Masimo's Q3 2025: Contradictions Emerge on Capital Equipment, Consumables, Philips Share Gains, and Tariff Mitigation Strategies

Business Commentary:

* Revenue and Earnings Growth: - Masimo reported a revenue growth of 8% for Q3 2025, with earnings per share rising 38%. - The growth is attributed to strong demand for products, strategic contract wins, and operational improvements.

• Contracting Performance:
• The incremental value of new contracts secured in Q3 reached $124 million, marking an 8% year-over-year increase.

• The strong performance is driven by the U.S. commercial team's efforts and the timing of large contract bids.

• Operational Margins and Cost Optimization:

• Masimo's operating margin increased by 450 basis points year-over-year, driven by operational improvements of 590 basis points.

• Tariff-related costs impacted margins by 140 basis points, but operational efficiencies helped offset this impact.

• Shareholder Returns:

• Masimo returned $350 million to shareholders through share repurchases, highlighting the company's commitment to enhancing shareholder value.

• The proceeds from the Sound United divestiture were used to repay debt and for additional share repurchases.

• Product Innovation and Pipeline:

• Masimo continues to invest in AI and machine learning to upgrade its sensors and monitors, with a focus on wearable technology and telehealth solutions.
• The integration of advanced algorithms aims to enhance patient safety and meet regulatory requirements, like CMS's new electronic quality measure requirements.

Contradiction Point 1

Capital Equipment Revenue Growth

It involves differing explanations of capital equipment revenue growth trends, which are crucial for understanding the company's financial performance and strategic positioning.

How did consumables and capital equipment perform in Q3 compared to last year? - Michael Polark (Wolfe Research, LLC)

20251105-2025 Q3: Last year's capital revenues were down 33% due to timing, but on a 2-year stack basis, it's in low to mid-single digits. This year, we're facing unusual comps but expect them to normalize by year-end. - [Micah Young](CFO)

What made last year's Q3 unusual for consumables and capital growth? - Michael Polark (Wolfe Research, LLC)

2025Q3: Inpatient admissions grew 4% last year. Consumables were driven by consumer revenue, with 20% growth. Capital had unusual declines due to timing. - [Micah Young](CFO)

Contradiction Point 2

Share Gains with Philips

It involves differing perspectives on the company's ability to gain market share from Philips, which is a critical aspect of their strategic positioning and growth potential.

Can you elaborate on Philips' share gains and provide context on share and gains trends over the past five years? - Jason Bednar (Piper Sandler)

20251105-2025 Q3: We started at a low market share position with Philips and now see an opportunity to increase our installed base share. We expect to grow disproportionately compared to our whole market share. The opportunity is both in global market share and advanced parameters. - [Catherine Szyman](CEO)

What factors contributed to share gains in Philips? - Jason Bednar (Piper Sandler & Co., Research Division)

2025Q3: When the first agreement was signed in 2016, Masimo had low market share in Philips' installed base. We're still under-indexed and see opportunity for growth, driven by advanced parameters. - [Catherine Szyman](CEO)

Contradiction Point 3

Tariff Impact and Mitigation Strategies

It involves changes in the expected impact of tariffs and the timeline for implementing mitigation strategies, which can affect financial forecasting and operational planning.

What is the capital allocation framework post-Sound United proceeds? - Vikramjeet Chopra (Wells Fargo)

20251105-2025 Q3: At current levels, we will lean into share repurchases going forward. Additionally, we will focus on augmenting our portfolio with new technologies and wearables. - [Micah Young](CFO)

Should we project next year's full-year results by multiplying Q4's number by four, or is there a better approach? - Frederick Wise (Stifel Financial)

2025Q1: It's too early to annualize tariff impacts for 2026 due to mitigation plans and potential changes in trade environments. Masimo is implementing no-regret actions and expects more clarity on tariffs over the next 90 days. - [Micah Young](CFO)

Contradiction Point 4

Consumable Growth and Timing

It involves the timing and impact of consumable growth, which directly affects revenue and investor expectations.

How did consumables and capital equipment perform in Q3 versus last year? - Michael Polark (Wolfe Research)

20251105-2025 Q3: The growth in consumables is double-digit on a multiyear basis. - [Micah Young](CFO)

What are the inputs into the guidance range, including hospital census, capital equipment environment, cybersecurity impact, and other factors that influenced the guidance raise? - Marie Yoko Thibault (BTIG)

2025Q2: We have a large international contract, which drove consumables up in the quarter. We expect higher shipments as we head into Q4, which should lead to accelerated growth. - [Micah Young](CFO)

Contradiction Point 5

Capital Equipment Revenue and Timing

It involves changes in expectations regarding capital equipment revenue and the impact of timing on sales, which can affect investor expectations and financial planning.

How did consumables and capital equipment perform in Q3 compared to last year? - Michael Polark (Wolfe Research)

20251105-2025 Q3: Last year's capital revenues were down 33% due to timing, but on a 2-year stack basis, it's in low to mid-single digits. This year, we're facing unusual comps but expect them to normalize by year-end. - [Micah Young](CFO)

Can you provide the size of the large tender this quarter, its impact on revenue and margins, and how to normalize the second quarter's cadence and implications? - Frederick Wise (Stifel Financial)

2025Q1: The large tender contract significantly impacted capital sales, resulting in higher capital sales than expected. - [Micah Young](CFO)