MASIMO CORP (MASI)

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 (the Exchange Act), 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; matters relating to future board and management leadership; 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 related to our proposed merger with Danaher, and any associated impact, if at all on the business, revenues or operations; 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 3, 2026, which we filed with the SEC on February 27, 2026. 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.

Recent Developments

Sale of Non-Healthcare Business

On May 6, 2025, we announced that we had entered into a definitive agreement to sell Viper Holdings Corporation, a Delaware corporation which previously owned and operated the Company’s non-healthcare business (together with its subsidiaries, “Sound United”) to Harman International Industries, Incorporated, a wholly-owned subsidiary of Samsung Electronics., Ltd. On September 23, 2025, we completed the sale of Sound United.

Discontinued Operations

Our results for all periods presented, as discussed further in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are presented on a continuing operations basis. Results related to our non-healthcare consumer audio business are reported as discontinued operations for all periods presented. See Note 18, “Discontinued Operations” 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 discontinued operations.

Cybersecurity Incident

On April 27, 2025, we identified unauthorized activity on our on-premise network. Upon detection, we activated incident response protocols and implemented containment measures, including proactively isolating impacted systems. We promptly commenced an investigation to assess, mitigate, and remediate the incident with the assistance of third-party cybersecurity professionals. We also notified law enforcement.

As a result of the incident, certain of our manufacturing facilities and our customer order acceptance processes were temporarily operating at less than normal capacity, which had an impact on our ability to process, fulfill, and ship customer orders timely. We worked diligently to bring the affected portions of its network back online, restore normal business operations and mitigate the impact of the incident.

As of May 27, 2025, our manufacturing operations were running at near full capacity, and our critical order taking, distribution and shipping systems are fully operational. We continued to optimize these systems to ensure that any delayed orders were being processed in a timely manner.

As of June 28, 2025, all our manufacturing operations have returned to normal operations. There were no selling, general and administrative expenses incurred related to the cybersecurity incident for each of the three months ended April 4, 2026 and March 29, 2025.

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Recent Tax Law Changes

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We are currently assessing the impact of the OBBBA on our consolidated financial statements.

Merger Agreement

On February 16, 2026, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Danaher Corporation, a Delaware corporation (“Danaher”) and Mobius Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Danaher (“Merger Sub”), pursuant to which among other things, Merger Sub will merge with and into us (the “Merger”), with us continuing as the surviving corporation and a wholly owned subsidiary of Danaher. As set forth in the Merger Agreement, at the effective time of the Merger, each share of our common stock, par value $0.001 per share, (other than any shares owned by Danaher, Merger Sub or any of our wholly owned subsidiaries or shares in respect of which appraisal has been duly demanded, and not effectively withdrawn or otherwise waived or lost, pursuant to Section 262 of the General Corporation Law of the State of Delaware) issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive $180.00 in cash, without interest. The Merger is expected to close in 2026, subject to customary closing conditions, including approval by our stockholders and the receipt of required regulatory approvals. On May 1, 2026, our stockholders adopted the Merger Agreement at a special meeting of stockholders.

If the Merger is completed, our common stock will be delisted from the Nasdaq Stock Market and deregistered under the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable following the effective time of the Merger.

In connection with the proposed Merger, we incurred approximately $17.9 million in selling, general and administrative expenses during the first quarter of fiscal 2026, and we expect to incur additional financial advisory, legal, accounting, and other professional fees in connection with the Merger.

Additional information about the Merger Agreement and the Merger is set forth in the Company’s Definitive Proxy Statement on Schedule 14A that was filed with the SEC on April 1, 2026.

Executive Overview

We are a global medical technology company that develops and produces a wide array of industry-leading monitoring technologies, including innovative measurements technologies, sensors, and patient monitors. Powered by the Masimo Hospital Automation™ and Masimo SafetyNet® platforms, Masimo connectivity, automation, telehealth and telemonitoring solutions are improving and automating patient care in the hospital.

Healthcare

Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation® and connectivity solutions and remote monitoring devices. Our healthcare products and patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services. We primarily sell our products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and through our direct sales force, distributors and original equipment manufacturer (OEM) partners, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control, Zoll, among others.

Our core measurement technologies are our breakthrough 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 and gas monitoring, and telehealth solutions.

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 Radius PPG®, Radius VSM® and Masimo SafetyNet® remote patient surveillance solution. The Masimo Hospital Automation® Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™, Iris®, iSirona®, Replica® and UniView® to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely.

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Outlook and Strategy

We are excited about the long-term prospects of patient care, hospital automation® and advancing our initiatives of expanding patient monitoring through the hospital, and into other growth markets such as outpatient and ambulatory surgery centers. The widespread caregiver shortage demands have created transformative changes in the healthcare space. Patients continue to gravitate toward products that can extend the reach of physicians without any compromise on the quality of care.

We continue to seek out differentiated growth opportunities to cross-leverage technologies, while continuing to advance our integration technologies into the hospital to advance hospital automation® connectivity and cloud-based technologies.

Economic Trends and Developments Effecting Our Business

Economic Trends

The healthcare market we operate in is highly competitive, dynamic, and experienced a number of headwinds over the past two years. These included, but were not limited to supply chain volatility, inflationary pressures, interest rates volatility, fluctuations in energy costs, recessionary trends, foreign currency fluctuations, tariffs, increases in unemployment rates, geo-political uncertainty and the U.S. government shutdown. All of these have affected the global economic environment costs, along with the healthcare facility spending trends and consumer spending behaviors which ultimately affect our performance. While we experienced volatility in our healthcare business, we continue to be optimistic about our long-term growth and prospects.

Tariffs

During the first quarter of 2025, the U.S. government imposed a series of tariffs on many products imported into the U.S. from China, Canad

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ITEM 7.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with the financial statements, related notes and other financial information included in this Annual Report on Form 10-K. The following discussion may contain predictions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under Item 1A—“Risk Factors” and elsewhere in this Annual Report on Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

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Recent Developments

On February 16, 2026, the Company entered into the Merger Agreement with Danaher and Merger Sub, pursuant to which, among other things, the Merger will occur, whereby Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Danaher. As set forth in the Merger Agreement, at the effective time of the Merger, each share of common stock of the Company (other than any shares owned by Parent, Merger Sub or the Company or any of their wholly owned subsidiaries or shares in respect of which appraisal has been duly demanded, and not effectively withdrawn or otherwise waived or lost, pursuant to Section 262 of the General Corporation Law of the State of Delaware) issued and outstanding immediately prior to the effective time of the Merger will be automatically converted into the right to receive $180.00 in cash, without interest. The Merger is expected to close in the second half of 2026, subject to customary closing conditions, including approval by our stockholders and the receipt of required regulatory approvals.

If the Merger is completed, our common stock will be delisted from the Nasdaq Stock Market and deregistered under the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable following the effective time.

In connection with the proposed Merger, we have incurred significant costs in the first quarter of fiscal 2026 and expect to continue to incur additional financial advisory, legal, accounting, and other professional fees prior to the completion of the Merger, which could be significant.

Additional information about the Merger Agreement and the Merger will be set forth in the Company’s Definitive Proxy Statement on Schedule 14A that will be filed with the SEC.

Executive Overview

We are a global medical technology company that develops and produces a wide array of industry-leading monitoring technologies, including innovative measurements technologies, sensors, and patient monitors. Powered by the Masimo Hospital Automation™ and Masimo SafetyNet® platforms, Masimo connectivity, automation, telehealth and telemonitoring solutions are improving and automating patient care in the hospital.

Healthcare

Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation® and connectivity solutions and remote monitoring devices. Our healthcare products and patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services. We primarily sell our products to hospitals, emergency medical service (EMS) providers, home care providers, physician offices, veterinarians, long-term care facilities and through our direct sales force, distributors and original equipment manufacturer (OEM) partners, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control, Zoll, among others.

Our core measurement technologies are our breakthrough 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 and gas monitoring, and telehealth solutions.

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 Radius PPG®, Radius VSM® and Masimo SafetyNet® remote patient surveillance solution. The Masimo Hospital Automation® Platform facilitates data integration, connectivity, and interoperability through solutions like Patient SafetyNet™, Iris®, iSirona®, Replica® and UniView® to facilitate more efficient clinical workflows and to help clinicians provide the best possible care, both in-person and remotely.

Outlook and Strategy

We are excited about the long-term prospects of patient care, hospital automation® and advancing our initiatives of expanding patient monitoring through the hospital, and into other growth markets such as outpatient and ambulatory surgery centers. The widespread caregiver shortage demands have created transformative changes in the healthcare space. Patients continue to gravitate toward products that can extend the reach of physicians without any compromise on the quality of care.

We continue to seek out differentiated growth opportunities to cross-leverage technologies, while continuing to advance our integration technologies into the hospital to advance hospital automation® connectivity and cloud-based technologies.

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Economic Trends and Developments Affecting Our Business

The healthcare market we operate in is highly competitive, dynamic, and experienced a number of headwinds over the past two years. These included, but were not limited to supply chain volatility, inflationary pressures, interest rates volatility, fluctuations in energy costs, recessionary trends, foreign currency fluctuations, tariffs, increases in unemployment rates, geo-political uncertainty and the U.S. government shutdown. All of these have affected the global economic environment costs, along with the healthcare facility spending trends and consumer spending behaviors which ultimately affect our performance. While we experienced volatility in our healthcare business, we continue to be optimistic about our long-term growth and prospects.

During the fourth quarter of 2024, we implemented a strategic realignment initiative to refocus on profitability, maximizing our return on invested capital, in an effort to drive stronger returns for our stockholders going into 2025. In the second quarter of 2025, we announced that we had entered into a definitive agreement to sell our non-healthcare business, and subsequently in the third quarter of 2025, completed the sale. Please see “Separation of Non-Healthcare Operations” under Part I, Item 1—“Business” for additional details on the divestiture.

Tariffs

During the first quarter of 2025, the U.S. government imposed a series of tariffs on many products imported into the U.S. from China, Canada and Mexico. Since that time the U.S. government has increased some of those tariffs and postponed others. It has threatened to levy additional tariffs on some countries and new tariffs on additional countries, including those of the European Union, Asia and South America. Many of the countries on which those tariffs have been levied have imposed their own retaliatory tariffs or threatened to impose tariffs on goods they import from the U.S.

On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). Following the Supreme Court’s decision, the U.S. presidential administration announced its intention to invoke other laws to collect tariffs and announced new tariffs on imports from all countries, in addition to any existing non-IEEPA tariffs. There remains substantial uncertainty regarding the duration of existing and newly announced tariffs, potential changes or pauses to such tariffs, tariff levels, and whether further additional tariffs or other retaliatory actions may be imposed, modified, or suspended, and the impacts of such actions on our business.

The Company’s production footprint includes operations in the U.S., Mexico and Malaysia. Currently, certain raw materials are imported from China, and certain subassemblies are imported from Malaysia and Mexico. These tariff costs are expected to reflect their impact in the costs of raw materials and subassemblies used in production, as well as costs we may incur on finished goods shipped to our customers. We are actively working to mitigate the operating profit impact of these tariffs with adjustments to our supply chain and manufacturing, as well as a significant amount of administrative effort to qualify our products for exemptions, including those under United States-Mexico-Canada Agreement. We are also pursuing longer-term mitigation measures to further reduce our tariff exposure and evaluating alternative suppliers for raw materials and cables currently sourced from China.

To the extent we are unable to offset the cost from the tariffs, or the tariffs negatively impact demand, our revenue and profitability could be adversely impacted. If additional tariffs come into effect or are adopted, we could incur additional tariff costs that could be material to our revenue and profitability, effecting our financial results.

Seasonality

Our business is influenced by many factors, including but not limited to: new product releases, acquisitions, regulatory approvals, holiday schedules, hospital census, clinicians, nurses and hospital personnel, the timing of the influenza season, inflationary and recessionary pressures, among many other factors.

Historically, revenues in the third quarter of each fiscal year have represented a lower percentage of revenue due to the seasonality of the U.S., European and Japanese markets, where summer vacation schedules normally result in fewer elective procedures utilizing our healthcare products.

Contract Conversions and Installations

During the second quarter and continuing into the third and fourth quarters of 2023, we achieved substantial market share gains through contract acquisitions as new hospital customers continued to switch to Masimo technology at rapid rates. However, conversions of new customers who have contracted to switch to Masimo were less than expected due to continued labor shortages in hospitals and our OEM partners not being able to provide the patient monitoring equipment needed to complete the installations in a timely manner; thereby impacting our second, third and fourth quarter 2023 healthcare revenues. The installation challenges we experienced in fiscal 2023 increased our backlog systems installations into fiscal 2024, which carried over into fiscal 2025. In fiscal 2025, we achieved record level of new customer conversions along with expanded hospital agreements with our existing customers, which has added to the installation backlogs.

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While we previously faced obstacles such as labor shortages in hospitals, our 2025 performance serves as a positive indication that our growth strategy is working. We continue to be vigilant in our efforts to address the labor shortages, including engaging additional third-party installation service providers. Our hospital business continued to be strong, as our growth in contracting reflects.

Ongoing Russian-Ukraine Conflict, Israel-Palestine-Iran Conflicts

We continue to monitor the uncertainty and geopolitical instability resulting from the ongoing Russia-Ukraine conflict, the Israel-Palestine conflict, and the Israel-Iran conflict, including the involvement of the United States, with respect to on-going business in such regions, and are continuing to support existing patient populations while remaining compliant with all applicable U.S. and EU sanct

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