Masimo : FY2017 to Q4 2019 Supplemental Financial Information

MASIMO CORPORATION

SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2)

All statements other than statements of historical facts included in this Supplemental Non-GAAP information that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our expectations for full fiscal year GAAP and non-GAAP 2020 total revenue, product revenue, royalty and other revenues, gross profit/margin, selling, general and administrative operating expenses, research and development operating expenses, litigation settlement, award and/or defense costs, operating expenses, operating income/margin, net income, diluted earnings per share, non-operating income, provision for income taxes, adjusted free cash flow; our long-term outlook; demand for our products; anticipated revenue and earnings growth; our financial condition, results of operations and business generally; expectations regarding our ability to design and deliver innovative new noninvasive technologies and reduce the cost of care; and demand for our technologies. These forward-looking statements are based on management's current expectations and beliefs and are subject to uncertainties and factors, all of which are difficult to predict and many of which are beyond our control and could cause actual results to differ materially and

adversely from those described in the forward-looking statements. These risks include, but are not limited to, those related to: our dependence on Masimo SET®and Masimo rainbow SET™products and technologies for substantially all of our revenue; any failure in protecting our intellectual property exposure to competitors' assertions of intellectual property claims; the highly competitive nature of the markets in which we sell our products and technologies; any failure to continue developing innovative products and technologies; the lack of acceptance of any of our current or future products and technologies; obtaining regulatory approval of our current and future products and technologies; the risk that the implementation of our international realignment will not continue to produce anticipated operational and financial benefits, including a continued lower effective tax rate; the loss of our customers; the failure to retain and recruit senior management; product liability claims exposure; a failure to obtain expected returns from the amount of intangible assets we have recorded; the maintenance of our brand; the amount and type of equity awards that we may grant to employees and service providers in the future; our ongoing litigation and related matters; and other factors discussed in the "Risk Factors" section of our most recent periodic reports filed with the Securities and Exchange Commission ("SEC"), including our most recent Form 10-K and Form 10-Q, all of which you may obtain for free on the SEC's website at www.sec.gov. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, even if subsequently made available by us on our website or otherwise. We do not undertake any obligation to update, amend or clarify these forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

For additional information related to the definitions of our Non-GAAP measures, please visit the Investor Relations section of the Company's website at www.masimo.com.

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MASIMO CORPORATION

SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2)

GAAP TOTAL REVENUE
																								2020 Full Year
	FY 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP revenue
Product revenue	$	738,242	$	204,389	$	202,004	$	202,068	$	221,413	$	829,874	$	230,548	$	229,510	$	228,916	$	247,434	$	936,408	$	1,035,000
Royalty and other revenue		52,006		8,564		9,617		8,515		1,719		28,415		1,116		142		95		76		1,429		-
GAAP total revenue	$	790,248	$	212,953	$	211,621	$	210,583	$	223,132	$	858,289	$	231,664	$	229,652	$	229,011	$	247,510	$	937,837	$	1,035,000
RECONCILIATION OF GAAP GROSS PROFIT/MARGIN TO NON-GAAP GROSS
PROFIT/MARGIN:
																								2020 Full Year
GAAP gross profit/margin (1)	FY 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
$	522,031	$	143,661	$	142,147	$	140,753	$	148,331	$	574,892	$	151,642	$	154,339	$	156,268	$	166,923	$	629,172
GAAP gross profit/margin	$	522,032	$	143,661	$	142,147	$	140,753	$	148,331	$	574,892	$	151,642	$	154,339	$	156,268	$	166,923	$	629,172	$	700,400
Non-GAAP adjustments:
Royalty and other revenue, net of related costs		(48,384)		(8,390)		(9,415)		(8,364)		(1,535)		(27,704)		(1,048)		(111)		(57)		(45)		(1,262)		-
Acquisition & investment related costs		500		114		114		114		114		458		114		114		114		167		511		3,000
Total non-GAAP gross profit/margin adjustments		(47,884)		(8,275)		(9,300)		(8,250)		(1,421)		(27,246)		(934)		3		57		122		(751)		3,000
Non-GAAP gross profit/margin	$	474,147	$	135,386	$	132,847	$	132,503	$	146,910	$	547,645	$	150,708	$	154,343	$	156,325	$	167,046	$	628,421	$	703,400
Non-GAAP gross margin % (4)		64.2%		66.2%		65.8%		65.6%		66.4%		66.0%		65.4%		67.2%		68.3%		67.5%		67.1%		68.0%
RECONCILIATION OF GAAP OPERATING EXPENSES TO NON-GAAP OPERATING
EXPENSES:
																								2020 Full Year
	FY 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP selling, general and administrative operating expenses	$	273,011	$	70,217	$	70,450	$	71,037	$	73,713	$	285,417	$	74,204	$	78,160	$	80,354	$	81,943	$	314,661
Non-GAAP adjustments:
Acquisition & investment related costs		(1,097)		(246)		(246)		(246)		(246)		(984)		(246)		(1,022)		(983)		(1,968)		(4,218)
Non-GAAP selling, general and administrative operating expenses	$	271,915	$	69,971	$	70,203	$	70,791	$	73,467	$	284,433	$	73,958	$	77,138	$	79,371	$	79,976	$	310,443
Non-GAAP selling, general, and administrative operating expenses % (4)		36.8%		34.2%		34.8%		35.0%		33.2%		34.3%		32.1%		33.6%		34.7%		32.3%		33.2%
GAAP research and development operating expenses	$	65,234	$	19,559	$	20,085	$	20,575	$	20,788	$	81,006	$	21,415	$	24,175	$	24,282	$	23,423	$	93,295
Non-GAAP adjustments:
Acquisition & investment related costs		-		-		-		-		-		-		-		-		-		-		-
Non-GAAP research and development operating expenses	$	65,233	$	19,559	$	20,085	$	20,575	$	20,788	$	81,006	$	21,415	$	24,175	$	24,282	$	23,423	$	93,295
Non-GAAP research and development operating expenses % (4)		8.8%		9.6%		9.9%		10.2%		9.4%		9.8%		9.3%		10.5%		10.6%		9.5%		10.0%
GAAP litigation settlement, award and/or defense costs	$	-	$	-	$	-	$	500	$	(75)	$	425	$	-	$	-	$	-	$	-	$	-
Non-GAAP adjustments:
Litigation damages, awards and settlements		-		-		-		(500)		75		(425)		-		-		-		-		-
Non-GAAP litigation settlement, award and/or defense costs	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
GAAP operating expenses	$	338,245	$	89,776	$	90,535	$	92,112	$	94,425	$	366,848	$	95,619	$	102,335	$	104,636	$	105,366	$	407,956	$	452,400
Non-GAAP adjustments:
Acquisition & investment related costs		(1,097)		(246)		(246)		(246)		(246)		(984)		(246)		(1,022)	$	(983)	$	(1,968)		(4,218)		(5,000)
Litigation damages, awards and settlements		-		-		-		(500)		75		(425)		-		-		-		-		-		-
Total non-GAAP operating expense adjustments		(1,097)		(246)		(246)		(746)		(171)		(1,409)		(246)		(1,022)		(983)		(1,968)		(4,218)		(5,000)
Non-GAAP operating expenses	$	337,149	$	89,530	$	90,288	$	91,366	$	94,255	$	365,439	$	95,374	$	101,312	$	103,653	$	103,398	$	403,738	$	447,400
Non-GAAP operating expenses % (4)		45.7%		43.8%		44.7%		45.2%		42.6%		44.0%		41.4%		44.1%		45.3%		41.8%		43.1%		43.2%

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MASIMO CORPORATION

SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2)

RECONCILIATION OF GAAP OPERATING INCOME/MARGIN TO NON-GAAP

OPERATING INCOME/MARGIN:

																								2020 Full Year
	FY 2017		Q1 2018		Q2 2018		Q3 2018	Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP operating income/margin	$	183,787	$	53,885	$	51,612	$	48,641	$	53,906	$	208,044	$	56,023	$	52,004	$	51,632	$	61,557	$	221,216	$	248,000
Non-GAAP adjustments:
Royalty and other revenue, net of related costs		(48,384)		(8,390)		(9,415)		(8,364)		(1,535)		(27,704)		(1,048)		(111)		(57)		(45)		(1,262)		-
Acquisition & investment related costs		1,597		361		361		361		361		1,442		361		1,136		1,098		2,135		4,729		8,000
Litigation damages, awards and settlements		-		-		-		500		(75)		425		-		-		-		-		-		-
Total non-GAAP operating income/margin adjustments		(46,787)		(8,029)		(9,054)		(7,504)		(1,250)		(25,837)		(688)		1,025		1,040		2,090		3,467		8,000
Non-GAAP operating income/margin	$	136,999	$	45,856	$	42,559	$	41,136	$	52,655	$	182,206	$	55,334	$	53,030	$	52,671	$	63,647	$	224,683	$	256,000
Non-GAAP operating income % (4)		18.6%		22.4%		21.1%		20.4%		23.8%		22.0%		24.0%		23.1%		23.0%		25.7%		24.0%		24.7%
RECONCILIATION OF GAAP NET INCOME TO NON-GAAP NET INCOME:
																								2020 Full Year
	FY 2017		Q1 2018		Q2 2018		Q3 2018	Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP net income	$	124,789	$	45,630	$	43,853	$	57,126	$	46,934	$	193,543	$	49,322	$	44,888	$	49,085	$	52,921	$	196,216	$	210,500
Non-GAAP adjustments:
Royalty and other revenue, net of related costs		(48,384)		(8,390)		(9,415)		(8,364)		(1,535)		(27,704)		(1,048)		(111)		(57)		(45)		(1,262)		-
Acquisition & investment related costs:
Cost of goods sold		500		114		114		114		114		458		114		114		114		167		511		3,000
Operating expenses		1,097		246		246		246		246		984		246		1,022		983		1,968		4,218		5,000
Subtotal - Acquisition & investment related costs		1,597		361		361		361		361		1,442		361		1,136		1,098		2,135		4,729		8,000
Litigation damages, awards and settlements
Operating expenses		-		-		-		500		(75)		425		-		-		-		-		-		-
Non-operating other (income) expense:
Realized and unrealized foreign currency gains or losses		270		(1,113)		566		1,311		1,263		2,027		(534)		(7)		856		312		627		-
##Tax impact of non-GAAP net income adjustments		16,100		2,101		2,344		1,599		(513)		5,532		359		(179)		(303)		(566)		(689)		(1,900)
Expiration of certain statues of limitation related to unique and non-recurring tax positions		-		-		-		(4,169)		-		(4,169)		-		-		-		-		-		-
980Excess tax benefits from stock-based compensation		(39,242)		(3,148)		(3,947)		(14,647)		(294)		(22,036)		(3,432)		(2,608)		(7,020)		(2,631)		(15,692)		(11,000)
2017 U.S. Tax Reform		41,392		16		-		(16)		(675)		(675)		-		-		-		-		-		-
Total non-GAAP net income adjustments		(28,267)		(10,173)		(10,091)		(23,425)		(1,468)		(45,157)		(4,294)		(1,768)		(5,427)		(796)		(12,286)		(4,900)
Non-GAAP net income	$	96,520	$	35,457	$	33,763	$	33,701	$	45,465	$	148,385	$	45,027	$	43,120	$	43,657	$	52,126	$	183,930	$	205,600

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MASIMO CORPORATION

SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2)

RECONCILIATION OF GAAP NET INCOME PER DILUTED SHARE TO NON-GAAP

NET INCOME PER DILUTED SHARE:

																												2020 Full Year
	FY 2017			Q1 2018		Q2 2018			Q3 2018		Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP net income per diluted share	$	2.23	$	0.82		$	0.79	$	1.02	$	0.83	$	3.45	$	0.87	$	0.79	$	0.86	$	0.92	$	3.44	$	3.64
Non-GAAP adjustments:
Royalty and other revenue, net of related costs		(0.87)			(0.15)			(0.17)			(0.15)			(0.03)		(0.49)		(0.02)		(0.00)		(0.00)		(0.00)		(0.02)		-
Acquisition & investment related costs		0.03			0.01			0.01			0.01			0.01		0.03		0.00		0.02		0.02		0.04		0.08		0.14
Litigation damages, awards and settlements		-			-			-			0.01			(0.00)		0.01		-		-		-		-		-		-
Realized and unrealized foreign currency gains or losses		0.00			(0.02)			0.01			0.02			0.02		0.04		(0.01)		(0.00)		0.01		0.01		0.01		-
Tax impact of non-GAAP net income adjustments		0.29			0.04			0.04								0.10		0.01		(0.00)		(0.01)		(0.01)		(0.01)		(0.03)
						0.03			(0.01)
Expiration of certain statues of limitation related to unique and non-recurring tax positions		-			-			-								(0.07)		-		-		-		-		-		-
						(0.07)			-
980Excess tax benefits from stock-based compensation		(0.70)			(0.06)			(0.07)			(0.26)			(0.01)		(0.39)		(0.06)		(0.05)		(0.12)		(0.05)		(0.27)		(0.19)
2017 U.S. Tax Reform		0.74			0.00			-			(0.00)			(0.01)		(0.01)		-		-		-		-		-		-
Total non-GAAP net income per diluted share adjustments		(0.51)			(0.18)			(0.18)			(0.42)					(0.81)		(0.08)		(0.03)		(0.09)		(0.01)		(0.22)		(0.08)
								(0.03)
Non-GAAP net income per diluted share	$	1.73	$	0.64		$	0.61	$	0.60	$	0.81	$	2.65	$	0.79	$	0.76	$	0.76	$	0.91	$	3.22	$	3.56
Weighted average shares outstanding - diluted		55,874						55,742			56,237			56,449		56,039		56,799		57,066		57,262		57,267		57,100		57,800
			55,495
RECONCILIATION OF GAAP NON-OPERATING INCOME (EXPENSE) TO NON-GAAP
NON-OPERATING INCOME (EXPENSE):
																												2020 Full Year
	FY 2017			Q1 2018		Q2 2018			Q3 2018		Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP Non-operating income (expense)	$	2,013	$	1,647		$	1,405	$	1,028	$	1,652	$	5,732	$	3,886	$	3,529	$	2,723	$	2,812	$	12,950	$	12,100
Non-GAAP adjustments:
Realized and unrealized foreign currency gains or losses		270			(1,113)			566			1,311			1,263		2,027		(534)		(7)		856		312		627		-
Non-GAAPnon-operating income (expense)	$	2,283											$	2,915	$	7,760	$	3,351	$	3,522	$	3,579	$	3,124	$	13,577	$	12,100
$	535		$	1,970	$	2,340
RECONCILIATION OF GAAP PROVISION FOR INCOME TAXES TO NON-GAAP
PROVISION FOR INCOME TAXES:
																												2020 Full Year
	FY 2017			Q1 2018		Q2 2018			Q3 2018		Q4 2018	FY 2018	Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019		Guidance(3)
GAAP provision for income taxes	$	61,011	$	9,902		$	9,164	$	(7,457)	$	8,624	$	20,233	$	10,587	$	10,645	$	5,270	$	11,448	$	37,950	$	49,600
Non-GAAP adjustments:
Excess tax benefits from stock-based compensation		39,242			3,148			3,947			14,647			294		22,036		3,432		2,608		7,020		2,631		15,692		11,000
Tax impact of pre-taxnon-GAAP adjustments		(16,100)			(2,101)			(2,344)			(1,599)			513		(5,532)		(359)		179		303		566		689		1,900
Expiration of certain statues of limitation related to unique and non-recurring tax positions		-			-			-			4,169			-		4,169		-		-		-		-		-		-
2017 U.S. Tax Reform		(41,392)			(16)			-			16			675		675		-		-		-		-		-		-
Total non-GAAP provision for income tax adjustments		(18,250)			1,031						17,233			1,482		21,348		3,072		2,787		7,324		3,198		16,381		12,900
					1,602
Non-GAAP provision for income taxes	$	42,761								$	9,775	$	10,105	$	41,580	$	13,659	$	13,433	$	12,593	$	14,646	$	54,331	$	62,500
$	10,934
	$	10,766

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MASIMO CORPORATION

SUPPLEMENTAL NON-GAAP INFORMATION (unaudited in thousands, except per share amounts)(1) (2)

RECONCILIATION OF FREE CASH FLOW TO ADJUSTED FREE CASH FLOW
	FY 2017	Q1 2018		Q2 2018		Q3 2018		Q4 2018	FY 2018		Q1 2019		Q2 2019		Q3 2019		Q4 2019	FY 2019
Net cash provided by operating activities
Net cash provided by operating activities	$	56,062	$ 71,995	$	55,904	$	48,406	$	63,222	$	239,527	$	42,468	$	58,311	$	50,637	$	70,224	$	221,640
Purchases of property and equipment, net		(43,684)	(3,788)		(5,642)		(2,869)		(4,827)		(17,126)		(6,963)		(40,360)		(8,741)		(12,311)		(68,375)
Free cash flow		12,378	68,207		50,262		45,537		58,395		222,401		35,505		17,951		41,896		57,913		153,265
Litigation damages, awards and settlements		-	-		-		-		-		-		-		-		-		-		-
Tax payments related to litigation awards and damages		74,201	-		-		-		-		-		-		-		-		-		-
Adjusted free cash flow	$	86,579	$ 68,207	$	50,262	$	45,537	$	58,395	$	222,401	$	35,505	$	17,951	$	41,896	$	57,913	$	153,265

1. Totals may not foot due to rounding
2. Quarterly reported amounts may vary from amounts previously reported due to rounding conventions.
3. Reflects current guidance provided on February 19, 2020
4. Calculated as a percentage of Product Revenue

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