Executive Summary

Q1 2025 showed strong continuing-operations performance: revenue $372.0M (+9.5% YoY GAAP), non-GAAP EPS $1.36 (+56% YoY), and non-GAAP operating margin 28.8% (+750 bps YoY) .
Both revenue and EPS beat Wall Street consensus; revenue topped by ~$4.2M and EPS by ~$0.14, driven by higher capital shipments from a large tender and sustained cost-structure improvements; management guided normal seasonality into Q2 .
Guidance was re-framed to separate core performance from tariff effects: ex-tariffs non-GAAP EPS raised to $5.30–$5.60; including tariffs lowered to $4.80–$5.15, reflecting a projected $33–$37M cost-of-sales headwind (210–250 bps to margin) that escalates through the year .
Strategic catalyst: definitive agreement to sell the Sound United consumer audio business to HARMAN for $350M cash, enabling focus on core healthcare; management expects to prioritize share repurchases after close .

What Went Well and What Went Wrong

What Went Well

Double-digit top-line growth with mix-driven upside: healthcare revenue $372.0M; capital and other grew 32% YoY to $51M and consumables/services grew 8% to $320M on a constant-currency basis; shipments of boards/instruments 72,200 exceeded plan .
Margin expansion from operational efficiency: non-GAAP gross margin 63.1% (+80 bps YoY) and non-GAAP operating margin 28.8% (+750 bps YoY), supported by last year’s cost rationalization and product cost reductions .
Clear strategic focus and organizational momentum: “Our technology advantage is real… we have a stellar team… opportunity to build and improve” (CEO); roadmap includes AI-based advanced algorithms and salesforce shift to regional generalists to drive commercial excellence .

What Went Wrong

Tariffs introduced a new headwind: updated guidance includes $33–$37M added cost-of-sales, reducing margin by 210–250 bps and EPS by $0.45–$0.50; impact expected to ramp quarterly with a more pronounced Q4 effect .
Mix timing dampened consumables in Q1: a large tender drove higher capital shipments but lower-than-expected consumables; management expects timing to normalize over subsequent quarters .
Website/systems incident created operational noise; investigation ongoing but no guidance impact expected based on current information .

Financial Results

Quarterly Performance (oldest → newest)

Metric	Q3 2024	Q4 2024	Q1 2025
Healthcare Revenue ($USD Millions)	$343.3	$368.4	$372.0
Non-GAAP EPS ($)	$0.98	$1.80	$1.36
Healthcare Non-GAAP Gross Margin %	62.9%	63.0%	63.1%
Non-GAAP Operating Margin %	16.0% (consolidated)	22.4% (consolidated)	28.8% (continuing ops)

Note: Q3 and Q4 margins shown are consolidated; Q1 is continuing operations. Healthcare gross margin percentages are shown where disclosed.

Segment Breakdown (Q1 2025)

Segment	Q1 2025 ($USD Millions)	YoY Growth (constant currency)
Consumable & Service Revenue	$320	+8%
Capital & Other Revenue	$51	+32%
Related Party Revenue	$31.8	n/a

KPIs

KPI	Q1 2025	Prior Indicators
Boards/Instruments Shipped (units)	72,200	—
Incremental Value of New Contracts ($USD Millions)	$77	—
Unrecognized Contract Revenue ($USD Millions)	$1,762	—
GAAP Net Income from Continuing Ops ($USD Millions)	$47.2	—
Net Cash Provided by Operating Activities (Continuing Ops) ($USD Millions)	$37.9	—

Actuals vs S&P Global Consensus

Metric	Q4 2024 Estimate*	Q4 2024 Actual	Outcome	Q1 2025 Estimate*	Q1 2025 Actual	Outcome
Revenue ($USD Millions)	$593.3*	$600.7	Beat	$367.8*	$372.0	Beat
Primary EPS ($)	$1.425*	$1.80	Beat	$1.221*	$1.36	Beat

*Values retrieved from S&P Global.
Drivers of beats: strong capital shipments tied to a large tender and improved gross/operating margins from cost actions and product cost reductions .

Guidance Changes

Metric	Period	Previous Guidance (Feb 25, 2025)	Current Guidance Ex-Tariffs (May 6, 2025)	Tariff-Included Guidance (May 6, 2025)	Change
Non-GAAP Revenue ($USD Millions)	FY 2025	$1,500–$1,530	$1,500–$1,530	—	Maintained
Non-GAAP Operating Profit ($USD Millions)	FY 2025	$413–$428	$420–$436	$383–$403	Raised ex-tariffs; Lowered with tariffs
Non-GAAP Operating Margin (%)	FY 2025	27.5%–28.0%	28.0%–28.5%	25.5%–26.4%	Raised ex-tariffs; Lowered with tariffs
Non-GAAP EPS ($)	FY 2025	$5.10–$5.40	$5.30–$5.60	$4.80–$5.15	Raised ex-tariffs; Lowered with tariffs
Tariff Impact (Cost of Sales) ($USD Millions)	FY 2025	—	—	$33–$37 added to CoGS; 210–250 bps margin; $0.45–$0.50 EPS	New headwind

Management notes impact ramps quarterly with a more pronounced Q4 effect; mitigation plans include sourcing changes, manufacturing shifts, pricing evaluation, and potential benefits from trade developments .

Earnings Call Themes & Trends

Topic	Q3 2024 (Prior-2)	Q4 2024 (Prior-1)	Q1 2025 (Current)	Trend
AI/Technology initiatives	Focus on portfolio refocus; long-term plan for rainbow, hemodynamics, ORi US launch	Strong automation growth; connectivity/device library strategy	Plan to upgrade sensors/next-gen monitors with AI-based advanced algorithms; continuous monitoring vision	Expanding AI-enabled monitoring across platforms
Supply chain/tariffs	Early contingency planning; Mexico exposure discussed	Manufacturing footprint flexibility (Malaysia) to mitigate; pricing levers considered	Explicit tariff headwind quantified; scenario planning; mitigation actions in flight	From preparedness to execution; impact visible in guidance
Product performance	Healthcare revenue +12% YoY; healthcare GM 62.9%	Healthcare revenue $368M; consolidated OM 22.4%	Non-GAAP GM 63.1%; OM 28.8%; consumables +8%, capital +32%	Sustained margin expansion; strong capital
Salesforce/commercial	Emphasis on contracting share gains; record incremental contracts	Record contracting; unrecognized contract revenue up 15%	Shift to regional generalists to leverage full bag; manage transition risk	Commercial model reconfiguration for leverage
Regulatory/legal	Apple litigation status; retrial timelines; ITC appeal	Apple litigation update and scope; remains in healthcare segment	Apple litigation expenses excluded from non-GAAP; progress noted	Ongoing; excluded from adjusted metrics
R&D execution/cost actions	Identify at least +200 bps OM improvement in 2025	Raised margin guidance to 27.5%–28% for 2025	Q1 delivery of +750 bps OM; continued investments balanced with leverage	Execution translating to results

Management Commentary

CEO on strategic position: “Our technology advantage is real… we have a stellar team… and we have an opportunity to build and improve from a position of meaningful strength.”
Strategy for growth: “Upgrade our existing sensors and create next-generation monitors enabled with our AI-based advanced algorithms… leverage leadership in pulse oximetry across capnography, hemodynamics and brain monitoring… shift sales force to regional generalists.”
CFO on mix and margins: “Timing of shipments related to a large tender… higher-than-expected capital sales… gross margin of 63.1% improved 80 bps… operating margin of 28.8% improved 750 bps.”
Tariff outlook: “Tariffs represent a 210 to 250 basis point impact to operating margin and a $0.45 to $0.50 impact to EPS… impact to increase each quarter, more pronounced at high end due to reciprocal tariffs.”
Portfolio action: Agreement to sell Sound United for $350M; “We anticipate prioritizing share repurchases.”

Q&A Highlights

Large tender and cadence: Mix timing boosted capital but trimmed consumables; timing expected to normalize through the year; shipments above expected range .
Seasonality: Management expects normal seasonality in 2025 with Q2 flat to slightly down sequentially; extra week in Q4 adds ~1% to full-year and ~4 pts to Q4 .
Tariff modeling and mitigation: Do not annualize 2025 impact; mitigation actions in sourcing/manufacturing and potential pricing; China components are small cost share but drive up to ~50% of tariff impact due to high rates .
Use of proceeds: Prioritizing share repurchases post Sound United sale; debt paydown remains an option based on economics .
Salesforce model change: Moving from small specialist teams to broad generalist coverage to improve leverage across the portfolio .
Incident update: Website/systems issue not expected to impact guidance; protocols and remediation underway .

Estimates Context

Q1 2025: Revenue $372.0M vs $367.8M estimate*; EPS $1.36 vs $1.221* — both beats, aided by capital tender timing and margin expansion .
Q4 2024: Revenue $600.7M vs $593.3M estimate*; EPS $1.80 vs $1.425* — beats reflecting stronger healthcare performance and cost actions .
Estimate adjustments: Street may need to reflect higher core margins ex-tariffs, tariff headwind phasing across quarters, and stronger capital shipments early in the year .

*Values retrieved from S&P Global.

Key Takeaways for Investors

Core earnings power is accelerating: non-GAAP OM at 28.8% in Q1 and EPS beat set a constructive tone; monitor margin cadence vs tariff impact .
Expect Q2 seasonality and mix normalization: consumables should recover as tender timing smooths; avoid extrapolating Q1 capital strength unadjusted .
Tariffs are the swing factor: impact ramps and is scenario-dependent; track mitigation updates, China rate developments, and Malaysia reciprocity timing .
Portfolio focus and capital allocation: Sound United sale should close by year-end; share buybacks prioritized — potential EPS accretion depending on buyback timing/size .
Commercial reconfiguration could drive leverage: regional generalist coverage aims to broaden adoption across capnography/hemodynamics/brain monitoring .
Watch contracting momentum and KPIs: incremental contracts ($77M) and unrecognized contract revenue ($1.762B) support sustained growth and visibility .
Near-term trading lens: Positive revisions ex-tariffs and beats support near-term sentiment; tariff headlines and incident updates are volatility catalysts .

MASIMO CORP (MASI)·Q1 2025 Earnings Summary