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What changed in MASIMO CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of MASIMO CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+533 added−420 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in MASIMO CORP's 2024 10-K

533 paragraphs added · 420 removed · 330 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

103 edited+27 added−19 removed108 unchanged
Biggest changeMasimo W1 TM , Bowers & Wilkins ® Px8 007 Edition and Bowers & Wilkins ® Pi5 earbuds, (shown below) ) Description: Use: Distribution Channel: • To provide accurate and continuous health monitoring with legendary sound quality in private or in transit with over ear wireless headphones or wireless earbuds • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers • For those looking for unrivaled health technology for active lifestyles, health monitoring or sleep monitoring • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers Premium and luxury home audio - (e.g.
Biggest changeMasimo Freedom TM , Bowers & Wilkins ® Px8 007 Edition and Bowers & Wilkins ® Pi7 S2 earbuds, and Denon PerL Pro TM ( shown below )) Description: Use: Distribution Channel: • To provide accurate personal health tracking of vitals, including SpO 2 , pulse rate and relative hydration along with recovery and sleep indexes • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers • The Masimo Freedom Band utilizes the same patented sensor technology as in the Masimo W1 and Freedom smartwatches • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers • For those looking for unrivaled premium true wireless stereo audio experience from a performance-focused audio brand • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers 20 Table of Contents Hearables and wearables- (Continued) Description: Use: Distribution Channel: • For those looking for unrivaled premium true wireless stereo audio experience from a performance-focused audio brand • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers • Premium true wireless earbuds that creates a personalized sound profile with Masimo Adaptive Acoustic Technology ™ (AAT ™ ) for audio that is perfectly tuned to you • Sold directly to consumers through the Masimo Consumer and individual brand websites and consumer retailers Premium and luxury home audio - (e.g.
While private insurance payers often follow Medicare coverage and payment, we cannot be certain of this and, in many cases, cannot control the coverage or payment rates that private insurance payers put in place.
While private insurance payers often follow Medicare coverage and payment rates, we cannot be certain of this and, in many cases, cannot control the coverage or payment rates that private insurance payers put in place.
Description: Use: Distribution Channel: • Software and hardware enables third-party devices to connect through Patient SafetyNet ™ and to document data in the EMR • Sold directly to end-users 12 Table of Contents Hospital Automation™ and Connectivity Suite - (Continued) 13 Table of Contents Hospital Automation™ and Connectivity Suite - (Continued) Description: Use: Distribution Channel: • Network-linked, wired or wireless, multiple patient floor monitoring solutions • Standalone wireless alarm notification solutions • Sold directly to end-users • Connectivity hub for the aggregation and transmission of patient data to the EMR • Sold directly to end-users • Early warning indicator designed to identify possible sepsis in patients monitored remotely with Patient SafetyNet TM • Sold directly to end-users 14 Table of Contents Nasal High Flow Ventilation (e.g., Masimo softFlow ® 50 and Masimo softFlow ® junior (shown below) ) Therapy with Nasal Insufflation (TNI) generates a precisely regulated, stable high flow from room air or a mix of room air and oxygen.
Description: Use: Distribution Channel: • Software and hardware enables third-party devices to connect through Patient SafetyNet ™ and to document data in the EMR • Sold directly to end-users 13 Table of Contents Hospital Automation ™ and Connectivity Suite - (Continued) 14 Table of Contents Hospital Automation ™ and Connectivity Suite - (Continued) Description: Use: Distribution Channel: • Network-linked, wired or wireless, multiple patient floor monitoring solutions • Standalone wireless alarm notification solutions • Sold directly to end-users • Connectivity hub for the aggregation and transmission of patient data to the EMR • Sold directly to end-users • Early warning indicator designed to identify possible sepsis in patients monitored remotely with Patient SafetyNet TM • Sold directly to end-users 15 Table of Contents Nasal High Flow Ventilation (e.g., Masimo softFlow ® 50 and Masimo softFlow ® junior (shown below) ) Therapy with Nasal Insufflation (TNI) generates a precisely regulated, stable high flow from room air or a mix of room air and oxygen.
Among other requirements, clinical trial sponsors must comply with requirements related to informed consent, Institutional Review Board (IRB) approval, monitoring, reporting, record-keeping, labeling and promotion. If the study involves a significant risk device, the sponsor must obtain FDA approval of an investigational device exemption in addition to IRB approval prior to beginning the study.
Among other requirements, clinical trial sponsors must comply with requirements related to informed consent, Institutional Review Board (IRB) approval, monitoring, reporting, record-keeping, labeling and promotion. If the study involves a significant risk device, the sponsor must obtain FDA approval of an investigational device exemption application in addition to IRB approval prior to beginning the study.
The Federal Anti-Kickback Statute prohibits anyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program, including Medicare and Medicaid.
The Federal Anti-Kickback Statute (AKS) prohibits anyone from, among other things, knowingly and willfully offering, paying, soliciting or receiving any bribe, kickback or other remuneration intended to induce the referral of patients for, or the purchase, order or recommendation of, health care products and services reimbursed by a federal health care program, including Medicare and Medicaid.
Description: Use: Distribution Channel: • Line of disposables to measure gas parameters using mainstream and sidestream capnography • Sold directly to end-users, through distributors and to OEM partners who sell to end-users 11 Table of Contents Proprietary Measurements (e.g., SpHb ® , SpCO ® , SpMet ® , PVi ® , RRa ® , RRp ® , ORi ™ , 3D Alarms ® and Adaptive Threshold Alarm) Description: Use: Distribution Channel: • rainbow ® measurements and other proprietary features • Licensed directly to end-users and through OEM partners who sell to new and existing end-users Hospital Automation ™ and Connectivity Suite (e.g., Iris ® Connectivity, Iris Gateway ® , iSirona ™ , Patient SafetyNet ™ , UniView ™ , UniView: 60 ™ , Replica ™ , Iris ® Analytics, and Halo ION ® (shown below) ) As increasing amounts of patient information become available to clinicians, new opportunities to enhance the care experience for both the clinician and the patient abound.
Description: Use: Distribution Channel: • Line of disposables to measure gas parameters using mainstream and sidestream capnography • Sold directly to end-users, through distributors and to OEM partners who sell to end-users Proprietary Measurements (e.g., SpHb ® , SpCO ® , SpMet ® , PVi ® , RRa ® , RRp ® , ORi ™ , 3D Alarms ® and Adaptive Threshold Alarm) Description: Use: Distribution Channel: • rainbow ® measurements and other proprietary features • Licensed directly to end-users and through OEM partners who sell to new and existing end-users 12 Table of Contents Hospital Automation ™ and Connectivity Suite (e.g., Iris ® Connectivity, Iris Gateway ® , iSirona ™ , Patient SafetyNet ™ , UniView ® , UniView: 60 ™ , Replica ® , Iris ® Analytics, and Halo ION ® (shown below) ) As increasing amounts of patient information become available to clinicians, new opportunities to enhance the care experience for both the clinician and the patient abound.
The Federal Civil False Claims Act imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid and Medicare.
The Federal Civil False Claims Act (FCA) imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal health care program, including Medicaid and Medicare.
End-User Markets Measurements Professional Caregiver and Alternate Care Market Patient and Pharmacist Vital Signs (1) Masimo (owns) Cercacor (non-exclusive license) Non-Vital Signs (2) Masimo (exclusive license) Cercacor (owns or exclusive license) ______________ (1) Vital signs measurements include, but are not limited to, SpO 2 , peripheral venous oxygen saturation, mixed venous oxygen saturation, fetal oximetry, sudden infant death syndrome, ECG, blood pressure (noninvasive blood pressure, invasive blood pressure and continuous noninvasive blood pressure), temperature, respiration rate, CO 2 , pulse rate, cardiac output, EEG, perfusion index, depth of anesthesia, cerebral oximetry, tissue oximetry and/or EMG, and associated features derived from these measurements, such as 3D alarm ® , PVi ® and other features.
End-User Markets Measurements Professional Caregiver and Alternate Care Market Patient and Pharmacist Vital Signs (1) Masimo (owns) Willow (non-exclusive license) Non-Vital Signs (2) Masimo (exclusive license) Willow (owns or exclusive license) ______________ (1) Vital signs measurements include, but are not limited to, SpO 2 , peripheral venous oxygen saturation, mixed venous oxygen saturation, fetal oximetry, sudden infant death syndrome, ECG, blood pressure (noninvasive blood pressure, invasive blood pressure and continuous noninvasive blood pressure), temperature, respiration rate, CO 2 , pulse rate, cardiac output, EEG, perfusion index, depth of anesthesia, cerebral oximetry, tissue oximetry and/or EMG, and associated features derived from these measurements, such as 3D alarm ® , PVi ® and other features.
Manufacturers, like us, can be held liable under false claims laws, even if they do not submit claims to the government, where they are found to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements or off-label promotion with customers that file claims.
Manufacturers, like us, can be held liable under the FCA, even if they do not submit claims to the government, where they are found to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements or off-label promotion with customers that file claims.
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. The following table outlines our rights under the Cross-Licensing Agreement relating to specific end-user markets and the related technology applications of specific measurements.
We are a party to a cross-licensing agreement with Willow, 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. The following table outlines our rights under the Cross-Licensing Agreement relating to specific end-user markets and the related technology applications of specific measurements.
Third-Party Reimbursement for Medical Devices Health care providers, including hospitals, that purchase our healthcare products generally rely on third-party payers, including the Medicare and Medicaid programs and private payers, including indemnity insurers and managed care plans, to cover and reimburse all or part of the cost of the products and the procedures in which they are used.
Third-Party Reimbursement for Medical Devices Health care providers in the U.S., including hospitals, that purchase our healthcare products generally rely on third-party payers, including the Medicare and Medicaid programs and private payers, including indemnity insurers and managed care plans, to cover and reimburse all or part of the cost of our healthcare products and the procedures in which they are used.
This platform uses an already existing arterial line and blood pressure transducer to monitor hemodynamic parameters through the use of the PulseCO ™ algorithm, which converts beat-to-beat blood pressure into its constituent parts, flow and resistance, which is scaleable to each patient’s age, height, and weight.
This platform uses an already existing arterial line and blood pressure transducer to monitor hemodynamic parameters through the use of the PulseCO ™ algorithm, which converts beat-to-beat blood pressure into its constituent parts, flow and resistance, which is scalable to each patient’s age, height, and weight.
Description: Use: Distribution Channel: • Signal processing apparatus for all Masimo technology platforms • Mainstream and sidestream capnography and gas monitoring • Incorporated and sold to OEM partners who incorporate our circuit boards into their patient monitoring systems • Signal processing apparatus for all Masimo technology platforms • Mainstream and sidestream capnography and gas monitoring • Incorporated and sold to OEM partners who incorporate our circuit boards into their patient monitoring systems 7 Table of Contents Monitors and Devices (e.g., Radical-7 ® , Rad-97 ® with Nomoline Capnography (shown below) ) We offers a variety of continuous bedside monitoring and transport devices suitable for all patient populations.
Description: Use: Distribution Channel: • Signal processing apparatus for all Masimo technology platforms • Mainstream and sidestream capnography and gas monitoring • Incorporated and sold to OEM partners who incorporate our circuit boards into their patient monitoring systems 7 Table of Contents Description: Use: Distribution Channel: Monitors and Devices (e.g., Radical-7 ® , Rad-97 ® with NomoLine ® Capnography, Rad-G ® with Temperature (shown below) ) We offer a variety of continuous bedside monitoring and transport devices suitable for all patient populations.
Our success with rainbow SET ® technologies in the U.S. market in settings of care with reimbursable monitoring procedures, such as hospital emergency departments, hospital procedure labs and physician offices, may largely depend on the ability of providers to receive reimbursement for such procedures.
Our success with rainbow SET ® technologies in the U.S. market in settings of care with reimbursable monitoring procedures, such as hospital emergency departments, hospital clinical labs and physician offices, may largely depend on the ability of providers to receive reimbursement for such procedures.
Description: Use: Distribution Channel: • Intensive care, inpatient care in clinics and home care • Sold directly to end-users and through distributors Advanced Hemodynamic Monitoring Solutions (e.g., Masimo LiDCO Hemodynamic Monitoring system, Double Channel Pressure Transducer and Stimpod NMS450X Peripheral Nerve Stimulator (shown below) ) The Masimo LidCO ™ Hemodynamic monitoring system provides beat-to-beat advanced monitoring to support informed decision-making in high-acuity care areas like an operating room.
Description: Use: Distribution Channel: • Intensive care, inpatient care in clinics and home care • Sold directly to end-users and through distributors Minimally Invasive and Noninvasive Advanced Hemodynamic Monitoring Solutions (e.g., Masimo LiDCO ® Hemodynamic Monitoring system, Double Channel Pressure Transducer and Stimpod NMS450X Peripheral Nerve Stimulator (shown below) ) The Masimo LidCO ® Hemodynamic monitoring system provides beat-to-beat advanced monitoring to support informed decision-making in high-acuity care areas like an operating room.
In addition, we continue to collaborate with Cercacor on R&D activities related to advancing rainbow ® technology and other technologies. Manufacturing Our strategy is to manufacture products in-house when it is efficient and cost-effective for us to do so.
In addition, we continue to collaborate with Willow on R&D activities related to advancing rainbow ® technology and other technologies. Manufacturing Our strategy is to manufacture products in-house when it is efficient and cost-effective for us to do so.
In addition, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by third-parties, nation states, our employees or agents. Recently, we have seen a global rise in scrutiny and legislative activity in connection with data breaches of health information in medical devices.
In addition, our internal control policies and procedures may not always protect us from reckless or criminal acts committed by third-parties, nation states, our employees or agents. 27 Table of Contents Recently, we have seen a global rise in scrutiny and legislative activity in connection with data breaches of health information in medical devices.
We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of any of these rights. 26 Table of Contents Some of our competitors may seek to compete primarily through aggressive pricing and low-cost structures while infringing on our intellectual property.
We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation of any of these rights. Some of our competitors may seek to compete primarily through aggressive pricing and low-cost structures while infringing on our intellectual property.
Product Clearance and Approval Requirements for Medical Devices Many of our healthcare products are regulated by numerous government agencies, the most significant of which are the FDA, the national authorities in the European Union (EU) and the United Kingdom (UK), and the Ministry of Health, Labour and Welfare (MHLW) of Japan.
Product Clearance and Approval Requirements for Medical Devices Many of our healthcare products are regulated by numerous government agencies, the most significant of which are the U.S. FDA, the national authorities in the European Union (EU) and the United Kingdom (UK), and the Ministry of Health, Labour and Welfare of Japan.
These regulatory requirements include, but are not limited to, the following: product listing and establishment registration; adherence to the Quality System Regulation (QSR) which requires stringent testing, control, documentation and other quality assurance procedures for the design, manufacture, storage and handling of devices; labeling requirements and FDA prohibitions against the promotion of off-label uses or indications; adverse event and device malfunction reporting; post-approval restrictions or conditions, including post-approval clinical trials or other required testing; post-market surveillance requirements; the FDA’s recall authority, whereby it can ask for, or require, the recall of products from the market; and requirements relating to voluntary corrections or removals.
These regulatory requirements in the U.S. include, but are not limited to, the following: device listing and establishment registration; adherence to the Quality System Regulation (QSR) which requires stringent testing, control, documentation and other quality assurance procedures for the design, manufacture, storage and handling of devices; labeling requirements and FDA prohibitions against the promotion of off-label uses or indications; adverse event and device malfunction reporting; post-approval restrictions or conditions, including post-approval clinical trials or other required testing for certain devices; post-market surveillance requirements for certain devices; the FDA’s recall authority, whereby it can require the recall of products from the market; and requirements relating to voluntary corrections or removals.
We will have proprietary ownership, including ownership of all patents, copyrights and trade secrets, of all technology related to the noninvasive monitoring of vital signs measurements, and Cercacor will have proprietary ownership of all technology related to the noninvasive monitoring of non-vital signs measurements.
We will have proprietary ownership, including ownership of all patents, copyrights and trade secrets, of all technology related to the noninvasive monitoring of vital signs measurements, and Willow will have proprietary ownership of all technology related to the noninvasive monitoring of non-vital signs measurements.
In response to some hospitals’ requests to implement environmentally friendly products, we offer sensor reprocessing as well as sensor recycling programs. Masimo rainbow SET ® Platform and Other Technology Solutions Since introducing Masimo SET ® , we have continued to innovate by introducing noninvasive measurements that go beyond arterial blood oxygen saturation and pulse rate.
In response to some hospitals’ requests to implement environmentally friendly products, we offer sensor reprocessing as well as sensor recycling programs. 4 Table of Contents Masimo rainbow SET ® Platform and Other Technology Solutions Since introducing Masimo SET ® , we have continued to innovate by introducing noninvasive measurements that go beyond arterial blood oxygen saturation and pulse rate.
Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services.
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.
In particular, international sales of medical devices manufactured in the United States that are not approved or cleared by the FDA for use in the United States, or are banned or deviate from lawful performance standards, are subject to FDA export requirements. Foreign countries often require, among other things, a Certificate of Foreign Government (CFG) for export.
In particular, international sales of medical devices manufactured in the U.S. that are not approved or cleared by the FDA for use in the U.S., or that are banned or deviate from lawful performance standards, are subject to FDA export requirements. Foreign countries often require, among other things, a Certificate of Foreign Government (CFG) for export.
In return for the GPOs putting our healthcare products on contract, we have agreed to pay the GPOs a percentage of our healthcare revenue from their member hospitals. In 2022 and 2021, healthcare revenues from the sale of our pulse oximetry products to hospitals that are associated with GPOs amounted to $721.3 million and $643.1 million, respectively.
In return for the GPOs putting our healthcare products on contract, we have agreed to pay the GPOs a percentage of our healthcare revenue from their member hospitals. In 2023 and 2022, healthcare revenues from the sale of our pulse oximetry products to hospitals that are associated with GPOs amounted to $678.1 million and $721.3 million, respectively.
For further detail on these risks, see “Risks Related to Our Intellectual Property” under Item 1A — “Risk Factors” in this Annual Report on Form 10-K. Research and Product Development We believe that ongoing research and development (R&D) efforts are essential to our success.
For further detail on these risks, see “Risks Related to Our Intellectual Property” under Item 1A — “Risk Factors” in this Annual Report on Form 10-K. 30 Table of Contents Research and Product Development We believe that ongoing research and product development (R&D) efforts are essential to our success.
This was the only customer that represented 10% or more of our healthcare revenue for the year ended December 31, 2022. Importantly, this distributor takes and fulfills orders from our direct healthcare customers, many of which have signed long-term sensor purchase agreements with us.
This was the only customer that represented 10% or more of our healthcare revenue for the year ended December 30, 2023. Importantly, this distributor takes and fulfills orders from our direct healthcare customers, many of which have signed long-term sensor purchase agreements with us.
Under the Cross-Licensing Agreement, we and Cercacor have agreed to allocate proprietary ownership of technology developed based on the functionality of the technology.
Under the Cross-Licensing Agreement, we and Willow have agreed to allocate proprietary ownership of technology developed based on the functionality of the technology.
Some suits filed under the False Claims Act, known as “qui tam” actions, can be brought by a “whistleblower” or “relator” on behalf of the government and such individuals may share in any amounts paid by the entity to the government in fines or settlement.
Some suits filed under the FCA, known as “qui tam” actions, can be brought by a “whistleblower” or “relator” on behalf of the government and such individuals may share in any amounts paid by the entity to the government in fines or settlement.
Violations of this federal law can result in significant penalties, including imprisonment, monetary fines and assessments, and exclusion from Medicare, Medicaid and other federal health care programs. Exclusion of a manufacturer, like us, would preclude any federal health care program from paying for its products.
Violations of the AKS can result in significant penalties, including imprisonment, monetary fines and assessments, and exclusion from Medicare, Medicaid and other federal health care programs. Exclusion of a manufacturer, like us, would preclude any federal health care program from paying for its products.
We believe that our products and manufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated. 24 Table of Contents Markets Competitive Conditions We compete in both healthcare and consumer electronic markets throughout the globe.
We believe that our products and manufacturing processes at our facilities comply in all material respects with applicable environmental laws and worker health and safety laws; however, the risk of environmental liabilities cannot be completely eliminated. Markets Competitive Conditions We compete in both healthcare and non-healthcare electronic markets throughout the globe.
Description: Use: Distribution Channel: • High-acuity care areas like an operating room • Sold directly to end-users and through distributors 15 Table of Contents Advanced Hemodynamic Monitoring Solutions - (Continued) Description: Use: Distribution Channel: • High-acuity care areas like an operating room • Sold directly to end-users and through distributors Home Wellness and Remote Patent Monitoring Solutions to Extend Care from the Hospital to the Home (e.g., Masimo SafetyNet ™ , Radius T° ™ , Masimo Sleep ™ , MightySat ® with PVi ® and RRp ® , iSpO 2 ®, Bridge ™ , and Masimo W1 ™ ) Designed to help providers remotely manage patient care, Masimo SafetyNet is a secure, scalable, cloud-based patient management platform featuring clinical-grade spot-checking and continuous measurements, digital care pathways and remote patient surveillance.
Description: Use: Distribution Channel: • High-acuity care areas like an operating room • Sold directly to end-users and through distributors 16 Table of Contents Minimally Invasive and Noninvasive Advanced Hemodynamic Monitoring Solutions - (Continued) Description: Use: Distribution Channel: • High-acuity care areas like an operating room • Sold directly to end-users and through distributors Home Wellness and Remote Patient Monitoring Solutions to Extend Care from the Hospital to the Home (e.g., Masimo SafetyNet ™ , Radius T° ® , Opioid Halo ™ , Stork ™ , MightySat ® with PVi ® and RRp ® , iSpO 2 ® , Bridge ™ , and Masimo W1 ® ) Designed to help providers remotely manage patient care, Masimo SafetyNet ™ is a secure, scalable, cloud-based patient management platform featuring clinical-grade spot-checking and continuous measurements, digital care pathways and remote patient surveillance.
In addition to the federal anti-kickback law, many states have their own laws that are analogous to the federal anti-kickback law, but may apply regardless of whether any federal or state health care program business is involved.
In addition to the AKS, many states have their own laws that are analogous to the AKS, but may apply regardless of whether any federal or state health care program business is involved.
In addition to sales representatives, we employ clinical specialists to work with our sales representatives to educate end-users on the benefits of Masimo SET ® and assist with the introduction and implementation of our technology and products to their sites. For the year ended December 31, 2022, one just-in-time healthcare distributor represented approximately 10.1% of our total healthcare revenue.
In addition to sales representatives, we employ clinical specialists to work with our sales representatives to educate end-users on the benefits of Masimo SET ® and assist with the introduction and implementation of our technology and products to their sites. For the year ended December 30, 2023, one just-in-time healthcare distributor represented approximately 18.1% of our total healthcare revenue.
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, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control and Zoll, just to name a few.
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, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control, Zoll, among others.
We generally grant our OEM partners a right to cross-reference the 510(k) submission files from our cleared Masimo SET ® circuit boards, sensors, cables and notification systems. In the EU, medical devices are currently subject to Regulation (EU) No 2017/745 (EU MDR).
We generally allow our OEM partners to cross-reference the 510(k) submission files from our cleared Masimo SET ® circuit boards, sensors, cables and notification systems. In the EU, medical devices are subject to Regulation (EU) No 2017/745 (EU MDR).
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, is also the Chairman and Chief Executive Officer of Cercacor.
Willow Laboratories, Inc. (Willow), formerly known as Cercacor Laboratories, Inc., is an independent entity spun-off from us to our stockholders in 1998. Joe Kiani, our Chairman and Chief Executive Officer, is also the Chairman and Chief Executive Officer of Willow.
See Note 3 , “Related Parties Transactions”, to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our related party transactions with Cercacor.
See Note 3 , “ Related Parties Transactions ”, to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K for additional information on our related party transactions with Willow.
Internationally, in addition to the General Data Protection Regulation (GDPR) in Europe, other jurisdictions have adopted their own data privacy and protection laws. China, Canada, the Kingdom of Saudi Arabia and the UAE have passed new privacy and data protection laws. Australia, Argentina and India are expected to introduce new privacy laws in 2023.
Internationally, in addition to the General Data Protection Regulation (GDPR) in Europe, other jurisdictions have adopted their own data privacy and protection laws. China, Canada, the Kingdom of Saudi Arabia, the UAE, Australia, Argentina and India have all passed new privacy and data protection laws.
Description: Use: Distribution Channel: • Extensive line of both single-patient, reusable and rainbow ® sensors • Patient cables, as well as adapter cables, that enable the use of our sensors on certain competitors’ monitors • Sold directly to end-users, through distributors and to OEM partners who sell to end-users 10 Table of Contents Sensors - (Continued) Description: Use: Distribution Channel: • Extensive line of both single-patient, reusable and rainbow ® sensors • Patient cables, as well as adapter cables, that enable the use of our sensors on certain competitors’ monitors • Sold directly to end-users, through distributors and to OEM partners who sell to end-users Capnography and Gas Monitoring (e.g., NomoLine ® Cannula with Radius PCG ™ C apnograph with disposable adapter, IRMA CO2, IRMA AX+ and EMMA ® ( shown below ) ) We offer a complete portfolio of capnography and gas monitoring solutions, both sidestream and mainstream, to meet the challenges of ventilation and gas monitoring across care areas, from pre-hospital and in-hospital to transport, long-term care, home care and more.
Description: Use: Distribution Channel: • Extensive line of both single-patient, reusable and rainbow ® sensors • Patient cables, as well as adapter cables, that enable the use of our sensors on certain competitors’ monitors • Sold directly to end-users, through distributors and to OEM partners who sell to end-users • Extensive line of both single-patient, reusable and rainbow ® sensors • Sold directly to end-users, through distributors and to OEM partners who sell to end-users • Patient cables, as well as adapter cables, that enable the use of our sensors on certain competitors’ monitors • Sold directly to end-users, through distributors and to OEM partners who sell to end-users 11 Table of Contents Capnography and Gas Monitoring (e.g., Rad-97 ® with NomoLine ® Capnography, Root ® with Capnography, IRMA ™ CO2, IRMA AX+ and EMMA ® ( shown below ) ) We offer a complete portfolio of capnography and gas monitoring solutions, both sidestream and mainstream, to meet the challenges of ventilation and gas monitoring across care areas, from pre-hospital and in-hospital to transport, long-term care, home care and more.
Our failure to comply may result in liability and adversely affect our business. Additionally, in the U.S,. the Health Information Portability and Accountability Act (HIPAA) applies to covered entities and extends to their business associates. Covered entities include many healthcare facilities that purchase and use our products.
Our failure to comply may result in liability and adversely affect our business. Additionally, in the U.S., HIPAA applies to covered entities and extends to their business associates. Covered entities include many healthcare facilities that purchase and use our products.
The PMA process requires us to demonstrate through valid scientific evidence that there is reasonable assurance of safety and effectiveness of the device for its intended use. The PMA process is much more costly, lengthy and uncertain than the process of obtaining 510(k) clearance. Both 510(k) and PMA submissions are subject to user fees.
The PMA process requires us to demonstrate through valid scientific evidence that there is reasonable assurance of safety and effectiveness of the device for its intended use. The PMA process is much more costly, lengthy and uncertain than the process of obtaining 510(k) clearance.
Under the EU MDR, a medical device may only be placed on the market within the EU if it conforms to certain “General Safety and Performance Requirements”.
Under the EU MDR, a medical device may only be placed on the market within the EU if it conforms to “General Safety and Performance Requirements” and bears a CE Mark.
Unanticipated changes in existing regulatory requirements or adoption of new requirements could hurt our business, financial condition and results of operations. Data Privacy and Protection of Health and Other Personal Information Both at the federal and state levels, the United States has increased legislative activity in connection with data privacy and data security.
Unanticipated changes in existing regulatory requirements, adoption of new requirements and increased compliance costs could hurt our business, financial condition and results of operations. Data Privacy and Protection of Health and Other Personal Information Both at the federal and state levels, the U.S. has increased legislative activity in connection with data privacy and data security.
Transparency Regulations The Physician Payment Sunshine Act (Sunshine Act), which was enacted by Congress as part of the ACA, 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.
Transparency Regulations The Physician Payment Sunshine Act (Sunshine Act), which was enacted by Congress as part of the Patient Protection and Affordable Care Act (ACA), requires medical device companies to track and publicly report, with limited exceptions, all payments and transfers of value to physicians, advance practice nurses, physician assistants, and teaching hospitals in the U.S.
Due to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged under one or more of these laws. In addition, there can be no assurance that we would not be required to alter one or more of our practices to be in compliance with these laws.
Due to the breadth of some of these laws, it is possible that some of our current or future practices might be challenged. In addition, we may be required to alter one or more of our practices to remain in compliance with these laws.
The CBP also imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance. Medical device products exported from the United States are subject to forei gn countries’ import requirements and the exporting requirements of the FDA or European regulating bodies, as applicable.
The CBP also imposes its own regulatory requirements on the import of our products, including inspection and possible sanctions for noncompliance. Medical device products exported from the U.S. are subject to forei gn countries’ import requirements and the exporting requirements of the FDA.
To complement our Masimo SET ® platform, we have developed a wide range of proprietary single-patient-use (disposable) sensors, including untethered Radius-PPG ® , and multi-patient-use (reusable) sensors, cables and other accessories designed specifically to work with Masimo SET ® software and hardware. Our single-patient-use sensors offer several advantages over reusable sensors, including improved performance, cleanliness, increased comfort and greater reliability.
To complement our Masimo SET ® platform, we have developed a wide range of proprietary single-patient-use (disposable) sensors, including untethered Radius PPG ® , and multi-patient-use (reusable) sensors, cables and other accessories designed specifically to work with Masimo SET ® software and hardware.
We exist for people who care, care about others, care about quality, care about precision and care about excellence. Our healthcare and non-healthcare segments are joined by the common goal of improving lives by providing patient-centered solutions to healthcare providers, expanding outside of the hospital and into the home and delivering innovative, high-quality information and experiences to consumers.
Our healthcare and non-healthcare segments are joined by the common goal of improving lives by providing patient-centered solutions to healthcare providers, expanding outside of the hospital and into the home and delivering innovative, high-quality information and experiences to consumers. We beli eve that people and infrastructures are ready for actionable patient care outside of the hospital.
We commenced reporting under this new structure effective for the quarter ended July 2, 2022. Healthcare Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation and connectivity solutions, remote monitoring devices and consumer health products.
We commenced reporting under this new structure effective for the quarter ended July 2, 2022 as a result of the Viper Holdings Corporation d/b/a Sound United acquisition (Sound United acquisition). 1 Table of Contents Healthcare Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation and connectivity solutions, remote monitoring devices and consumer health products.
Failure to comply with applicable regulatory requirements, which are subject to new legislation and change, can result in enforcement action by the FDA, or other federal and state government agencies, which may include, but may not be limited to, any of the following sanctions or consequences: warning letters or untitled letters; fines, injunctions and civil penalties; recall, seizure or import holds of our products; operating restrictions, suspension or shutdown of production; refusing to issue certificates to foreign governments needed to export products for sale in other countries; refusing our request for 510(k) clearance or premarket approval of new or modified products; withdrawing 510(k) clearance or premarket approvals that are already granted; and criminal prosecution.
Failure to comply with applicable regulatory requirements, which are subject to new legislation and change, can result in enforcement action by the FDA, or other federal and state government agencies, which may include, but may not be limited to, any of the following sanctions or consequences: warning letters or untitled letters; fines, injunctions and civil penalties; recall, seizure or import holds of our products; operating restrictions, suspension or shutdown of production; refusing to issue certificates to foreign governments needed to export products for sale in other countries; refusing our request for 510(k) clearance or premarket approval of new or modified products; withdrawing premarket approvals that are already granted; and criminal prosecution. 24 Table of Contents Advertising and Promotion of Medical Devices Advertising and promotion of medical devices in the U.S., in addition to being regulated by the FDA, are also regulated by the Federal Trade Commission (FTC) and by federal and state regulatory and enforcement authorities, including the Department of Justice, the Office of Inspector General of the Department of Health and Human Services (OIG), and various state attorneys general.
Recognizing that the federal anti-kickback law is broad and potentially applicable to many commonplace arrangements, Congress and the Office of Inspector General (OIG) within the Department of Health and Human Services have created statutory “exceptions” and regulatory “safe harbors”.
Recognizing that the federal anti-kickback law is broad and potentially applicable to many commonplace arrangements, Congress and the OIG have created statutory “exceptions” and regulatory “safe harbors”.
Controlled oxygen supply ensures oxygenation while, at the same time, the respiratory airways are humidified. A stable air flow is essential for treating hypoxemic and hypercapnic respiratory failure. Together with the Masimo softflow ™ nasal applicator, the Masimo softflow ™ generator provides a constant air flow and in doing so, it is completely independent of external pneumatic systems.
A stable air flow is essential for treating hypoxemic and hypercapnic respiratory failure. Together with the Masimo softflow ™ nasal applicator, the Masimo softflow ™ generator provides a constant air flow and in doing so, it is completely independent of external pneumatic systems.
Following the introduction of our rainbow SET ® platform, we have continued to expand our technology offerings by introducing additional noninvasive measurements, technologies, platforms and other solutions to create new market opportunities in both hospital and non-hospital care settings, including the Masimo Hospital Automation ™ Platform, other connectivity platforms, nasal high-flow ventilation, and neuromodulation therapeutics and telehealth solutions, which are described in more detail below.
Following the introduction of our rainbow SET ® platform, we have continued to expand our technology offerings by introducing additional noninvasive measurements, technologies, platforms and other solutions to create new market opportunities in both hospital and non-hospital care settings, as well as into consumer home health and wellness settings, including the Masimo Hospital Automation ™ Platform, other connectivity platforms, nasal high-flow ventilation, neuromodulation therapeutics, an opioid overdose prevention and alert solution, telehealth solutions, hearable and wearables, and the premium and luxury home audio setting, which are described in more detail below.
We continue to invest significant resources in our marketing and brand development efforts, including investing in capital expenditures on product displays to support our channel marketing through our retail partners. Seasonality Our quarterly revenues are influenced by many factors, including new product releases, acquisitions, regulatory approvals, patient holiday schedules, hospital census, the timing of influenza season, and other factors.
We continue to invest significant resources in our marketing and brand development efforts, including investing in capital expenditures on product displays to support our channel marketing through our retail partners. 29 Table of Contents Seasonality Our quarterly revenues for the healthcare and non-healthcare segments are influenced by many factors, including new product releases, acquisitions, regulatory approvals, holiday schedules, hospital census, the timing of influenza season, consumer discretionary spending, inflation, competitive pricing, adaption of new technologies and consumer loyalty, among other factors.
All devices are subject to FDA examination before release from CBP. Any article that appears to be in violation of the Federal Food, Drug and Cosmetics Act (FDCA) may be refused admission and a notice of detention and hearing may be issued.
Any article that appears to be in violation of the Federal Food, Drug and Cosmetics Act (FDCA) may be refused admission and a notice of detention and hearing may be issued.
We deliver value to our customers and stockholders through: • our differentiated and clinically superior technologies; • our proven track record of innovation; • our customer-driven approach to product development; • our robust product portfolio and pipeline that addresses unmet needs of healthcare professionals, patients, and consumers; and • our scaled and integrated platforms to continuously monitor and deliver health information and other data, applications and experiences. 2 Table of Contents Some of our key strategic initiatives are summarized below: • continue to expand our market share across our product categories; • continue to innovate and maintain our technology leadership position; • expand connectivity and wearables in hospitals and into the home and consumer market; • utilize our existing customer base and OEM relationships to market additional product offerings; • define and leverage shared Masimo product platforms to scale resources and connected technologies; • diversify products to ensure continued operations; • expand sales and marketing infrastructure to aid in future grown initiatives; • increase efficiency and capacity through internal manufacturing capabilities combined with proven outsourced manufacturing partners; • grow our international presence through brand awareness and marketing; • expand our direct-to-consumer efforts through existing channel partners and prospective customers; • supplement our internal growth and expand our product portfolio with strategic acquisitions, investments and partnerships; and • drive an efficient capital structure and strong shareholder returns.
Some of our key strategic initiatives are summarized below: • continue to expand our market share across our product categories; • continue to innovate and maintain our technology leadership position; • expand connectivity, hearables and wearables in hospitals and into the home and consumer market; • utilize our existing customer base and OEM relationships to market additional product offerings; • define and leverage shared Masimo product platforms to scale resources and connected technologies; • diversify products to ensure continued innovation; • expand sales and marketing infrastructure to aid in future growth initiatives; • increase efficiency and capacity through internal manufacturing capabilities combined with proven outsourced manufacturing partners; • grow our international presence through brand awareness and marketing; • expand our direct-to-consumer efforts through existing channel partners and prospective customers; • supplement our internal growth and expand our product portfolio with strategic acquisitions, investments, licensing agreements and partnerships; and • drive an efficient capital structure and strong shareholder returns.
Federal and state anti-kickback laws may affect our sales, marketing and promotional activities, educational programs, pricing and discount practices and policies, and relationships with health care providers by limiting the kinds of arrangements we may have with hospitals, alternate care market providers, GPOs, physicians, payers and others in a position to purchase or recommend our healthcare products.
Federal and state anti-kickback laws may affect our sales, marketing and promotional activities, educational programs, pricing and discount practices and policies, and relationships with health care providers by limiting the kinds of arrangements we may have with hospitals, alternate care market providers, GPOs, physicians, payers and others in a position to purchase or recommend our healthcare products. 25 Table of Contents False Claims Laws and Fraud Statutes Federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third-party payers that are false or fraudulent.
Without device interoperability, critical patient information can go unnoticed, leaving clinicians unaware and patients at risk. Existing approaches for device interoperability require separate hardware, software and/or network infrastructure, which can clutter the patient room, increase complexity, burden IT management and increase costs.
Existing approaches for device interoperability require separate hardware, software and/or network infrastructure, which can clutter the patient room, increase complexity, burden IT management and increase costs.
Government agencies in the EU, UK, Japan and other countries and jurisdictions have similar regulations on the advertising and promotion of medical devices. Anti-Kickback Regulations In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Anti-Kickback Regulations In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business.
Hearables and Wearables Our hearable and wearable products are engineered for a wide range of consumers, including professional athletes, medical clinicians, active lifestyle practitioners, the health conscious, online gamers, and even the most demanding of sound enthusiasts; all with differentiated technologies that leverage our legacy of trusted brands.
In partnership with Samsung Electronics America, Inc., the Masimo SafetyNet ™ Patient App is available on select Samsung smartphones, pre-installed and pre-configured. 6 Table of Contents Hearables and Wearables Our hearable and wearable products are engineered for a wide range of consumers, including professional athletes, medical clinicians, active lifestyle practitioners, the health conscious, online gamers, and even the most demanding of sound enthusiasts; all with differentiated technologies that leverage our legacy of trusted brands.
Other companies’ promotional activities for their FDA-regulated products have been the subject of FTC enforcement actions brought under healthcare reimbursement laws and consumer protection statutes. FTC enforcement actions often result in consent decrees that constrain future actions. In addition, under the federal Lanham Act and similar state laws, competitors and others can initiate litigation relating to advertising claims.
Other companies’ promotional activities for their FDA-regulated products have been the subject of FTC enforcement actions brought under healthcare reimbursement laws and consumer protection statutes, respectively. DOJ and FTC enforcement actions often result in consent decrees that constrain future actions.
We believe that the principal competitive factors in the markets in which we operate include: • brand recognition, perception of innovation abilities, and reputation; • product technology and innovation; • product quality and safety; • quality, cost-effectiveness and price; • breadth of product lines, network of technology and content partners; • access to hospitals which are members of GPO and OEM partners; • access to integrated delivery networks, third party retailers, sales channels, e-commerce, distributors, retailers and omni-channel retailers; and • patent protection.
Many of our competitors in the non-healthcare consumer market have more broadly diversified product lines, well established supply and distribution systems, loyal customer bases and significant financial, marketing, research, development and other resources. 28 Table of Contents We believe that the principal competitive factors in the markets in which we operate include: • brand recognition, perception of innovation abilities, and reputation; • product technology and innovation; • product quality and safety; • quality, cost-effectiveness and price; • breadth of product lines, network of technology and content partners; • access to hospitals which are members of GPO and OEM partners; • access to integrated delivery networks, third party retailers, sales channels, e-commerce, distributors, retailers and omni-channel retailers; and • patent protection.
To facilitate clinician awareness of Masimo technologies, our OEM partners have generally agreed to place the applicable Masimo trademark prominently on their instruments. 25 Table of Contents In order to facilitate our U.S. direct sales to hospitals, we have signed contracts with what we believe to be the five largest national GPOs in the U.S., based on the total volume of negotiated purchases.
In order to facilitate our U.S. direct sales to hospitals, we have signed contracts with what we believe to be the five largest national GPOs in the U.S., based on the total volume of negotiated purchases.
Furthermore, conventional pulse oximetry readings can also be impacted by bright light and electrical interference caused by the presence of electrical surgical equipment. 3 Table of Contents The Masimo Difference - Masimo SET ® Pulse Oximetry Masimo SET ® was designed to overcome the primary limitations of conventional pulse oximetry by maintaining accuracy in the presence of motion artifact, low perfusion and weak signal-to-noise situations.
The Masimo Difference - Masimo SET ® Pulse Oximetry Masimo SET ® was designed to overcome the primary limitations of conventional pulse oximetry by maintaining accuracy in the presence of motion artifact, low perfusion and weak signal-to-noise situations.
The FDA determines the appropriate process based on the risk classification of the medical device. There are three classifications, from Class I to Class III.
The FDA determines the appropriate process based on the risk classification of the medical device. There are three classifications, from Class I to Class III. For certain Class I and Class II medical devices, the FDA’s 510(k) clearance process can be used.
Description: Use: Distribution Channel: • Patients receive a multi-day supply of disposable sensors or reusable devices, along with access to the Masimo SafetyNet mobile application • Sold directly to end-users and through distributors • Robust secure video conferencing to the remote patient management and connectivity platform to offer a comprehensive telehealth and telemonitoring solution. • Sold directly to end-users and through distributors • Disposable thermometers, disposable fingertip sensors for sleep monitoring, fingertip pulse oximeter • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers 16 Table of Contents Home Wellness and Remote Patent Monitoring Solutions to Extend Care from the Hospital to the Home - (Continued) Description: Use: Distribution Channel: • Pulse oximeter cable and sensor for use with an iPhone, iPad, iPod touch and select Android smart phones • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers • For anyone wanting to know what’s happening while they sleep so they can take steps toward meaningful sleep improvement • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers • For patients experiencing opioid withdrawal symptoms. while undergoing treatment for opioid use disorder when initiating treatment, transitioning treatment or tapering off medication-assisted treatment • Sold directly to end-users and through distributors, and provided to end users through healthcare providers • For consumers wanting to make better informed health and lifestyle decisions, improve their fitness or track their health data on their own or with friends and family • Sold directly to consumers through the Masimo Personal Health website and consumer retailers 17 Table of Contents Hearables and wearables- (e.g.
Description: Use: Distribution Channel: • Patients receive a multi-day supply of disposable sensors or reusable devices, along with access to the Masimo SafetyNet ™ mobile application • Sold directly to end-users and through distributors • Robust secure video conferencing to the remote patient management and connectivity platform to offer a comprehensive telehealth and telemonitoring solution • Sold directly to end-users and through distributors • Disposable thermometers, disposable fingertip sensors for sleep monitoring, fingertip pulse oximeter • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers 17 Table of Contents Home Wellness and Remote Patient Monitoring Solutions to Extend Care from the Hospital to the Home - (Continued) Description: Use: Distribution Channel: • Available for prescription use to continuously monitor babies at home as a medical device for healthy or sick babies • Sensor technology nests within the Stork ™ Boot, which is made from an ultra-soft medical-grade silicone that conforms gently to the baby’s skin and is available in three sizes to ensure a perfect fit as the child grows • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers • Pulse oximeter cable and sensor for use with an iPhone, iPad, iPod touch and select Android smart phones • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers • Provides real-time monitoring to identify the risk of opioid-induced respiratory depression, sends alerts to the patient and their emergency contacts, followed by an automated wellness call • Sold directly to consumers through the Masimo Personal Health website and through consumer retailers 18 Table of Contents Home Wellness and Remote Patient Monitoring Solutions to Extend Care from the Hospital to the Home - (Continued) Description: Use: Distribution Channel: • For patients experiencing opioid withdrawal symptoms while undergoing treatment for opioid use disorder when initiating treatment, transitioning treatment or tapering off medication-assisted treatment • Sold directly to end-users and through distributors, and provided to end users through healthcare providers • For consumers wanting to make better informed health and lifestyle decisions, improve their fitness or track their health data on their own or with friends and family • Sold directly to consumers through the Masimo Personal Health website and consumer retailers 19 Table of Contents Hearables and wearables- (e.g.
The health care fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program, including those offered by private payers.
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) created new federal crimes, including health care fraud and false statements related to health care matters. The health care fraud statute prohibits, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program, including those offered by private payers.
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, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology solutions. 1 Table of Contents 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.
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, nasal high-flow respiratory support therapy, patient position and activity tracking, neuromodulation technology, an opioid overdose prevention and alert solution, and telehealth solutions.
Although our technology platforms operate solely with our proprietary sensor lines, our sensors have the capability to work with certain competitive pulse oximetry monitors through the use of adapter cables. Adhesive sensors are single-patient-use items, but the U.S. Food and Drug Administration (FDA) allows third parties to reprocess pulse oximetry sensors.
Our single-patient-use sensors offer several advantages over reusable sensors, including improved performance, cleanliness, increased comfort and greater reliability. Although our technology platforms operate solely with our proprietary sensor lines, our sensors have the capability to work with certain competitive pulse oximetry monitors through the use of adapter cables. Adhesive sensors are single-patient-use items, but the U.S.
In an operating room setting, the patient-centric user interface of the Patient SafetyNet ™ Series 5000 displays near real-time data from all devices with Kite ® , providing a single unified dashboard of patient information. Connectivity Platforms Despite medical technology advances, the lack of device communication and integration creates risks to patient safety in hospitals around the world.
In an operating room setting, the patient-centric user interface of the Patient SafetyNet ™ Series 5000 displays near real-time data from all devices with Kite ® , providing a single unified dashboard of patient information.
The majority of our current regulated products have been deemed Class II devices, requiring 510(k) clearance, while some have been deemed Class I devices. 19 Table of Contents Most of our OEM partners are required to obtain clearance or approval of their devices that incorporate Masimo’s healthcare technologies, like Masimo SET ® technology, Masimo rainbow SET ® technology, Masimo Board-in-Cable technology, or are used with Masimo’s sensors.
Most of our OEM partners are required to obtain clearance or approval of their devices that incorporate Masimo’s healthcare technologies, like Masimo SET ® technology, Masimo rainbow SET ® technology, Masimo Board-in-Cable technology, or that are used with Masimo’s sensors.
As one of the most common technologies used in and out of hospitals around the world, pulse oximetry has gained widespread clinical acceptance as a standard patient vital sign measurement because it can give clinicians a warning of possible hypoxemia or hyperoxemia.
As a result, clinicians have the opportunity to assess patients who may need immediate treatment to prevent the serious clinical consequences of hypoxemia, or low arterial blood oxygen saturation levels, and hyperoxemia, or high arterial blood oxygen levels. 3 Table of Contents As one of the most common technologies used in and out of hospitals around the world, pulse oximetry has gained widespread clinical acceptance as a standard patient vital sign measurement because it can give clinicians a warning of possible hypoxemia or hyperoxemia.
The FDA’s 510(k) clearance process requires us to show that our new medical device is substantially equivalent to a legally marketed “predicate” medical device and usually takes from four to nine months, but it may take longer.
It requires us to show that our new medical device is substantially equivalent to a legally marketed “predicate” medical device and can take from four to nine months, but may take longer. Products that cannot meet the 510(k) requirements are automatically classified as Class III medical devices that require a PMA.
Evolving interpretations of current laws or the adoption of new federal or state laws or regulations could adversely affect many of the arrangements we have with customers and physicians. Therefore, our risk of being found in violation of these laws is increased by the fact that some of these laws are broad and open to interpretation.
Evolving interpretations of current laws or the adoption of new laws or regulations could adversely affect many of the arrangements we have with customers and physicians. Some of these laws are broad and open to varying interpretation, increasing our compliance risk. A summary of certain critical aspects of our regulatory environment is included below.
A number of states also have false claims laws, and some of these laws may apply to claims for items or services reimbursed under Medicaid and/or commercial insurance.
A number of states also have false claims laws, and some of these laws may apply to claims for items or services reimbursed under Medicaid and/or commercial insurance. Sanctions under these federal and state fraud and abuse laws may include civil monetary penalties and criminal fines, exclusion from government health care programs and imprisonment.
These laws, as well as any new developing laws around health data, could create liability for us and increase our cost of doing business as well as increase costs associated with complying with these various laws both in the U.S. and globally. 23 Table of Contents Environmental Regulations We are subject to stringent international, federal, state and local laws relating to the protection of the environment, including those governing the use, handling and disposal of hazardous materials and wastes.
These laws, as well as any new developing laws around health data, could create liability for us and increase our cost of doing business as well as increase costs associated with complying with these various laws both in the U.S. and globally.
In addition, we have partnered with certain organizations that allow us to provide the highest quality audio technologies into sound studios, home theaters, automotive and airline environments. 6 Table of Contents Our Products and Markets Patient Monitoring Solutions: Circuit Boards and Modules (e.g., MX-7, MX-5, MSX (shown below) ) Our Masimo circuit boards perform all signal processing and other pulse oximetry functions incorporating the Masimo SET ® , Masimo rainbow ® Pulse CO-Oximetry or rainbow Acoustic Monitoring ® technology with specific functionality or measurements.
Our Products and Markets Noninvasive Monitoring Solutions: Circuit Boards and Modules (e.g., MX-7 ™ , MX-5 ™ , MSX ™ (shown below) ) Our Masimo circuit boards perform all signal processing and other pulse oximetry functions incorporating the Masimo SET ® , Masimo rainbow ® Pulse CO-Oximetry or rainbow Acoustic Monitoring ® technology with specific functionality or measurements.
As a result, demand for our healthcare products is dependent in part on the coverage and reimbursement policies of these payers. No uniform coverage or reimbursement policy for medical technology exists among all third-party payers, and coverage and reimbursement can differ significantly from payer to payer.
As a result, demand for our healthcare products is dependent in part on the coverage and reimbursement policies of these payers.
(1) The use of the trademark Patient SafetyNet ™ is under license from the University HealthSystem Consortium. 5 Table of Contents Nasal High-Flow Ventilation The Masimo softFlow ™ technology provides respiratory support by generating a precisely regulated, stable and high flow of room air or a mix of room air and oxygen through the nose of the patient by means of thin nasal prongs.
Nasal High-Flow Ventilation The Masimo softFlow ™ technology provides respiratory support by generating a precisely regulated, stable and high flow of room air or a mix of room air and oxygen through the nose of the patient by means of thin nasal prongs. Controlled oxygen supply ensures oxygenation while, at the same time, the respiratory airways are humidified.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFurther, 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. 31 Table of Contents Risks Related to Our Revenues We currently derive a significant portion of our revenue from our Masimo SET ® platform, Masimo rainbow SET ® platform and related products.
Biggest changeFurther, 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. • We have incurred impairment charges for other intangible assets, and may incur further impairment charges in the future, which would negatively impact our operating results. • We may need additional capital and failure to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges. • Concentration of ownership of our stock among our existing directors, executive officers and principal stockholders may prevent new investors from influencing significant corporate decisions. • We may be unable to accurately forecast our financial and operating results and appropriately plan our expenses in the future or we may fail to meet our publicly announced guidance about our business and future operating results. • Our corporate documents and Delaware law contain provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock. • 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. 34 Table of Contents Risks Related to Our Revenues We currently derive a significant portion of our revenue from our Masimo SET ® platform, Masimo rainbow SET ® platform and related products.
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.
For example, a prolonged conflict may result in challenges associated with timely receipt of customer payments and banking transactions in Russia, 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.
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; 57 Table of Contents • 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; • 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.
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; 64 Table of Contents • 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; • 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.
Even if we complete acquisitions, there are many factors that could affect whether such acquisition, including our 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; 46 Table of Contents • 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.
Even if we complete acquisitions, there are many factors that could affect whether such acquisition, including our 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.
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. 50 Table of Contents 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.
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. 55 Table of Contents 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 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, we entered into a new credit facility to partially fund the acquisition.
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 Facility to partially fund the acquisition.
These include the EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU (Brexit).
These include the new EU Medical Devices Regulation (EU) 2017/745 (MDR), which came into effect on May 26, 2021 and a regulatory regime in the UK effective since January 1, 2021 as a result of the UK’s exit from the EU (Brexit).
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. 35 Table of Contents 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.
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. 38 Table of Contents 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.
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.
See the risk factor with the heading “Our new products and changes to existing products, including as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits.
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. 33 Table of Contents Continuing technological advances and new product introductions in the industries in which we compete place our products at risk of obsolescence.
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. 36 Table of Contents Continuing technological advances and new product introductions in the industries in which we compete place our products at risk of obsolescence.
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. 32 Table of Contents 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.
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. 35 Table of Contents 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.
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. 56 Table of Contents 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.
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. 63 Table of Contents 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.
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.
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 Willow and then license the technology back from Willow in consideration for upfront payments and royalty obligations to Willow.
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.
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 Willow in the Cross-Licensing Agreement may impede a change in control of our company.
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.
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 Willow could impede a change in control of our company.
Such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers, or suppliers, make it more difficult to attract and retain key personnel, and result in a change in control pursuant to the employment agreement between us and Joe Kiani, our Chairman and CEO.
Such shareholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with our employees, customers, suppliers, or business partners, make it more difficult to attract and retain key personnel, and result in a change in control pursuant to the employment agreement between us and Joe Kiani, our Chairman and CEO.
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 certain health care professionals 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.
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; 47 Table of Contents • 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 certain healthcare professionals 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.
These risks include, but are not limited to: • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • a shortage of high-quality sales people and distributors; • the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with foreign tax laws, regulations and requirements; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts, 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.
These risks include, but are not limited to: • the imposition of additional U.S. and foreign governmental controls or regulations; • the imposition of costly and lengthy new export licensing requirements; • a shortage of high-quality sales people and distributors; • the loss of any key personnel who possess proprietary knowledge, or who are otherwise important to our success in certain international markets; • changes in duties and tariffs, license obligations and other non-tariff barriers to trade; • the imposition of new trade restrictions; • the imposition of restrictions on the activities of foreign agents, representatives and distributors; • compliance with foreign tax laws, regulations and requirements; • pricing pressure; • changes in foreign currency exchange rates; • laws and business practices favoring local companies; • political instability and actual or anticipated military or political conflicts, including the ongoing conflict between Ukraine and Russia, the global impact of restrictions and sanctions imposed on Russia and the Israel-Palestine war; • financial and civil unrest worldwide; 59 Table of Contents • 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.
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.
In addition, we and Willow 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 Willow, we will negotiate terms that are as favorable to us as if such transactions were with another third-party.
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.
In addition, Willow 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 a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock. 58 Table of Contents 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.
If a large number of these shares are sold in the public market, the sales could reduce the trading price of our stock. 65 Table of Contents 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.
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.
Such risks include, but are not limited to, adverse effects on macro-economic 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.
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. 34 Table of Contents These negotiated prices are made available to a GPO’s members.
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. 37 Table of Contents These negotiated prices are made available to a GPO’s members.
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 45% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources.
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 48% of our net sales from international operations. In addition, we purchase a portion of our raw materials and components from international sources.
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.
Due to the interrelated nature of Willow with us, conflicts of interest may arise with respect to transactions involving business dealings between us and Willow, 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 Willow.
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. 55 Table of Contents In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act.
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. 62 Table of Contents In addition, stockholder litigation surrounding executive compensation and disclosure of executive compensation has increased with the passage of the Dodd-Frank Act.
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, causing our stock price to decline. 59 Table of Contents
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, causing our stock price to decline. 66 Table of Contents
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.
Therefore, these products and technologies would be deemed to have been developed or improved exclusively by Willow. In addition, we will not be reimbursed by Willow for our expenses relating to the development or improvement of any such products or technologies, which expenses may be significant.
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. 47 Table of Contents 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.
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. 50 Table of Contents Our new products and changes to existing products, including as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits.
Among other things, the Cross-Licensing Agreement provides that 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.
Among other things, the Cross-Licensing Agreement provides that 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 Willow.
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”.
Since 1998, we have been a party to a cross-licensing agreement with Willow (as amended, the Cross-Licensing Agreement), under which we granted Willow: • 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 “Willow 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 “Willow Market”.
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 consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
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 consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
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.
Prior to our initial public offering in August 2007, our stockholders owned 99% of the outstanding shares of capital stock of Willow, and we believe that a number of our stockholders, including certain of our directors and executive officers, continue to own shares of Willow stock.
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 additions, 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.
A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows from operations. 51 Table of Contents 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.
A significant increase in our obligations or future funding requirements could have a negative impact on our results of operations and cash flows from operations. 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.
In addition, regulation or legislation impacting the workforce, such as the proposed rule published by the Federal Trade Commission which would, if issued, generally prevent employers from entering into non-compete with employees and require employers to rescind existing non-competes, may lead to increased uncertainty in hiring and competition for talent.
In addition, regulation or legislation impacting the workforce, such as the proposed rule published by the Federal Trade Commission which would, if issued, generally prevent employers from entering into non-competition agreements with employees and require employers to rescind existing non-competition agreements, may lead to increased uncertainty in hiring and competition for talent.
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 ® .
We will be required to assign to Willow and pay Willow 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 ® .
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.
As a result of the royalties that we must pay to Willow, it is generally more expensive for us to make products that incorporate licensed rainbow ® technology than products that do not include licensed rainbow ® technology.
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.
A change in control also includes other customary events, such as the sale or merger of Masimo or Willow to a non-affiliated third-party or the acquisition of 50% or more of the voting power of Masimo or Willow by a non-affiliated third-party.
If the FDA determines that we have not complied with such requirements, the FDA may refuse to consider the data to support our applications or may initiate enforcement actions. Even though 510(k) clearances have been obtained, if safety or effectiveness problems are identified with our products, we may need to initiate a recall of such products.
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. 42 Table of Contents 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.
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.
Pursuant to the Cross-Licensing Agreement, we have licensed from Willow the right to make and distribute products in the “Masimo Market” that utilize rainbow ® technology for certain noninvasive measurements.
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.
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; along with the war in Israel, may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers.
In addition, new patents obtained by our competitors could threaten the continued commercialization of our products in the market even after they have already been introduced. We believe competitors may currently be violating and may in the future violate our intellectual property rights.
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. 41 Table of Contents We believe competitors may currently be violating and may in the future violate our intellectual property rights.
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.
Negative macro-economic 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.
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.
The impact of the Russian invasion of Ukraine, and the war in Israel, 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, and the war in Israel are difficult to predict at this time.
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.
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 Willow.
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 Annual Report on Form 10-K.
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 Annual Report on Form 10-K.
Many of the laws and regulations in this area are subject to uncertain interpretation, and our failure to comply could result in claims, penalties or increased costs or otherwise harm our business. • 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. • 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.
Many of the laws and regulations in this area are subject to uncertain interpretation, and our failure to comply could result in claims, penalties or increased costs or otherwise harm our business. • 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. • We may experience conflicts of interest with Willow with respect to business opportunities and other matters. • We will be required to assign to Willow and pay Willow 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 Willow grants a license to rainbow ® technology to a third-party, our business would be adversely affected. • Rights provided to Willow 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, including as a result of our acquisition of Sound United could fail to attract or retain users or generate revenue and profits.
In September 2022, Apple, Inc. announced that its Apple watchOS9 will include expanded workout enhancements, medication reminders, sleep reporting, temperature tracking and atrial fibrillation history, which may compete with certain of our existing products and products in development.
In September 2022, Apple, Inc. announced that its Apple Watch OS9 will include expanded workout enhancements, medication reminders, sleep reporting, temperature tracking and atrial fibrillation history, which may compete with certain of our existing products and products in development.
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.
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 Willow Laboratories, Inc. (Willow), formerly known as Cercacor Laboratories, Inc., which may impair our growth and adversely affect our business, financial condition and results of operations.
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.
Willow owns all of the proprietary rights to certain rainbow ® technology developed with our proprietary Masimo SET ® for products intended to be used in the “Willow Market”, and all rights to any non-vital signs measurement for which we do not exercise an option pursuant to the Cross-Licensing Agreement.
Risks Related to Our Business and Operations We may experience conflicts of interest with Cercacor with respect to business opportunities and other matters.
Risks Related to Our Business and Operations We may experience conflicts of interest with Willow with respect to business opportunities and other matters.
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, can vary depending on average monthly exchange rates during a respective period. 60 Table of Contents 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.
We have experienced supply constraints with regard to certain digital signal processor chips and other components during the COVID-19 pandemic, which adversely affected our sales during 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 previously experienced supply constraints with regard to certain digital signal processor chips and other components during the COVID-19 pandemic, which affected our sales during 2022. In addition, from time to time there have been industry-wide shortages of certain components that we use in certain products.
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.
We are also unable to predict how changing global economic conditions or potential global health concerns 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.
For additional information related to the impact of new accounting pronouncements, please see Note 2, “Summary of Significant Accounting Policies”, to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
For additional information related to the impact of new accounting pronouncements, please see Note 2 , “ Summary of Significant Accounting Policies ”, to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Cercacor.
Joe Kiani, our Chairman and Chief Executive Officer (CEO), is also the Chairman and CEO of Willow.
On January 10, 2023, an Administrative Law Judge ruled that Apple Inc. violated Section 337 of the Tariff Act of 1930, as amended, by importing and selling within the United States certain Apple Watches with light-based pulse oximetry functionality and components, which infringe one of our pulse oximeter patents.
On January 10, 2023, an Administrative Law Judge ruled that Apple Inc. violated Section 337 of the Tariff Act of 1930, as amended, by importing and selling within the United States certain Apple Watches with light-based pulse oximetry functionality and components.
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.
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 increase in demand we experienced during the COVID-19 pandemic, may be short lived.
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. 45 Table of Contents We may not be able to commercialize our products incorporating licensed rainbow ® technology cost-effectively or successfully.
As a result, we would likely be subject to increased competition within our market, and Willow or competitors who obtain a license to rainbow ® technology from Willow would be able to offer related products. We may not be able to commercialize our products incorporating licensed rainbow ® technology cost-effectively or successfully.
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. • 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. 30 Table of Contents • We believe competitors may currently be violating and may in the future violate our intellectual property rights.
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. • 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. • Competition and other conflicts with our non-healthcare distribution partners could harm our business and operating results. • 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.
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. 38 Table of Contents The laws of foreign countries may not adequately protect our intellectual property rights.
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.
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 Annual Report on Form 10-K.
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 II, Item. 7 of this Annual Report on Form 10-K.
No individual retailer represented more than 10% of our non-healthcare product sales for the year ended December 31, 2022.
No individual retailer represented more than 10% of our non-healthcare product sales for the year ended December 30, 2023.
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.
If these technologies and related products do not continue to achieve market acceptance, our business, financial condition and results of operations would be adversely affected. • Some of our products are in development or have been recently introduced into the market and may not achieve market acceptance, which could limit our growth and adversely affect our business, financial condition and results of operations. • Our ability to commercialize new products, new or improved technologies and additional applications for Masimo SET ® and our licensed rainbow ® technology is limited to certain markets by our Cross-Licensing Agreement with Willow Laboratories, Inc.
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 healthcare products in the U.S., which could severely harm our business. • 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.
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. • 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 healthcare products in the U.S., which could severely harm our business. • 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. 33 Table of Contents • The regulatory environment governing information, data security and privacy is increasingly demanding and evolving.
As of December 31, 2022, approximately 10.2 million shares of our common stock were reserved for issuance under our equity incentive plans, of which approximately 2.8 million shares were subject to options outstanding at such date at a weighted-average exercise price of $83.85 per share, approximately 3.2 million shares were subject to outstanding RSUs, approximately 0.3 million shares were subject to outstanding PSUs and approximately 3.9 million shares were available for future awards under our 2017 Equity Incentive Plan.
As of December 30, 2023, approximately 9.9 million shares of our common stock were reserved for issuance under our equity incentive plans, of which approximately 2.7 million shares were subject to options outstanding at such date at a weighted-average exercise price of $87.79 per share, approximately 3.5 million shares were subject to outstanding RSUs, approximately 0.3 million shares were subject to outstanding PSUs and approximately 3.4 million shares were available for future awards under our 2017 Equity Incentive Plan.
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.
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.
Among many new requirements, some of these laws (including the CPRA) subject health-related information to additional safeguards and disclosures. In addition, the state privacy laws expand consumers’ rights (such as opting out of certain data sales to third parties and targeted advertising, restricting certain uses and disclosures of sensitive data, and requesting access, deletion, or correction of personal information).
These state laws govern the processing of residents’ personal information. Among many new requirements, some of the state privacy laws expand consumers’ rights (such as opting out of certain data sales to third parties and targeted advertising, restricting certain uses and disclosures of sensitive data, and requesting access, deletion, or correction of personal information).
These state laws also minimize what data we can collect from consumers and how we may use and disclose it. These state privacy laws also require us to make disclosures to consumers about our data collection, use and sharing practices.
These state laws also minimize what data that can be collected from consumers and how businesses may use and disclose it. These state privacy laws also require businesses to make disclosures to consumers about data collection, use and sharing practices.
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.
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 additional costs to modify our business practices to comply with these requirements. We may be required to make costly system modifications to comply with applicable data privacy and security laws.
Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies; • product recalls or seizures; • orders for physician notification or device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions.
Failure by us or one of our suppliers to comply with statutes and regulations administered by the FDA and other regulatory bodies or failure to adequately respond to any FDA Form 483 observations, any California Food and Drug Branch notices of violation or any similar reports could result in, among other things, any of the following: • warning letters or untitled letters issued by the FDA; • fines, civil penalties, in rem forfeiture proceedings, injunctions, consent decrees and criminal prosecution; • import alerts; • unanticipated expenditures to address or defend such actions; • delays in clearing or approving, or refusal to clear or approve, our products; • withdrawals or suspensions of clearance or approval of our products or those of our third-party suppliers by the FDA or other regulatory bodies; • product recalls or seizures; • orders for physician notification or device repair, replacement or refund; • interruptions of production or inability to export to certain foreign countries; and • operating restrictions. 43 Table of Contents 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.
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.
International Trade Commission (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.
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.
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. 58 Table of Contents Changes to government immigration regulations may materially affect our workforce and limit our supply of qualified professionals, or increase our cost of securing workers.
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.
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.
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.
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.
As of December 31, 2022, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 9.8% of our outstanding stock.
As of December 30, 2023, our current directors and executive officers and their affiliates, in the aggregate, beneficially owned approximately 18.6% of our outstanding stock.
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. 41 Table of Contents 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.
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.
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.
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 previously adopted on September 9, 2022, which we terminated in accordance with the terms of the Amendment to the Rights Agreement we entered into effective as of March 22, 2023.
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.
U.S. and international legislative and regulatory changes in the healthcare industry could have a negative impact on our financial performance. 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur success and future growth is largely dependent on our ability to attract, retain and develop a diverse workforce at all levels of the organization. To succeed, we have developed key recruitment and retention strategies that we focus on as part of our overall management of our business. These include: • Compensation.
Biggest changeWe consider our employees to be a key factor in our future innovation and success. We seek to attract and retain highly talented, experienced and well-educated individuals to support our long-term growth and profitability goals. We have developed key recruitment and retention strategies that we focus on as part of our overall management of our business. These include: • Compensation.
In 2021 and 2022, we were certified as a Great Place to Work ® . In addition, for 2021 and 2022, we were recognized on Fortune Best Workplaces in Manufacturing & Production ™ . To assess and improve employee retention and engagement, we survey employees and take actions to address areas of employee concerns.
In 2021 and 2022, we were certified as a Great Place to Work ® . In addition, for 2021 and 2022, we were recognized on Fortune Best Workplaces in Manufacturing & Production ™ . To assess and improve employee retention and engagement, we survey employees and take actions to address areas of employee concerns. • Inclusion and Diversity.
Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at our website, www.masimo.co m , as soon as reasonably practicable after electronically filing such reports with the SEC.
Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge at our website, www.masimo.com , as soon as reasonably practicable after electronically filing such reports with the SEC.
Any information contained on, or that can be accessed through, our website is not incorporated by reference into, nor is it in any way a part of, this Annual Report on Form 10-K. 29 Table of Contents
Any information contained on, or that can be accessed through, our website is not incorporated by reference into, nor is it in any way a part of, this Annual Report on Form 10-K. 32 Table of Contents
We have implemented measures to promote greater environmental responsibility, conserve resources and reduce waste in an effort to help combat climate change. 27 Table of Contents We are committed to operating in an environmentally responsible manner and support the internationally recognized environmental principles set forth in the United Nations Global Compact.
We have implemented measures to promote greater environmental responsibility, conserve resources and reduce waste in an effort to help combat climate change. We are committed to operating in an environmentally responsible manner and support the internationally recognized environmental principles set forth in the United Nations Global Compact.
The structure of our compensation programs balance incentive earnings for both short-term and long-term performance. ▪ Our executive compensation is aligned with stockholder interests by aligning pay-for-performance metrics. ▪ We utilize nationally-recognized compensation consultants to evaluate our executive compensation benefit programs and provide benchmarking against our peer groups. ▪ We provide employee wages that are competitive and consistent with employee positions, experience, skills, knowledge and geography. ▪ Our annual increases and cash incentives are based on market and awarded based on merit. ▪ We offer a wide variety of benefits, including health insurance, paid time off, retirement plans, and voluntary benefits such as financial and personal wellness benefits, etc. • Health and Safety.
The structure of our compensation programs balance incentive earnings for both short-term and long-term performance. ▪ Our executive compensation is aligned with stockholder interests by aligning pay-for-performance metrics. ▪ We utilize nationally-recognized compensation consultants to evaluate our executive compensation benefit programs and provide benchmarking against our peer groups. ▪ We provide employee wages that are consistent with employee positions, experience, skills, knowledge and geography. ▪ Base compensation adjustments and incentive compensation are based on market data and awarded based on individual performance and Company performance. ▪ We offer a wide variety of benefits, including health insurance, paid time off, retirement plans, and voluntary benefits such as financial and personal wellness benefits, etc. • Developing Leaders of Tomorrow/Succession Planning.
Organizations that our employees have supported in recent years include Syrian American Medical Society, Juvenile Diabetes Research Foundation, Feeding America, Patient Safety Movement Foundation and the Sound Start Foundation. Human Capital Resources Core to our long-term strategy for human capital is attracting, developing and retaining the best talent globally with the right skills to drive our future success.
Organizations that our employees have supported in recent years include Doctors Without Borders, Smile Train, Feeding America, Patient Safety Movement Foundation and the Sound Start Foundation. 31 Table of Contents Human Capital Resources Core to our long-term strategy for human capital is attracting, developing and retaining the best talent globally with the right skills to drive our future success.
In fiscal 2022, our full-time employees increased from approximately 2,000 as of January 1, 2022 to 4,000 as of December 31, 2022 and our dedicated contract personnel worldwide increased from approximately 4,200 as of January 1, 2022 to approximately 5,900 as of December 31, 2022.
In fiscal 2023, our full-time employees decreased from approximately 4,000 as of December 31, 2022 to 3,800 as of December 30, 2023. Our dedicated contract personnel worldwide decreased from approximately 5,900 as of December 31, 2022 to approximately 5,200 as of December 30, 2023.
Item 2. Properties ” in this Annual Report on Form 10-K. S ustainability As a global manufacturer of technology products, we understand the materials we use and the products we manufacture can have an impact on the environment. We are continuously evaluating ways to reduce our overall environmental footprint.
S ustainability As a global manufacturer of healthcare and non-healthcare products, we understand the materials we use and the products we manufacture can have an impact on the environment. We are continuously evaluating ways to reduce our overall environmental footprint.
Of our full-time employees, approximately 69% were male and approximately 31% were female, and women represented approximately 23% of our management/leadership roles. Minorities represented approximately 47% of our U.S. workforce, and approximately 40% of our management/leadership roles. Cybersecurity We regularly perform risk assessments relating to cybersecurity risks.
Of our full-time employees, approximately 67% were male and 33% were female, and women represented approximately 25% of our management/leadership roles. Minorities represented approximately 49% of our U.S. workforce, and approximately 37% of our management/leadership roles.
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We consider our employees to be our greatest assets and the greatest strength behind our innovation and success. We seek to attract and retain highly talented, experienced and well-educated individuals to support our long-term growth and profitability goals.
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Item 2. Properties ” in this Annual Report on Form 10-K. We will continue to utilize third-party contract manufacturers for products and subassemblies that can be more efficiently manufactured by these parties, such as our circuit boards, speakers and certain audio components.
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We are committed to the safety and well-being of our employees. In response to the COVID-19 pandemic, we implemented changes to our business in an effort to protect our employees and customers.
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We monitor our third-party manufacturers and perform inspections and product tests at various steps in the manufacturing cycle to ensure compliance with our specifications. We also do full functional testing of our circuit boards. For raw materials, we and our contract manufacturers may rely on sole source suppliers for some components.
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We instituted safety protocols and procedures for our employees who work on site, including: installation of plexiglass partitions between work stations at our primary manufacturing and assembly facilities, increased distancing and implementation of extensive cleaning and sanitation procedures for our manufacturing and assembly facilities and our general administration and sales facilities. • Developing Leaders of Tomorrow/Succession Planning.
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We and our contract manufacturers have taken steps to minimize the impact of a shortage or stoppage of shipments of key components by maintaining a safety stock of component inventory and by redesigning certain products to allow for more universal sub-components. Generally, we have been able to obtain adequate supplies of such raw materials and components.
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The average tenure of our employee is approximately 5.4 years and more than 18% of our employees have been employed by us for more than ten years. 28 Table of Contents • Inclusion and Diversity.
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However, we may not be able to quickly establish additional or replacement sources for certain components or materials if we experience a sudden or unexpected reduction or interruption in supply and are unable to develop alternative sources. We have agreements with certain major suppliers and each agreement provides for varying terms with respect to contract expiration, termination and pricing.
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We have a risk-based cybersecurity program, dedicated to protecting our data and data that may be collected from patient monitoring devices. We utilize a defense-in-depth strategy with multiple layers of security controls to protect our data and systems.
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Most of these agreements allow for termination upon specified advance notice of various periods to the non-terminating party. Certain of these agreements with our major suppliers allow for pricing adjustments and each agreement provides for annual pricing negotiation.
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We mitigate cybersecurity risks by employing extensive measures, including employee training, systems monitoring and testing and maintenance of protective systems and contingency plans. We continually evaluate ourselves for appropriate business continuity and disaster recovery planning, with test scenarios that include simulations and penetration tests.
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We also install and regularly update antivirus software on all of our Company-managed systems to detect malicious code and prevent it from impacting our systems. We require cybersecurity awareness training for all staff members with access to our network. We also maintain cyber liability insurance coverage to further reduce our risk profile.
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Security of our financial data and other sensitive information remains a high priority for us, led by our global information security team. We employ an appropriate encryption and tokenization platform for all online and direct-to-consumer sales from our websites, ensuring no credit card data is stored in our internal systems.
Removed
For more information on risks related to cybersecurity and data security, see Item 1A. “Risk Factors - Risks Related to Our Regulatory Environment and General Risk Factors ” .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+0 added−2 removed4 unchanged
Biggest changeShares withheld to satisfy tax withholding obligations for the years ended December 31, 2022 and January 1, 2022 were as follows (in millions, except shares withheld and per share amounts): Three Months Ended Year Ended December 31, 2022 January 1, 2022 (1) December 31, 2022 January 1, 2022 (1) Shares withheld — 18 112,298 67,704 Average cost per share $ — $ 276.97 $ 226.22 $ 247.10 Value of shares withheld $ — $ 5 $ 25.4 $ 16.7 _____________ (1) Also included here is the option cost due upon the exercise of stock options that was paid by delivering the shares previously owned by the participant.
Biggest changeShares withheld to satisfy tax withholding obligations for the years ended December 30, 2023 and December 31, 2022 were as follows (in millions, except shares withheld and per share amounts): Three Months Ended Year Ended December 30, 2023 December 31, 2022 December 30, 2023 December 31, 2022 Shares withheld 1,215 62 72,817 112,298 Average cost per share $ 92.15 $ 133.93 $ 177.89 $ 226.22 Value of shares withheld $ 0.1 $ — (1) $ 13.0 $ 25.4 ___________________________ (1) Total value of shares withheld was less than $0.1 million for the three months ended on December 31, 2022.
The 2022 Repurchase Program can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. No shares were repurchased pursuant to the 2022 Repurchase Program during the quarter ended December 31, 2022.
The Repurchase Program can be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and privately negotiated transactions. No shares were repurchased pursuant to the Repurchase Program during the quarter ended December 30, 2023.
As of December 31, 2022, 5.0 million shares remained available for repurchase pursuant to the 2022 Repurchase Program. 62 Table of Contents Withholdings of Equity Securities During the year ended December 31, 2022, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding shares of our common stock, with an aggregate fair market value on the date of vesting equal to the tax withholding obligations, from the shares of our common stock actually issued in connection with such award.
As of December 30, 2023, 5.0 million shares remained available for repurchase pursuant to the Repurchase Program. 70 Table of Contents Withholdings of Equity Securities During the year ended December 30, 2023, we satisfied certain U.S. federal and state tax withholding obligations due upon the vesting of equity grants by withholding shares of our common stock, with an aggregate fair market value on the date of vesting equal to the tax withholding obligations, from the shares of our common stock actually issued in connection with such award.
We expect to fund the 2022 Repurchase Program through our available cash, cash expected to be generated from future operations, our credit facility and other potential sources of capital.
The Repurchase Program became effective in July 2022. We expect to fund the Repurchase Program through our available cash, cash expected to be generated from future operations, our Credit Facility and other potential sources of capital.
The following stock performance graph compares total stockholder returns for our common stock from December 30, 2017 through December 31, 2022 against the Nasdaq Market Composite Index and Nasdaq Medical Equipment Index, assuming a $100 investment made on December 30, 2017. Each of the two comparative measures of cumulative total return assumes reinvestment of dividends.
The following stock performance graph compares total stockholder returns for our common stock from December 29, 2018 through December 30, 2023 against the Nasdaq Market Composite Index and Nasdaq Health Care Index, assuming a $100 investment made on December 29, 2018. Each of the two comparative measures of cumulative total return assumes reinvestment of dividends.
As of January 27, 2023, the closing price of our stock was $171.39 per share, and the number of stockholders of record, excluding persons whose stock is in nominee or “street name” accounts through brokers, was 19. Dividend Policy We have historically not paid dividends to our stockholders.
As of January 26, 2024, t he closing price of our stock was $127.28 per share, and the number of stockholders of record, excluding persons whose stock is in nominee or “street name” accounts through brokers, was 22. Dividend Policy We have historically not paid dividends to our stockholders.
The stock performance shown on the graph below is not necessarily indicative of future price performance. 61 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Masimo Corporation, the Nasdaq Market Composite Index, and the Nasdaq Medical Equipment Index *$100 invested on 12/30/2017 in stock or in index, including reinvestment of dividends. Indexes calculated on month-end basis.
The stock performance shown on the graph below is not necessarily indicative of future price performance. 69 Table of Contents COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Masimo Corporation, the Nasdaq Market Composite Index, and the Nasdaq Health Care Index *$100 invested on 12/29/2018 in stock or in index, including reinvestment of dividends.
The 2021 Repurchase Program was completed in May 2022. In June 2022, our Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (2022 Repurchase Program). The 2022 Repurchase Program became effective in July 2022.
Indexes calculated on month-end basis. **During fiscal 2023, the Nasdaq Medical Equipment Index was discontinued and replaced with the Nasdaq Health Care Index. Stock Repurchase Programs In June 2022, our Board approved a stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (Repurchase Program).
Removed
Stock Repurchase Programs In October 2021, our Board approved a new stock repurchase program, authorizing us to purchase up to 3.0 million shares of our 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.
Removed
No shares were withheld to satisfy tax withholding obligations during the quarter ended December 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

58 edited+75 added−21 removed55 unchanged
Biggest changeDespite these investment requirements and potential expenditures, we anticipate that our existing cash and cash equivalents, amounts available under our credit facility and cash provided by operations will be sufficient to meet our working capital requirements, capital expenditures and other operational funding needs for the next 12 months and beyond.
Biggest changeThese actions may include, among others, negotiating with suppliers to optimize our payment terms and conditions, adjusting the timing of cash flows associated with customer sales programs and collections, managing inventory levels and purchasing practices, and selling certain of our accounts receivables on a non-recourse basis to third party financial institutions. 79 Table of Contents Despite recent acquisitions and strategic investment expenditures, we anticipate that our existing cash and cash equivalents, amounts available under our Credit Facility and cash provided by operations and, taken together, provide adequate resources to fund ongoing operating and capital expenditures, working capital requirements, and other operational funding needs for the next 12 months.
Healthcare Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation and connectivity solutions, remote monitoring devices and consumer health products. Our patient monitoring solutions generally incorporate a monitor or circuit board, proprietary single-patient use or reusable sensors, software, cables and other services.
Healthcare Our healthcare business develops, manufactures and markets a variety of noninvasive patient monitoring technologies, hospital automation and connectivity solutions, remote monitoring devices and consumer health products. 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.
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 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.
Cash used in financing activities for the year ended December 31, 2022 was approximately $520.4 million, consisting primarily of proceeds from borrowings under the line of credit of approximately $1,083.9 million and the issuance of common stock related to employee equity awards of approximately $8.1 million, which were partially offset by the repurchases of our common stock of approximately $401.5 million, repayments under the revolving line of credit of approximately $135.4 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 year ended December 31, 2022, cash used in financing activities was approximately $520.4 million, consisting primarily of proceeds from borrowings under the line of credit of approximately $1,083.9 million, and the issuance of common stock related to employee equity awards of approximately $8.1 million, which were partially offset by repurchases of our common stock of approximately $401.5 million, repayments under the revolving line of credit of approximately $135.4 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.
Cash provided by operating activities for the year ended December 31, 2022 was $29.4 million which was primarily driven by net income of $143.5 million. This was increased by non-cash activities, including and depreciation and amortization of $136.1 million and stock-based compensation of $47.7 million, partially offset by a deferred income tax benefit of $39.3 million.
For the year ended December 31, 2022, cash provided by operating activities was approximately $29.4 million, which was primarily driven by net income of $143.5 million. This was increased by non-cash activities, including depreciation and amortization of $136.1 million and stock-based compensation of $47.7 million, partially offset by a deferred income tax benefit of $39.3 million.
The Masimo Hospital Automation ™ Platform facilitates data integration, connectivity and interoperability through solutions like Patient SafetyNet ™(1) , 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.
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.
Although we regularly evaluate these estimates and assumptions, changes in judgments and uncertainties relating to these estimates could potentially result in materially different results under different assumptions and conditions. If these estimates differ significantly from actual results, the impact to the consolidated financial statements may be material.
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 consolidated financial statements may be material.
Any difference in the assumptions, judgments and estimates mentioned above could results in changes to our results of operations. 72 Table of Contents Litigation Costs and Contingencies We record 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.
Any difference in the assumptions, judgments and estimates mentioned above could results in changes to our results of operations. 84 Table of Contents Litigation Costs and Contingencies We record 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.
Recent Accounting Pronouncements For details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 73 Table of Contents
Recent Accounting Pronouncements For details regarding any recently adopted and recently issued accounting standards, see Note 2 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 85 Table of Contents
Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. 70 Table of Contents We enter into agreements to sell our monitoring solutions and services, sometimes as part of arrangements with multiple performance obligations that include various combinations of distinct product sales, equipment leases and services.
Changes in judgments on these assumptions and estimates could materially impact the timing of revenue recognition. We enter into agreements to sell our monitoring solutions and services, sometimes as part of arrangements with multiple performance obligations that include various combinations of distinct product sales, equipment leases and services.
When a standalone selling price is not readily observable, we estimate 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, our pricing and discount practices, and other market conditions.
When a standalone selling price is not readily observable, we estimate the standalone selling price by considering multiple factors including, but not limited to, features and 81 Table of Contents functionality of the product, geographies, type of customer, contractual prices pursuant to Group Purchasing Organization (GPO) contracts, our pricing and discount practices, and other market conditions.
Our cash requirements depend on numerous factors, including but not limited to market acceptance of our technologies, our continued ability to commercialize new products and to create or improve our technologies and applications, expansion of our global footprint through acquisitions and/or strategic investments in technologies or technology companies, hedging and derivative activities, investments in property and equipment, the renewal of our credit facility, the impact of disruptions to the manufacturing industry supply chain for key components resulting from the COVID-19 pandemic, inflation, repurchases of our stock under our authorized stock repurchase program, costs related to our domestic and international regulatory requirements and other long-term commitment and contingencies.
Our cash requirements depend on numerous factors, including, but not limited to, market acceptance of our technologies, our continued ability to commercialize new products and to create or improve our technologies and applications, expansion of our global footprint through acquisitions and/or strategic investments in technologies or technology companies, hedging and derivative activities, investments in property and equipment, the renewal of our Credit Facility, the impact of disruptions to the manufacturing industry supply chain for key components, inflation, repurchases of our stock under our authorized stock repurchase program, costs related to our domestic and international regulatory requirements and other long-term commitment and contingencies.
Cash used in investing activities for the year ended December 31, 2022 was approximately $1,057.7 million, consisting primarily of approximately $999.7 million for business combinations, net of cash acquired, approximately $52.8 million for purchases of property and equipment, approximately $3.5 million for intangible assets related to capitalized patent and trademark costs and approximately $1.7 million related to the acquisition of a strategic investment.
For the year ended December 31, 2022, cash used in investing activities was approximately $1,057.7 million, consisting primarily of approximately $999.7 million for business combinations, net of cash acquired, approximately $52.8 million for purchases of property and equipment, approximately $3.5 million for intangible assets related to capitalized patent and trademark costs and approximately $1.7 million related to the acquisition of a strategic investment. 80 Table of Contents Financing Activities .
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. Uses of Cash.
We currently have sufficient domestic funds on-hand and cash held outside the U.S. that is available without additional tax cost to fund our domestic 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.
These estimates and judgements are based on historical experience and on various other factors that are believed 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.
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.
For additional information regarding the credit facility, see Note 15 to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. 68 Table of Contents In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds.
For additional information regarding the Credit Facility, see Note 15, “ Debt ” , to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K. In managing our day-to-day liquidity and capital structure, we generally do not rely on foreign earnings as a source of funds.
We have made no provision for U.S. income taxes or foreign withholding taxes on approximately $322.6 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the U.S.
We have made no provision for U.S. income taxes or foreign withholding taxes on approximately $789.0 million in accumulated earnings from our foreign subsidiaries as we expect that such amounts will continue to be indefinitely reinvested in operations outside the U.S.
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, nasal high-flow respiratory support therapy, patient position and activity tracking and neuromodulation technology solutions.
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, nasal high-flow respiratory support therapy, patient position and activity tracking, neuromodulation technology, an opioid overdose prevention and alert solution, and telehealth solutions.
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, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control and Zoll, just to name a few.
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, such as GE Healthcare, Hillrom, Mindray, Philips, Physio-Control, Zoll, among others.
Should any of the assumptions, judgements or estimates associated with the valuation components change, the fair value of the assets acquired could vary. Transaction costs associated with a business combination are expensed as incurred.
Should any of the assumptions, judgments or estimates associated with the valuation components change, the fair value of the assets acquired could vary. Transaction costs associated with a business combination 82 Table of Contents are expensed as incurred.
Additional increases to net income were changes in operating assets, including an increase in accounts receivable, inventories, deferred revenue and other contract-related liabilities, income tax payable of $138.5 million, $155.9 million, $28.1 million and $3.8 million, respectively, which were offset by increases in other non-current liabilities of $4.1 million, $16.1 million, $9.3 million, $7.4 million and $4.9 million, respectively.
Additional increases to operating activities included increases in accounts receivable, inventories, deferred revenue and other contract-related liabilities, income tax payable of $138.5 million, $155.9 million, $28.1 million and $3.8 million, respectively, which were offset by increases in other non-current liabilities of $4.1 million, $16.1 million, $9.3 million, $7.4 million and $4.9 million, respectively. Investing Activities .
The credit facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit. Proceeds from the credit facility are being used for general corporate, capital investment and expenditures and working capital needs.
We currently maintain a Credit Facility, which provides for $705.0 million of unsecured borrowings. The Credit Facility also provides for a sublimit of up to $50.0 million for the issuance of letters of credit. Proceeds from the Credit Facility are being used for general corporate, capital investment and expenditures and working capital needs.
Selling, general and administrative expenses for the years ended December 31, 2022 and January 1, 2022 were as follows: Selling, General and Administrative (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $657.4 32.3% $395.4 31.9% $262.0 66.3% Selling, general and administrative expenses increased $262.0 million, or 66.3%, to $657.4 million for the year ended December 31, 2022 from $395.4 million for the year ended January 1, 2022.
Selling, general and administrative expenses for the years ended December 30, 2023 and December 31, 2022 were as follows: Selling, General and Administrative (in millions, except percentages) Year Ended December 30, 2023 Percentage of Revenues Year Ended December 31, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $664.0 32.4% $657.4 32.3% $6.6 1.0% Selling, general and administrative expenses increased $6.6 million, or 1.0%, to $664.0 million for the year ended December 30, 2023, from $657.4 million for the year ended December 31, 2022.
Non-operating loss for the years ended December 31, 2022 and January 1, 2022 was as follows: Non-operating Loss (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $(16.6) (0.8)% $(1.4) (0.1)% $(15.2) 1,085.7% Non-operating loss was $16.6 million for the year ended December 31, 2022 compared to $1.4 million of non-operating loss for the year ended January 1, 2022.
Non-operating loss for the years ended December 30, 2023 and December 31, 2022 was as follows: Non-operating Loss (in millions, except percentages) Year Ended December 30, 2023 Percentage of Revenues Year Ended December 31, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $(48.4) (2.4)% $(16.6) (0.8)% $(31.8) 191.6% Non-operating loss was $48.4 million for the year ended December 30, 2023 compared to $16.6 million of non-operating loss for the year ended December 31, 2022.
We sought differentiated growth opportunities to cross-leverage technologies, bringing our core clinically superior solutions into the “home” and “on-the-go” settings and bringing Sound United’s premium audio and system integration technologies into the hospital to advance hospital automation connectivity and cloud-based technologies.
We continue to seek out differentiated growth opportunities to cross-leverage technologies, bringing our core clinically superior solutions into the “home” and “on-the-go” settings and bring our premium audio integration technologies into the hospital to advance hospital automation connectivity and cloud-based technologies.
Comparison of the Year ended January 1, 2022 to the Year ended January 2, 2021 For a discussion regarding our financial condition and results of operations for the year ended January 1, 2022 as compared to the year ended January 2, 2021, refer to the discussion under the heading “Comparison of the Year ended January 1, 2022 to the Year ended January 2, 2021” in Item 7, which should be read in conjunction with Item 7, in each case, of our Annual Report on Form 10-K for the year ended January 1, 2022, filed with the SEC on February 16, 2022 .
Comparison of the Year ended December 30, 2023 to the Year ended December 31, 2022 For a discussion regarding our financial condition and results of operations for the year ended December 30, 2023 as compared to the year ended December 31, 2022, refer to the discussion under the heading “Comparison of the Year ended December 30, 2023 to the Year ended December 31, 2022” in Item 7, which should be read in conjunction with Item 7, in each case, of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023 .
Cash Flows The following table summarizes our cash flows (in millions): Year Ended December 31, 2022 January 1, 2022 Net cash provided by (used in): Operating activities $ 29.4 $ 264.6 Investing activities (1,057.7) (37.5) Financing activities 520.4 (122.4) Effect of foreign currency exchange rates on cash (30.9) (1.3) Increase in cash, cash equivalents, and restricted cash $ (538.8) $ 103.4 Operating Activities .
Cash Flows The following table summarizes our cash flows (in millions): Year Ended December 30, 2023 December 31, 2022 Net cash provided by (used in): Operating activities $ 94.1 $ 29.4 Investing activities (81.2) (1,057.7) Financing activities (57.1) 520.4 Effect of foreign currency exchange rates on cash 2.8 (30.9) Increase in cash, cash equivalents, and restricted cash $ (41.4) $ (538.8) Operating Activities .
For the year ended December 31, 2022, sales derived from customers based in Russia represented an immaterial percentage of our total revenue. 65 Table of Contents Results of Operations The following table sets forth, for the periods indicated, our results of operations expressed as U.S.
For the three and twelve months ended December 30, 2023, sales derived from customers based in Russia represented an immaterial percentage of our total revenue. 74 Table of Contents Results of Operations The following table sets forth, for the periods indicated, our results of operations expressed as U.S.
Our provision for income taxes for the years ended December 31, 2022 and January 1, 2022 were as follows: Provision for Income Taxes (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $49.9 2.5% $44.8 3.6% $5.1 11.4% Our provision for income taxes was $49.9 million for the year ended December 31, 2022 compared to $44.8 million for the year ended January 1, 2022.
Our provision for income taxes for the years ended December 30, 2023 and December 31, 2022 were as follows: Provision for Income Taxes (in millions, except percentages) Year Ended December 30, 2023 Percentage of Revenues Year Ended December 31, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $6.6 0.3% $49.9 2.5% $(43.3) (86.8)% 78 Table of Contents Our provision for income taxes was $6.6 million for the year ended December 30, 2023 compared to $49.9 million for the year ended December 31, 2022.
This net increase of approximately $15.2 million was primarily due to approximately $1.8 million of interest income on cash deposits in combination with approximately $7.2 million of net realized and unrealized foreign currency denominated transactions, which were offset by interest expense incurred under our credit facility of approximately $25.7 million during the year ended December 31, 2022.
This higher non-operating loss of approximately $31.8 million was primarily due to interest expense incurred under our Credit Facility of approximately $47.0 million, which was offset by $3.0 million of interest income on cash deposits in combination with approximately $1.0 million of net realized and unrealized foreign currency denominated transactions during the year ended December 30, 2023.
Dollar amounts and as a percentage of revenue: Year Ended December 31, 2022 Year Ended January 1, 2022 Amount (in millions) % of Revenue Amount (in millions) % of Revenue Revenue $ 2,035.8 100.0 % $ 1,239.2 100.0 % Cost of goods sold 977.0 48.0 430.8 34.8 Gross profit 1,058.8 52.0 808.4 65.2 Operating expenses: Selling, general and administrative 657.4 32.3 395.4 31.9 Research and development 191.4 9.4 137.2 11.1 Total operating expenses 848.8 41.7 532.6 43.0 Operating income 210.0 10.2 275.8 22.2 Non-operating loss (16.6) (0.8) (1.4) (0.1) Income before provision for income taxes 193.4 9.5 274.4 22.1 Provision for income taxes 49.9 2.5 44.8 3.6 Net income $ 143.5 7.0 % $ 229.6 18.5 % Comparison of the Year ended December 31, 2022 to the Year ended January 1, 2022 Revenue .
Dollar amounts and as a percentage of revenue: Year Ended December 30, 2023 Year Ended December 31, 2022 Amount (in millions) % of Revenue Amount (in millions) % of Revenue Revenue $ 2,048.1 100.0 % $ 2,035.8 100.0 % Cost of goods sold 1,044.6 51.0 977.0 48.0 Gross profit 1,003.5 49.0 1,058.8 52.0 Operating expenses: Selling, general and administrative 664.0 32.4 657.4 32.3 Research and development 175.2 8.6 191.4 9.4 Litigation settlements 17.8 0.9 — — Impairment charge 10.0 0.5 — — Total operating expenses 867.0 42.3 848.8 41.7 Operating income 136.5 6.6 210.0 10.2 Non-operating loss (48.4) (2.4) (16.6) (0.8) Income before provision for income taxes 88.1 4.3 193.4 9.5 Provision for income taxes 6.6 0.3 49.9 2.5 Net income $ 81.5 4.0 % $ 143.5 7.0 % Comparison of the Year ended December 30, 2023 to the Year ended December 31, 2022 Revenue .
Our gross profit for the years ended December 31, 2022 and January 1, 2022 were as follows: Gross Profit (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $1,058.8 52.0% $808.4 65.2% $250.4 31.0% Gross profit as a percentage of revenue decreased to 52.0% for the year ended December 31, 2022, from 65.2% for the year ended January 1, 2022, primarily due to change in product revenue mix from the inclusion of non-healthcare product sales.
Our gross profit for the years ended December 30, 2023 and December 31, 2022 were as follows: Gross Profit (in millions, except percentages) Year Ended December 30, 2023 Percentage of Revenues Year Ended December 31, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $1,003.5 49.0% $1,058.8 52.0% $(55.3) (5.2)% Gross profit decreased to 49.0% for the year ended December 30, 2023, from 52.0% for the year ended December 31, 2022, primarily due to decreased sales volume in the healthcare segment.
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.
While none of Russia, the Ukraine or Israel constitutes a material portion of our business, a significant escalation or expansion of economic disruption or the current scope of the conflicts in either geographic region, including the Middle East, could have an impact on our business. In the interim, order acceptance for Russia has been halted.
Research and development expenses for the years ended December 31, 2022 and January 1, 2022 were as follows: Research and Development (in millions, except percentages) Year Ended December 31, 2022 Percentage of Revenues Year Ended January 1, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $191.4 9.4% $137.2 11.1% $54.2 39.5% Research and development expenses increased $54.2 million, or 39.5%, to $191.4 million for the year ended December 31, 2022 from $137.2 million for the year ended January 1, 2022, primarily due to the Sound United Acquisition in the form of higher compensation and employee-related costs of approximately $29.3 million, higher engineering project costs of approximately $13.2 million, higher occupancy and other office-related costs of approximately $4.2 million and higher professional fees of approximately $1.1 million. 67 Table of Contents Non-operating Loss .
Research and development expenses for the years ended December 30, 2023 and December 31, 2022 were as follows: Research and Development (in millions, except percentages) Year Ended December 30, 2023 Percentage of Revenues Year Ended December 31, 2022 Percentage of Revenues Increase/ (Decrease) Percentage Change $175.2 8.6% $191.4 9.4% $(16.2) (8.5)% Research and development expenses decreased $16.2 million, or 8.5%, to $175.2 million for the year ended December 30, 2023 from $191.4 million for the year ended December 31, 2022, primarily due to lower compensation and employee-related costs of approximately $9.0 million, lower engineering project costs of approximately $7.6 million, and lower professional fees of approximately $1.4 million, offset by higher occupancy and other office-related costs of approximately $4.3 million.
Leveraging our expertise in hospital-grade technologies, we are also expanding our suite of products intended for use both inside and outside the hospital and products for personal home wellness , including Masimo Sleep ™ , a sleep quality solution, the Radius Tº ™, a wireless wearable continuous thermometer, the Radius C ® wireless thetherless capnograph and the Masimo W1 ™ a wrist-worn continuous biosensing health watch.
Leveraging our expertise in hospital-grade technologies, we are also expanding our suite of products intended for use outside the hospital and products for home wellness, including Masimo Sleep ™ , a sleep quality solution; the Radius Tº ® , a wireless wearable continuous thermometer; Radius PCG ® , a wireless tetherless capnograph; and the Masimo W1 ® and Masimo Freedom ™ biosensing smart watches; Masimo Opioid Halo ™ , an opioid overdose prevention and alert system, and the Masimo Stork ™ a baby monitoring system.
As of December 31, 2022, we had cash totaling $106.6 million held outside of the U.S., of which approximately $25.7 million was accessible without additional tax cost and approximately $37.7 million was accessible at an incremental estimated tax cost of up to $0.2 million. The tax cost on the remaining $43.3 million is not determinable at this time.
As of December 30, 2023, we had cash totaling $66.2 million held outside of the U.S., of which approximately $12.9 million was accessible without additional tax cost and approximately $53.3 million was accessible at an incremental estimated tax cost of up to $0.3 million.
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 December 31, 2022, we had approximately $678.6 million in working capital, of which approximately $202.9 million was cash and cash equivalents.
Liquidity, Capital Resources and Prospective Capital Requirements 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.
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.
Ongoing Russian-Ukraine Conflict and Israel-Palestine War We continue to monitor the uncertainty from conflicts and wars in Russia, the Ukraine and Israel, with respect to ongoing business in such regions, and are continuing to support existing patient populations while remaining compliant with all applicable U.S. and EU sanctions and regulations, where applicable.
The healthcare segment consists of professional healthcare and consumer health products and services. The non-healthcare segment consists of consumer audio and related products and services.
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.
Critical Accounting Estimates Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgements that affect the reported amounts of net revenues, expenses, assets and liabilities.
The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of net revenues, expenses, assets and liabilities.
In addition to net working capital, we had approximately $52.1 million of available borrowing capacity (net of outstanding letters of credit) under our credit facility as compared to approximately $970.8 million in working capital and approximately $745.3 million in cash and cash equivalents at January 1, 2022. We currently maintain a credit facility which provides $705.0 million of unsecured borrowings.
In addition to net working capital, we had approximately $110.2 million of available borrowing capacity (net of outstanding letters of credit) under our Credit Facility as compared to approximately $678.6 million in working capital and approximately $202.9 million in cash and cash equivalents at December 31, 2022.
This increase was primarily attributable to the Sound United Acquisition in the form of higher compensation and other employee-related costs of approximately $77.2 million, higher legal and professional fees of approximately $47.5 million, higher advertising and marketing-related expenses of approximately $43.9 million, higher occupancy and other office-related costs of approximately $38.1 million and higher transaction-related costs of approximately $34.6 million.
This increase was primarily attributable to higher legal and professional fees of approximately $42.2 million, higher advertising and marketing-related expenses of approximately $13.8 million, and higher occupancy and other office-related costs of approximately $9.3 million, offset by lower transaction-related costs of approximately $24.3 million, various insurance recoveries aggregating to approximately $17.6 million and l ower compensation and other employee-related costs of approximately $17.9 million.
If our assumptions, judgements or estimates for potential inventory losses prove to be too low, our future earnings will be affected when any related additional inventory losses are recorded. 71 Table of Contents Stock-Based Compensation Our stock-based compensation awards are currently comprised of stock options, restricted stock units (RSUs) and performance share units (PSUs), all of which are equity-classified awards.
If our assumptions, judgments or estimates for potential inventory losses prove to be too low, our future earnings will be affected when any related additional inventory losses are recorded.
The following table details our revenues by segment for each of the year ended December 31, 2022 and January 1, 2022: Segment Revenue ( in millions, except percentages) Year Ended December 31, 2022 Year Ended January 1, 2022 Increase/ (Decrease) Percentage Change Healthcare $ 1,340.3 65.8 % $ 1,239.2 100.0 % $ 101.1 8.2 % Non-healthcare 695.5 34.2 — — 695.5 100.0 Revenue by segment $ 2,035.8 100.0 % $ 1,239.2 100.0 % $ 796.6 64.3 % The increase in healthcare segment revenue was primarily due to higher revenue from consumables, parameters and services, which was partially offset by the impact of unfavorable foreign exchange rate movements from the prior year that decreased the U.S.
The following table details our revenues by segment for each of the year ended December 30, 2023 and December 31, 2022: Segment Revenue ( in millions, except percentages) Year Ended December 30, 2023 Year Ended December 31, 2022 Increase/ (Decrease) Percentage Change Healthcare $ 1,275.5 62.3 % $ 1,340.3 65.8 % $ (64.8) (4.8) % Non-healthcare 772.6 37.7 695.5 34.2 77.1 11.1 Revenue by segment $ 2,048.1 100.0 % $ 2,035.8 100.0 % $ 12.3 0.6 % Revenue for our healthcare segment declined in 2023 and was well below our expectations at the beginning of the year.
Executive Overview We are a global technology company dedicated to improving lives. 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 accelerate our growth strategies and strengthen our focus on patient care, thereby creating two reportable segments: healthcare and non-healthcare.
Executive Overview We are a global technology company dedicated to improving lives. We seek to accelerate our growth strategies and strengthen our focus on patient care via two business segments: healthcare and non-healthcare. We commenced reporting under this new structure effective for the quarter ended July 2, 2022 as a result of the Sound United acquisition.
Cash provided by operating activities for the year ended January 1, 2022 was $264.6 million and was primarily driven by net income of $229.6 million.
Cash provided by operating activities was approximately $94.1 million for the year ended December 30, 2023, generated primarily from net income from operations of $81.5 million.
Dollar translation of foreign sales that were denominated in various foreign currencies. Revenue generated through our direct and distribution sales channels increased $93.6 million, or 8.5%, to $1,192.7 million for the year ended December 31, 2022, compared to $1,099.1 million for the year ended January 1, 2022.
Revenue generated through our direct and distribution sales channels decreased $49.7 million, or 4.2%, to $1,143.0 million for the year ended December 30, 2023, compared to $1,192.7 million for the year ended December 31, 2022.
Cost of goods sold includes labor, material, overhead and other similar costs related to the production, supply, distribution and support of our products.
The positive momentum in hearables has helped to partially offset the macro conditions weighing on the market for high-end audio systems. 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.
Cash used in investing activities for the year ended January 1, 2022 was approximately $37.5 million, consisting primarily of approximately $25.5 million for purchases of property and equipment, approximately $9.4 million for intangible assets related to capitalized patent and trademark costs and approximately $2.6 million related to the acquisition of a strategic investment. Financing Activities .
Cash used in investing activities for the year ended December 30, 2023 was approximately $81.2 million, consisting primarily of approximately $44.0 million for purchases of property and equipment, approximately $43.7 million of capitalized intangible asset costs related primarily to patent and trademark costs and license fees, and approximately $1.0 million of strategic investments, which were offset by approximately $7.5 million from escrow funds associated with a business combination.
Our premium and luxury audio business includes iconic brands like Bowers & Wilkins ® , Denon ® , Marantz ® , Polk ® , Definitive Technology ® , Classe ® , Boston Acoustics ® and HEOS ® to meet differentiated consumers wants and needs. 64 Table of Contents Outlook and Strategy We are excited about the long-term prospects of patient care, hospital automation and advancing our initiatives of making hospital quality patient monitoring available in the home to meet consumer healthcare and wellness needs.
Our physical retail distribution relies on third-party retailers and our ability to maintain our efficiency in our manufacturing processes. 72 Table of Contents Outlook and Strategy We are excited about the long-term prospects of patient care, hospital automation and advancing our initiatives of making hospital quality patient monitoring available in the home to meet consumer healthcare and home wellness needs.
Revenue increased $796.6 million, or 64.3%, to $2,035.8 million for the year ended December 31, 2022, from $1,239.2 million for the year ended January 1, 2022.
Revenue increased $12.3 million, or 0.6%, to $2,048.1 million for the year ended December 30, 2023, from $2,035.8 million for the year ended December 31, 2022. Contributing to the increase in revenue was approximately $77.1 million, or 11.1%, from the Sound United acquisition, which was offset by a decrease in our healthcare segment by approximately $64.8 million, or 4.8%.
This was increased by non-cash activities, including stock-based compensation of $44.7 million, and depreciation and amortization of $35.6 million, partially offset by a deferred income tax benefit of $15.1 million Additional increases in operating cash resulted from decreases in inventory, accounts payable, accrued liabilities, deferred revenue and other contract-related liabilities, other current assets and income tax payable of $13.5 million, $11.0 million $7.8 million, $7.1 million, $6.4 million and $6.4 million, respectively, primarily due to the timing of payments.
Other major changes in operating assets and liabilities include decreases in accounts receivable, accrued compensation, accrued liabilities, accounts payable, income taxes payable and lease receivable of $90.2 million, $26.8 million, $22.8 million, $19.6 million, $15.1 million and $1.7 million, respectively, primarily due to the Company’s cost reduction strategy; an increase in inventories, other non-current liabilities, other non-current assets, deferred costs and other contract assets, other current assets and deferred revenue and other contract-related liabilities of $69.2 million, $3.6 million, $3.0 million, $14.4 million, $8.6 million and $7.1 million, respectively, primarily due to timing of payments and inventory build-up.
Revenues from our OEM channel increased $7.5 million, or 5.4%, to $147.6 million for the year ended December 31, 2022 as compared to $140.1 million for the year ended January 1, 2022.
Revenues from our OEM channel decreased $17.1 million, or 11.6%, to $130.5 million for the year ended December 30, 2023, as compared to $147.6 million for the year ended December 31, 2022. 75 Table of Contents During the year ended December 30, 2023, we shipped approximately 263,000 noninvasive technology board monitors, a decrease of approximately 44,600 units, or 14.5%, over the year ended December 31, 2022.
Our effective tax rate was 25.8% for the year ended December 31, 2022 compared to 16.3% for the year ended January 1, 2022.
Our effective tax rate was 7.4% for the year ended December 30, 2023 compared to 25.8% for the year ended December 31, 2022. This decrease in our effective tax rate for the year ended December 30, 2023 resulted primarily from an increase in income tax credits and decrease in non-deductible stock-based compensation expense from the year ended December 31, 2022.
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 reduce 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.
Our acquisition of Sound United has provided us with immediate access to large, well-established consumer channels with leading retail establishments across the U.S. and Europe providing us the ability to accelerate the launch of consumer home and wellness products such as Masimo Stork ™ and Masimo AAT ™ within the Denon PerL ™ and Denon PerL Pro ™ much more quickly and efficiently than ever before.
Cash used in financing activities for the year ended January 1, 2022 was approximately $122.4 million, resulting primarily from cash paid for common stock repurchase transactions that settled during the year of approximately $128.9 million, which were partially offset by proceeds from the issuance of common stock (upon exercise of options) of approximately $23.2 million.
Cash used in financing activities for the year ended December 30, 2023 was approximately $57.1 million, consisting primarily of repayments on the line of credit of approximately $240.2 million, and withholding of shares for employee payroll taxes for vested equity awards of approximately $12.9 million, which were offset by proceeds from borrowings under the line of credit of approximately $189.0 million and the issuance of common stock related to employee equity awards of approximately $7.0 million.
We also license certain audio technologies 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 products are sold direct-to-consumers or through authorized retailers and wholesalers. We also license our audio technology to select luxury automotive manufacturers such as Aston Martin ® , BMW ® , Maserati ® , McLaren ® , Polestar ® and Volvo ® .
Non-operating loss consists primarily of interest income, interest expense and foreign exchange gains and losses.
As such, we will continue to monitor events occurring or circumstances changing which may necessitate further impairment assessments for goodwill, intangibles and other long-lived assets. Non-operating Loss . Non-operating loss consists primarily of interest income, interest expense and foreign exchange gains and losses.
Removed
We commenced reporting under this new structure effective for the quarter ended July 2, 2022. The new non-healthcare segment was created as a result of the Sound United Acquisition. Please see Note 18 “Business Combinations”, accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Added
Non-healthcare Our non-healthcare business develops, manufactures, markets, sells and licenses premium home sound, integration technologies and accessories, along with complete high performance in-vehicle audio systems under iconic consumer brands such as Bowers & Wilkins ™ , Denon ™ , Marantz ™ , HEOS ™ , Classe ™ , Polk Audio, Boston Acoustics ™ , Definitive Technology ™ , which offer products with unparalleled quality and performance to consumers, professional sound studios and audiophiles worldwide.
Removed
Non-healthcare Our non-healthcare consumer audio business develops, manufactures, markets, sells and licenses premium and luxury audio sound products and related integration technologies. Our consumer audio products are sold direct-to-consumers or through authorized retailers and wholesalers.
Added
We continue to expand our collaborations and brand partnerships, which include certain airlines for bespoke headphones allowing for the best in-flight audio experience; certain computer and laptop manufacturers allowing for a new experience within computer audio; and certain high-performance TV manufacturers, allowing for delivery of a range of integrated discreet audio devices and enclosures.
Removed
These collaborations will translate into products that broaden our access to untapped consumer demographics around the world. Please see Part I, Item 1 of this Annual Report on Form 10-K for additional information related to our business, products and technologies.
Added
While we seek to increase sales through our direct-to-consumer sales channel, we expect that our partnerships with third-party retailers and custom installers will continue to be an important part of our ecosystem. We will continue to seek retail partners that can deliver differentiated in-store experiences to support customer demand for product demonstrations.
Removed
COVID-19 Pandemic The COVID-19 pandemic continues to create uncertainty in the U.S. and around the globe, resulting in both challenges and opportunities for our business. 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.
Added
Economic Trends The healthcare and non-healthcare markets we operate in are highly competitive and dynamic, and have experienced a number of headwinds, including but not limited to inflationary pressures, interest rates volatility, rising energy costs, recessionary trends, and foreign currency fluctuations.
Removed
In addition, the increase in demand we 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.
Added
All of these have affected the global economic environment, along with the healthcare facility spending trends and consumer spending behaviors which ultimately affect the Company’s performance.
Removed
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.
Added
While we have experienced some short-term volatility in both our healthcare and non-healthcare segments, we are optimistic about long-term growth across both segments due to our new product launches, our continued investment in expanding markets and embedding our improved technologies into our product portfolio.
Removed
As a federal contractor, we expect that our employees are vaccinated per the federal mandate, and current employees and candidates seeking employment with us 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.
Added
In an effort to bolster our long-term financial position, during the first quarter of 2023, we initiated various cost reduction actions to better optimize our cost structure with near-term revenue to enhance our operating cash flow, and improve our profitability for both segments going forward.
Removed
Please see “ Risks Related to Our Revenues ” and “ Risks Related to our Business and Operations ” in Part I, Item 1A of this Annual Report on Form 10-K for additional information on potential negative impacts to us resulting from the COVID-19 pandemic.
Added
Our initial focus was on a reduction of variable costs, with specific attention to eliminating cost inefficiencies in our supply chain and reducing variable labor spend and overhead costs in our production facilities by shifting manufacturing of certain products to lower cost locations.
Removed
Stock Repurchase Program In June 2022, the Board approved a new stock repurchase program, authorizing us to purchase up to 5.0 million shares of our common stock on or before December 31, 2027 (2022 Repurchase Program).
Added
Through the second and third quarter of 2023, we expanded these actions by streamlining operations, including the consolidation and rationalization of business activities and facilities, workforce reductions, suspension of incentive bonus compensation and merit, transfers of product lines between manufacturing facilities, and the transfer of other business activities between sites.
Removed
The 2022 Repurchase Program may be carried out at the discretion of a committee comprised of our CEO and CFO through open market purchases, one or more Rule 10b5-1 trading plans, block trades and in privately negotiated transactions.
Added
At the same time, we also revisited our revenue forecasts to reflect the current lower than expected U.S. hospital inpatient census, elevated sensor inventory levels at some customers due to discounting in prior quarters, and other factors that negatively affected revenues in 2023.
Removed
For additional information regarding our current and prior stock repurchase programs, see Part II, Item 5 and Note 19 “Equity” to our accompanying consolidated financial statements included in Part IV, Item 15(a) of this Annual Report on Form 10-K.
Added
Global Supply Chain and Logistics Our global supply chain continues to be challenged by inefficiencies, increased supplier lead times for sub components, material cost fluctuations; logistics, ocean freight, and third-party transportation carriers constraints. We have seen improvements in our supply chain for certain raw materials and components, only to be offset by fluctuations in ocean freight costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+5 added−5 removed13 unchanged
Biggest changeOur primary foreign currency exchange rate exposures are with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexico Peso, Turkish Lira and Australian Dollar. Foreign currency exchange rates may experience significant volatility from one period to the next. Specifically, during the year ended December 31, 2022, we estimate that fluctuations in the exchange rates between the U.S.
Biggest changeOur foreign currency exchange rate exposures are primarily with the Canadian Dollar, Euro, Japanese Yen, Swedish Krona, the British Pound, Mexican Peso, Turkish Lira, Australian Dollar and the Chinese Yuan. Foreign currency exchange rates may experience significant volatility from one period to the next. We do not use derivatives or financial instruments for trading or speculative purposes.
Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred. 74 Table of Contents The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S.
Realized and unrealized foreign currency gains or losses on these transactions are also included in our statements of operations as incurred. 86 Table of Contents The balance sheets of each of our foreign subsidiaries whose functional currency is not the U.S. Dollar are translated into U.S.
A hypothetical 100 basis point change in interest rates along the entire interest rate yield curve would increase or decrease our interest rate yields on our investments and interest income of approximately $0.1 million for each $10.0 million in interest-bearing investments.
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 Facility 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.
A hypothetical 100 basis point change in interest rates would increase or decrease our annual interest expense by approximately $0.6 million based on average debt outstanding, after consideration of our interest rate swap contracts, for the quarter ended December 31, 2022 and approximately $2.9 million based on average debt outstanding, after consideration of our interest rate swap contracts for the year ended December 31, 2022.
A hypothetical 100 basis point change in interest rates would increase or decrease our annual interest expense by approximately $0.7 million based on average debt outstanding, after consideration of our interest rate swap contracts, for the quarter ended December 30, 2023 and approximately $2.4 million based on average debt outstanding, after consideration of our interest rate swap contracts for the year ended December 30, 2023.
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 December 31, 2022 would have resulted in an estimated reduction of $44.3 million in reported pre-tax income for the year ended December 31, 2022.
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 December 30, 2023 would have resulted in an estimated reduction of $51.6 million in reported pre-tax income for the year ended December 30, 2023.
We sponsor multiple defined benefit pension plans covering certain international employees. The aggregate fair value of the plans’ investments was $22.2 million as of December 31, 2022. The plans’ assets may be subject to market risk, interest rate risk, and credit risk, which may affect the value of the plans’ assets and the funding of the plans.
We sponsor multiple defined benefit pension plans covering certain international employees. The aggregate fair value of the plans’ investments was $23.1 million as of December 30, 2023. The plans’ assets may be subject to market risk, interest rate risk, and credit risk, which may affect the value of the plans’ assets and the funding of the plans.
Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations.
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material adverse effect on our business, financial condition and results of operations.
As our foreign operations continue to grow, our exposure to foreign currency exchange rate risk may become more significant. Inflation Risk We continuously monitor the effects of inflationary factors, such as increases in our cost of goods sold and selling and operating expenses, which may adversely affect our results of operations.
As our foreign operations continue to grow, our exposure to foreign currency exchange rate risk may become more significant. Inflation Risk Inflation continuously increased in 2023 and is expected to continue to increase for the near future.
Removed
We do not believe our cash equivalents are subject to significant interest rate risk due to their short terms to maturity. As of December 31, 2022, the carrying value of our cash equivalents approximated fair value. Therefore, declines in interest rates over time will reduce our interest income while increases in interest rates will increase our interest income.
Added
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.
Removed
We are exposed to risks associated with changes in interest rates, as the interest rates on our revolving lines of credit and term debt may vary with the federal funds rate and LIBOR. As of December 31, 2022, we had outstanding debt for an aggregate carrying amount of $956.7 million.
Added
As of December 30, 2023, the carrying value of our cash equivalents approximated fair value. We manage our risk associated with interest rate fluctuations related to interest expenses under our Credit Facility by engaging in hedging activities.
Removed
We have entered, and in the future may continue to enter, into interest rate swaps to manage our interest rate risk. Therefore, increases in interest rates over time will increase our interest expense while decreases in interest rates will decrease our interest expense.
Added
Since July 2022, we have 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 have maturities averaging five years or less.
Removed
Dollar and other foreign currencies, including the Euro, the Japanese Yen, the British Pound, the Chinese Yuan, the Hong Kong Dollar, the South Korean Won, the Australian Dollar, the Turkish Lira, and the Canadian Dollar, unfavorably impacted our revenues by $80.6 million. We currently do not enter into forward exchange contracts to hedge exposures denominated in foreign currencies.
Added
See Note 17 , “ Derivative I nstruments and Hed ging Activities ”, to our accompanying consolidated financial statements included in Item 15(a) of this Annual Report on Form 10-K for further details.
Removed
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 strategically adjust product pricing to mitigate such inflation risks. However, we may not be able to fully offset the impact of persistent inflation.
Added
Consumer demand and discretionary spending continue to be impacted by inflationary pressures, which could materially impact our financial results; in particular, our consumer products and non-healthcare business segment. We are unable to determine the exact impact of inflation on our global business, financial condition or results of operations during the periods presented.

Other MASI 10-K year-over-year comparisons