 was $10.7 million and $6.7 million, respectively. As of October 1, 2022, the Company had $57.6 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:

	Nine Months Ended October 1,  2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	0.3	$	168.68
Granted(1)	0.3	145.49
Canceled	—	—
Expired	(0.1)	139.73
Vested	(0.2)	127.46
PSUs outstanding, end of period	0.3	$	178.51

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(1)     On February 14, 2022, the Audit Committee approved the weighted payout percentage for the 2019 PSU awards (three-year performance period), which were based upon the actual fiscal 2021 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 nine months ended October 1, 2022, the Company awarded 142,900 PSUs that will vest three years from the award date, based on the achievement of certain 2025 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 142,900 PSUs, or 162,800 shares. Based on management’s estimate of the number of units expected to vest, total PSU expense for the three months ended October 1, 2022 and October 2, 2021 was $7.2 million and $7.0 million, respectively. Based on management’s estimate of the number of units expected to vest, total PSU expense for the nine months ended October 1, 2022 and October 2, 2021 was $21.9 million and $16.9 million, respectively. As of October 1, 2022, the Company had $60.5 million of unrecognized compensation cost related to non-vested PSU awards expected to be recognized and vest over a weighted-average period of approximately 1.6 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		Nine Months Ended
	October 1,  2022(1)	October 2, 2021	October 1, 2022	October 2, 2021
Risk-free interest rate	—%	—%	1.0% to 1.9%	0.3% to 0.9%
Expected term (in years)	0.0	5.1	5.7	5.6
Estimated volatility	—%	—%	31.2% to 38.9%	30.9% to 34.7%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$—	$66.53	$49.69	$75.72

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(1)    No stock options were granted during the three months ended October 1, 2022.

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 October 1, 2022 was $190.7 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 October 1, 2022 was $186.1 million. The aggregate intrinsic value of options exercised during the nine months ended October 1, 2022 was $12.1 million.

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Employee Benefits

9 Months Ended

Oct. 01, 2022

Postemployment Benefits [Abstract]

Employee Benefits

21. Employee Benefits

Defined Contribution Plans

The Company sponsors one 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.

The MRSP matches a Masimo employee’s contribution up to 3% of the Masimo employee’s compensation, subject to a maximum amount. The Company may also contribute to the MRSP on a discretionary basis. The Company contributed $1.8 million and $0.9 million to the MRSP for the three months ended October 1, 2022 and October 2, 2021, respectively, all in the form of matching contributions. The Company contributed $4.5 million and $2.8 million to the MRSP for the nine months ended October 1, 2022 and October 2, 2021, 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. On April 11, 2022, in connection with the Sound United acquisition, the MRSP was amended to allow for participation by eligible Sound United employees.

Defined Benefit Plans

The Company sponsors several immaterial noncontributory defined benefit plans in Europe and Asia Pacific. In connection with the Sound United acquisition, the Company assumed sponsorship of two additional defined benefit plans which cover employees in Japan and the Netherlands. The Company’s contributions are designed to fund normal costs on a current basis and to fund the estimated prior service cost of benefit improvements. The unit credit actuarial cost method is used to determine the annual cost. The Company pays the entire cost of the defined benefit plan and funds such costs as they accrue. Virtually all of the assets of the defined benefit plan are comprised of equities and participation in equity and fixed income funds.

The service cost component for the defined benefit plans are recorded in cost of sales and operating expenses in the condensed consolidated statement of operations. All other cost components are recorded in other income (expense), net in the condensed consolidated statement of operations. The Company’s net periodic defined benefit costs for each of the three and nine months ended October 1, 2022, and October 2, 2021 were not material. The Company is still determining its contributions to the defined benefit plans for the year. No contributions were made to the defined benefit plans during the three and nine months ended October 1, 2022 and October 2, 2021. The expected rate of return on the Defined Benefit Plans’ assets for determining net periodic benefit plan cost is 0%.

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Non-operating (loss) income

9 Months Ended

Oct. 01, 2022

Nonoperating Income (Expense) [Abstract]

Non-operating (loss) income

22. Non-operating (loss) income

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

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Interest income	$	0.5	$	0.2	$	1.0	$	0.7
Interest expense	(9.7)		—		(14.3)		(0.2)
Realized and unrealized foreign currency gains (losses)	6.4		(0.2)		14.3		(1.2)
Total non-operating (loss) income	$	(2.8)	$	—	$	1.0	$	(0.7)

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Income Taxes

9 Months Ended

Oct. 01, 2022

Income Tax Disclosure [Abstract]

Income Taxes

23. Income Taxes

The Company has provided for income taxes in fiscal year 2022 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 October 1, 2022 and October 2, 2021, the Company recorded discrete tax benefits of approximately $0.3 million and $6.4 million, respectively, related to excess tax benefits realized from stock-based compensation. For the nine months ended October 1, 2022 and October 2, 2021, the Company recorded discrete tax benefits of approximately $2.2 million and $12.0 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 October 1, 2022, the liability for income taxes associated with uncertain tax positions was approximately $24.5 million. If fully recognized, approximately $22.4 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 2017. All material state, local and foreign income tax matters have been concluded through fiscal year 2014. 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

9 Months Ended

Oct. 01, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

24. Commitments and Contingencies

Employment and Severance Agreements

In July 2017, the Company entered into the First Amendment to that 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.

On January 14, 2022, the Company entered into the Second Amendment to the Amended Employment Agreement (Second Amendment) with Mr. Kiani. The Second Amendment provides that the RSUs granted to Mr. Kiani pursuant to the Amended Employment Agreement will vest in full upon the termination of Mr. Kiani’s employment with the Company pursuant to Mr. Kiani’s death or disability. As of October 1, 2022, 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 Amended Employment Agreement, as amended by the Second Amendment, was approximately $664.3 million.

As of October 1, 2022, 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. Each executive officer is also required to give the Company six months’ advance notice of his resignation under certain circumstances.

On September 16, 2022, the Company appointed Blair Tripodi as its Chief Operating Officer (COO), Consumer Division. The offer letter entered into with Mr. Tripodi upon completion of the Sound United acquisition included certain compensation, retention and benefit provisions. In addition, Mr. Tripodi is also a limited participant in the Severance Plan, which provides that, if (a) Mr. Tripodi’s employment is terminated on the date of a Change in Control (as defined in the Severance Plan) specifically because his current job, or similar job, is not offered to him on the date of such Change in Control, or (b) Mr. Tripodi’s employment is terminated by the Company without cause or if he terminates his employment with the Company for Good Reason (as defined in the Severance Plan) upon or within 36 months of a Change in Control, fifty percent of Mr. Tripodi’s unvested and outstanding equity-based awards will immediately vest.

Cercacor Cross-Licensing Agreement Provisions

The Company’s Cross-Licensing Agreement with Cercacor contains annual minimum aggregate royalty obligations for use of the rainbow® licensed technology. The current annual minimum royalty obligation is $5.0 million. Upon a change in control (as defined in the Cross-Licensing Agreement) of the Company or Cercacor: (i) all rights to the “Masimo” trademark will be assigned to Cercacor if the surviving or acquiring entity ceases to use “Masimo” as a company name and trademark; (ii) the option to license technology developed by Cercacor for use in blood glucose monitoring will be deemed automatically exercised and a $2.5 million license fee for this technology will become immediately payable to Cercacor; and (iii) the minimum aggregate annual royalties payable to Cercacor for carbon monoxide, methemoglobin, fractional arterial oxygen saturation, hemoglobin and/or glucose measurements will increase to $15.0 million per year until the exclusivity period of the agreement ends, plus up to $2.0 million for each additional vital sign measurement with no maximum ceiling for non-vital sign measurements.

Purchase Commitments

Pursuant to contractual obligations with vendors, the Company had $386.8 million of purchase commitments as of October 1, 2022 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 October 1, 2022, the Company had approximately $4.7 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 October 1, 2022, 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 October 1, 2022, the Company had $219.5 million of bank balances, of which $8.2 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 healthcare products to U.S. hospitals depends in part on its relationships with GPOs. Many existing and potential healthcare 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 October 1, 2022 and October 2, 2021, revenue from the sale of the Company’s healthcare products to customers that are members of GPOs approximated 54.0% and 55.0% of healthcare revenue, respectively. During the nine months ended October 1, 2022 and October 2, 2021, revenue from the sale of the Company’s healthcare products to customers that are members of GPOs approximated 52.9% and 51.8% of healthcare revenue, respectively.

For the three months ended October 1, 2022, the Company had sales through one just-in-time distributor that represented 8.9% of revenue. For the three months ended October 2, 2021, the Company had sales through two just-in-time distributors that represented 15.0% and 10.4% of revenue, respectively.

For the nine months ended October 1, 2022, the Company had sales through one just-in-time distributor that represented 10.5% revenue. For the nine months ended October 2, 2021, the Company had sales through two just-in-time distributors that represented 14.6% and 10.4% of revenue, respectively.

As of October 1, 2022 and January 1, 2022, one customer represented 12.2% and 15.7%, respectively, of the Company’s accounts receivable balance. The receivable balance related to such customer is fully secured by a letter of credit.

Litigation

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 alleged that the Company sent unsolicited facsimile advertisements in violation of the Junk Fax Protection Act of 2005 and related regulations. The complaint sought $500 for each alleged violation, treble damages if the District Court found 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 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. On July 13, 2020, the District Court issued an order granting in part and denying in part the plaintiffs’ motion for summary judgment. On July 27, 2022, the parties filed a joint stipulation to dismiss the case with prejudice.

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. The Company is seeking damages, injunctive relief, and declaratory judgment regarding ownership of the Apple patents. Apple filed petitions for Inter Partes review (IPR) of the asserted patents in the U.S. Patent and Trademark Office (PTO). The PTO instituted IPR of the asserted patents. On October 13, 2020, the District Court stayed the patent infringement claims pending completion of the IPR 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. On December 7, 2021, Apple filed a motion for partial summary judgment on the trade secrets claim, which was denied on February 17, 2022. Trial is currently set to begin on March 27, 2023. In the IPR proceedings, one or more of the challenged claims of three of the asserted patents were found valid. The challenged claims of nine of the asserted patents were found invalid. The Company and Apple filed notices of appeal with the U.S. Court of Appeals for the Federal Circuit seeking review of the IPR decisions on all asserted patents. The Company filed an opening brief in one consolidated appeal for five asserted patents on August 5, 2022, and Apple filed a reply brief on October 5, 2022. Apple filed opening briefs in two appeals for two asserted patents on October 19, 2022.

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 Company filed an amended complaint on July 12, 2021. On August 13, 2021, the ITC issued a Notice of Institution of Investigation on the asserted patents. From June 6, 2022 to June 10, 2022, the ITC conducted an evidentiary hearing. The current target date for completion of the ITC investigation is April 19, 2023, with an initial determination due December 19, 2022. The Company is seeking an exclusion order and a permanent cease and desist order. Apple filed petitions for IPR of the asserted patents in the PTO and the Company has responded and will continue to respond to each of the petitions before the PTO determines whether to institute IPRs.

On October 20, 2022, Apple filed two complaints against the Company in the District Court of Delaware alleging that the Masimo W1™ watch infringes a number of patents. Apple is seeking damages, injunctive relief and declaratory relief. On October 20, 2022, Apple also filed a motion seeking expedited discovery that allegedly relates to a potential motion for a preliminary injunction against the Masimo W1™ watch. The Company intends to vigorously pursue all of its legal remedies in its litigation against Apple and believes the Company has good and substantial defenses to Apple’s claims, but there is no guarantee that the Company will be successful in these efforts.

On October 21, 2022, a complaint was filed in the Delaware Court of Chancery against the Company and the members of the Company’s Board (Director Defendants) by Politan Capital Management LP and Politan Capital NY LLC (Activist Plaintiffs). The complaint seeks relief to (i) declare certain amendments to the Company’s bylaws that became effective on September 9, 2022 (Bylaw Amendments) unenforceable, (ii) find that the Director Defendants breached their fiduciary duties by approving and implementing the Bylaw Amendments and the shareholder rights plan adopted by the Company on September 9, 2022, and refusing to invalidate certain change of control provisions in the Company’s employment agreement with Joe Kiani, the Company’s Chief Executive Officer (CEO), (iii) invalidate certain change of control provisions in Mr. Kiani’s employment agreement, (iv) permanently enjoin the Company and its Board from taking any actions to prevent the Activist Plaintiffs from exercising their rights in accordance with the Company’s prior bylaws to nominate directors, and (v) award the Activist Plaintiffs their fees, costs and expenses in connection with the action covered by the complaint. In response to the complaint, on October 24, 2022, the Company and the Director Defendants filed a counterclaim, answer and defense in the Delaware Court of Chancery against the Activist Plaintiffs, seeking relief to (i) have the court declare that the Bylaw Amendments are valid and enforceable and that the Company is permitted to invalidate any director nominations by the Activist Plaintiffs that are not made in accordance with the amended bylaws and (ii) award the Company reasonable costs, including attorneys’ fees and expenses. The Company stated in the counterclaim that, among other things, the Bylaw Amendments were adopted by the Board after thoughtful deliberation and were designed to increase transparency to ensure that stockholders are sufficiently informed regarding who is being nominated to the Board and who is backing the nomination so that they may have a reasonable opportunity to thoughtfully consider the nominations. On October 28, 2022, the Activist Plaintiffs filed a counterclaim and answer generally denying substantially all of the allegations raised in the Company’s counterclaim and raising a number of affirmative defenses against the Company’s counterclaim. The Company intends to vigorously pursue all of its legal remedies in its litigation against the Activist Plaintiffs and believes that the Company and the Director Defendants have good and substantial defenses to the claims (including those raised in the counterclaim), but there is no guarantee that the Company and the Director Defendants will be successful in these efforts. 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.

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 and Enterprise Reporting

9 Months Ended

Oct. 01, 2022

Segment Reporting [Abstract]

Segment and Enterprise Reporting

25. Segment and Enterprise Reporting

The Company’s reportable segments are determined based upon the Company’s new organizational structure and the way in which the Company’s Chief Operating Decision Maker (CODM), the CEO, makes operating decisions and assesses financial performance. The CODM considered several factors including, but not limited to, customer base, technology, and homogeneity of products. The two segments are:

•Healthcare - develops, manufactures, and markets a variety of noninvasive monitoring technologies and hospital automation solutions and therapeutics. This segment includes the Company’s core legacy hospital business and new Masimo-technology-enabled consumer products that are distributed through many channels including e-commerce sites, leading national retailers and specialty chains globally.

•Non-healthcare - designs, develops, manufactures, markets and sells a broad portfolio of premium, high-performance audio products and services. This is a new reportable segment comprised primarily of Sound United’s operations.

Income from operations for each segment includes all geographic revenues, related cost of net revenues and operating expenses directly attributable to the segment. The Company uses operating income, as presented in the Company’s financial reports, as the primary measure of segment profitability. The Company does not allocate costs from corporate functions to segment operating income. Items below operating income are not considered when measuring the profitability of a segment. The Company uses the same accounting policies to generate segment results as the Company does for consolidated results. Non-reportable operating segment and unallocated corporate expenses are reported within “Corporate overhead, and Other”. Segment information presented herein reflects the impact of these changes for all periods presented. There was no inter-segment revenue for any of the periods presented.

Selected information by reportable segment is presented below for the three and nine months ended October 1, 2022 and October 2, 2021:

	Three Months Ended						Nine Months Ended
(in millions)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenues by segment:
Healthcare	$	327.2		$	307.4		$	988.5		$	911.6
Non-healthcare	222.1			—			430.3			—
Total revenue by segment	$	549.3		$	307.4		$	1,418.8		$	911.6
Gross profit:
Healthcare	$	211.4		$	204.4		653.5			$	599.6
Non-healthcare	77.7			—			150.3			—
Corporate overhead	—			—			—			—
Other(1)	(6.6)			(0.8)			(58.4)			(6.1)
Gross profit	$	282.5		$	203.6		$	745.4		$	593.5
Gross profit margin:
Healthcare	64.6		%	66.5		%	66.1		%	65.8		%
Non-healthcare	35.0			—			34.9			—
Corporate overhead	—			—			—			—
Other(1)	(1.2)			(0.1)			(10.6)			(1.1)
Gross profit margin:	51.4		%	66.2		%	52.5		%	65.1		%
Operating income (loss):
Healthcare	$	80.9		$	—		$	—		$	—
Non-healthcare	14.7			—			—			—
Corporate overhead	(14.2)			—			—			—
Other(1)	(26.6)			—			—			—
Operating income	$	54.8		$	67.6		$	136.7		$	198.4
Interest income	$	0.5		$	0.2		$	1.0		$	0.7
Interest expense	(9.7)			—			(14.3)			(0.2)
Other expense (income), net	6.4			(0.2)			14.3			(1.2)
Income before income taxes	$	52.0		$	67.6		$	137.7		$	197.7

_______________

(1)     Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. Corporate overhead represents certain costs that are not allocated to the segments for purposes of the CODM assessing performance and allocating resources--for example, the costs of being a publicly traded company.

The Company’s depreciation and amortization by segment:

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Depreciation and amortization by segment:
Healthcare	$	9.0	$	9.2	$	27.1	$	26.4
Non-healthcare	13.9		—		29.5		—
Total depreciation and amortization	$	22.9	$	9.2	$	56.6	$	26.4

The Company’s total assets by segment:

	As of		As of
(in millions)	October 1, 2022		January 1, 2022
Total assets by segment:
Healthcare	$	1,514.2	$	1,866.4
Non-healthcare	1,522.9		—
Corporate overhead	19.3		20.6
Other	—		—
Total assets	$	3,056.4	$	1,887.0

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Oct. 01, 2022

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 1, 2022 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 1, 2022 (fiscal year 2021), filed with the SEC on February 15, 2022. The results for the three and nine months ended October 1, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2022 (fiscal year 2022) 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 2022 is a 52 week fiscal year ending December 31, 2022. All references to years in these notes to condensed consolidated financial statements are fiscal years unless otherwise noted.

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. The Company’s use of estimates includes 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, derivative instruments, deferred taxes and any associated valuation allowances, deferred revenue, accounting for pensions, uncertain income tax positions, litigation costs and related accruals. Actual results could differ from such estimates.

Business Combinations

Business CombinationsThe Company accounts for business combinations using the acquisition method of accounting in accordance with Accounting Standard Codification (ASC) Topic 805, Business Combinations, which requires that once control is obtained, 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, with the exception of acquired contract assets and contract liabilities (i.e., deferred revenue) from contracts with customers. These are recognized and measured in accordance with ASC Topic 606, Revenue from Contracts with Customers. 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.

Fair Value Measurements

Fair Value Measurements

The Company accounts for certain financial instruments at their fair values as either assets or liabilities on the balance sheet. The Company determines the fair value of its financial instruments using the framework prescribed by ASC Topic 820, Fair Value Measurements and Disclosures, and considers the estimated amount the Company would receive or pay to transfer these instruments at the reporting date with respect to current currency exchange rates, interest rates, the creditworthiness of the counterparty for unrealized gain positions and the Company’s creditworthiness for unrealized loss positions. In certain instances, the Company may utilize financial models to measure the fair value of its financial instruments. In doing so, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means.

Recurring Fair Value Measurement

On a recurring basis, the Company measures certain financial assets and financial liabilities at fair value based upon quoted market prices. Where quoted market prices or other observable inputs are not available, the Company applies valuation techniques to estimate fair value. 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.

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at October 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	162.5	$	162.5	$	—	$	—
Money market funds	57.0		57.0		—		—
Derivative instruments - cash flow hedges	19.4		—		19.4		—
Total assets	$	238.9	$	219.5	$	19.4	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at January 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	745.3	$	745.3	$	—	$	—
Money market funds	—		—		—		—
Total assets	$	745.3	$	745.3	$	—	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The Company invests in checking, savings and money market fund accounts, which are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices. These investments are classified as cash and cash equivalents within the Company’s accompanying condensed consolidated balance sheets, in accordance with GAAP and its accounting policies.

Non-Recurring Fair Value Measurements

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.

Furthermore, the Company did not elect to apply the fair value option to specific assets or liabilities on a contract-by-contract basis. The Company did not have any transfers between Level 2 and Level 3 during the nine months ended October 1, 2022.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity from the 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. The Company carries cash and cash equivalents at cost, which approximates fair value, and are Level 1 under the fair value hierarchy.

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. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified receivables for U.S. customers and receivables from international customers each as a portfolio, and measures expected credit losses on such receivables using an aging methodology.

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
Buildings and building improvements	7 to 39 years
Computer equipment and software	1 to 12 years
Demonstration units	2 to 3 years
Furniture and office equipment	2 to 15 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 20 years
Operating lease assets	Lesser of useful life or term of lease
Transportation, vehicles and other	1 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.

Lessee Right-of-Use (ROU) Assets and Lease Liabilities

Lessee Right-of-Use (ROU) Assets and Lease Liabilities

The Company determines if an arrangement contains a lease at inception. ROU assets represent the Company’s right to use an asset underlying an operating lease for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. 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. Many of the Company’s lessee agreements include options to extend the lease, which the Company does not include in its lease terms unless they are reasonably certain to be exercised. The Company utilizes a portfolio approach to account for the ROU assets and liabilities associated with certain equipment leases.

The Company has also made an accounting policy election not to separate lease and non-lease components for its real estate leases and to exclude short-term leases with a term of twelve months or less from its ROU assets and lease liabilities. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.

Intangible Assets

Intangible Assets

Intangible assets consist primarily of patents, trademarks, software development costs, customer relationships, licenses 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 a range of 10 years to 17 years, and their associated amortization cost is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations.

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 and trademarks 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.

Intangibles purchased as part of an asset acquisition or business combination historically have included patents, trademarks, customer relationships, developed technologies and contractual licenses. In certain circumstances the Company also has acquired non-compete agreements tied to certain employment relationships. The useful life for all of these is largely determined by valuation estimates of remaining economic life. In connection with the Sound United acquisition, the Company acquired certain trademarks/tradenames, which are intangible assets with indefinite useful lives. These brands are expected to maintain brand value for an indefinite period of time.

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 the qualitative assessment indicates that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value, or if the Company elects to bypass the qualitative analysis, then the Company performs 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 such reporting unit exceeds its fair value; or (b) the amount of the goodwill allocated to such reporting unit. The annual impairment test is performed during the fourth fiscal quarter.

Similar to Goodwill, indefinite-lived intangible assets are not amortized but instead are subject to annual impairment testing, unless circumstances dictate more frequent testing, if impairment indicators exist. Impairment for indefinite-lived assets exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. Determining whether impairment indicators exist and estimating the fair value of the Company’s indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors.

The Company reviews finite lived intangible assets and long-lived assets 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.

Employee Defined Benefit Plans

Employee Defined Benefit Plans

The Company maintains noncontributory defined benefit pension plans that cover employees in various countries throughout Europe and Asia. The Company recognizes the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the condensed consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss). If the projected benefit obligation exceeds the fair value of plan assets, the difference or unfunded status represents the pension liability. The Company records a net periodic pension cost in the condensed consolidated statement of operations. The liabilities and annual income or expense is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of asset return. The fair values of plan assets are determined based on prevailing market prices. See Note 21, “Employee Benefits”, for further details.

Income Taxes

Income Taxes

The Company accounts for income taxes using the asset and liability method, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for net operating loss and tax credit carryforwards. Tax positions that meet a more-likely-than-not recognition threshold are recognized in the first reporting period that it becomes more-likely-than-not such tax position will be sustained upon examination. A tax position that meets this more-likely-than-not recognition threshold is recorded at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Previously recognized income tax positions that fail to meet the recognition threshold in a subsequent period are derecognized in that period. Differences between actual results and the Company’s assumptions, or changes in the Company’s assumptions in future periods, are recorded in the period they become known. The Company records potential accrued interest and penalties related to unrecognized tax benefits in income tax expense.

As a multinational corporation, the Company is subject to complex tax laws and regulations in various jurisdictions. The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws themselves are subject to change as a result of changes in fiscal policy, changes in legislation, evolution of regulations and court rulings. Therefore, the actual liability for U.S. or foreign taxes may be materially different from the Company’s estimates, which could result in the need to record additional liabilities or potentially to reverse previously recorded tax liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded against any deferred tax assets when, in the judgment of management, it is more likely than not that all or part of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies.

Income taxes are highly susceptible to changes from period to period, requiring management to make assumptions about the Company’s future income over the lives of its deferred tax assets (DTA) and the impact of changes in valuation allowances. Any difference in the assumptions, judgments and estimates mentioned above could result in changes to the Company’s results of operations.

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

Revenue Recognition, Deferred Revenue and Other Contract Liabilities

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.

Healthcare segment

While the majority of the Company’s Healthcare segment 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. Revenue from fixed lease payments related to equipment supplied under sales-type lease arrangements is recognized once control over the equipment is transferred to the customer, while revenue from fixed lease payments related to equipment supplied under operating-type lease arrangements is generally recognized on a straight-line basis over the term of the lease and variable lease payments are recognized as they occur.

The Company derives the majority of its Healthcare segment 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 original equipment manufacturer (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 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. Beginning January 2, 2022, for contracts that contain variable lease payments, the Company also classifies as operating leases any components that would result in a day one selling loss should they be otherwise classified as a sales-type lease. 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.

Non-healthcare segment

Non-healthcare segment revenue is related to hardware and embedded software that is integrated into final products that are manufactured and sold by the Company. Products and related software are accounted for as a single performance obligation and all intended functionality is available to the customer upon purchase. Non-healthcare segment revenue is recognized upon transfer of control of promised products or service to customers, which is either upon shipment or upon delivery to the customers, depending on delivery terms.

The Company offers sales incentives and has customer programs consisting primarily of discounts and market development fund programs, and records them as a contra revenue. Estimates for sales incentives are developed using most likely amount and are included in the transaction price to the extent that a significant reversal of revenue would not result once the uncertainty is resolved. In developing its estimates, the Company also considers the susceptibility of the incentive to outside influences, the length of time until the uncertainty is resolved and the Company’s experience with similar contracts. Reductions in revenue related to discounts are allocated to products on a relative basis based on their respective standard selling price if there are undelivered products in a contract. Judgement is required to determine the timing and amount of recognition of marketing funds which the Company estimates based on past practice of providing similar funds.

Payment terms and conditions vary among the Company’s distribution channels although terms generally include a requirement of payment within 30 to 60 days of product shipment. Sales directly to customers from the Company’s website are paid at the time of product shipment. Prior to determining payment terms for each customers, an evaluation of such customer’s credit risk is performed. Contractual allowances are an offset to accounts receivable.

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 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.

In connection with the Sound United acquisition, the Company recognized non-healthcare royalty revenue associated with certain prepaid license arrangements. The Company recognizes non-healthcare revenue from the prepaid license arrangements based upon sales-based royalties when a subsequent sale occurs.

Warranty

Warranty

The Company generally provides a warranty against defects in material and workmanship for a period ranging from six 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 warranty accrual were as follows:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Warranty accrual, beginning of period	$	2.5	$	2.7
Increase related to acquisition, net of reserve	8.0		—
Accrual for warranties issued	1.9		3.4
Changes in pre-existing warranties (including changes in estimates)	1.5		(2.3)
Settlements made	(4.5)		(0.9)
Warranty accrual, end of period	$	9.4	$	2.9

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.

Foreign Currency Translation

Foreign Currency Translation

The Company’s international headquarters is in Switzerland, and its functional currency is the U.S. Dollar. The Company has many other foreign subsidiaries, and the largest transactions in foreign currency translations occur in Japanese Yen, the British Pound, Chinese Yuan and the European Euro.

The Company records certain revenues and expenses in foreign currencies. These revenues and expenses are translated into U.S. Dollars based on the average exchange rate for the reporting period. Assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate in effect as of the balance sheet date. Translation gains and losses related to foreign currency assets and liabilities of a subsidiary that are denominated in the functional currency of such subsidiary are included as a component of accumulated other comprehensive income (loss) within the accompanying condensed consolidated balance sheets. Realized and unrealized foreign currency gains and losses related to foreign currency assets and liabilities of the Company or a subsidiary that are not denominated in the underlying functional currency are included as a component of non-operating income (loss) within the accompanying condensed consolidated statements of operations.

Derivatives Instruments & Hedging Activities

Derivatives Instruments & Hedging Activities

The Company addresses market risk from changes in foreign currency and interest rates risks through risk management programs which include the use of derivative and nonderivative instruments. The Company’s exposure to the counterparty’s credit risk is generally limited to the amounts of the net obligation to the counterparty. The Company established policies to enter into contracts only with major investment-grade financial institutions to mitigate such counterparty credit risk. The Company also established a policy to further monitor the counterparty risks throughout the life of the instruments. None of the derivative instruments currently held by the Company were entered into for speculative trading purposes.

All derivative financial instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the tenor of the instrument. The Company has elected not to separate a derivative instrument into current and long-term portions. A derivative instrument whose fair value is a net liability is classified as current in total. A derivative instrument whose fair value is a net asset and whose current portion is an asset is classified as noncurrent in total. For a derivative instrument that meets the criteria to qualify for hedge accounting, the Company marks the fair value of the derivative instrument to market periodically through other comprehensive income (loss). When the hedged items hit income (expense), associated deferred gains (losses) of the derivatives in accumulated other comprehensive income (loss) will be reclassified into earnings. For a derivative instrument that does not meet the criteria for hedge accounting, any fluctuation in the fair value is reflected in earnings in the period it occurs.

Comprehensive Income

Comprehensive Income

Comprehensive income includes foreign currency translation adjustments, changes to pension benefits, unrealized gains or (losses) on cash flow hedges and any related tax benefits (expenses) that have been excluded from net income and reflected in stockholders’ equity.

Net Income Per Share

Net Income Per Share

Computation of basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Basic net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Net income per basic share	$	0.72	$	1.05	$	1.90	$	2.93
Diluted net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Diluted share equivalents: stock options, RSUs and PSUs	1.6		2.6		1.6		2.6
Weighted-average shares outstanding - diluted	54.1		57.7		55.6		57.7
Net income per diluted share	$	0.70	$	1.00	$	1.85	$	2.80

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 stock units (PSUs). For the three months ended October 1, 2022 and October 2, 2021, weighted options to purchase 1.0 million and 0.1 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 nine months ended October 1, 2022 and October 2, 2021, weighted options to purchase 0.8 million and 0.2 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 October 1, 2022 and October 2, 2021, 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 nine month periods then ended.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In November 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). The standard requires companies to apply ASC Topic 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. This creates an exception to the general recognition and measurement principle in ASC Topic 805. ASU 2021-08 is effective for annual reporting periods beginning after December 15, 2022, and for interim periods within those years, and should be adopted prospectively. Early adoption is permitted. The Company’s early adoption of this standard, effective January 3, 2021, did not have a material impact on its consolidated financial statements. Subsequently, upon the closing of the Sound United acquisition, the Company recognized and measured acquired contract assets and contract liabilities (i.e., deferred revenue) in accordance with the ASC Topic 606.

In July 2021, the FASB issued Accounting Standards Update (ASU) No. 2021-05, Leases (Topic 842), Lessors - Certain Leases with Variable Lease Payments (ASU 2021-05). The new standard amends the original ASU No. 2016-02 lease standard by requiring lessors to classify leases as operating leases if they have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement if they were classified as sales-type. ASU 2021-05 is effective for annual reporting periods beginning after December 15, 2021, and for interim periods within those years, and may be adopted either prospectively or on a retrospective basis for leases that commenced or were modified after the date of initial adoption of ASC 842.

On January 2, 2022, the Company adopted ASU 2021-05 prospectively for leases that commenced or were modified on or after the date of adoption. As a result, certain leases which would have previously been classified as lease receivables (sales-type leases) were classified as operating leases, as they were determined to have variable lease payments that do not depend on an index or rate and would have selling losses at lease commencement. For leases that are classified as operating leases, the Company recorded these operating lease assets within property, plant, and equipment, net of accumulated depreciation. The equipment costs associated with such new operating leases were initially deferred and will subsequently be amortized over the lease term on a straight-line basis, rather than being immediately recognized upon lease commencement. Similarly, revenue associated with such new operating leases is now being recognized over the term of the lease, rather than being immediately recognized at the date of the lease commencement. See Notes 6, 8 and 11 of these condensed consolidated financial statements for further details.

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 standard 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 standard 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.

In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (ASU 2021-01). The new standard clarified the scope and application of the original guidance. ASU 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.

On April 11, 2022, the Company adopted ASU 2020-04 and ASU 2021-01 prospectively, in conjunction with the termination of the Company’s Credit Facility and execution of a new Credit Facility, which included both term loans and a revolving line of credit. At the time of transition, the Company no longer held any debt based upon the then-current reference rate, thus, it did not elect any optional practical expedients for contract modifications. Ultimately, the Company transitioned away from an interest rate based on LIBOR to SOFR, and such adoption did not have a material impact on its condensed consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Oct. 01, 2022

Accounting Policies [Abstract]

Fair Value, Assets Measured on Recurring Basis

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at October 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	162.5	$	162.5	$	—	$	—
Money market funds	57.0		57.0		—		—
Derivative instruments - cash flow hedges	19.4		—		19.4		—
Total assets	$	238.9	$	219.5	$	19.4	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The following tables represent the Company’s financial assets, measured at fair value on a recurring basis at January 1, 2022:

	Total carrying value		Fair Value Measurement Hierarchy
(in millions)			Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	745.3	$	745.3	$	—	$	—
Money market funds	—		—		—		—
Total assets	$	745.3	$	745.3	$	—	$	—
Liabilities
None	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

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
Buildings and building improvements	7 to 39 years
Computer equipment and software	1 to 12 years
Demonstration units	2 to 3 years
Furniture and office equipment	2 to 15 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 20 years
Operating lease assets	Lesser of useful life or term of lease
Transportation, vehicles and other	1 to 20 years

Property and equipment, net, consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Building and building improvements	$	150.0	$	142.1
Machinery, equipment and tooling	140.0		103.5
Land	64.0		57.0
Computer equipment and software	41.6		32.5
Transportation, vehicles and other	32.7		33.1
Leasehold improvements	30.9		21.9
Operating lease assets(1)	22.8		—
Furniture and office equipment	17.8		14.2
Demonstration units	10.4		0.9
Construction-in-progress (CIP)	45.9		25.1
Total property and equipment	556.1		430.3
Accumulated depreciation	(183.9)		(157.5)
Property and equipment, net	$	372.2	$	272.8

______________

(1)    Effective January 2, 2022, the Company adopted ASU 2021-05, resulting in the Company recording these operating lease assets within property, plant, and equipment.

Changes in Product Warranty Accrual

Changes in the warranty accrual were as follows:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Warranty accrual, beginning of period	$	2.5	$	2.7
Increase related to acquisition, net of reserve	8.0		—
Accrual for warranties issued	1.9		3.4
Changes in pre-existing warranties (including changes in estimates)	1.5		(2.3)
Settlements made	(4.5)		(0.9)
Warranty accrual, end of period	$	9.4	$	2.9

Reconciliation of Basic and Diluted Net Income Per Share

Computation of basic and diluted net income per share is as follows:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Net income	$	37.9	$	57.8	$	102.6	$	161.4
Basic net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Net income per basic share	$	0.72	$	1.05	$	1.90	$	2.93
Diluted net income per share:
Weighted-average shares outstanding - basic	52.5		55.1		54.0		55.1
Diluted share equivalents: stock options, RSUs and PSUs	1.6		2.6		1.6		2.6
Weighted-average shares outstanding - diluted	54.1		57.7		55.6		57.7
Net income per diluted share	$	0.70	$	1.00	$	1.85	$	2.80

Supplemental Cash Flow Information

Supplemental cash flow information includes the following:

	Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021
Cash paid during the year for:
Interest expense	$	11.9	$	0.2
Income taxes	71.1		36.9
Operating lease liabilities	12.0		5.6
Non-cash operating activities:
ROU assets obtained in exchange for lease liabilities	$	9.8	$	4.9
Non-cash investing activities:
Unpaid purchases of property and equipment	$	4.8	$	3.2
Unpaid strategic investments	1.5		3.4
Deposit release to acquire noncontrolling interest(1)	—		3.4
Non-cash financing activities:
Unsettled common stock proceeds from option exercises	$	—	$	0.1
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	219.5	$	652.3
Restricted cash	2.6		1.6
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	222.1	$	653.9

______________

(1)     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 first quarter of 2021, the Company acquired the remaining noncontrolling interest. The impact of the noncontrolling interest is immaterial in all periods presented.

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Inventories (Tables)

9 Months Ended

Oct. 01, 2022

Inventory Disclosure [Abstract]

Components of Inventory

Inventories consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Raw materials	$	205.5	$	128.3
Work-in-process	30.4		17.1
Finished goods	259.5		56.0
Total inventories(1)	$	495.4	$	201.4

______________

(1)    Included in the October 1, 2022 ending total inventories balance was approximately $53.3 million of step-up amortization related to the Sound United acquisition. See Note 18, “Business Combinations”, for further details.

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Other Current Assets (Tables)

9 Months Ended

Oct. 01, 2022

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

Schedule of Other Non-Current Assets

Other current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Prepaid expenses	$	66.1	$	30.9
Lease receivable, current	30.1		28.7
Indirect taxes receivable	27.1		12.8
Prepaid income taxes	19.8		7.0
Prepaid rebates and royalties, current	3.7		2.8
Contract assets, current	2.7		2.1
Restricted cash(1)	2.5		3.0
Customer notes receivable	0.8		2.4
Other current assets	6.3		1.3
Total other current assets	$	159.1	$	91.0

______________

(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.

Other non-current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee ROU assets, net	$	69.8	$	30.5
Derivative assets - non-current	19.4		—
Strategic investments	13.8		13.8
Prepaid deposits and other	7.2		3.9
Other non-current assets	0.4		0.4
Total non-current assets	$	110.6	$	48.6

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Lease Receivable (Tables)

9 Months Ended

Oct. 01, 2022

Leases [Abstract]

Sale-Type Lease Receivable

Lease receivable from sales-type leases consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Lease receivable	$	110.0	$	102.6
Allowance for credit loss	(0.3)		(0.3)
Lease receivable, net	109.7		102.3
Less: current portion of lease receivable	(30.1)		(28.7)
Lease receivable, noncurrent	$	79.6	$	73.6

Sales-type Lease, Lease Receivable, Maturity

As of October 1, 2022, estimated future maturities of customer sales-type lease receivables and operating lease payments for each of the following fiscal years are as follows:

	Future Lease Receivables/Payments (in millions)
Fiscal year	Sales-Type Leases		Operating Leases
2022 (balance of year)	$	7.8	$	0.7
2023	29.1		2.6
2024	25.4		2.5
2025	19.9		2.5
2026	13.4		2.3
Thereafter	14.1		4.8
Total	$	109.7	$	15.4
Less: imputed interest(1)	—
Present value of total lease payments	$	109.7

______________

(1)     The calculation of the rates implicit in the leases resulted in negative discount rates. Therefore, the Company as a lessor used a 0% discount rate to measure the net investment in the lease.

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Deferred Costs and Other Contract Assets (Tables)

9 Months Ended

Oct. 01, 2022

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 millions)	October 1, 2022		January 1, 2022
Deferred commissions	$	16.0	$	11.9
Prepaid contract allowances	12.5		8.6
Unbilled contract receivables	7.3		5.0
Deferred equipment agreements, net	1.2		2.6
Deferred costs and other contract assets	$	37.0	$	28.1

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Property and Equipment, net (Tables)

9 Months Ended

Oct. 01, 2022

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
Buildings and building improvements	7 to 39 years
Computer equipment and software	1 to 12 years
Demonstration units	2 to 3 years
Furniture and office equipment	2 to 15 years
Leasehold improvements	Lesser of useful life or term of lease
Machinery, equipment and tooling	3 to 20 years
Operating lease assets	Lesser of useful life or term of lease
Transportation, vehicles and other	1 to 20 years

Property and equipment, net, consists of the following:

(in millions)	October 1, 2022		January 1, 2022
Building and building improvements	$	150.0	$	142.1
Machinery, equipment and tooling	140.0		103.5
Land	64.0		57.0
Computer equipment and software	41.6		32.5
Transportation, vehicles and other	32.7		33.1
Leasehold improvements	30.9		21.9
Operating lease assets(1)	22.8		—
Furniture and office equipment	17.8		14.2
Demonstration units	10.4		0.9
Construction-in-progress (CIP)	45.9		25.1
Total property and equipment	556.1		430.3
Accumulated depreciation	(183.9)		(157.5)
Property and equipment, net	$	372.2	$	272.8

______________

(1)    Effective January 2, 2022, the Company adopted ASU 2021-05, resulting in the Company recording these operating lease assets within property, plant, and equipment.

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Intangible Assets, net (Tables)

9 Months Ended

Oct. 01, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets

Intangible assets, net, consist of the following:

	October 1, 2022						January 1, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	220.6	$	(16.1)	$	204.5	$	24.6	$	(9.3)	$	15.3
Acquired technologies	183.5		(19.6)		163.9		28.4		(8.7)		19.7
Patents	33.9		(13.3)		20.6		31.5		(12.2)		19.3
Licenses	37.8		(3.6)		34.2		8.1		(2.0)		6.1
Trademarks	18.7		(5.2)		13.5		12.2		(4.1)		8.1
Licenses-related party	7.5		(6.3)		1.2		7.5		(6.0)		1.5
Non-compete agreements(1)	6.3		(0.7)		5.6		0.3		—		0.3
Capitalized software development costs	5.3		(2.8)		2.5		4.3		(2.6)		1.7
Other	1.6		(1.0)		0.6		1.6		(1.1)		0.5
Total intangible assets subject to amortization, net	$	515.2	$	(68.6)	$	446.6	$	118.5	$	(46.0)	$	72.5
Intangible assets not subject to amortization:
Trademarks					262.0						—
Intangible assets, net					$	708.6					$	72.5

_______________

(1)    In connection with the Sound United acquisition, the Company also acquired non-compete agreements with a gross carrying amount equal to $6.0 million.

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Estimated amortization expense for each of the next fiscal years is as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	14.1
2023	28.7
2024	28.4
2025	27.4
2026	25.6
Thereafter	322.4
Total	$	446.6

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Goodwill (Tables)

9 Months Ended

Oct. 01, 2022

Goodwill [Abstract]

Schedule of Goodwill

Changes in goodwill were as follows:

	Nine Months Ended October 1, 2022
(in millions)	Healthcare		Non-healthcare		Total
Goodwill, beginning of period	$	100.3	$	—	$	100.3
Increase from business combinations	—		351.5		351.5
Foreign currency translation adjustment	(5.5)		—		(5.5)
Goodwill, end of period	$	94.8	$	351.5	$	446.3

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Lessee ROU Assets and Lease Liabilities (Tables)

9 Months Ended

Oct. 01, 2022

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 millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Lessee ROU assets	Other non-current assets	$	69.8	$	30.5
Lessee current lease liabilities	Other current liabilities	18.5		6.4
Lessee non-current lease liabilities	Other non-current liabilities	54.5		26.3
Total operating lease liabilities		$	73.0	$	32.7

Lessee, Operating Lease, Liability, Maturity

As of October 1, 2022, estimated future operating lease payments for each of the following fiscal years were as follows:

Fiscal year	Amount (in millions)
2022 (balance of year)	$	5.0
2023	19.4
2024	16.0
2025	12.1
2026	8.5
Thereafter(1)	21.0
Total	82.0
Imputed interest	(9.0)
Present value	$	73.0

______________

(1)     Includes optional renewal period for certain leases.

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Other Non-Current Assets (Tables)

9 Months Ended

Oct. 01, 2022

Other Assets, Longterm [Abstract]

Schedule of Other Non-Current Assets

Other current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Prepaid expenses	$	66.1	$	30.9
Lease receivable, current	30.1		28.7
Indirect taxes receivable	27.1		12.8
Prepaid income taxes	19.8		7.0
Prepaid rebates and royalties, current	3.7		2.8
Contract assets, current	2.7		2.1
Restricted cash(1)	2.5		3.0
Customer notes receivable	0.8		2.4
Other current assets	6.3		1.3
Total other current assets	$	159.1	$	91.0

______________

(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.

Other non-current assets consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee ROU assets, net	$	69.8	$	30.5
Derivative assets - non-current	19.4		—
Strategic investments	13.8		13.8
Prepaid deposits and other	7.2		3.9
Other non-current assets	0.4		0.4
Total non-current assets	$	110.6	$	48.6

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Deferred Revenue and Other Contract Liabilities, Current (Tables)

9 Months Ended

Oct. 01, 2022

Revenue Recognition and Deferred Revenue [Abstract]

Contract with Customer, Asset and Liability

Deferred revenue and other contract liabilities, current, consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Deferred revenue	$	56.7	$	35.1
Accrued rebates and allowances	36.4		13.6
Accrued customer reimbursements	7.2		7.4
Total deferred revenue and other contract liabilities	100.3		56.1
Less: Non-current portion of deferred revenue	(22.7)		(5.2)
Deferred revenue and other contract liabilities - current	$	77.6	$	50.9

Changes in deferred revenue were as follows:

(in millions)	Nine Months Ended October 1, 2022
Deferred revenue, beginning of the period	$	35.1
Increase from business combinations	18.6
Revenue deferred during the period	29.2
Recognition of revenue deferred in prior periods	(26.2)
Deferred revenue, end of the period	$	56.7

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Other Current Liabilities (Tables)

9 Months Ended

Oct. 01, 2022

Accrued Liabilities [Abstract]

Schedule Other Current Liabilities

Other current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Accrued expenses	$	40.5	$	12.1
Accrued indirect taxes payable	26.5		16.3
Income tax payable	18.7		12.0
Lessee lease liabilities, current	18.5		6.4
Current portion of long-term debt	13.8		—
Accrued warranty	9.4		2.5
Accrued property taxes	6.0		2.0
Accrued legal fees	5.8		7.1
Related party payables	4.7		3.6
Accrued donations	1.6		3.7
Other current liabilities	6.0		4.7
Total other current liabilities	$	151.5	$	70.4

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Debt (Tables)

9 Months Ended

Oct. 01, 2022

Debt Disclosure [Abstract]

Schedule of Debt

(in millions)	October 1, 2022		January 1, 2022
Term loan - current portion	$	7.5	$	—
Japanese loans - current portion	6.3		—
Short-term debt	13.8		—
Term loan - long-term	280.3		—
Revolver - long-term	660.6		—
Japanese loans - long-term	10.5		—
Long-term debt	951.4		—
Total debt	$	965.2	$	—

Schedule of Maturities of Long-term Debt

As of October 1, 2022, the aggregate maturities of principal on all debt for each of the next five years and thereafter is as follows:

Fiscal year	Amount (in millions)
2022 (balance of the year)	$	7.5
2023	8.6
2024	14.8
2025	16.6
2026	16.6
Thereafter	901.1
Total	$	965.2

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Other Non-Current Liabilities (Tables)

9 Months Ended

Oct. 01, 2022

Other Liabilities, Long Term [Abstract]

Schedule of Components Of Other Liabilities Long Term Table

Other non-current liabilities consist of the following:

(in millions)	October 1, 2022		January 1, 2022
Lessee non-current lease liabilities	$	54.5	$	26.3
Deferred revenue, non-current	22.7		5.2
Unrecognized tax benefits	17.5		14.9
Income tax payable, non-current	12.7		17.0
Retirement allowance	10.9		—
Indirect tax payable, non-current	7.5		—
Other	0.1		0.6
Total other non-current liabilities	$	125.9	$	64.0

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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Oct. 01, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following table summarizes the fair value of the hedging instruments, presented on a gross basis, as of October 1, 2022 and January 1, 2022.

		Condensed Consolidated Balance Sheets
(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Interest rate contracts	Other non-current assets	$	19.4	$	—
Total		$	19.4	$	—

Reclassification out of Accumulated Other Comprehensive Income

The following table summarizes the gains (losses) reclassified from accumulated other comprehensive income to the condensed consolidated financial statements for the three and nine months ended October 1, 2022.

		Condensed Consolidated Statement of Operations
(in millions)	Location of gain (loss)	Three Months Ended October 1, 2022		Nine Months Ended October 1, 2022
Cash flow hedges - interest rate contracts	Non-operating loss (income)	$	0.8	$	0.8
Total		$	0.8	$	0.8

Schedule of Accumulated Other Comprehensive Income (Loss)

The following tables summarize the changes in accumulated other comprehensive income related to the hedging instruments:

(in millions)	Amounts
Beginning balance as of July 3, 2022	$	—
Amount recognized in other comprehensive income	18.6
Amount reclassified into earnings	0.8
Ending Balance as of October 1, 2022	$	19.4

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Business Combinations (Tables)

9 Months Ended

Oct. 01, 2022

Business Combination and Asset Acquisition [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed, inclusive of measurement period adjustments as of April 11, 2022:

(in millions)	Sound United
Cash consideration(1)	$	1,065.0
Purchase price	$	1,065.0
Assets acquired:
Cash and cash equivalents	$	82.6
Accounts receivables	111.3
Inventories	233.0
Prepaid expenses and other current assets	37.5
Property, plant and equipment	100.0
Intangible asset	649.0
Goodwill	351.5
Long-term other assets	7.2
Total assets acquired	$	1,572.1
Liabilities assumed:
Accounts payable	$	(118.8)
Accrued liabilities and other current liabilities	(165.0)
Deferred tax liabilities	(157.7)
Other long-term liabilities	(65.6)
Total liabilities assumed	$	(507.1)

______________

(1)    The purchase price for the Sound United acquisition is preliminary, pending final customary purchase price adjustments.

The following table sets forth the components of identifiable intangible assets acquired and the weighted average amortization period as of the acquisition date:

	Weighted average amortization period (in years)	April 11,  2022 (in millions)
Trademarks/tradenames	10	$	268.0
Customer relationships	17	196.0
Developed technology	8	156.0
Contractual license agreements	15	29.0
Total	14 years	$	649.0

Business Acquisition, Pro Forma Information

There are no other material non-recurring pro forma adjustments directly attributable to the acquisition included in the reported pro forma revenue and pro forma net income.

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Pro forma net revenue	$	549.3	$	534.6	$	1,676.4	$	1,556.3
Pro forma net income (loss)	$	38.0	$	85.6	$	127.0	$	54.1

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Equity (Tables)

9 Months Ended

Oct. 01, 2022

Equity [Abstract]

Schedule of Stock Repurchase Activities

The following table provides a summary of the Company’s stock repurchase activities:

	Three Months Ended				Nine Months Ended
(in millions, except per share amounts)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Shares repurchased(1)	—		—		3.0		0.5
Average cost per share	$	—	$	—	$	133.82	$	235.88
Value of shares repurchased	$	—	$	—	$	401.4	$	128.9

______________

(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)

9 Months Ended

Oct. 01, 2022

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:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average exercise prices)	Shares	Weighted-Average Exercise Price
Options outstanding, beginning of period	3.0	$	81.38
Granted	0.1	150.91
Canceled	(0.1)	160.95
Exercised	(0.1)	57.17
Options outstanding, end of period	2.9	$	83.85
Options exercisable, end of period	2.4	$	65.32

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:

	Nine Months Ended October 1, 2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
RSUs outstanding, beginning of period	2.9	$	104.13
Granted	0.3	149.50
Canceled	—	—
Expired	(0.1)	170.37
Vested	—	183.66
RSUs outstanding, end of period	3.1	$	105.78

Schedule of Nonvested Performance-based Units Activity

The number of PSUs outstanding under all of the Company’s equity plans are as follows:

	Nine Months Ended October 1,  2022
(in millions, except for weighted-average grant date fair value amounts)	Units	Weighted-Average Grant  Date Fair Value
PSUs outstanding, beginning of period	0.3	$	168.68
Granted(1)	0.3	145.49
Canceled	—	—
Expired	(0.1)	139.73
Vested	(0.2)	127.46
PSUs outstanding, end of period	0.3	$	178.51

______________

(1)     On February 14, 2022, the Audit Committee approved the weighted payout percentage for the 2019 PSU awards (three-year performance period), which were based upon the actual fiscal 2021 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		Nine Months Ended
	October 1,  2022(1)	October 2, 2021	October 1, 2022	October 2, 2021
Risk-free interest rate	—%	—%	1.0% to 1.9%	0.3% to 0.9%
Expected term (in years)	0.0	5.1	5.7	5.6
Estimated volatility	—%	—%	31.2% to 38.9%	30.9% to 34.7%
Expected dividends	0%	0%	0%	0%
Weighted-average fair value of options granted	$—	$66.53	$49.69	$75.72

__________________

(1)    No stock options were granted during the three months ended October 1, 2022.

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Non-operating (loss) income (Tables)

9 Months Ended

Oct. 01, 2022

Nonoperating Income (Expense) [Abstract]

Schedule of Other Nonoperating Income (Expense)

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

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Interest income	$	0.5	$	0.2	$	1.0	$	0.7
Interest expense	(9.7)		—		(14.3)		(0.2)
Realized and unrealized foreign currency gains (losses)	6.4		(0.2)		14.3		(1.2)
Total non-operating (loss) income	$	(2.8)	$	—	$	1.0	$	(0.7)

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Segment and Enterprise Reporting (Tables)

9 Months Ended

Oct. 01, 2022

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

Selected information by reportable segment is presented below for the three and nine months ended October 1, 2022 and October 2, 2021:

	Three Months Ended						Nine Months Ended
(in millions)	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021
Revenues by segment:
Healthcare	$	327.2		$	307.4		$	988.5		$	911.6
Non-healthcare	222.1			—			430.3			—
Total revenue by segment	$	549.3		$	307.4		$	1,418.8		$	911.6
Gross profit:
Healthcare	$	211.4		$	204.4		653.5			$	599.6
Non-healthcare	77.7			—			150.3			—
Corporate overhead	—			—			—			—
Other(1)	(6.6)			(0.8)			(58.4)			(6.1)
Gross profit	$	282.5		$	203.6		$	745.4		$	593.5
Gross profit margin:
Healthcare	64.6		%	66.5		%	66.1		%	65.8		%
Non-healthcare	35.0			—			34.9			—
Corporate overhead	—			—			—			—
Other(1)	(1.2)			(0.1)			(10.6)			(1.1)
Gross profit margin:	51.4		%	66.2		%	52.5		%	65.1		%
Operating income (loss):
Healthcare	$	80.9		$	—		$	—		$	—
Non-healthcare	14.7			—			—			—
Corporate overhead	(14.2)			—			—			—
Other(1)	(26.6)			—			—			—
Operating income	$	54.8		$	67.6		$	136.7		$	198.4
Interest income	$	0.5		$	0.2		$	1.0		$	0.7
Interest expense	(9.7)			—			(14.3)			(0.2)
Other expense (income), net	6.4			(0.2)			14.3			(1.2)
Income before income taxes	$	52.0		$	67.6		$	137.7		$	197.7

_______________

(1)     Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment operating income because management evaluates the operating results of the segments excluding such items. Corporate overhead represents certain costs that are not allocated to the segments for purposes of the CODM assessing performance and allocating resources--for example, the costs of being a publicly traded company.

The Company’s depreciation and amortization by segment:

	Three Months Ended				Nine Months Ended
(in millions)	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Depreciation and amortization by segment:
Healthcare	$	9.0	$	9.2	$	27.1	$	26.4
Non-healthcare	13.9		—		29.5		—
Total depreciation and amortization	$	22.9	$	9.2	$	56.6	$	26.4

The Company’s total assets by segment:

	As of		As of
(in millions)	October 1, 2022		January 1, 2022
Total assets by segment:
Healthcare	$	1,514.2	$	1,866.4
Non-healthcare	1,522.9		—
Corporate overhead	19.3		20.6
Other	—		—
Total assets	$	3,056.4	$	1,887.0

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Summary of Significant Accounting Policies - Schedule of Financial Assets Measured at Fair Value on a Recurring Basis (Detail) - Recurring - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Assets
Cash and cash equivalents	$ 162.5	$ 745.3
Money market funds	57.0	0.0
Derivative instruments - cash flow hedges	19.4
Total assets	238.9	745.3
Liabilities
Total liabilities	0.0	0.0
Level 1
Assets
Cash and cash equivalents	162.5	745.3
Money market funds	57.0	0.0
Derivative instruments - cash flow hedges	0.0
Total assets	219.5	745.3
Liabilities
Total liabilities	0.0	0.0
Level 2
Assets
Cash and cash equivalents	0.0	0.0
Money market funds	0.0	0.0
Derivative instruments - cash flow hedges	19.4
Total assets	19.4	0.0
Liabilities
Total liabilities	0.0	0.0
Level 3
Assets
Cash and cash equivalents	0.0	0.0
Money market funds	0.0	0.0
Derivative instruments - cash flow hedges	0.0
Total assets	0.0	0.0
Liabilities
Total liabilities	$ 0.0	$ 0.0

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Summary of Significant Accounting Policies - Additional Information (Detail) shares in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022 shares	Oct. 02, 2021 shares	Oct. 01, 2022 segment shares	Oct. 02, 2021 shares
Summary Of Significant Accounting Policies [Line Items]
Number of sources of product revenue | segment			4
Options to purchase of shares of common stock	1.0	0.1	0.8	0.2
Patents
Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life			10 years
Restricted Stock Units (RSUs)
Summary Of Significant Accounting Policies [Line Items]
Share-based compensation arrangement, grants in period (in shares)			0.3
Restricted Stock Units (RSUs) | Chief Executive Officer
Summary Of Significant Accounting Policies [Line Items]
Share-based compensation arrangement, grants in period (in shares)			2.7	2.7
Minimum
Summary Of Significant Accounting Policies [Line Items]
Payment terms			30 days
Warranty period for defects in material and workmanship			6 months
Minimum | Trademarks
Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life			10 years
Minimum | Buildings 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			1 year
Minimum | Demonstration units
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			1 year
Maximum
Summary Of Significant Accounting Policies [Line Items]
Payment terms			60 days
Warranty period for defects in material and workmanship			48 months
Maximum | Trademarks
Summary Of Significant Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life			17 years
Maximum | Buildings 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 | Demonstration units
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			3 years
Maximum | Furniture and office equipment
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			15 years
Maximum | Machinery, equipment and tooling
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			20 years
Maximum | Transportation, vehicles and other
Summary Of Significant Accounting Policies [Line Items]
Property, Plant and Equipment, Useful Life			20 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-02
Summary Of Significant Accounting Policies [Line Items]
Revenue remaining performance obligation, expected timing of satisfaction	1 year		1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2024-09-21 | Minimum
Summary Of Significant Accounting Policies [Line Items]
Revenue remaining performance obligation, expected timing of satisfaction	3 years		3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2027-09-25 | Maximum
Summary Of Significant Accounting Policies [Line Items]
Revenue remaining performance obligation, expected timing of satisfaction	6 years		6 years

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Summary of Significant Accounting Policies - Changes in Product Warranty Accrual (Detail) - USD ($) $ in Millions	9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021
Movement in Standard and Extended Product Warranty Accrual, Increase (Decrease) [Roll Forward]
Warranty accrual, beginning of period	$ 2.5	$ 2.7
Increase related to acquisition, net of reserve	8.0	0.0
Accrual for warranties issued	1.9	3.4
Changes in pre-existing warranties (including changes in estimates)	1.5	(2.3)
Settlements made	(4.5)	(0.9)
Warranty accrual, end of period	$ 9.4	$ 2.9

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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 Millions, $ in Millions	3 Months Ended						9 Months Ended
	Oct. 01, 2022	Jul. 02, 2022	Apr. 02, 2022	Oct. 02, 2021	Jul. 03, 2021	Apr. 03, 2021	Oct. 01, 2022	Oct. 02, 2021
Net income per share:
Net income	$ 37.9	$ 18.1	$ 46.6	$ 57.8	$ 50.2	$ 53.4	$ 102.6	$ 161.4
Basic net income per share:
Weighted-average shares outstanding - basic (in shares)	52.5			55.1			54.0	55.1
Net income per basic share (in dollars per share)	$ 0.72			$ 1.05			$ 1.90	$ 2.93
Diluted net income per share:
Weighted-average shares outstanding - basic (in shares)	52.5			55.1			54.0	55.1
Diluted share equivalent: stock options, RSUs and PSUs (in shares)	1.6			2.6			1.6	2.6
Weighted-average shares outstanding - diluted (in shares)	54.1			57.7			55.6	57.7
Net income per diluted share (in dollars per share)	$ 0.70			$ 1.00			$ 1.85	$ 2.80

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Summary of Significant Accounting Policies - Supplemental Cash Flow Information (Detail) - USD ($) $ in Millions	9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Jan. 01, 2022	Jan. 02, 2021
Accounting Policies [Abstract]
Interest expense	$ 11.9	$ 0.2
Income taxes	71.1	36.9
Operating lease liabilities	12.0	5.6
ROU assets obtained in exchange for lease liabilities	9.8	4.9
Unpaid purchases of property and equipment	4.8	3.2
Unpaid strategic investments	1.5	3.4
Deposit release to acquire noncontrolling interest	0.0	3.4
Unsettled common stock proceeds from option exercises	0.0	0.1
Cash and cash equivalents	219.5	652.3	$ 745.3
Restricted cash	2.6	1.6
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$ 222.1	$ 653.9	$ 748.4	$ 645.0

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Related Party Transactions - (Details)	1 Months Ended	3 Months Ended		9 Months Ended
	Jul. 31, 2021 USD ($)	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Oct. 01, 2022 USD ($) ft²	Oct. 02, 2021 USD ($)	Jan. 01, 2022 USD ($)	Jul. 03, 2021 USD ($)
Cercacor Laboratories
Related Party Transaction [Line Items]
Payments for royalties		$ 4,500,000	$ 2,900,000	$ 13,100,000	$ 9,600,000
Payment for administrative fees		100,000	100,000	$ 300,000	200,000
Related party transaction, date				Dec. 31, 2024
Sublease income		300,000	300,000	$ 900,000	900,000
Related party transaction, due from (to) related party		(4,700,000)		$ (4,700,000)		$ (3,500,000)
Leased Property
Related Party Transaction [Line Items]
Property plant and equipment, occupied square feet | ft²				34,000
Not for Profit Organization
Related Party Transaction [Line Items]
Related party transaction, amounts of transaction		0	0	$ 1,000,000	0
Like Minded Media Ventures
Related Party Transaction [Line Items]
Related party transaction, due from (to) related party		100,000		100,000		$ 0
Related party transaction, expenses from transactions with related party		0	0	600,000	0
Reimbursement Fee
Related Party Transaction [Line Items]
Related party transaction, expenses from transactions with related party		$ 0	$ 100,000	0	$ 100,000
Like Minded Labs
Related Party Transaction [Line Items]
Finite-lived license agreements, gross							$ 3,000,000
Vantrix Corp | Purchase Commitment
Related Party Transaction [Line Items]
Related party transaction, purchases from related party	$ 500,000
Vantrix Corp | 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

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Inventories - Components of Inventory (Details) - USD ($) $ in Millions	6 Months Ended
	Oct. 01, 2022	Jan. 01, 2022
Inventory Disclosure [Abstract]
Raw materials	$ 205.5	$ 128.3
Work-in-process	30.4	17.1
Finished goods	259.5	56.0
Total inventories	495.4	$ 201.4
Sound United
Inventory [Line Items]
Step-up amortization	$ 53.3

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Other Current Assets (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Prepaid expenses	$ 66.1	$ 30.9
Lease receivable, current	30.1	28.7
Indirect taxes receivable	27.1	12.8
Prepaid income taxes	19.8	7.0
Prepaid rebates and royalties, current	3.7	2.8
Contract assets, current	2.7	2.1
Restricted cash	2.5	3.0
Customer notes receivable	0.8	2.4
Other current assets	6.3	1.3
Total other current assets	$ 159.1	$ 91.0

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Lease Receivable (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Leases [Abstract]
Variable lease income	$ 16.0	$ 12.0	$ 40.0	$ 40.0

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Lease Receivable - Sales-Type (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Leases [Abstract]
Lease receivable	$ 110.0	$ 102.6
Allowance for credit loss	(0.3)	(0.3)
Lease receivable, net	109.7	102.3
Less: current portion of lease receivable	(30.1)	(28.7)
Lease receivable, noncurrent	$ 79.6	$ 73.6

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Lease Receivable - Sales-type Lease, Maturity (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Sales-Type Leases
2022 (balance of year)	$ 7.8
2023	29.1
2024	25.4
2025	19.9
2026	13.4
Thereafter	14.1
Total	109.7
Less: imputed interest	0.0
Lease receivable, net	109.7	$ 102.3
Operating Leases
2022 (balance of year)	0.7
2023	2.6
2024	2.5
2025	2.5
2026	2.3
Thereafter	4.8
Total	$ 15.4
Discount rate used to measure the net investment in lease	0.00%

XML

Deferred Costs and Other Contract Assets (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Deferred commissions	$ 16.0	$ 11.9
Prepaid contract allowances	12.5	8.6
Unbilled contract receivables	7.3	5.0
Deferred equipment agreements, net	1.2	2.6
Deferred costs and other contract assets	$ 37.0	$ 28.1

XML

Property and Equipment, net (Details) $ in Millions, $ in Millions		3 Months Ended		9 Months Ended
	Feb. 14, 2022 CAD ($)	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Jan. 01, 2022 USD ($)
Property, Plant and Equipment [Line Items]
Total property and equipment		$ 556.1		$ 556.1		$ 430.3
Accumulated depreciation		(183.9)		(183.9)		(157.5)
Property and equipment, net		372.2		372.2		272.8
Depreciation		12.6	$ 6.5	31.1	$ 18.8
Depreciation expense under operating leases		0.9	$ 0.0	1.0	$ 0.0
Property, plant and equipment, additions	$ 123.0
Escrow deposit	$ 21.0
Building and building improvements
Property, Plant and Equipment [Line Items]
Total property and equipment		150.0		150.0		142.1
Machinery, equipment and tooling
Property, Plant and Equipment [Line Items]
Total property and equipment		140.0		140.0		103.5
Land
Property, Plant and Equipment [Line Items]
Total property and equipment		64.0		64.0		57.0
Computer equipment and software
Property, Plant and Equipment [Line Items]
Total property and equipment		41.6		41.6		32.5
Transportation, vehicles and other
Property, Plant and Equipment [Line Items]
Total property and equipment		32.7		32.7		33.1
Leasehold improvements
Property, Plant and Equipment [Line Items]
Total property and equipment		30.9		30.9		21.9
Operating lease assets
Property, Plant and Equipment [Line Items]
Total property and equipment		22.8		22.8		0.0
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Total property and equipment		17.8		17.8		14.2
Demonstration units
Property, Plant and Equipment [Line Items]
Total property and equipment		10.4		10.4		0.9
Construction-in-progress (CIP)
Property, Plant and Equipment [Line Items]
Total property and equipment		$ 45.9		$ 45.9		$ 25.1

XML

Intangible Assets, net - Schedule of Finite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Apr. 11, 2022	Oct. 01, 2022	Jan. 01, 2022
Intangible assets subject to amortization:
Gross Carrying Amount		$ 515.2	$ 118.5
Accumulated Amortization		(68.6)	(46.0)
Net Carrying Amount		446.6	72.5
Intangible assets not subject to amortization:
Net Carrying Amount		262.0	0.0
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Intangible assets, net		708.6	72.5
Trademarks
Intangible assets not subject to amortization:
Net Carrying Amount		262.0	0.0
Customer relationships
Intangible assets subject to amortization:
Gross Carrying Amount		220.6	24.6
Accumulated Amortization		(16.1)	(9.3)
Net Carrying Amount		204.5	15.3
Acquired technologies
Intangible assets subject to amortization:
Gross Carrying Amount		183.5	28.4
Accumulated Amortization		(19.6)	(8.7)
Net Carrying Amount		163.9	19.7
Patents
Intangible assets subject to amortization:
Gross Carrying Amount		33.9	31.5
Accumulated Amortization		(13.3)	(12.2)
Net Carrying Amount		20.6	19.3
Licenses
Intangible assets subject to amortization:
Gross Carrying Amount		37.8	8.1
Accumulated Amortization		(3.6)	(2.0)
Net Carrying Amount		34.2	6.1
Licenses | Cercacor Laboratories
Intangible assets subject to amortization:
Gross Carrying Amount		7.5	7.5
Accumulated Amortization		(6.3)	(6.0)
Net Carrying Amount		1.2	1.5
Trademarks
Intangible assets subject to amortization:
Gross Carrying Amount		18.7	12.2
Accumulated Amortization		(5.2)	(4.1)
Net Carrying Amount		13.5	8.1
Non-compete agreements
Intangible assets subject to amortization:
Gross Carrying Amount		6.3	0.3
Accumulated Amortization		(0.7)	0.0
Net Carrying Amount		5.6	0.3
Non-compete agreements | Sound United
Intangible assets subject to amortization:
Finite-lived intangible assets acquired	$ 6.0
Capitalized software development costs
Intangible assets subject to amortization:
Gross Carrying Amount		5.3	4.3
Accumulated Amortization		(2.8)	(2.6)
Net Carrying Amount		2.5	1.7
Other
Intangible assets subject to amortization:
Gross Carrying Amount		1.6	1.6
Accumulated Amortization		(1.0)	(1.1)
Net Carrying Amount		$ 0.6	$ 0.5

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Intangible Assets, net - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Finite-Lived Intangible Assets [Line Items]
Amortization of intangible assets	$ 10.3	$ 2.7	$ 25.5	$ 7.6
Minimum
Finite-Lived Intangible Assets [Line Items]
Weighted average amortization period (in years)			12 years
Maximum
Finite-Lived Intangible Assets [Line Items]
Weighted average amortization period (in years)			14 years
Patents And Trademarks
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets, cost incurred to renew or extend	$ 0.3	$ 0.9	$ 1.0	$ 1.3
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			6 years

XML

Intangible Assets, net - Future Amortization Expense (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
2022 (balance of year)	$ 14.1
2023	28.7
2024	28.4
2025	27.4
2026	25.6
Thereafter	322.4
Net Carrying Amount	$ 446.6	$ 72.5

XML

Goodwill (Details) $ in Millions	9 Months Ended
	Oct. 01, 2022 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning of period	$ 100.3
Increase from business combinations	351.5
Foreign currency translation adjustment	(5.5)
Goodwill, end of period	446.3
Healthcare
Goodwill [Roll Forward]
Goodwill, beginning of period	100.3
Increase from business combinations	0.0
Foreign currency translation adjustment	(5.5)
Goodwill, end of period	94.8
Non-healthcare
Goodwill [Roll Forward]
Goodwill, beginning of period	0.0
Increase from business combinations	351.5
Foreign currency translation adjustment	0.0
Goodwill, end of period	$ 351.5

XML

Lessee ROU Assets and Lease Liabilities (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021	Jan. 01, 2022
Leases [Abstract]
Lessee, operating lease, renewal term	5 years		5 years
Operating lease, weighted average discount rate	3.80%		3.80%
Accumulated amortization for lessee ROU assets	$ 31.9		$ 31.9		$ 15.2
Weighted average remaining lease term	5 years 10 months 24 days		5 years 10 months 24 days
Operating lease costs	$ 4.8	$ 2.1	$ 12.6	$ 6.2

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Lessee ROU Assets and Lease Liabilities Lessee Operating Lease Balance Sheet Classification (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Leases [Abstract]
Lessee ROU assets	$ 69.8	$ 30.5
Lessee lease liabilities, current	18.5	6.4
Lessee non-current lease liabilities	54.5	26.3
Total operating lease liabilities	$ 73.0	$ 32.7

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Lessee ROU Assets and Lease Liabilities Future Maturities Operating Lease Payments (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Leases [Abstract]
2022 (balance of year)	$ 5.0
2023	19.4
2024	16.0
2025	12.1
2026	8.5
Thereafter	21.0
Total	82.0
Imputed interest	(9.0)
Present value	$ 73.0	$ 32.7

XML

Other Non-Current Assets (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Other Assets, Longterm [Abstract]
Lessee ROU assets, net	$ 69.8	$ 30.5
Derivative assets - non-current	19.4	0.0
Strategic investments	13.8	13.8
Prepaid deposits and other	7.2	3.9
Other non-current assets	0.4	0.4
Total non-current assets	$ 110.6	$ 48.6

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Deferred Revenue and Other Contract Liabilities, Current (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Revenue Recognition and Deferred Revenue [Abstract]
Deferred revenue	$ 56.7	$ 35.1
Accrued rebates and allowances	36.4	13.6
Accrued customer reimbursements	7.2	7.4
Total deferred revenue and other contract liabilities	100.3	56.1
Less: Non-current portion of deferred revenue	(22.7)	(5.2)
Deferred revenue and other contract liabilities - current	$ 77.6	$ 50.9

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Deferred Revenue and Other Contract Liabilities, Current - Narrative (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022	Oct. 31, 2020
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Unrecognized contract revenue	$ 1,238.1
Deferred revenue	56.7	$ 35.1
Bowers and Wilkins
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Royalty prepayment			$ 20.0
Deferred revenue	22.0		$ 35.0
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-07-03
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Unrecognized contract revenue	$ 347.8
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-07-03 | Twelve Months and Thereafter
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Revenue remaining performance obligation, expected timing of satisfaction	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-02
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
Revenue remaining performance obligation, expected timing of satisfaction	1 year

XML

Deferred Revenue and Other Contract Liabilities, Current - Changes in Deferred Revenue (Details) $ in Millions	9 Months Ended
	Oct. 01, 2022 USD ($)
Movement in Deferred Revenue [Roll Forward]
Deferred revenue, beginning of the period	$ 35.1
Increase from business combinations	18.6
Revenue deferred during the period	29.2
Recognition of revenue deferred in prior periods	(26.2)
Deferred revenue, end of the period	$ 56.7

XML

Other Current Liabilities (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Accrued Liabilities [Abstract]
Accrued expenses	$ 40.5	$ 12.1
Accrued indirect taxes payable	26.5	16.3
Income tax payable	18.7	12.0
Lessee lease liabilities, current	18.5	6.4
Current portion of long-term debt	13.8	0.0
Accrued warranty	9.4	2.5
Accrued property taxes	6.0	2.0
Accrued legal fees	5.8	7.1
Related party payables	4.7	3.6
Accrued donations	1.6	3.7
Other current liabilities	6.0	4.7
Total other current liabilities	$ 151.5	$ 70.4

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Debt - Schedule of Debt (Details) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Debt Instrument [Line Items]
Short-term debt	$ 13.8	$ 0.0
Long-term debt	951.4	0.0
Total debt	965.2	0.0
Term Loan
Debt Instrument [Line Items]
Short-term debt	7.5	0.0
Long-term debt	280.3	0.0
Revolver
Debt Instrument [Line Items]
Long-term debt	660.6	0.0
Japanese Loans
Debt Instrument [Line Items]
Short-term debt	6.3	0.0
Long-term debt	$ 10.5	$ 0.0

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Debt - Narrative (Details) ¥ in Millions, $ in Millions		1 Months Ended	3 Months Ended		9 Months Ended
	Apr. 11, 2022 USD ($)	Mar. 31, 2020 USD ($)	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Oct. 01, 2022 JPY (¥)	May 16, 2022 USD ($)	Apr. 10, 2022 USD ($)	May 31, 2021 USD ($)	May 31, 2021 JPY (¥)	Apr. 30, 2021 USD ($)	Apr. 30, 2021 JPY (¥)	Jun. 30, 2020 USD ($)	Jun. 30, 2020 JPY (¥)	Mar. 31, 2020 JPY (¥)
New Credit Facility Agreement
Debt Instrument [Line Items]
Accordion feature, increase limit	$ 400.0
New Credit Facility Agreement | Adjusted Secured Overnight Financing Rate (SOFR)
Debt Instrument [Line Items]
Variable rate	1.00%
New Credit Facility Agreement | Fed Funds Effective Rate Overnight Index Swap Rate
Debt Instrument [Line Items]
Variable rate	0.50%
New Credit Facility Agreement | Adjusted Secured Overnight Financing Rate (SOFR), One-Month Interest Period
Debt Instrument [Line Items]
Variable rate	0.10%
New Credit Facility Agreement | Adjusted Secured Overnight Financing Rate (SOFR), Three-Month Interest Period
Debt Instrument [Line Items]
Variable rate	0.15%
New Credit Facility Agreement | Adjusted Secured Overnight Financing Rate (SOFR), Six-Month Interest Period
Debt Instrument [Line Items]
Variable rate	0.25%
New Credit Facility Agreement | Minimum
Debt Instrument [Line Items]
Commitment fee percentage	0.15%
New Credit Facility Agreement | Minimum | Alternate Base Rate
Debt Instrument [Line Items]
Variable rate	0.00%
New Credit Facility Agreement | Minimum | Adjusted Secured Overnight Financing Rate (SOFR)
Debt Instrument [Line Items]
Variable rate	1.00%
New Credit Facility Agreement | Maximum
Debt Instrument [Line Items]
Commitment fee percentage	0.275%
New Credit Facility Agreement | Maximum | Alternate Base Rate
Debt Instrument [Line Items]
Variable rate	0.75%
New Credit Facility Agreement | Maximum | Adjusted Secured Overnight Financing Rate (SOFR)
Debt Instrument [Line Items]
Variable rate	1.75%
Japanese Government Loans
Debt Instrument [Line Items]
Debt instrument face amount														$ 10.2	¥ 1,480.0
Average interest rate														1.33%	1.33%
Japanese Equipment Loans
Debt Instrument [Line Items]
Debt instrument face amount										$ 0.5	¥ 80.0	$ 1.0	¥ 150.0
Average interest rate										1.20%	1.20%	0.58%	0.58%
Revolving Credit Facility
Debt Instrument [Line Items]
Maximum sublimit									$ 25.0
Foreign Line of Credit
Debt Instrument [Line Items]
Maximum sublimit									75.0
Revolving Credit Facility
Debt Instrument [Line Items]
Current borrowing capacity									150.0
Maximum borrowing capacity									$ 550.0
Interest expense			$ 9.7	$ 0.1	$ 14.3	$ 0.3
Revolving Credit Facility | New Credit Facility Agreement
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 500.0							$ 705.0
Accordion feature, increase limit								$ 205.0
Revolving Credit Facility | Line of Credit | Japanese Revolving Loan
Debt Instrument [Line Items]
Maximum borrowing capacity		$ 5.5														¥ 800.0
Debt issuance costs		$ 0.1														¥ 7.2
Variable rate		0.50%
Line of credit current			$ 5.5		$ 5.5		¥ 800.0
Revolving Credit Facility | Line of Credit | Lenders
Debt Instrument [Line Items]
Debt issuance costs	0.1
Revolving Credit Facility | Line of Credit | Initial Lenders
Debt Instrument [Line Items]
Debt issuance costs	8.4
Unsecured Debt | New Credit Facility Agreement
Debt Instrument [Line Items]
Maximum borrowing capacity	300.0
Letter of Credit | New Credit Facility Agreement
Debt Instrument [Line Items]
Maximum borrowing capacity	$ 50.0

XML

Debt - Maturity Debt Schedule (Details) $ in Millions	Oct. 01, 2022 USD ($)
Debt Disclosure [Abstract]
2022 (balance of the year)	$ 7.5
2023	8.6
2024	14.8
2025	16.6
2026	16.6
Thereafter	901.1
Total	$ 965.2

XML

Other Non-Current Liabilities - (Detail) - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Other Liabilities, Long Term [Abstract]
Lessee non-current lease liabilities	$ 54.5	$ 26.3
Deferred revenue, non-current	22.7	5.2
Unrecognized tax benefits	17.5	14.9
Income tax payable, non-current	12.7	17.0
Retirement allowance	10.9	0.0
Indirect tax payable, non-current	7.5	0.0
Other	0.1	0.6
Total other non-current liabilities	$ 125.9	$ 64.0

XML

Derivative Instruments and Hedging Activities - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Net of tax gain on derivatives	$ 14.7	$ 0.0	$ 14.7	$ 0.0
Designated as Hedging Instrument | Interest rate contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Average fixed interest rate related to derivative contracts	2.75%		2.75%
Maturities of derivative contracts			5 years

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Derivative Instruments and Hedging Activities - Schedule of Fair Value of Hedging Instruments (Details) - Designated as Hedging Instrument - USD ($) $ in Millions	Oct. 01, 2022	Jan. 01, 2022
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Fair value of hedging instruments	$ 19.4	$ 0.0
Interest rate contracts | Other non-current assets
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Fair value of hedging instruments	$ 19.4	$ 0.0

XML

Derivative Instruments and Hedging Activities - Schedule of Gain (Losses) Reclassified from AOCI (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Oct. 01, 2022	Oct. 01, 2022
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Gains (losses) reclassified from accumulated other comprehensive income	$ 0.8	$ 0.8
Designated as Hedging Instrument | Interest rate contracts | Non-operating loss (income)
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Gains (losses) reclassified from accumulated other comprehensive income	$ 0.8	$ 0.8

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Derivative Instruments and Hedging Activities - Schedule of Accumulated Other Comprehensive Income Related to Hedging Instruments (Details) $ in Millions	3 Months Ended
	Oct. 01, 2022 USD ($)
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	$ 1,202.7
Ending balance	1,252.6
Accumulated Gain (Loss), Cash Flow Hedge, Including Noncontrolling Interest
AOCI Including Portion Attributable to Noncontrolling Interest, Net of Tax [Roll Forward]
Beginning balance	0.0
Amount recognized in other comprehensive income	18.6
Amount reclassified into earnings	0.8
Ending balance	$ 19.4

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Business Combinations - Narrative (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended	9 Months Ended
	Apr. 11, 2022	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 01, 2022	Oct. 02, 2021
Business Acquisition [Line Items]
Revenue		$ 549.3	$ 307.4		$ 1,418.8	$ 911.6
Purchase price allocation completion, term (in years)		1 year		1 year	1 year
Operating Segments
Business Acquisition [Line Items]
Revenue		$ 549.3	307.4		$ 1,418.8	911.6
Non-healthcare
Business Acquisition [Line Items]
Net loss				$ (26.7)
Non-healthcare | Operating Segments
Business Acquisition [Line Items]
Revenue		222.1	$ 0.0		430.3	$ 0.0
Sound United
Business Acquisition [Line Items]
Percentage of voting interests acquired	100.00%
Cash consideration	$ 1,065.0
Transaction costs		18.1		18.1	18.1
Adjustments to goodwill from purchase price allocation				14.0
Profit Interests Units, value	$ 49.3
Sound United | Selling, General and Administrative Expenses
Business Acquisition [Line Items]
Transaction costs		16.6		16.6	16.6
Sound United | Sound United
Business Acquisition [Line Items]
Transaction costs		$ 41.1		$ 41.1	$ 41.1

XML

Business Combinations - Fair Value of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Millions	Apr. 11, 2022	Oct. 01, 2022	Jan. 01, 2022
Assets acquired:
Goodwill		$ 446.3	$ 100.3
Sound United
Business Acquisition [Line Items]
Cash consideration	$ 1,065.0
Purchase price	1,065.0
Assets acquired:
Cash and cash equivalents	82.6
Accounts receivables	111.3
Inventories	233.0
Prepaid expenses and other current assets	37.5
Property, plant and equipment	100.0
Intangible asset	649.0	$ 649.0
Goodwill	351.5
Long-term other assets	7.2
Total assets acquired	1,572.1
Liabilities assumed:
Accounts payable	(118.8)
Accrued liabilities and other current liabilities	(165.0)
Deferred tax liabilities	(157.7)
Other long-term liabilities	(65.6)
Total liabilities assumed	$ (507.1)

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Business Combinations - Schedule of Acquired Intangible Assets (Details) - Sound United - USD ($) $ in Millions	9 Months Ended
	Oct. 01, 2022	Apr. 11, 2022
Business Acquisition [Line Items]
Weighted average amortization period (in years)	14 years
Intangible asset	$ 649.0	$ 649.0
Trademarks/tradenames
Business Acquisition [Line Items]
Weighted average amortization period (in years)	10 years
Intangible asset	$ 268.0
Customer relationships
Business Acquisition [Line Items]
Weighted average amortization period (in years)	17 years
Intangible asset	$ 196.0
Developed technology
Business Acquisition [Line Items]
Weighted average amortization period (in years)	8 years
Intangible asset	$ 156.0
Contractual license agreements
Business Acquisition [Line Items]
Weighted average amortization period (in years)	15 years
Intangible asset	$ 29.0

XML

Business Combinations - Pro Forma Information (Details) - Sound United - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Pro forma net revenue	$ 549.3	$ 534.6	$ 1,676.4	$ 1,556.3
Pro forma net income (loss)	$ 38.0	$ 85.6	$ 127.0	$ 54.1

XML

Equity - Additional Information (Detail) - $ / shares	1 Months Ended			3 Months Ended		9 Months Ended
	Oct. 31, 2021	Sep. 30, 2021	Jul. 31, 2018	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021	Sep. 20, 2022	Jun. 30, 2022	Jan. 01, 2022
Class of Stock [Line Items]
Preferred stock, par value (in dollars per share)				$ 0.001		$ 0.001				$ 0.001
Repurchase of common stock (in shares)		1,300,000		0	0	3,000,000.0	500,000
Rights to Purchase Series A Junior Participating Preferred Stock
Class of Stock [Line Items]
Preferred stock purchase right declared for each share of common stock								1
Preferred stock, par value (in dollars per share)								$ 0.001
Purchase price per each right (in dollars per share)								$ 1,000
Rights to Purchase Series A Junior Participating Preferred Stock | Minimum
Class of Stock [Line Items]
Threshold percentage to exercise purchase right								10.00%
Rights to Purchase Series A Junior Participating Preferred Stock | Maximum
Class of Stock [Line Items]
Threshold percentage to exercise purchase right								20.00%
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
Stock repurchase program, period			3 years
2021 Repurchase Program | Common Stock
Class of Stock [Line Items]
Number of common shares authorized to be repurchased under new stock repurchase program	3,000,000
Stock repurchase program, period	3 years
2022 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
Stock repurchase program, remaining number of shares available for repurchase (in shares)				5,000,000		5,000,000

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Equity - Schedule of Stock Repurchase Activities (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	1 Months Ended	3 Months Ended				9 Months Ended
	Sep. 30, 2021	Oct. 01, 2022	Jul. 02, 2022	Oct. 02, 2021	Apr. 03, 2021	Oct. 01, 2022	Oct. 02, 2021
Equity [Abstract]
Shares repurchased (in shares)	1.3	0.0		0.0		3.0	0.5
Average cost per share (in dollars per share)		$ 0		$ 0		$ 133.82	$ 235.88
Value of shares repurchased		$ 0.0	$ 401.4	$ 0.0	$ 128.9	$ 401.4	$ 128.9

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Millions	1 Months Ended	3 Months Ended		9 Months Ended
	May 31, 2020	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021	Jun. 01, 2017
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense		$ 13.5	$ 12.6	$ 41.7	$ 33.5
Common stock, capital shares reserved for future issuance (in shares)		10,100,000		10,100,000
Options available for grant, end of period (in shares)		3,600,000		3,600,000
Share-based compensation arrangement, award vesting rights				three
Aggregate intrinsic value of options outstanding		$ 190.7		$ 190.7
Aggregate intrinsic value of options exercisable		186.1		186.1
Aggregate intrinsic value of options exercised				12.1
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense		2.7	3.2	9.1	9.9
Share-based payment arrangement, cost not yet recognized, amount		21.6		$ 21.6
Share-based payment arrangement, period for recognition (in years)				2 years 6 months
Share-based compensation arrangement, weighted average remaining contractual term (in years)				4 years 6 months
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense		3.6	2.4	$ 10.7	6.7
Share-based payment arrangement, nonvested award, cost not yet recognized, amount		57.6		$ 57.6
Share-based compensation arrangement outstanding, weighted average remaining contractual terms (in years)				3 years 9 months 18 days
Granted (in units)				300,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock compensation expense		7.2	$ 7.0	$ 21.9	$ 16.9
Share-based payment arrangement, nonvested award, cost not yet recognized, amount		$ 60.5		$ 60.5
Share-based compensation arrangement outstanding, weighted average remaining contractual terms (in years)				1 year 7 months 6 days
Granted (in units)				300,000
Performance Shares | Minimum | 2021 PSU Grant
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in units)				142,900
Share-based compensation arrangement by share-based payment award, range of percentage payout		0.00%		0.00%
Performance Shares | Maximum | 2021 PSU Grant
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in units)				162,800
Share-based compensation arrangement by share-based payment award, range of percentage payout		200.00%		200.00%
2017 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, number of additional shares authorized (in shares)	2,500,000
2017 Equity Incentive Plan | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period (in shares)						5,000,000
2017 Equity Incentive Plan | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period (in shares)		7,500,000		7,500,000
2007 Stock Incentive Plan | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options available for grant, end of period (in shares)		5,000,000		5,000,000

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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 Millions	9 Months Ended
	Oct. 01, 2022
Shares
Options outstanding, beginning of period (in shares)	3.0
Granted (in shares)	0.1
Canceled (in shares)	(0.1)
Exercised (in shares)	(0.1)
Options outstanding, end of period (in shares)	2.9
Options exercisable, end of period (in shares)	2.4
Weighted-Average Exercise Price
Options outstanding, beginning of period (in usd per share)	$ 81.38
Granted (in usd per share)	150.91
Canceled (in usd per share)	160.95
Exercised (in usd per share)	57.17
Options outstanding, end of period (in usd per share)	83.85
Options exercisable, end of period (in dollars per share)	$ 65.32

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Stock-Based Compensation - Stock Units Activity (Detail) - $ / shares shares in Millions	9 Months Ended
	Oct. 01, 2022	Jan. 01, 2022
Restricted Stock Units (RSUs)
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Outstanding, beginning of period (in units)	2.9
Granted (in units)	0.3
Canceled (in units)	0.0
Expired (in units)	(0.1)
Vested (in units)	0.0
Outstanding, end of period (in units)	3.1
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted average grant date fair value, beginning of period (in usd per unit)	$ 105.78	$ 104.13
Weighted average grant date fair value, granted (in usd per unit)	149.50
Weighted average grant date fair value, canceled (in usd per unit)	0
Weighted average grant date fair value, expired (in usd per unit)	170.37
Weighted average grant date fair value, vested (in usd per unit)	183.66
Weighted average grant date fair value, granted, end of period (in usd per unit)	$ 105.78
Performance Shares
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Outstanding, beginning of period (in units)	0.3
Granted (in units)	0.3
Canceled (in units)	0.0
Expired (in units)	(0.1)
Vested (in units)	(0.2)
Outstanding, end of period (in units)	0.3
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted average grant date fair value, beginning of period (in usd per unit)	$ 178.51	$ 168.68
Weighted average grant date fair value, granted (in usd per unit)	145.49
Weighted average grant date fair value, canceled (in usd per unit)	0
Weighted average grant date fair value, expired (in usd per unit)	139.73
Weighted average grant date fair value, vested (in usd per unit)	127.46
Weighted average grant date fair value, granted, end of period (in usd per unit)	$ 178.51

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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		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Range of assumptions used and resulting weighted-average fair value of options granted at the date of grant
Risk-free interest rate	0.00%			0.00%
Risk-free interest rate, minimum			1.00%	0.30%
Risk-free interest rate, maximum			1.90%	0.90%
Expected term (in years)	0 years	5 years 1 month 6 days	5 years 8 months 12 days	5 years 7 months 6 days
Estimated volatility	0.00%			0.00%
Estimated volatility, minimum			31.20%	30.90%
Estimated volatility, maximum			38.90%	34.70%
Expected dividends	0.00%	0.00%	0.00%	0.00%
Weighted-average fair value of options granted (in dollars per share)	$ 0	$ 66.53	$ 49.69	$ 75.72

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Employee Benefits - Narrative (Details) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022 USD ($) plan	Oct. 02, 2021 USD ($)	Oct. 01, 2022 USD ($) plan	Oct. 02, 2021 USD ($)
Defined Contribution Plan Disclosure [Line Items]
Defined contribution plan, number of plans	1		1
Defined benefit plan, number of plans	2		2
Expected rate of return on plan assets			0.00%
Masimo Retirement Savings Plan
Defined Contribution Plan Disclosure [Line Items]
Percent of match			3.00%
Company's contribution to employee retirement savings plan | $	$ 1.8	$ 0.9	$ 4.5	$ 2.8

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Non-operating (loss) income (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Nonoperating Income (Expense) [Abstract]
Interest income	$ 0.5	$ 0.2	$ 1.0	$ 0.7
Interest expense	(9.7)	0.0	(14.3)	(0.2)
Realized and unrealized foreign currency gains (losses)	6.4	(0.2)	14.3	(1.2)
Total non-operating (loss) income	$ (2.8)	$ 0.0	$ 1.0	$ (0.7)

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Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022	Oct. 02, 2021	Oct. 01, 2022	Oct. 02, 2021
Income Tax Disclosure [Abstract]
Other tax expense (benefit)	$ 0.3	$ 6.4	$ 2.2	$ 12.0
Gross unrecognized tax benefit	24.5		24.5
Unrecognized tax benefit that would affect effective tax rate	$ 22.4		$ 22.4

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Commitments and Contingencies - Additional Information (Detail)						1 Months Ended	3 Months Ended		9 Months Ended
	Oct. 19, 2022 appeal patent	Sep. 16, 2022	Aug. 05, 2022 appeal patent	Apr. 21, 2021 patent	Jan. 02, 2014 USD ($)	Jul. 31, 2017	Oct. 01, 2022 USD ($) Customer distributor executiveOfficer	Oct. 02, 2021 distributor	Oct. 01, 2022 USD ($) Customer distributor executiveOfficer	Oct. 02, 2021 distributor	Oct. 20, 2022 complaint	Jan. 01, 2022 Customer
Contingencies And Commitments [Line Items]
Severance plan participation agreements | executiveOfficer							5		5
Required notice of resignation									6 months
Royalty obligation							$ 5,000,000		$ 5,000,000
License fee							2,500,000		2,500,000
Change in control							15,000,000		15,000,000
Royalty guarantees, commitments, additional, change in control							2,000,000		2,000,000
Remaining commitment							386,800,000		386,800,000
Other commitment							4,700,000		4,700,000
Bank balances							219,500,000		219,500,000
Bank balance covered by Federal Deposit Insurance Corporation limit							$ 8,200,000		$ 8,200,000
Percentage of revenue one customer							8.90%	15.00%	10.50%	14.60%
Percentage of revenue two customer								10.40%		10.40%
Concentration risk, AR balance one customer | Customer							1		1			1
Masimo vs. Physicians Healthsource, Inc.
Contingencies And Commitments [Line Items]
Loss contingency, damages sought					$ 500
Masimo Vs. Apple Inc | Pending Litigation
Contingencies And Commitments [Line Items]
Asserted patents found valid | patent				3
Asserted patents found invalid | patent				9
Apple, Inc. Patent Infringement | Pending Litigation
Contingencies And Commitments [Line Items]
Number of appeals | appeal			1
Number of asserted patents | patent			5
Apple, Inc. Patent Infringement | Pending Litigation | Subsequent Event
Contingencies And Commitments [Line Items]
Number of appeals | appeal	2
Number of asserted patents | patent	2
Number of complaints | complaint											2
Sales
Contingencies And Commitments [Line Items]
Distributors | distributor							1	2	1	2
Accounts Receivable
Contingencies And Commitments [Line Items]
Percentage of accounts receivable balance							12.20%		12.20%			15.70%
Sales Revenue, Product Line
Contingencies And Commitments [Line Items]
Percentage of revenue - customer concentration							54.00%	55.00%	52.90%	51.80%
Chief Executive Officer
Contingencies And Commitments [Line Items]
Severance payment period						3 years
Qualifying termination									$ 664,300,000
Chief Executive Officer | Cash Distribution
Contingencies And Commitments [Line Items]
Severance terms						50.00%
Chief Executive Officer | Restricted Stock Units (RSUs)
Contingencies And Commitments [Line Items]
Severance terms						50.00%
Chief Operating Officer
Contingencies And Commitments [Line Items]
Severance payment period		36 months
Chief Operating Officer | Restricted Stock Units (RSUs)
Contingencies And Commitments [Line Items]
Severance terms		50.00%

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Segment and Enterprise Reporting - Segment Information (Detail) $ in Millions	3 Months Ended		9 Months Ended
	Oct. 01, 2022 USD ($)	Oct. 02, 2021 USD ($)	Oct. 01, 2022 USD ($) segment	Oct. 02, 2021 USD ($)	Jan. 01, 2022 USD ($)
Segment Reporting [Abstract]
Number of operating segments | segment			2
Number of reportable segments | segment			2
Segment Reporting Information [Line Items]
Total revenue by segment	$ 549.3	$ 307.4	$ 1,418.8	$ 911.6
Gross profit:	$ 282.5	$ 203.6	$ 745.4	$ 593.5
Gross profit margin:	51.40%	66.20%	52.50%	65.10%
Operating income (loss):	$ 54.8	$ 67.6	$ 136.7	$ 198.4
Interest income	0.5	0.2	1.0	0.7
Interest expense	(9.7)	0.0	(14.3)	(0.2)
Other expense (income), net	6.4	(0.2)	14.3	(1.2)
Income before provision for income taxes	52.0	67.6	137.7	197.7
Depreciation and amortization	22.9	9.2	56.6	26.4
Total assets	3,056.4		3,056.4		$ 1,887.0
Operating Segments
Segment Reporting Information [Line Items]
Total revenue by segment	549.3	307.4	1,418.8	911.6
Corporate overhead
Segment Reporting Information [Line Items]
Gross profit:	$ 0.0	$ 0.0	$ 0.0	$ 0.0
Gross profit margin:	0.00%	0.00%	0.00%	0.00%
Operating income (loss):	$ (14.2)	$ 0.0	$ 0.0	$ 0.0
Total assets	19.3		19.3		20.6
Segment Reconciling Items
Segment Reporting Information [Line Items]
Gross profit:	$ (6.6)	$ (0.8)	$ (58.4)	$ (6.1)
Gross profit margin:	(1.20%)	(0.10%)	(10.60%)	(1.10%)
Operating income (loss):	$ (26.6)	$ 0.0	$ 0.0	$ 0.0
Total assets	0.0		0.0		0.0
Non-healthcare
Segment Reporting Information [Line Items]
Depreciation and amortization	13.9	0.0	29.5	0.0
Non-healthcare | Operating Segments
Segment Reporting Information [Line Items]
Total revenue by segment	222.1	0.0	430.3	0.0
Gross profit:	$ 77.7	$ 0.0	$ 150.3	$ 0.0
Gross profit margin:	35.00%	0.00%	34.90%	0.00%
Operating income (loss):	$ 14.7	$ 0.0	$ 0.0	$ 0.0
Total assets	1,522.9		1,522.9		0.0
Healthcare
Segment Reporting Information [Line Items]
Depreciation and amortization	9.0	9.2	27.1	26.4
Healthcare | Operating Segments
Segment Reporting Information [Line Items]
Total revenue by segment	327.2	307.4	988.5	911.6
Gross profit:	$ 211.4	$ 204.4	$ 653.5	$ 599.6
Gross profit margin:	64.60%	66.50%	66.10%	65.80%
Operating income (loss):	$ 80.9	$ 0.0	$ 0.0	$ 0.0
Total assets	$ 1,514.2		$ 1,514.2		$ 1,866.4