Masimo Corporation (MASI) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Masimo's First Quarter 2025 Earnings Conference Call. The company's press release is available at www.masimo.com. [Operator Instructions] I'm pleased to introduce Eli Kammerman, Masimo's Vice President of Business Development and Investor Relations. Please go ahead.

Hello, everyone. Joining me today are CEO, Katie Szyman; and CFO, Micah Young. Before we begin, I'd like to inform you that this call will contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our periodic filings with the SEC. Also, this call will include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. In addition to GAAP results, these non-GAAP financial measures are intended to provide additional information to enable investors to assess the company's operating results in the same way management assesses such results. It is important to note that the Sound United business is now being classified as "held for sale" and reported in discontinued operations. As a result, our non-GAAP financial measures have been updated to reflect the continuing operations of Masimo's health care business for both current and historical reporting periods. Therefore, the financial measures we will be covering today will be primarily on a non-GAAP basis, unless noted otherwise. Reconciliation of these measures to the most directly comparable GAAP financial measures are included within the earnings release, earnings presentation and supplementary financial information on our website. Investors should consider all of our statements today, together with our reports filed with the SEC, including our most recent Form 10-K and 10-Q, in order to make informed investment decisions. I'll now pass the call to Katie Szyman.

Thank you, Eli, and good afternoon, everyone. Since joining Masimo as CEO nearly 3 months ago, I've been focused on immersing myself in our business. I've visited customers at 10 hospitals in 5 cities that's worth more than 2/3 of our employees across the U.S. and Europe, toured numerous manufacturing and R&D sites, evaluated our innovation pipeline and attended national meetings with our sales teams. I have 3 key takeaways from these trips. One, our technology advantage is real. Not only are our existing products market leaders for a reason, but there's also excitement and a strong commitment to innovation throughout the organization that will be essential to our future growth. Second, we have a stellar team that is enthusiastic about the path forward at Masimo. Our people believe in our mission and are focused on delivering for our patients. Our team sees the momentum we have and they want to build on it. Third, we have an opportunity to do better. This shouldn't come as a surprise to anybody; improvement is always possible. But there are areas of our business where I believe by pulling the right levers we can be more effective. Specifically, we can bring a new level of commercial excellence to the organization and how we go to market. Further, as we refocus our innovation, we can also put the right processes and plans in place to ensure we consistently have successful product launches that deliver meaningful results. Now let me turn to the quarterly results. The headline is that this was another strong quarter and our performance clearly demonstrates the earnings power of our core health care business. We delivered double-digit revenue growth and EPS growth of more than 50%. For the first quarter, our health care revenue was $371 million, grew 10% on a constant currency basis. This was paired with meaningful operating margin expansion of 750 basis points. Micah will go through the results more fully, but I did want to make sure to highlight that I am excited to be joining Masimo at a moment where we can build and improve from a position of meaningful strength as clearly demonstrated by this quarter's results. Next, I want to highlight some significant milestones from the quarter beyond the financials. First is the announcement we made today that we have reached an agreement to divest our consumer audio business, also known as Sound United. This represents important progress as we continue to refocus on our professional health care business. With this sale process concluded, we are well positioned to dedicate our time and resources to meeting patient needs while investing in innovation. Our consumer audio business and its talented team will be well positioned for growth and success under Harman's leadership. Micah will speak in a bit more detail to the thoroughness of the process that we went through in reaching this agreement and why we believe this was the right transaction for our shareholders and our Sound United team. Second, I'm pleased to announce that Lisa Hellman has joined our team as our new Chief Human Resources Officer. One of the many benefits of building off such a strong base is the exceptional talent we are able to attract to join the Masimo team to help us on our next chapter of growth. Lisa is an outstanding addition to our team and is focused on building our culture, fostering strong engagement and developing our amazing talent. Third, I also want to touch briefly on an incident that has impacted our website and several of our systems beginning last week. The investigation is ongoing, but as of right now, we do not expect that this will have an impact on our guidance. We voluntarily filed a Form 8-K with the SEC around the situation, and you can refer to that for further details. Given the nature of these things, we appreciate your understanding that we will not be commenting more on this event during our earnings call today. Finally, I would like to take a moment to comment on our strategic and financial goals and what we are doing to achieve them. We are seeking to invest in our core health care business in order to accelerate revenue growth over time beyond our long-standing revenue growth target of 7% to 10%. Currently, we see a number of ways we're going to accomplish this. First, we plan to upgrade our existing sensors and create next-generation monitors enabled with our AI-based advanced algorithms. We will utilize the advanced algorithms that our team has already developed over the years to enable every patient to be continuously monitored in the acute and post-acute care environment. Second, we will continue to leverage our leadership position in pulse oximetry to strengthen our patient impact across our advanced monitoring categories, including capnography, hemodynamics and brain monitoring. Lastly, we will focus on growth and commercial excellence in our global markets by shifting the structure of our sales forces from being centralized by product categories to regionally focused groups responsible for selling our broad portfolio. We look forward to sharing more about these efforts at our Investor Day, which we anticipate scheduling in the fourth quarter of 2025. So please stay tuned. Before I wrap up, I'd like to spend a moment on tariffs. Our first priority is to ensure supply of products to our customers globally. We've been dedicating time and resources to assessing and planning for potential tariffs under various scenarios given the very fluid situation. Our operations and finance teams have quantified the potential impact and are working diligently through the situation, including scenario planning and developing mitigation plans. We will adjust our supply chain strategy and implement specific mitigation plans once we believe there is sufficient clarity to commit to a mitigation path. Micah will cover this in more detail. I do want to call out, however, how impressed I am by the Masimo team and their ability to move efficiently and promptly as new events arise. While tariffs may represent a curveball, the Masimo team has proven itself adept at handling and executing through any variety of situations over the last few years. Additionally, as this quarter only further demonstrates, the high recurring revenue and durable growth profile of our business positions us particularly well to navigate whatever broader macro uncertainties may come our way. I'd really like to thank our entire team for delivering another excellent quarter. Our products and technologies continue to impact millions of patients around the world. I feel honored to be a part of this team. With that, I'll pass it back to Micah.

Thank you, Katie, and good afternoon, everyone. For the first quarter, as Katie mentioned, health care revenue was $371 million, up 10% on a constant currency basis. Our consumable and service revenue grew 8%, and our capital equipment and other revenue grew 32%. The timing of shipments related to a large tender contract renewal resulted in higher-than-expected capital sales as well as lower-than-expected consumable sales this quarter. We expect the timing of these shipments to normalize throughout the year and align with our full year expectations for both consumable and capital sales. We also shipped more than 72,000 technology boards and monitors during the quarter, which is above our expected range due to strength in our core business and also in part to the timing of shipments related to the large tender contract I just mentioned. Moving down the P&L. Our gross margin of 63.1% improved 80 basis points year-over-year, driven by operational efficiencies and product cost reductions. Our operating margin of 28.8% improved 750 basis points year-over-year as a result of the actions we took last year to optimize our cost structure and refocus on our core business. Our non-GAAP earnings per share was $1.36, representing 56% growth versus the prior year. On a GAAP basis, our net income from continuing operations was $47 million or $0.86 per share. Our net loss from discontinued operations was $218 million or $4.04 per share. This included an impairment charge of $295 million to intangibles for the audio business. On a consolidated basis, our net loss was $171 million or $3.17 per share. Now moving to our updated fiscal 2025 financial guidance. Our revenue estimate remains unchanged at a range of $1.50 billion to $1.53 billion, reflecting 8% to 11% constant currency growth versus the prior year. Moving down the P&L. For comparison purposes to our previously issued guidance, we excluded the impact of new tariffs, and I'm going to begin with our updated guidance excluding new tariffs, followed by our updated guidance that now includes the new tariffs before any mitigation. Excluding new tariffs, our updated guidance implies operating margins of 28% to 28.5%, reflecting an increase of 50 basis points at the midpoint versus our prior guidance. Further, our guidance implies earnings per share of $5.30 to $5.60, reflecting an increase of $0.20 at the midpoint versus prior guidance. Now including new tariffs but before any mitigation. We are updating our guidance for operating margin to be in the range of 25.5% to 26.4%, and earnings per share to be in the range of $4.80 to $5.15. Tariffs represent a 210 to 250 basis point impact to operating margin and a $0.45 to $0.50 impact to EPS. This projected $33 million to $37 million increase to cost of sales for fiscal 2025 assumes at the low end 25% for non-USMCA-eligible products, a baseline rate of 10% for products made in Malaysia and 170% for raw materials and cables sourced from China. The high end of the range assumes that reciprocal tariffs related to our manufacturing in Malaysia are implemented after the current 90-day pause period expires. Given that tariff costs are capitalized into inventory and then recognized as products are sold, we expect the impact of tariffs to increase each quarter over the remainder of the year, starting with a $2 million impact in the second quarter. Breaking down the impact -- the tariff impact further. Products manufactured in Mexico and not currently eligible for USMCA exemption represent approximately 10% of our total cost of goods sold. Products manufactured in Malaysia that are subject to U.S. tariffs represent roughly 1/3 of our total cost of sales. Finally, we want to call out that about 5% of our cost of sales represents raw materials and cables sourced from China. Even though these components represent a small portion of our cost of sales, China tariffs represent up to 50% of our total tariff impact due to the high rate being imposed. Therefore, any progress in trade negotiations with China could have a significant impact in reducing our tariff exposure. We understand the current impact will not be acceptable longer term, and we'll take mitigation steps depending on how the situation evolves. Importantly, these estimates of tariff impact do not include any mitigation measures that we might implement, nor do they reflect any potential inflationary impact on labor costs or component costs, any offsets from tariff negotiations or product exemptions or any benefits of a weaker dollar. Therefore, one should not annualize the tariff impact or use it to estimate our 2026 earnings. Moving on to our sell of Sound United. While we at Masimo were certainly a motivated seller so that we could refocus our strategy to areas where we could best deliver meaningful value to our shareholders, shareholders should take comfort that today's transaction reflects full fair market value. We conducted a thorough, comprehensive process led by Centerview and Morgan Stanley that involved a large group of potential buyers and significant negotiations. Through this process, we arrived at the most optimal transaction available for shareholders, and we are pleased to have this chapter behind us. The transaction is expected to close by the end of the year, subject to obtaining necessary regulatory clearances. Regarding the use of proceeds, we anticipate prioritizing share repurchases. And as a reminder, our 2025 financial guidance does not reflect any benefit from the use of proceeds from the sale of Sound United. In closing, our first quarter results clearly demonstrate the underlying growth potential and earnings leverage we expect to achieve throughout this year. While we wanted to provide clarity on tariffs, it's important to reiterate that our business is outperforming the expectations we had coming into the year. And despite the new tariffs, we are still projecting significant operating expansion -- operating margin expansion and EPS growth for fiscal 2025. I also want to take a moment to call out that Katie has been embraced by the Masimo team, and we are enthusiastic about her leadership. And in short, Masimo is off to a strong start to the year and I've never been more excited to be a part of this team. With that, we'll open the call to questions. Operator?

[Operator Instructions] Your first question comes from the line of Fred Wise of Stifel.

And I'm not surprised that the entire organization has embraced Katie. It sounds like it's off to a great start. Exciting quarter, a lot to unpack. Just to start, let's start with the first quarter. Based on your commentary about the large tender in the quarter, Micah, can you give us a sense of how big was it? What impact did it have on revenues and margins and boards? How do we normalize and, therefore, think about the cadence and implications for the second quarter as we start to extrapolate forward?

Yes. Thanks, Rick. Yes, if you kind of normalize for the quarter a little bit, I mean looking at it, a view without, when you exclude the large tender contract, the rest of our business is performing very well. We're seeing consumable and service growth of double digits. We're also seeing capital and other revenues growing high single digits. And that's when you kind of back out the timing of that large tender. And keep in mind, we still expect to recognize fully the revenue from that tender that we expected as we were coming into the year, but that's just going to occur over the next several quarters. So that is more of a timing issue. But if you kind of strip that back out and look at it, the remainder of the business is performing very well. Also our shipments, we're seeing very good demand early in the year. It's still very early to get ahead of ourselves with increasing the guidance -- or our expectations, I guess, for drivers for this year. But if you look at it without the tender and kind of -- or normalize for that tender, we're still above -- at or above the high end of our range on driver expectations for the quarter, so.

Okay. And so just -- it's not fair, just to ask for a little more. I mean, can sales move higher sequentially like flat to up despite this excellent, really superb first quarter, and the tender? Is there fuel in the tank for that? Or we're going to step lower?

Yes. I mean the way to think about it is, if you recall from last quarter, we mentioned that there's an extra 53rd week in the fourth quarter. That represents about 1% of our revenues this year. If you back that out and then kind of look at historical seasonality, it's usually about 24.5%, give or take, each quarter the first 3 quarters of the year, and then it steps up to closer to 26.5% in Q4. So we expect normal seasonality to the business this year. That's kind of how we've set the guidance and the range. So that should give you an idea of kind of how to think about Q2. But typically, Q2 is either flat to slightly down sequentially.

And if I could just sneak in one more, on tariffs. I know it's way too early to talk about 2026, and particularly from a tariff point of view. But we're all going to have to play with our model from a tariff perspective. We've done this over the last couple of weeks with other companies. Do we try to find a fourth quarter number and say times 4 next year based on what we know? Or how should we approach it?

Yes, it's too early to -- it's definitely too early to annualize at this point. I mean we have mitigation plans that we're going to start to enact. Some of those plans are no-regret actions that we're trying to -- that we've already identified and we're going to start to execute. The tricky part is, of course, the timing because this does flow through inventories throughout the year, and we're in a short period of time to impact 2025. But we're hopeful that these actions will start to set us -- put us in a good position as we exit 2025. And there's a lot that could change. I mean this is a very fluid environment. Trade negotiations are -- we're expecting to see some of those things come into play here over the next, I guess, it was 90 days from about a month ago. So we'll see a lot more play out. But it's too early to annualize the impact in the next year given the mitigation plans and the fluid environment we're seeing.

Yes. And you also see, Rick, the disproportionate weighting of China in our tariff impact, and so we just think those rates are -- have a high likelihood that they may change.

That's correct. And if you recall, on China, the baseline rate back in 2020 that we already have some of that in our run rate, that was about 25%. I think on -- it was sometime in March that they implemented an additional 20%. So before they added that extra 125% on top, the rate was sitting around 45%. So there could be potential that that goes down closer toward that rate. We don't know.

Your next question comes from the line of Vik Chopra of Wells Fargo.

Two for me. So Micah, I appreciate all you said about the tariffs. But I'm just curious whether you expect the impact of tariffs to have an impact on your long-term operating margin goals. Are those still on the table? And then I had a quick follow-up, please.

Yes, Vik, I feel very good about the underlying business. So let's start there. We're performing very well this year. You saw 750 basis points of margin expansion in Q1. For the full year, we're estimating that guidance range, it implies over 430 basis points of margin expansion at the low end of the range. So we're tracking very well. We're guiding core underlying margins at 28% to 28.5%. We've continuously uplifted that over the past few quarters. And we're -- I'd say we're hitting on all cylinders there. Again, it's early on the tariffs side, but we're standing by with these plans and enacting some of those plans to mitigate the tariff impact. And I think that we'll know a lot more as we move through the year.

Okay. And then my follow-up question is, congrats on the announcement to sell Sound United, I'm just curious if the price you received was in line with your expectations, if the plan is still to repay debt or are share buybacks on the table as well?

So let me start with the valuation. Given the current macroeconomic environment and kind of where we see the landscape today, this is a very competitive process. It started out with a lot of potential -- a large amount of potential buyers. And we believe that we got to a valuation that was the right fair market value. And in terms of how we use those proceeds, we're definitely prioritizing share repurchases. That will be a focus for us as we look to close out the transaction later this year.

Your next question comes from the line of Jason Bednar of Piper Sandler.

Congrats on a really strong quarter here to start the year. Apologies for any background noise, traveling here today. But I wanted to see if you could first start just talking to us about what you're hearing from OEM partners with respect to hospital CapEx spending, hospital spending to patient monitoring and connected care. Judging by your results, your board numbers, I'm sure I know the answer, but I'd just love to hear any additional color there. And then I appreciate you don't want to get into the details of your investigation, but just if you can help us a bit at all with how you have the confidence here in saying you don't expect it to impact your guidance. And then I'll have one more follow-up.

Yes. Thanks, Jason. So let me start out with the OEMs and the drivers. So we're very encouraged by the results we saw in Q1, very solid underlying demand even when you strip out that timing that we talked about in the tender contract. Again, we don't want to get ahead of ourselves, but I think the way to think about this is we are a high recurring revenue business. We only have about 10% to 15% of our revenues, give or take, on how that kind of fluctuates or tie to capital equipment and other revenue. So I think that's one way to look at this. We're not very highly dependent on capital. Two, the cost of our capital is a lower cost in terms of capital budgets for hospitals relative to some of the higher-cost monitors and machines that are out there. So I think that's one way to really look at this. And like I said, we're -- there's no -- we're not seeing any signals of softness at this point in the year and we're encouraged by where things are heading. We just don't want to get ahead of ourselves in terms of our guidance. We want to be thoughtful and prudent about that. On the second topic, currently, we view the situation, we're doing everything we can in terms of working through our protocols. We've got a strong protocol there. Based on what we know today, we have no evidence that there's any sensitive employee data, patient data that is impacted. And of course, we'll provide updates as required there. The other thing is we're -- as we work through those protocols, we're encouraged by the progress we're making so far on bringing systems back up and running. And again, I just want to reiterate that, as we see it today, we do not believe this is impacting our guidance for the year.

Okay. I know it's a sensitive topic and I appreciate the extra color there, Micah. Maybe I'll throw in my own tariff question. Just if there's anything you can give us around near-term, long-term mitigation options that might be in front of you that you're contemplating. It sounds like there are some things that are here that are fairly real time that you're going to be implementing soon. And maybe specifically, just given the sensitivity on China, can you speak to maybe the ease or difficulty you have in changing your sourcing or moving to dual sourcing with respect to some of your partners there on products?

Yes. Let me start out with, like I said, we have some actions that we can take more in the near term. We are -- some of those actions are altering some of our product sourcing, manufacturing, supply chain. We're also evaluating pricing opportunities, and that's both in kind of the near term and the longer term. And we're also encouraged by the integration we have, the vertical integration we have in manufacturing. We have a semiconductor plant in the U.S., and there may be some things we can do there to expand that capability and evaluate that more on a kind of a product-by-product basis. The other thing I would say is, in terms of China, that's something that we are working through and evaluating the mitigation plans. That involves, of course, the raw materials there. There are opportunities to move that. That one may be a little bit -- it's not going to be immediate or near term, but we do believe we have some opportunities to shift that over time. So I think we're going to know a lot more as we move through these plans this year and hopefully have more and more updates, and put ourselves in a better spot in terms of how we exit the year and head into 2026.

The next question comes from the line of Mike Matson, Needham.

Yes. I guess, first, just with the proceeds from the sale of the consumer audio business, I think you said your preference is to do a share repurchase. So just curious why you're opting for that versus repaying some of the debt to maybe allow you more balance sheet flexibility if you want to do M&A or something like that in the future?

Yes. I mean, Mike, we're evaluating all options there right now. That's an area that we're prioritizing. But it also depends on, as we evaluate the economics, right, it depends on interest rates, it depends on where the share price is as well, among other factors. But we do expect to prioritize share buybacks and return that to shareholders as well.

Okay. And then just want to ask one on the hemodynamic monitoring opportunity. Given Katie's background, maybe you could talk a little bit more about how big that market is and where your share is and where you think it can go and how you're going to kind of differentiate yourselves in hemodynamic monitoring.

Yes. Thanks for the question. First of all, relative to the hemodynamic market, as you recall, the Masimo position really comes from the acquisition of LiDCO that was done several years ago. Super small presence in that market. So what we're really doing is just kind of putting the ability to do hemodynamic monitoring onto our mainline monitors. And what we've decided to do at this point is to launch the system fully in 2026 and beyond with our next-gen monitoring systems. I can't really comment, obviously, about the size of the market. But I'd say it's fair to assume that we have almost very, very small presence today, and that we're optimistic that when we can get it on to the right platform over time, that there will be the opportunity to have a more significant presence in hemodynamics. But unlike kind of the competition, ours is really about kind of ease of use and kind of your mid- to low-acute patients and not necessarily your high-acuity patients in that market. So it's a little bit of a different strategy. And what we really offer is the strength in pulse ox and kind of balance of the hemoglobin-based delivered oxygen measurements that we talked about in the past about DO2, and being able to kind of combine the pulse ox together with hemodynamics, as I said, more towards your mid- to low acuity type patients. And so that's our overall plan over time, but that's going to be really more fully launched as we get into next year.

Your next question comes from the line of Matt Taylor of Jefferies.

Congrats on a good quarter despite the tariff issues here. But I had a couple of clarification questions. So I guess the first one, just to start with the underlying margin expansion. I mean you did see a nice, another step up here. All the actions that you talked about going back a year ago have kind of come to fruition, to get to close to or ahead of your goal. And I just wanted to know on an underlying basis, is there still more low-hanging fruit to get in terms of operating margin expansion? So that's the first one.

Yes. Thanks, Matt. Yes, I'd say -- I mean, if you look at our business model, I mean, we do have a high leverage business model. But we are also trying to make sure that we're making the right investments throughout this year. to continue to drive growth on the top line. So there will -- some of those investments will start to play in through the -- second quarter through the fourth quarter. So we're trying to strike that right balance this year. I mean if you look at the full year, we're, again, we're over 430 basis points of margin expansion. And at the same time, making some good investments within our sales and marketing teams as well as certain R&D projects that we want to kind of refocus back on to. So we're striking the right balance here, and I think it's going to set us up well as we move forward.

And just on the tariffs. You had a little bit of a different approach than some of the other companies when you gave this updated guidance before any mitigation, and you talked about some short-term mitigation. So I guess, is there any material difference in what you could actually do this year, all else equal, some of the mitigation strategies that you can put in place before the end of the year to have a different outcome than this unmitigated range?

Yes. So Matt, we do have some actions we're working through. Again, we don't want to get ahead of ourselves because we've got to make sure that we can execute through those plans on some of the near-term actions we're taking. But again, because this is hitting us kind of in the middle of the year, it makes it very difficult to come out and get too confident in those actions impacting this year. Like I said, the more we can start to execute some of these mitigation plans, and we also need to see some things settle, because what you don't want to do is take one path and that path gets closed off and you have to go down another path. So we're also being conscious of that. But we believe some of these plans can set us up very well as we exit the year and we're doing everything we can to impact this year as well. It's just, as you know, it turns through, it goes onto the balance sheet, it turns through inventories. And that's why we're trying to impact it as quickly as possible, to make sure we're set up well for next year.

Yes. I think you see kind of the tightening of the ranges of the core business, if you think about it that way, and then just separating out tariffs. If you compared to kind of how other companies are doing it, so people are saying, "Well, we would have upped guidance, we would have done this." And we're just being very transparent about saying that we're kind of showing you the increase or the kind of tightening the guidance on the core, and then saying, "But there's this offset." So it's sort of a different approach, I agree, but it's also sort of saying the same thing.

And can I sneak in one last one, just on Micah's last point there? You said through the cadence of the year for the tariff impact, $2 million next quarter. Is the impact on Q3 and Q4 about equal, or does it kind of ratchet up through the year? Could you help us on that as well?

Yes. I'd say if you look at kind of the high end of the tariff impact range, when you're looking from the $33 million to $37 million, you'll see more of a step-up -- a pronounced step-up in Q4. But it does, within that range, it steps up each quarter. But it's more pronounced on the high end of the impact range just because we're assuming that reciprocal tariffs start to come into play for Malaysia at 24% after the 90-day pause period. So that won't start -- that will not start rolling into cost of sales until the fourth quarter.

Your next question comes from the line of Michael Polark of Wolfe.

I have a follow-up for Micah on the tender call-out in the quarter. I just want to understand this. So I heard timing of it drove higher-than-expected capital makes sense. But it sounded like it also drove lower-than-expected consumables. And I guess I don't -- I need the dots connected there. Why were the consumables lower than expected on the timing of a tender?

Yes. It's more the lumpiness of tenders. So our consumable orders were lighter in the first quarter. And again, like I said, I mean, if you kind of normalize for that, we saw a very strong growth across the board for our consumable sales. And we fully believe that that is going to be a timing issue that's going to start to correct itself in Q2 through Q4. And that's why we're not -- it doesn't impact anything to our guidance for the full year. And again, these are large tenders that can be lumpy. But it's a renewed tender that we've continued to renew each year, so.

Understood. My follow-up, perhaps for Katie, the allusion to changing the sales force model, if I understood the comment correct, today you're specialized by product, there might be a benefit in going to more of a generalist, kind of regionally focused model, sell everything instead of just some things. And I want to ensure I understand that correct at a high level. And then I think the related question is, is this something -- I guess there's a -- there's always a worry around sales force changes, that it could be disruptive. So what would be the initial benefits to your upside or -- and how do you manage kind of risk as you do this? And was this something the company was considering for a while? Or Katie, is this kind of reflective of your world view and something you've seen out the gates and have conviction in moving forward on?

Yes. Thanks. That's a great question. So I'd say that as you kind of deal with sales forces, you can either have that generalist model, right, or you can have the dedicated teams. What we looked at as we evaluated the decision is basically you have very small dedicated teams to some of these specialty areas. So for example, the capnography team was a dedicated team of, call it, I don't know, 8 to 10 people. And instead, you're actually -- instead by going with the generalist model, we were able to have all of our sales representatives actually carrying the capnography bag, right? And so it's basically, as you start a new product category, you always want to have dedicated teams because they can actually provide the focus necessary to get that product going. But for our advanced monitoring categories of capnography, hemodynamics and brain, we feel like there's enough knowledge at this point that we're going to benefit from having all of the force of our sales reps and clinicals actually able to speak to that, instead of having these small dedicated teams. We just think there will be more leverage from that. So to quantify how it's going to transition, and obviously, any change, there's always risk, right? But we haven't specifically quantified it, but we really are optimistic that by retraining and getting our broad sales teams totally engaged in the full bag, it's going to be a benefit. Does that make sense?

Yes, that's helpful. If I could sneak one last one in on Sound. Is there a tax benefit expected in selling at this price relative to the purchase of the asset?

Yes. Thanks, Mike. At this price point, there is not. There's no election benefit here that we're estimating at this time, so.

There are no further questions at this time. With that, I will turn the call back over to Katie Szyman for closing remarks.

Great. Well, thanks, everyone, for your interest in Masimo and for participating in the call. I just want to let you know I look forward to seeing everybody as I head out on the road and start to meet more with investors throughout this quarter or so. Thanks again, everyone, and we'll talk to you next quarter.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.