Financial Data and Key Metrics Changes - The company reported an 8% revenue growth for the quarter, with adjusted earnings per share increasing by 38% year over year [4][16] - Operating margin expanded by 450 basis points, driven by higher revenue and cost efficiencies [4][19] - Gross margin was 62.2%, a decline of 70 basis points year over year due to tariff impacts [18] Business Line Data and Key Metrics Changes - Healthcare revenue reached $371 million, representing an 8% growth [16] - Consumables grew by 1% this quarter, compared to a 20% growth in the same quarter last year [16] - Capital equipment and other revenues grew by 67% this quarter, rebounding from a 33% decline last year [16] Market Data and Key Metrics Changes - Incremental value of new contracts secured in the third quarter was $124 million, marking a 48% year-over-year increase [17] - Unrecognized contract revenue expected to be realized within the next 12 months was $507 million, a 17% year-over-year increase [17] Company Strategy and Development Direction - The company is focusing on three waves of growth: elevating commercial excellence, accelerating intelligent monitoring, and innovating wearables [9][10] - A strategic partnership with Philips was expanded, aiming to increase market share within Philips' installed base [5][32] - The company is investing in AI and machine learning to enhance its monitoring technologies and develop next-gen wearables [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the technology's performance, particularly in critical care settings [9] - The company anticipates a strong finish for the year, driven by continued demand and new customer installations [15] - Adjusted EPS guidance was raised, reflecting strong operational improvements and share repurchases [20][22] Other Important Information - The sale of Sound United's assets was completed, with net proceeds of $328 million used for debt repayment and share repurchases [19] - The company plans to provide more details on its product pipeline and long-term financial outlook at the upcoming Investor Day on December 3rd [69] Q&A Session Summary Question: What can be expected for the rest of the year and potential for further outperformance? - Management highlighted strong contracting performance and expected a strong finish in Q4, which would drive consumable growth [25] Question: How does the share buyback impact profitability? - The increase in EPS guidance was partly due to share buybacks and operational improvements, contributing to margin expansion [27] Question: What is the status of enhancing commercial excellence? - The company is focusing on enhancing resources for specialty categories and expects to see momentum pick up into next year [29] Question: Can you provide details on share gains with Philips? - The company noted that it still has a low market share within Philips' installed base and sees significant growth opportunities [32] Question: What is the outlook for consumables growth? - Management indicated that unusual year-over-year comparisons affected consumables growth, but they expect normalization and acceleration in Q4 [40][41] Question: What is the impact of the distributor model shift? - The shift to a distributor model in some international markets is expected to create a $6 million revenue headwind but is seen as a long-term growth strategy [42][44] Question: What is the broader capital allocation framework post-Sound United sale? - The company plans to focus on share repurchases and tuck-in technologies to augment its portfolio [63]

Third Quarter 2025 Earnings November 4, 2025 1 Safe Harbor Statement Executive Summary | Continuing Operations(1) | Continuing Operations(1) | Executive Summary | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Non-GAAP results including new tariffs: | Non-GAAP results including new tariffs: | Revenue(2) | Revenue(2) | million grew 8% on a constant currency(3) | million grew 8% on a constant currency(3) | • | • | of $371 | of $3 ...

Financial Performance - Third quarter 2025 GAAP revenue reached $371.5 million, representing an 8.2% growth compared to the previous year[6] - Non-GAAP revenue for the third quarter was $371.2 million, reflecting a 7.6% growth on a constant currency basis[6] - Non-GAAP net income per diluted share increased by 38% to $1.32 compared to the prior year period[6] - GAAP net income from continuing operations for Q3 2025 was $53.7 million, up from $24.3 million in Q3 2024, representing a 121% increase[29] - Non-GAAP net income from continuing operations for Q3 2025 was $72.1 million, compared to $52.3 million in Q3 2024, reflecting a 38% growth[29] - Total revenue for Q3 2025 reached $371.5 million, an increase from $343.3 million in Q3 2024, marking an 8.5% year-over-year growth[34] - Operating income for Q3 2025 was $83.6 million, significantly higher than $38.2 million in Q3 2024, showing a 119% increase[34] - For the nine months ended September 27, 2025, the net loss was $219.8 million compared to a net income of $44.7 million for the same period in 2024[36] - Net income from continuing operations increased to $145.8 million, up from $81.2 million year-over-year[36] Financial Guidance - The company expects non-GAAP revenue for the full year 2025 to be between $1,510 million and $1,530 million, indicating an increase of 8.5% to 10.0% on a constant currency basis[4] - Non-GAAP operating profit is projected to be between $428 million and $440 million for the full year[7] - The company anticipates a non-GAAP operating margin of 28.4% to 28.8% for the upcoming period[7] - The financial guidance includes the impact of new tariffs, which may cause actual results to differ from projections[5] - Non-GAAP constant currency revenue guidance for full-year 2025 is projected between $1,514 million and $1,534 million, compared to $1,395 million in 2024, indicating a growth rate of 8.5% to 10%[30] Cash Flow and Assets - Cash and cash equivalents increased to $312.3 million as of September 27, 2025, up from $123.6 million at the end of 2024[32] - Total current assets decreased to $1,048.3 million from $1,225.8 million at the end of 2024, primarily due to a reduction in assets held-for-sale[32] - Total liabilities decreased to $1,007.5 million from $1,573.8 million at the end of 2024, indicating improved financial stability[32] - Net cash provided by operating activities from continuing operations was $156.9 million, compared to $135.5 million in the prior year[36] - The company reported a net cash increase of $134.0 million, with cash, cash equivalents, and restricted cash at the end of the period totaling $315.4 million[38] - Borrowings under the line of credit amounted to $344.0 million, while repayments were $516.5 million, resulting in a net cash used in financing activities of $(306.1) million[38] - The company generated $283.8 million in net cash from investing activities, significantly up from $(34.7) million in the previous year[36] Operational Efficiency - Operating margin improved by 450 basis points during the third quarter, driven by sales growth and operational efficiency initiatives[3] - Research and development expenses for Q3 2025 were $30.5 million, down from $37.3 million in Q3 2024, reflecting a focus on cost management[34] - The depreciation and amortization expense was $25.2 million, down from $30.7 million year-over-year[36] - Stock-based compensation expense increased to $26.9 million from $25.5 million in the prior year[36] Strategic Initiatives - The company closed the sale of Sound United to Harman and utilized the net proceeds for stock repurchase[3] - The strategic partnership with Philips was expanded during the quarter, indicating a focus on long-term growth[3] Product and Market Position - The company’s innovative Masimo SET technology is estimated to be used on over 200 million patients annually[40] - Masimo's products are the primary pulse oximetry used in all 10 top U.S. hospitals as ranked in the 2025 Newsweek World's Best Hospitals listing[40]

Core Viewpoint - Baron Health Care Fund's performance in Q3 2025 was 5.39%, slightly outperforming the Russell 3000 Health Care Index at 5.05%, but lagging behind the broader Russell 3000 Index at 8.18% [1] Fund Performance - The fund's performance was primarily impacted by solid stock selection, which was offset by negative effects from active sub-industry allocations and cash holdings during a rising market [1] - The fund's top five holdings were highlighted as key picks for 2025 [1] Company Focus: Masimo Corporation - Masimo Corporation (NASDAQ:MASI) is a medical technology company known for its non-invasive patient monitoring technologies, particularly pulse oximeters [2][3] - In the last month, Masimo's stock returned -3.52%, and over the past 52 weeks, it lost 4.35% of its value, closing at $144.96 with a market capitalization of $7.87 billion on November 3, 2025 [2] - The fund noted that poor stock selection in health care equipment, including Masimo, was a significant drag on performance, contributing to a 160 basis point decline [3] Performance Concerns - Masimo's recent quarterly results raised concerns about a steep decline in incremental contract value, although the company maintains a strong backlog of unrecognized contract revenue [3] - The company aims to more than double its earnings per share within five years through stable compounding in its core business and disciplined spending [3] Hedge Fund Interest - Masimo Corporation was held by 36 hedge fund portfolios at the end of Q2 2025, a slight decrease from 37 in the previous quarter [4] - While Masimo is recognized for its potential, the company is not considered among the most popular stocks among hedge funds, with certain AI stocks viewed as having greater upside potential and less downside risk [4]

Group 1 - The stock of Masimo Corporation (MASI) is experiencing significant attention due to high implied volatility in the options market, particularly for the Oct 17, 2025 $70.00 Call option [1] - Implied volatility indicates the market's expectation of future price movement, suggesting that investors anticipate a significant price change or an upcoming event that could impact the stock [2] - Masimo currently holds a Zacks Rank 1 (Strong Buy) in the Medical - Instruments industry, which is in the top 35% of the Zacks Industry Rank, indicating strong analyst sentiment [3] Group 2 - Over the past 60 days, four analysts have raised their earnings estimates for Masimo for the current quarter, increasing the Zacks Consensus Estimate from $1.14 to $1.19 per share [3] - The high implied volatility may indicate a developing trading opportunity, as options traders often seek to sell premium on options with high implied volatility, aiming to benefit from price stability at expiration [4]

Core Thesis - Masimo Corporation is viewed positively due to its strong position in medical technology, particularly its Signal Extraction Technology (SET®) pulse oximetry platform, which is widely adopted in hospitals globally [2][4] Business Model - The company operates a razor-and-blade model where hardware placements lead to recurring revenues from consumables, ensuring high visibility and stability in revenue streams [2] - Consumables account for over 50% of revenues, which helps maintain predictable margins and reinforces customer loyalty [3] Competitive Advantage - Masimo's competitive moat is supported by proprietary intellectual property, regulatory approvals, and long-term contracts with hospitals, creating a durable competitive advantage [3] - The company has extended its moat through the introduction of adjacent non-invasive monitoring parameters [3] Investor Sentiment - Despite the strong fundamentals, investor sentiment remains cautious due to historical skepticism regarding management's capital allocation and diversification efforts, such as the Sound United acquisition [4] - Activist involvement and the divestiture of Sound United have refocused the business on its core healthcare franchise, yet many investors still undervalue the company relative to its intrinsic strength [4] Risks and Challenges - Potential pricing pressure from competitors like Medtronic and group purchasing organizations could impact Masimo's premium market position [5] - Competition from Big Tech, particularly Apple, poses a long-term substitution risk [5] - Litigation outcomes and regulatory challenges add further uncertainty to the business environment [5] Investment Opportunity - Despite the risks, Masimo presents a compelling investment opportunity due to its recurring revenue model, strong intellectual property, and a refocused strategy that contrasts with prevailing investor skepticism [5]

Core Insights - Collegium Pharmaceutical (COLL) and Masimo Corporation (MASI) are highlighted as strong buy stocks due to rising earnings estimate revisions and their respective market positions in the medical sector [1][2]. Collegium Pharmaceutical (COLL) - Collegium is recognized as an undervalued specialty pharmaceutical company focusing on central nervous system, respiratory, and skin-related disorders [1]. - The company is projected to achieve a 20% increase in revenue and a 9% increase in earnings this year, with low-single digit growth expected for fiscal 2026 [3]. - Collegium's stock is trading at a forward earnings multiple of 5X and a sales multiple of less than 2X, significantly below the S&P 500 averages and the Zacks Medical-Drugs Industry average of 15.5X forward earnings and 3.4X forward sales [4]. - EPS projections for Collegium have risen to over $7 per share, distinguishing it from over 130 smaller-cap pharmaceutical companies that are currently unprofitable [5]. Masimo Corporation (MASI) - Masimo is noted for its non-invasive health monitoring systems, which provide real-time insights into patient physiology [2]. - The company is expected to see a 20% increase in annual earnings for FY25, reaching $5.30 per share, up from $4.40 last year, with a further 7% increase projected for FY26 [7]. - Masimo's stock trades at a forward earnings multiple of 26.5X, slightly above the Zacks Medical-Instruments Industry average of 23.5X, indicating a justified premium due to its growth prospects [7]. Market Context - Both Collegium and Masimo have experienced significant EPS revisions over the last 60 days, making them attractive options for growth and value in a market characterized by high volatility [9].

Core Insights - Masimo Corporation has completed the divestiture of its Sound United consumer audio business to HARMAN International, a subsidiary of Samsung Electronics, marking a strategic shift to focus on core healthcare operations [1][7] - The CEO emphasized that this sale is a significant milestone in Masimo's transformation, allowing the company to concentrate on enhancing patient impact, accelerating innovation, and improving margins [2] Financial Implications - The proceeds from the divestiture will primarily be used for share repurchases, indicating confidence in the stock's intrinsic value and a commitment to enhancing shareholder returns [2][9] - Masimo's shares have experienced a 15% decline year-to-date, compared to an 11.6% decline in the industry and a 14.2% gain in the S&P 500 [3] Strategic Rationale - The exit from consumer audio resolves an overhang that had affected investor perception since the acquisition of Sound United in 2022, aligning Masimo's portfolio with long-term healthcare priorities [5][11] - The timing of the sale coincides with improved operational performance in the healthcare segment, which reported double-digit constant-currency growth and over 50% EPS growth in the first half of 2025 [8] Future Growth Initiatives - Following the divestiture, Masimo plans to focus on three growth "waves": enhancing commercial excellence, accelerating intelligent monitoring adoption, and expanding into wearable patient monitoring technologies [8] - The anticipated buyback program is expected to serve as a near-term financial catalyst, with management indicating that repurchases are the most accretive use of proceeds in the current environment [9][10] Market Positioning - The divestiture positions Masimo to evolve into a pure-play medtech leader, better positioned to capture opportunities in large adjacent markets such as capnography, hemodynamics, and brain monitoring, which represent multi-billion-dollar opportunities [11]

Core Insights - Harman International has completed the acquisition of Sound United, the former consumer audio business of Masimo Corporation, enhancing its audio portfolio significantly [2][3][4] Company Expansion - The acquisition marks a significant expansion for Harman's core audio business, encompassing various product categories such as home audio, electronics, amplifiers, hi-fi components, AVRs, headphones, and car audio [4] - By integrating Sound United's portfolio, Harman now possesses one of the industry's most comprehensive collections of premium audio brands [4] Strategic Vision - Harman aims to create enriching audio experiences, and the addition of Sound United's brands aligns with its commitment to sound quality and innovation [5] - The transaction is expected to unlock growth opportunities and enhance Harman's strategy to scale as an audio leader [5] Operational Structure - Sound United will operate as a standalone Strategic Business Unit within Harman's Lifestyle Division, preserving each brand's heritage and customer base [7] - This structure allows Sound United's brands to leverage Harman's global resources while maintaining their distinct identities and goals [7] Technological Integration - The acquisition will enhance Harman's presence in audio technology, where sound, culture, and technology converge [8]

Core Viewpoint - Masimo has completed the sale of its Sound United consumer audio business to HARMAN International, a subsidiary of Samsung Electronics, marking a significant step in its strategy to concentrate on its core professional healthcare business [1]. Company Summary - The sale of Sound United is described as an important milestone for Masimo, indicating a strategic shift towards enhancing its focus on professional healthcare [1]. - Katie Szyman, the CEO of Masimo, emphasized that moving past the Sound United sale allows the company to concentrate more effectively on its primary business objectives [1].