Earnings call transcript: Masimo Q3 2025 earnings beat forecasts, stock rises

Masimo Corporation reported a strong performance for the third quarter of 2025, surpassing analysts’ expectations with an adjusted earnings per share (EPS) of $1.32, compared to the forecast of $1.20. The company’s revenue reached $371.5 million, slightly above the anticipated $366.85 million. Following the earnings release, Masimo’s stock experienced a 2.75% increase, closing at $144.96. However, in aftermarket trading, the stock saw a slight decline of 0.66%, reflecting a nuanced investor sentiment.

Key Takeaways

• Masimo’s Q3 EPS exceeded expectations by 10%, highlighting robust financial health.
• Revenue grew by 8% year-over-year, driven by strong demand in healthcare technology.
• The company expanded its strategic partnership with Philips and advanced its AI-enabled innovations.
• Masimo returned $350 million to shareholders through stock repurchases.

Company Performance

Masimo demonstrated solid financial performance in Q3 2025, with significant growth in revenue and EPS. The company’s strategic initiatives, including a partnership with Philips and advancements in AI-enabled smart sensors, have positioned it well in the healthcare technology sector. The completion of the sale of Sound United assets and a focus on cost optimization further strengthened its financial standing.

Financial Highlights

• Revenue: $371 million, an 8% increase year-over-year
• Adjusted EPS: $1.32, a 38% increase from the previous year
• Operating Cash Flow: $57 million
• Gross Margin: 62.2%, a slight decline of 70 basis points
• Operating Margin: 27.1%, an increase of 450 basis points

Earnings vs. Forecast

Masimo’s Q3 EPS of $1.32 surpassed the forecast of $1.20, marking a 10% earnings surprise. The revenue of $371.5 million also exceeded expectations, with a 1.27% surprise. This performance reflects the company’s strong operational execution and strategic growth initiatives.

Market Reaction

Following the earnings announcement, Masimo’s stock rose by 2.75% to close at $144.96. However, in aftermarket trading, the stock experienced a slight dip of 0.66%, settling at $144. The stock’s movement reflects investor confidence in the company’s earnings beat, tempered by cautious sentiment regarding future growth prospects.

Outlook & Guidance

Masimo has provided a full-year revenue guidance of $1,510-$1,530 million, with an operating margin of 27.3%-27.7% and EPS guidance of $5.40-$5.55. The company anticipates strong growth in consumables for Q4 and plans to provide more details at the upcoming Investor Day on December 3rd.

Executive Commentary

CEO Katie Szyman expressed confidence in the company’s future, stating, "We are confident in our ability to deliver on our goals for 2025 and beyond." CFO Micah Young highlighted the company’s financial strength, noting, "Our business’s exceptional earnings power remained evident."

Risks and Challenges

• Supply Chain Disruptions: Potential challenges in sourcing components could impact production.
• Market Saturation: Increasing competition in healthcare technology may affect market share.
• Macroeconomic Pressures: Economic downturns could reduce healthcare spending.
• Regulatory Changes: New regulations in international markets could affect operations.

Q&A

During the earnings call, analysts inquired about the potential of the Philips partnership, challenges in consumables growth, and the strategy for wearable technology. The management clarified these points, emphasizing the strategic importance of AI algorithm development and market expansion.

Full transcript - Masimo Corporation (MASI) Q3 2025:

Conference Moderator: Good afternoon, ladies and gentlemen, and welcome to the Masimo third quarter 2025 earnings conference call. The company’s press release is available at www.masimo.com. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. I’m pleased to introduce Eli Kammerman, Masimo’s Vice President of Business Development and Investor Relations.

Eli Kammerman, Vice President of Business Development and Investor Relations, Masimo: Thank you. Hello, everyone. Joining me today are CEO Katie Szyman and CFO Micah Young. Before we begin, I’d like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess a company’s operating results in the same way management assesses such results.

Furthermore, these non-GAAP financial measures reflect the continuing operations of Masimo’s healthcare business and exclude the Sound United business, which has reported in discontinued operations for both current and historical reporting periods. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures is included within their earnings release, earnings presentation, and supplementary financial information on our website. Investors should consider all of our statements today together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q, in order to make informed investment decisions. I’ll now pass the call to Katie Szyman.

Conference Moderator: Thank you, Eli, and good afternoon, everyone. I just want to do a quick speaker check because we’re getting feedback that there’s a big echo. Is there any possibility that the echo is caused by our computers?

Eli Kammerman, Vice President of Business Development and Investor Relations, Masimo: I’m not logged in to the call. Anybody else?

Katie Szyman, CEO, Masimo: I’ll just keep going. As I complete my first nine months at Masimo this week, we are pleased to share that once again we delivered strong results. Our revenue grew 8% for the quarter driven by strong online demand for innovative technology. We also drove 450 basis points in operating margin expansion, and we increased adjusted earnings per share by 38% year over year. To strengthen our margins and earnings is a direct result of higher revenue and the cost efficiencies and productivity improvements we implemented over the past year. Now, we highlight some exciting news and strong execution from our team this quarter. First, we closed the sale of Sound United’s assets in September, marking a key milestone in our transition back to focusing on our core healthcare market.

Second, we announced the expansion of our strategic partnership with Philips in early September, marking a key milestone in our collaboration. Within Philips’ installed base, we remain significantly underpenetrated relative to our overall share position in the market, and closing this gap represents a compelling growth opportunity for Masimo. We expect the expansion of our share position over the next five years within the Philips installed base will have the potential to be even greater than what we have seen over the previous five years. As two market leaders who have shared a history of success, our partnership continues to strengthen. This new agreement advances our joint mission to our commitment, innovation, and delivery of enhanced value to customers and the broader industry. Our current focus is on accelerating the integration of our monitoring technology beyond the Philips installed base into a variety of Philips multi-parameter patient monitors.

Under this partnership, Philips will expedite the adoption of our AI algorithm across additional devices and market segments. Together, we will develop and co-promote next-gen monitoring technologies, including the integration of capnography with Masimo patient monitors and the launch of next-gen wearables. Third, I want to call out an important study that significantly bolsters our competitive position. During the pandemic, a key concern in this industry emerged that some pulse oximeters can dangerously overestimate blood oxygen levels among patients with dark skin, particularly during low perfusion episodes. We recently announced that an analysis of clinical data from our inspired usability study found that pulse oximetry performed accurately among critically ill adult patients of all skin tones conducted in a real-world hospital environment, including those with low perfusion requiring vasopressors, and these patients reported no unnoticed episodes of hypoxemia.

I want to call out that our competitor studies have been performed mostly on healthy patients where it’s easier to obtain positive results. We are highly encouraged by the zero undetected hypoxemia event rate seen in this study, alongside spot-on accuracy of less than 1% median bias among critically ill adult patients with both dark and light skin under the most challenging real-world circumstances imaginable. We are looking forward to publication of the fully completed Inspire study next year, alongside other similar prospective real-world skin tone accuracy studies for neonates and separately for pediatric patients. We believe this new data clearly demonstrates our superior performance for all patients, regardless of skin tone.

Eli Kammerman, Vice President of Business Development and Investor Relations, Masimo: We’re going to try to disconnect and reconnect. It’s good. Okay.

Katie Szyman, CEO, Masimo: Our sales teams are armed with this new data to continue to drive growth into new accounts. Overall, we’re confident in our technology’s performance where accuracy matters most at the bedside, during motion and low perfusion in the setting of critical illness and procedural care. Now, let me recap our strategic and financial goals and the progress we are making. We continue to invest in our core healthcare business to position for strong, sustainable, long-term growth. Specifically, we are focused on driving three waves of growth ahead. First, elevating commercial excellence. Second, accelerating intelligent monitoring, and third, innovating wearables. In terms of commercial excellence, we are continuing to leverage our leadership position in pulse oximetry to broaden our impact on patients across other advanced monitoring categories. We are consistently winning broader contracts, as evidenced by the growth we are seeing in advanced monitoring.

Recently, we had a big win for capnography with one of our key accounts in the Southeast region that will drive significant capnography growth within the territory. Collaborations like these exemplify our ability to leverage our portfolio to drive growth and deepen relationships with customers that will create more diversified revenue streams over time. In our second wave, accelerating intelligent monitoring, we are very focused on using AI and machine learning to upgrade our sensors and create next-gen monitors. A key part of this is taking the incredibly advanced algorithms the team had developed for use outside the hospital and redeploying these into sensors for use inside hospitals.

One specific example we are working on is to leverage our De Novo grant for opioid HALO that was cleared in April 2023 for detection of opioid-induced respiratory depression to create a hospital solution that can be integrated into our next-generation of smart sensors and AI-enabled patient monitors that are going to launch next year. In 2026, CMS is going to require hospitals to report opioid-related adverse events as a new electronic quality measure required reporting. Our new technology detecting OIRD with our smart sensors will help hospitals keep these patients safe and meet the reporting requirements. This is one of a number of exciting AI-enabled sensor opportunities that we have and that we are planning to launch in the future. As I covered last quarter, our third wave of growth will come from innovating wearables.

We recently announced the finding of a new study from Dartmouth-Hitchcock Medical Center demonstrating that surveillance monitoring with Masimo’s SET pulse oximetry and patient safety nets is operationally cost-effective and saves hospitals money. For context, previously published Dartmouth clinical outcome studies have shown a 43% reduction in transfers to higher levels of care and a 65% reduction in patient rescues, in addition to zero preventable deaths due to opioid-induced respiratory depression over a 10-year implementation period. In the latest study, Dartmouth-Hitchcock calculated that each 10% reduction in rescues and transfers achieved through earlier detection led to projected savings of about $350,000-$400,000 a year, respectively, for 200 general floor beds equipped with Masimo monitoring, which broke down to over $5,500 per rescue event prevented and about $10,700 per higher level of care prevented.

We are confident these findings will apply to the other health systems adopting a curb-to-curb strategy of continuously monitoring all patients inside the hospital. In terms of additional growth opportunities, our diverse portfolio of wearable technology and telehealth solutions continues to be successfully piloted globally to address numerous unmet patient needs. We look forward to sharing more details of our intelligent monitoring of wearable innovations at our upcoming Investor Day on December 3rd. Before I close, I want to thank our global team for their hard work and commitment this quarter. With our highly innovative technologies, we have a unique opportunity to improve outcomes for millions more patients around the world. Our focused execution once again demonstrates the benefits of our recurring revenue contracts and the durable growth profile of our business.

We are looking forward to a strong finish for the year as we realize growth from continued demand and new customer installations throughout this year. As a result of our strong performance, we are pleased to raise our adjusted EPS guidance, which Micah will expand on later in the call. Above all, we are confident in our ability to deliver on our goals for 2025 and beyond and execute on our mission to empower clinicians to transform patient care. With that, I’ll turn it over to Micah.

Micah Young, CFO, Masimo: Thank you, Katie, and good afternoon, everyone. For the third quarter, we once again delivered strong results with revenue growth of 8%, EPS rising 38%, and operating cash flow of $57 million. Healthcare revenue was $371 million, representing 8% growth. We continue to see strong underlying demand trends, as evidenced by trace data, sales pull-through, and other metrics we track. Growth rates this quarter are impacted by unusual year-over-year comparisons. Consumables grew 1% this quarter compared to a growth rate of 20% in the third quarter of 2024. Capital equipment and other revenues grew 67% this quarter compared to a decline of 33% last year. When looked at on a two-year or on a multi-year basis, compound annual growth rates in consumables continue to be double digits, and growth rates in capital are low to mid-single digits.

The incremental value of new contracts secured in the third quarter reached $124 million, marking a robust year-over-year increase of 48%. As we’ve talked about this before, it’s highly dependent on the timing of large contracts that come up for bid throughout each year. This achievement represents the strongest third-quarter contracting performance in our company’s history, fueled by the outstanding results delivered by our U.S. commercial team. Notably, as of the end of the third quarter, the amount of unrecognized contract revenue expected to be realized within the next 12 months was $507 million, representing a year-over-year increase of 17%. As a reminder, contract-related shipments account for approximately one-third of our overall revenue. This quarter, we shipped 66,000 technology boards and monitors, reflecting a strong increase of 8% compared to the 61,000 drivers shipped in the same period last year.

This growth underscores the sustained and accelerating demand for our products, which continues to exceed our initial forecast for the year. Moving down the P&L, our gross margin of 62.2% experienced a decline of 70 basis points compared to the prior year due to tariff impacts outweighing operational improvements. While operational enhancements contributed to a gain of 70 basis points, tariff-related costs caused a margin erosion of 140 basis points. Tariffs increased our cost of sales by $5 million this quarter, aligning with our expectations. Our operating margin of 27.1% increased by 450 basis points year-over-year, driven by operational improvements of 590 basis points, partially offset by a tariff impact of 140 basis points. The cost optimization measures implemented late last year have contributed to solid margin expansion this year despite tariff pressures. Excluding the effects of tariffs, operating margin for this quarter would be 28.5%.

We are proud of the substantial margin expansion our team has achieved in recent years and are confident in our ability to continue improving margins going forward. Our margin expansion, alongside solid revenue growth, was a key factor contributing to adjusted earnings per share of $1.32, representing a 38% increase from the prior year. We generated strong operating cash flow of $57 million and secured net proceeds of $328 million from the strategic divestiture of Sound United in late September. These proceeds were proactively deployed to repay $56 million of outstanding debt and to optimize capital structure through repurchasing $163 million of common stock by the end of the third quarter. The remaining proceeds were further invested in repurchasing an additional $187 million of common stock in the fourth quarter.

Collectively, we have returned $350 million of capital to shareholders through the repurchase of 2.4 million shares over the third and fourth quarters, underscoring our disciplined approach to capital deployment and our unwavering focus on enhancing long-term shareholder value. Now, moving to our updated fiscal 2025 financial guidance. We are tightening our full-year revenue guidance to be in the range of $1,510-$1,530 million, compared to a prior guidance range of $1,505-$1,535 million. Changes in our revenue guidance are driven by three factors. First, we are tightening the revenue range by $5 million on the top and bottom end. Second, we are accounting for foreign exchange benefits of $4 million realized today. And third. We are accounting for the impact of a switchover to a distributor model in some international markets that creates a $6 million headwind to our full-year revenue guidance that has no impact on profitability.

Please keep in mind that we have an extra selling week in the fourth quarter of this year. This contributes approximately one point to full-year 2025 growth. As a reminder, this benefit has been primarily offset through this fiscal year by a variety of factors, including revenue loss from discontinuing product lines at the end of 2024. Our shift to a distributor model in some international markets, among other factors. In 2026, we will return to a typical 52-week fiscal year and provide more details when we initiate formal 2026 guidance. Moving down the P&L, we are raising our operating margin guidance to be in the range of 27.3%-27.7%, representing an increase of 25 basis points at the midpoint versus our prior guidance range of 27%-27.5%. And we are raising our earnings per share guidance to be in the range of $5.40-$5.55, compared to our prior guidance range of $5.20-$5.45.

This represents an increase of $0.15 at the midpoint, primarily driven by improvements in operating margin contributing $0.05. The benefits from share repurchases adding $0.08. And a reduction in interest expense accounting for $0.02. In conclusion, our third-quarter results highlight the strong underlying demand for our products despite challenging year-over-year comparisons. We delivered solid contracting performance, successfully securing new business for our technologies alongside higher-than-expected demand for our technology boards and monitors. Our business’s exceptional earnings power remained evident with continued significant improvements in operating leverage. Looking forward, we are confident in our ability to close out the year strong, driven by accelerated growth in consumable revenue and solid execution of contracts. With that, we’ll open the call for questions. Operator.

Katie Szyman, CEO, Masimo: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rick Wise with Stifel.

Good afternoon, Katie. Hi, Micah. Great to see the strong performance this quarter. Thank you for that. Maybe just it’s hard to not start off with the outperformance and the resulting guidance. How do we think about the rest of the year and the potential for, I mean, what can I say, for further outperformance in the short run? What would the drivers be, some of the new contracts or new product launches? And maybe, I know it’s early to ask about 2026. It’s hard to resist. How do we envision this setting us up for 2026?

Micah Young, CFO, Masimo: Yes. Thank you, Rick. First, I’ll start off with, we’re not going to give. We typically don’t give guidance on 2026 or the next year on the third-quarter call. What I can kind of hit on, and we’ll talk about that more later in the year. What I can hit on is where we see the strength in our business. Number one is in the contracting. That’s picked up in Q3. We expect a strong finish in Q4 to close out the year. We expect that’s going to drive a good acceleration in our consumable growth. We’ve talked about unusual comps being in the first. Or the second, third quarters this year. And those comps normalize throughout the year. So we expect a very strong finish in the fourth quarter. With increased shipments and consumables. And that’ll set us up well as we move into next year.

Katie Szyman, CEO, Masimo: If you think about the profitability side, part of it’s due to the share buybacks, right?

Micah Young, CFO, Masimo: Yeah. So if you look at the change in EPS guidance as I laid out, we’re up in the guide at the midpoint by $0.15. $0.08 is coming from share buybacks, but we have about $0.05 coming from the operational improvements that we’ve been making. We continue to see strong expansion of margins this year. A lot of that was. Throughout the past year, we’ve done a lot of. Optimization of costs, becoming more efficient with our cost structure, and that’s paying dividends too.

Great. And just as a follow-up, Katie. Obviously, thank you for clearly laying out the three priority areas, but just to take one of them, you’ve been very focused on elevating commercial excellence or enhancing commercial excellence at Masimo. Last quarter, or you’ve recently made multiple hires, realigned the salesforce structure to be more regionally focused rather than specialized by product. Just maybe at a high level, I know we’ll hear more in early December, but where are we in that process? Or are you pleased with where you are? How much more to go? What’s the impact going to be? When are we going to see it? Aside from that, I have no questions.

Katie Szyman, CEO, Masimo: Thanks a lot, Rick. So yeah, I like how you said that, that essentially we focused on enhancing and elevating, and it’s really focused on our specialty categories to give them more resources to match our success in pulse oximetry. So you see more of a partnership of our pulse oximetry top salesforce being able to help pull through the reps in the specialty categories. And we’ve made strategic investments in capnography, hemodynamics, and brain monitoring to give those platforms similar commercial horsepower to what we have in pulse oximetry. And so the question about the timing, we’re starting to see small wins, but it’s something with kind of the length of our sales cycle here at Masimo. You’ll see it really begin to pick up more and more momentum into next year.

Thank you.

Thanks, Rick. Your next question comes to the line of Jason Bednar with Piper Sandler.

Afternoon, everyone. Congrats on a good quarter here. Katie, I want to start with you and hope you can expand on the comments you made of the share gains in Philips. I think you said being greater over the next five years versus what you’ve seen in the last five years. Help us with maybe where you’re currently at with Philips share and/or what kind of share gain you’ve seen in the last five years just so we have some kind of baseline, and don’t get me wrong, I really like the confidence, but can you give us a bit more on what gives you that confidence to make that statement? I’m assuming this is coming from some of those advanced parameters, maybe building out the question you were just or the answer you just gave to Rick, but any additional color you can provide here, it’d be appreciated.

Yeah. Thanks, Jason, for the question. So. We have a duty of confidentiality with Philips, and so we can’t disclose our specific position in their installed base. But what we do know is that when the first agreement was signed back in 2016, Masimo had relatively almost zero, very, very low market share in the Philips installed base. And so we’ve kind of gotten to a runway, but we still see ourselves as disproportionately low on a relative market share position versus what we are kind of for the whole market, right? So if you think about us as globally in the 50-ish, 50-plus% market share globally, we’re still under-indexed in the Philips installed base, and that’s what we see as this opportunity to run in the installed base.

Okay. And may I ask one follow-up and then a separate question? When you answered that question, I think you emphasized globally. Is that the opportunity more so than advanced parameters with Philips? And then, Micah, a question for you here, and sorry, this might be a little long, but I apologize in advance. So the incremental contract figure was really strong. It seems like you’re on pace for a normal year or maybe a better than normal year for that metric. But you’ve been focusing us all on the unrecognized contract revenue figure that’s going to be recognized over the next 12 months. That was up 17%. I’m sure you’re going to say mid-teens plus is a bit hotter than what we should be thinking about for next year.

But as we try to aggregate and dissect these data points that we all now have, how would you counsel us to interpret the trend line and that unrecognized contract revenue? Does that give you confidence in delivering on your revenue growth objectives as we look out over the next couple of years?

Micah Young, CFO, Masimo: Yeah. Let me start there. With the contract revenue. As a reminder, I mean, a third of our revenues are contracted and come through in shipments off of these contracts. So that’s important to understand. So we’re getting good growth, and that’s really coming through in our core and incremental that’s feeding into the growth that we’re seeing in what’s going to be recognized within the next year, and as you know, I mean, it’s all due to timing, size, duration of contracts, so that can ebb and flow, but we are seeing very good strength, and I think that’s going to be a good driver for us. It’s not to indicate that our overall revenues grow at that level, but it’s good strength coming from the contract wins we’re getting this year, so.

Just to start with a follow-up question on the thanks, Katie.

Katie Szyman, CEO, Masimo: Yeah. I’m Jason on the relative installed base. I would say it’s hard to be specific. I would say it’s about equal between those two categories.

Okay. Very helpful. Thank you.

Thanks. Your next question comes to the line of Michael Polark with Wolfe.

Hi, good afternoon. I have a question about the third-quarter performance. 1% consumables growth, you called out a tough comparison. Capital was quite a bit better from a growth perspective. Can you just remind us on the third quarter last year what was unusual about that comp and kind of maybe reassure us that the consumables line specifically will return to a more normal rate of mid-single-digit growth in the quarter and year ahead? Thank you.

Micah Young, CFO, Masimo: Yeah. Thanks, Mike. So. One place to start would be. Inpatient admission growth last year was running at about 4%. One thing we talked about through the first three quarters of last year is we kept seeing a stepped-up consumer revenue, and that was being driven by higher order intentions from customers. So. It’s created a tougher comp, 20% growth last year in the third quarter. But if you look at it, and what I pointed out too in my prepared remarks is that if you look at it on a two-year basis or a multi-year basis, you see double-digit growth in consumable revenue. And then very similar, we have another kind of comp going the other direction with last year, our capital and other revenues were down about 33% due to timing.

And on a two-year stack basis, that growth rate is more in line with low to mid-single digits. So we’re seeing things come through as we expected this year. Again, just facing the unusual comps that we’ve talked about coming into this year. By the time we get to the end of the year, we’ll see that normalize out.

Katie Szyman, CEO, Masimo: And I think for the follow-up, just the--oh, sorry. I was just going to say that we expect to see increased shipments associated kind of in the back in the Q4 timeframe. So we also see it kind of accelerating as we get into Q4.

For the follow-up, Micah, I just want to ask on the $6 million distributor callout. I just want to understand exactly what that is. So you’re shifting from a distributor model to direct, and that’s creating the $6 million headwind. Can you confirm that? And then can you also confirm that that $6 million that’s new news for your guidance that you’re absorbing that in today’s update? It wasn’t in there before.

Micah Young, CFO, Masimo: Yes.

Thank you.

That’s correct, Mike. So if you look at it, our guidance does include that $6 million revenue headwind for the full year, with a large portion of that coming in the fourth quarter. We are moving to a distributor model, and some of our international markets that’s causing that headwind. We think this is the best decision as we look forward because it’ll give us more durable growth, and it’s neutral to our earnings and margins. So we think this is going to drive more sustainable growth within the region.

Katie Szyman, CEO, Masimo: but it’s kind of going from.

Micah Young, CFO, Masimo: Okay. So you’re.

Katie Szyman, CEO, Masimo: It’s going from direct to distributor, not distributor to direct, just to clarify. I think on the question. Yes.

Helpful. Thank you. Your next question comes to the line of Jason Bednar with Raymond James.

Good afternoon and congrats on the progress. Just on the last line of questioning on consumables, was there anything kind of one-time-ish in there? Specifically, I guess I’m just looking at the sequential move from 2Q to 3Q.

Micah Young, CFO, Masimo: Yeah, Jason. So sequentially, just to remind you that we had a sizable consumer revenue in the second quarter this year, and that was driven by that large international contract. We expect to see higher shipments in the fourth quarter under that contract as well. And that’s going to contribute to our increase in consumer revenue in the fourth quarter. So that’s given us the confidence to in our accelerated growth rate that we expect in Q4.

Okay. That’s clear and helpful. Katie, I think you called out growth and advanced monitoring. Would love to. If you could give us a little bit of either the growth rate there or some context as to the growth in 3Q versus the first half of the year.

Katie Szyman, CEO, Masimo: Yeah. So thanks for the question. We really don’t disclose kind of the details until the end of the year in terms of breaking out the different product line growth rates. But suffice it to say that we are seeing an acceleration in the growth rate in the advanced monitoring categories.

Okay. Fair enough.

It’s really consistent with the strategy. So we have a goal kind of in that. Double-digit range for those categories. And so we are seeing us deliver an acceleration of that as we implement the cross-selling strategy.

Thank you.

Conference Moderator: Your next question comes to the line of Mike Matson with Needham.

Yeah. Thanks. So just one on the wearable strategy. So is this really based on products, hardware that you already have, like the W1? And I think you have sort of a wireless pulse oximeter. Or is it going to require new hardware? And what’s the timing of that, if so?

Katie Szyman, CEO, Masimo: Yeah. So that’s a great question. So we already have launched a product called the Radius VSM. And that product is actually being piloted at five major institutions here in the U.S. and then a couple of institutions outside the United States. And honestly, Masimo has been working on perfecting that technology from pilot basis for the last two to three years. And so what we’re seeing is that over time, we expect to actually go more for a full market launch with that. So that product already exists and is in good shape. Related to the W1, the W1 is used more for what I would call telehealth in the hospital-to-home category. And for that, we do have some pilots that we’re working on outside the United States where you have more centralized healthcare where it’s easier to do that through virtual hospitals, etc.

So that product is available, but we haven’t actually decided yet how we will launch that inside hospitals. Does that make sense? And then the last product we have is a product called Radius PPG, which is a very simple wrist-worn unit that can tap in and Wi-Fi connect that has a pulse oximeter on the patient’s hand. That product is also in pilot phase and would be part of what we’re going to get a full connection with the Philips monitors. And so we’ll be able to launch that. Right now, we’ve also piloted that in several cases with Philips. But as that actually gets finalized with Philips, with the collaboration, we would be able to launch that. Probably that’s harder to say with the Philips timing, but probably in the next one to two years.

Okay. Great. That’s helpful. And then, just on the AI algorithms. So can you give us some more detail on the timing there? And is this something where you’ve already, like, the opioid monitoring? I think you’ve already got an FDA clearance or something, but are any of these going to require navigating the FDA? Will it be 510(k)s? And what do you have left to do there, I guess, to commercialize these things?

Yeah. So thanks. So the first thing for opioid-induced respiratory depression, or OIRD, is easier to say 10 times fast. So for OIRD, we actually, as I mentioned, have a clearance for the algorithm. What we are doing is actually submitting it to get it onto our monitor and onto our new smart set technology. So we would imagine that launching towards the end of next year. And so all of this will be covered at our investor day the first week of December.

Okay. Got it. Thank you.

Conference Moderator: Your next question comes from the line of Matt Taylor with Jefferies.

Matt Taylor, Analyst, Jefferies: Hi. Thank you for taking the question. I guess the first one I wanted to ask about was just to clarify on the Q4 guidance. It looks like about 10% growth at the midpoint. But with the extra week days adjusted, that’d be roughly 6%-7% growth. And I guess, what are the puts and takes impacting the growth rate in Q4?

Micah Young, CFO, Masimo: Yeah. So, for the fourth quarter growth, we’re expecting a stronger or acceleration growth rate from consumables. Capital, we’re expecting that to be lower in the fourth quarter. So that strength should come from the growth that we’re expecting in our consumer business. And we talked about how we’ll see acceleration, part of that coming from that large U.S. contract shipping more in Q4. We expect to see the performance coming off the contract as we did in the third quarter and to finish out the year strong in that area. So I’d say outsized growth in consumables partially offset by the softness more in capital in terms of comparison year over year.

Thank you, and then can I ask a follow-up on the Philips agreement, actually? So I just remember from 2017, 2018 timeframe when you struck the first one, I think the commentary was that through the course of that first agreement, you had sought your share and kind of get up to your natural share, but then today, you’re saying it’s still well below that, and you have an opportunity to gain even more share over the next five years, so I just wanted to kind of do a postmortem of sort of what happened over the last five years and maybe have you talk about why the next five could be better.

Katie Szyman, CEO, Masimo: Yeah. So thanks for the question. I mean, so I wasn’t here, I guess, during that time. But what you have is the fact that when you start at a very low position and how contracts move once every five years, it takes a little bit longer to gain your share position inside an installed base than you think. So I would say that what happened is we probably gained a lot of the share that was anticipated, but we still have a gap that we’re excited about trying to close.

Okay. Great. Thank you very much.

Conference Moderator: Your final question comes from the line of Vik Chopra with WF.

Vik Chopra, Analyst, WF: Hey, good afternoon. Thanks for taking the question. Maybe just on Sound United, after using the sale proceeds to repurchase stock and pay down some debt, maybe just talk about what your broader capital allocation framework is going forward.

Micah Young, CFO, Masimo: Yeah. Thanks, Vic. Well, we’ll outline a lot more of the investor day, but. At current levels, we would definitely lean into share repurchases going forward. We also. Another important area for us is tuck-in technologies to continue to augment our portfolio in the hospital across some of those areas and ways of growth that Katie talked about earlier. So as we look into. Wearables or some additional sensors or monitoring capabilities in the hospital, that’s another area of capital allocation. So those are kind of the two main areas of focus for us, especially with where we’re sitting at the current levels.

Vik Chopra, Analyst, WF: Great. And just a quick follow-up. Appreciate all the color you provided on Philips. But I’m just curious at a high level how this expanded partnership with Philips will influence your product roadmap and perhaps your revenue mix over the next few years. Thank you.

Katie Szyman, CEO, Masimo: So thanks, Vik, for the question. I think that since the majority of our large portion of our advanced sensors, even all of the rainbow sensors, are sold through the Philips monitors, it’s going to, I think, help us to continue with the same product mix. The question is really for advanced monitoring categories, including kind of brain and capnography, etc., can we get a stronger presence? And so some of that is still underway. It takes a while to get our sockets out there. So it’s one thing if they can add it, but then it’s another for us to be able to get our sockets out there. So I would say it’s not going to dramatically change our product mix in the short term, but it will be something that just continues to help us drive our growth and presence.

But the mix itself will probably stay about the same. All right. Thanks, Vik.

Conference Moderator: At this time, I will now turn the call back over to Katie Szyman for closing remarks.

Katie Szyman, CEO, Masimo: So first of all, I just want to thank everyone for joining today and really thank you for your interest in Masimo. I’d like to welcome you all to listen to our upcoming investor day on December 3rd, where we look forward to reviewing our strategic focus areas, detailing our product pipeline, and outlining our longer-term financial outlook. Thank you all for joining, and have a great day.

Conference Moderator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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