Masimo Board of Directors Files Definitive Proxy and Issues Letter to Stockholders

Strongly Encourages Stockholders to Protect Their Investment by Voting FOR H Michael Cohen and Julie Shimer, Ph.D., on the WHITE Proxy Card

Highlights Track Record of Stockholder Value Creation, Winning Strategy, Positive Governance Changes and Risks to the Company Posed by Quentin Koffey

Visit KeepMasimoStrong.com for More Information

IRVINE, Calif.–(BUSINESS WIRE)–The Masimo Corporation (“Masimo” or the “Company”) (Nasdaq: MASI) Board of Directors today issued a letter to stockholders in connection with its definitive proxy materials filed on May 24, 2023, and the Company’s Annual Meeting of Stockholders to be held on June 26, 2023. The letter outlines the management team and Board of Directors’ long track record of creating stockholder value, compelling strategy and responsive governance changes, in addition to detailing the risk Politan Capital Management (“Politan”) and its nominee Quentin Koffey pose to the Company’s strategy, principles and leadership. To protect stockholders’ investment and to ensure Masimo continues to create value, the Board encourages stockholders to vote FOR Masimo’s highly qualified director nominees, H Michael Cohen and Julie Shimer, Ph.D.

Find our definitive proxy materials and more information on why your vote is so important to the future of Masimo at www.KeepMasimoStrong.com. The full text of the Board’s letter to our stockholders can be found here:

Dear Fellow Masimo Shareholders:

Masimo was founded in 1989 by our current Chairman and CEO, Joe Kiani, and has become one of the most successful medical technology companies in the world by adhering to its guiding principles and developing breakthrough innovations that improve lives. The entire Masimo team and Board of Directors remain deeply committed to this approach, which has created incredible value and earned Masimo a sterling reputation with its customers, investors, and even competitors. Masimo has delivered exceptional shareholder returns from our initial public offering more than 15 years ago and over nearly all time periods. And as we look to the future, we intend to grow Masimo by continuing to develop and commercialize breakthrough products for both the hospital and the home.

Politan, a start-up activist hedge fund, and its founder and nominee Quentin Koffey, who has never even invested in, much less run, a medical technology company, want you to trust them to “fix” Masimo. Mr. Koffey’s track record and his representatives’ statements in court all indicate that Politan is ultimately seeking control of Masimo’s future. Yet their comments on Masimo’s strategy and performance show a dangerous ignorance of how we have achieved our success, the returns on our investments in innovation, and the rationale for our strategy, as well as a reckless willingness to distort the truth in pursuit of their agenda.

In the coming weeks, Politan and Mr. Koffey will deny they are seeking control and claim they only want greater oversight. Even taking that dubious claim at face value, Mr. Koffey is not qualified to deliver that. He lacks credibility and brings no industry experience, prior public company board service or diversity to Masimo. He has sued the Company and its current and former Board members and has refused to collaborate with the Board to appoint two new directors independent of both Masimo and Politan for the benefit of all shareholders, insisting on a seat for himself despite clearly not meeting the Board’s criteria for new directors. He has refused to even provide dates for Masimo’s Nominating Committee to interview Michelle Brennan, the other Politan nominee.

The risks of giving Mr. Koffey a foothold in the boardroom so he can try to scrap the approach that has served Masimo and its shareholders well for its entire history are immense. Masimo is not an industry laggard that has nowhere to go but up. Masimo is the market leader in non-invasive monitoring, with robust plans to continue leading and transforming healthcare and consumer health.

At the upcoming Annual Meeting, you have a critical choice to make regarding your investment in the future of Masimo. The Company’s mission, strategy and guiding principles are all at stake.

Here are five important reasons why you should vote “FOR” Masimo’s director nominees―Julie Shimer, Ph.D., and H Michael Cohen―on the WHITE proxy card today:

1. Masimo has consistently outperformed for its long-term shareholders, driven by steady strategic and operational execution and disciplined capital allocation that has led to profitable, above-market growth.
2. Masimo’s management team and Board have built the right strategy for the future, creating new long-term growth opportunities while strengthening the healthcare franchise.
3. Politan and its founder/nominee Quentin Koffey have been unprincipled and self-serving, concealing their agenda and refusing to cooperate for the benefit of all shareholders, even when offered two board seats for mutually agreeable directors independent of both Masimo and Politan.
4. Masimo’s nominees are clearly superior to Mr. Koffey, who lacks relevant industry experience, prior public company board service and understanding of the business and threatens to mire the boardroom in dysfunction and chaos.
5. Since our IPO, the Board has embraced change in response to shareholder input and continues to do so, most recently taking action to elect a lead independent director and expand and declassify the Board.

For 34 years, whether public or private, Masimo has delivered for its shareholders, and under the current strategy, the Company is well-positioned to continue creating shareholder value. Mr. Koffey’s candidacy threatens Masimo’s strategy, principles and leadership. As our actions and plans show, your Board brings experienced oversight, new ideas and diverse and ethical perspectives. There is no need to risk derailing Masimo’s progress to advance Quentin Koffey’s personal self-interest and hidden agenda.

LONG TRACK RECORD OF OUTPERFORMANCE AND STRATEGIC EXECUTION

Since its 2007 IPO through May 1, 2023, when Politan nominated its director candidates, Masimo’s stock has returned more than 1,000 percent for shareholders, more than triple that of the S&P 500 Index, more than double that of the Nasdaq Composite Index and nearly double that of the Dow Jones U.S. Select Medical Equipment Index (the “Medical Devices Index”) during the same period. Indeed, Masimo has outperformed relevant comparisons for almost all time periods, both short-term and long-term. All the while, Masimo has been a beacon of hope for clinicians and patients, helping clinicians save and improve countless lives.

Total Shareholder Return

The Company has achieved these strong returns for shareholders through sustained improvements in operating performance and disciplined capital allocation that have driven profitable, above-market growth. Under the Company’s previous long-term strategic plan announced at its 2017 Investor Day and overseen by the current Board, Masimo delivered total shareholder returns of 243 percent through December 31, 2021, compared to 109 percent for the S&P 500 Index, 156 percent for the Nasdaq Composite Index and 150 percent for the Medical Devices Index.

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Across that period, Masimo recorded the following operating results, delivering on its promises by exceeding targets set under the 2017 plan:

• Revenue grew at a 14 percent compound annual growth rate vs. the 8-10 percent growth target set in 2017;

• Revenue growth in each major product category (pulse oximetry, capnography, and brain monitoring) substantially exceeded the respective market growth rates¹;

• Total operating expenditures as a percent of revenue were reduced by 370 basis points vs. the 200 basis-point target, despite a 230 basis-point increase in R&D investment to create new long-term growth opportunities and enhance shareholder value;

• Operating margins expanded over 500 basis points vs. the 400 basis-point target;

• Earnings per share grew at a 23 percent compound annual growth rate vs. the 12-15 percent target; and

• Free cash flow reached $239 million in FY 2021 vs. the long-term target of $150-275 million.

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⁽¹⁾ Market estimates based upon internal data, iData & Futuresource.

During the same period, the Company’s innovation-focused strategy and rigorous capital allocation process sustained ROIC at levels well above the medical device industry and Masimo’s prior performance, even as the Company expanded into new and adjacent markets.

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RIGHT STRATEGY FOR THE FUTURE

Masimo’s strategic plan sets the stage for the Company to continue to deliver superior shareholder returns by strengthening the existing professional healthcare franchise and creating new long-term growth opportunities in the telemonitoring, consumer health and hearables markets.

The acquisition of Sound United and the creation of Masimo Consumer have opened these markets to the Company without a dilutive, multi-year investment. The management team and Board thoroughly assessed both organic and inorganic strategies to enter these markets and evaluated more than 200 potential acquisition targets before determining that Sound United offered the best prospects for long-term value creation. By providing immediate sales and distribution scale and opportunities for synergistic tech transfer, product development and marketing efforts, the acquisition allows Masimo to leverage the value of its unique technologies and capabilities in the $20 billion telemonitoring, $50 billion consumer health, and $85 billion hearables markets.​

At the same time, shifting physician and patient preferences in the wake of the Covid pandemic and the pressure to reduce the cost of care have revealed significant unmet needs and new opportunities in the professional healthcare market that merit continued innovation and investment. Strengthening our capabilities to monitor patients at home and seamlessly connect them and their data to providers increases the appeal of our healthcare solutions in a rapidly evolving market. This approach mirrors our past successes driving adoption of SET^® by entering and innovating in adjacent markets. Masimo couldn’t have continued to gain market share from a powerful incumbent with pricing advantages and bundling practices with a much broader product portfolio if it had relied on SET^® pulse oximetry alone. Rainbow^®, Hospital Automation^TM, Radius PPG^®, and other advanced technologies have given hospitals further reasons to standardize on Masimo SET^®. By pursuing consumer health applications for its core technologies, Masimo is also bolstering its core healthcare business.

Our strategy creates value for patients, clinicians, hospitals and shareholders by bringing Masimo’s differentiated and clinically superior technologies, proven track record of innovation and customer-driven approach to product development to new markets, while also enhancing the Company’s ability to serve patients and providers regardless of care setting. With management’s track record of strong execution, Masimo is well-positioned to drive sustainable revenue and earnings growth.

We have also set clear guardrails in our pursuit of this strategy, beginning with the reasonable and accretive purchase price for Sound United and our modest use of financial leverage. We have publicly explained our commitment to exit the business in three years if our consumer health products do not gain traction in the market. We have limited our incremental spending on consumer product launches to one percent of revenue and are intensely focused on leveraging Sound United’s existing 20,000 points of distribution and 500 consumer sales and marketing professionals to drive consumer adoption.

As disclosed at the Investor Day on December 13, 2022, Masimo has issued conservative long-range financial targets for 2023-2028 that contemplate profitable long-term growth:

• Consolidated revenue compound annual growth rate of 7-9 percent;

• Adjusted EBITDA and operating profit compound annual growth rate of 10-12 percent; and

• Adjusted earnings per share compound annual growth rate of 10-12 percent.

Notably, these targets include Masimo’s product portfolio as of Investor Day but do not reflect the potential benefits of future consumer-focused products that are rolling out beginning in the second half of 2023.

Masimo has already made significant progress advancing its strategy, as more fully detailed at the Investor Day and on the Q4 2022 and Q1 2023 earnings calls. Masimo has won a number of hospital customers for the W1^™ advanced health tracking watch for telemonitoring, launched the Stork baby monitor and Opioid Halo opioid overdose prevention and alert system, and has begun the presale of the Masimo Freedom health-tracking smartwatch with Android OS. So far, the reaction of our existing hospital customers to our plans has been remarkable because they see how this could benefit them and their patients. We will soon find out if consumers agree.

Since management unveiled the strategy at the Investor Day through May 1, 2023, the day before Politan publicly announced its nominees for the Board, Masimo’s stock has returned 32 percent, compared to 5 percent for the S&P 500 Index, 10 percent for the Nasdaq Composite Index and 6 percent for the Medical Device Index. This outperformance has substantially closed the valuation gap between Masimo and its peers that opened following the Sound United acquisition.² We believe the strong market response demonstrates the growing conviction that this strategy maximizes the value of the Company and validates the potential return on investment of the Sound United acquisition.

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⁽²⁾ Peer index reflects average of premium / discount of Masimo AV / NTM EBITDA to select peers (Align, Edwards Life Sciences, Intuitive Surgical, Resmed)

KOFFEY HAS BEEN UNPRINCIPLED AND SELF-SERVING IN HIS ENGAGEMENT

Unlike most activist investors, Politan did not come to the table offering business ideas or even a point of view. Until this week, Politan and Mr. Koffey did not share any actionable recommendation or guidance for the Company other than demanding two board seats, including one for himself. Indeed, Mr. Koffey even predicated his views about the Company on its response to his demand, stating directly to the Company that he would be management’s “biggest cheerleader” if added to the Board and would wage a proxy contest against the Company if not.

This unprincipled statement contradicts Mr. Koffey’s long track record of instigating CEO change at his targets. In all but one of his past campaigns, the CEO has been replaced within one year of the campaign.³ Mr. Koffey’s attacks on the validity of Mr. Kiani’s eight-year-old employment agreement indicate his end goal is the same in this case. Indeed, in the litigation filed by Politan against Masimo’s current and former directors, Politan’s attorney gave the court an indication of Politan’s true intentions:

“[Y]es, we may be able to get two seats, but nobody going into this election will know if a third seat and potential control is available. And the [Politan] candidates are telling us that’s important to them.”

We believe Mr. Koffey is seeking control of the Company. He doesn’t want to say as much to Masimo shareholders because most will not agree it is a risk worth taking. CEO change would have a devastating impact on Masimo and its ability to retain the core engineering and management teams, many of whom have worked closely with Mr. Kiani for more than a decade, some for three decades.

With no business ideas, no public plan and a history of CEO change, Politan’s campaign was poorly received by the market. From the day prior to Politan’s first public announcement of its ownership stake on August 16, 2022, to Masimo’s Investor Day, Masimo’s stock price declined 10 percent, compared to a 7 percent decline for the S&P 500 Index, a 15 percent decline for the Nasdaq Composite Index and a 3 percent decline for the Medical Devices Index. The stock’s outperformance following the Investor Day is a powerful reminder of the value of Masimo’s strategic vision and the critical importance of not allowing Mr. Koffey to derail the Company’s momentum.

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⁽³⁾ Includes past campaigns publicly associated with Quentin Koffey at Politan, D.E. Shaw and Senator Investment Group and excludes Masimo and hostile bid campaigns; CEO replacement includes cases where a CEO departure was announced within 1 year of the public campaign announcement

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Despite Politan’s unprincipled behavior and failure to produce business ideas or even a positive market reaction to its presence, we gave Mr. Koffey multiple opportunities to work with us to identify and add to the Board two mutually agreeable directors who are independent of both Masimo and Politan. Instead of accepting this clear path to strengthening the Board as Politan claims to desire, Politan refused to engage unless we acquiesced to its self-serving demand that Mr. Koffey be added to the Board. Politan has so far refused to provide available dates for Masimo’s Nominating Committee to interview Michelle Brennan, Politan’s other nominee.

Politan’s unprincipled approach, hidden agenda and unwillingness to cooperate to find outside directors more qualified than Mr. Koffey clearly demonstrate that its campaign is not about delivering the best outcome for Masimo shareholders but about laying the groundwork to oust Mr. Kiani and getting Quentin Koffey his first public company board seat, regardless of his qualifications.

MASIMO’S NOMINEES ARE CLEARLY SUPERIOR TO QUENTIN KOFFEY

On that account, the facts are that Mr. Koffey is a woefully unqualified candidate for Masimo’s Board.

Mr. Koffey does not meet a single criterion for director candidates set out by the Board and would never have made it through an independent process.

• Mr. Koffey has not demonstrated the trustworthy and principled behavior that Masimo shareholders should expect from their Board members. Masimo’s culture requires principled leadership. From distorting facts about Masimo and its Board to releasing a damaging press release before our important trade secrets trial with Apple, he has demonstrated that he puts his own interests ahead of the Company’s.

• Mr. Koffey has no relevant industry experience. To our knowledge, he has never even led an investment in a public or private medical technology company, much less overseen capital allocation in the industry.

• He has no track record of prior public company board service.

• He lacks the specific skills, background and experiences that the Board’s Nominating Committee, after multiple discussions with the Company’s various shareholders during the past year, determined would be most valuable to add to the Board at this point in time.

While his lack of credentials speaks volumes on its own, Mr. Koffey’s commentary shows he has barely been paying attention since establishing his position in Masimo. Putting aside the factual errors and inaccuracies – which we will correct separately – his critique of the Company issued this week reflects a fundamental misunderstanding of Masimo’s business, industry and history.

• The idea that Mr. Kiani and Masimo’s management believe they have “immunity from market realities” is absurd to anyone who has a passing familiarity with Masimo’s battles to break into the pulse oximetry market. The barriers to entry that Masimo and Mr. Kiani fought to overcome existed in large part due to competitors’ broad portfolios of adjacent products and unfair business practices, including exclusionary agreements with group purchasing organizations and original equipment manufacturers. The continued profitable growth of both SET and Masimo is not a case of a “Midas Touch” but the product of a focused, disciplined strategy, informed by “market realities” and including the development of innovative adjacent products to leverage customer relationships, sales and marketing expenses and R&D and to reinforce the SET franchise. Ironically, Mr. Koffey’s plan to “fix innovation” at Masimo risks killing the goose that laid the golden egg.

• The “consistent” declines in ROIC that Mr. Koffey purports to identify are in fact a mirage created by the gradual, contractual cessation of the royalties won by Masimo’s defense of its intellectual property. Properly adjusting for those royalties, as shown in the earlier chart of our historical ROIC, yields a clear picture of Masimo’s highly disciplined capital allocation. Mr. Koffey’s mischaracterization of Masimo’s excellent capital allocation track record reflects his desire to choke off investments in growth to achieve a short-term pop in the stock at the expense of long-term value, not reality. This is a familiar and tired playbook with a bad ending for all Masimo’s stakeholders, especially long-term shareholders.

• The products that Mr. Koffey cites as “further and further afield from [Masimo’s] core competencies” all directly rely on adaptive signal processing – the same technology Mr. Kiani used to revolutionize pulse oximetry. Rather than stray from its core competencies, Masimo is leveraging its existing technology platform and clinical expertise.

• Not only is the Company “cognizant of the need to build a repeatable and successful market entry process” in consumer health, the primary rationale for the Sound United acquisition was to accelerate just that. On Masimo’s 1Q 2023 earnings call only two weeks ago, Mr. Kiani said, “As one of our first consumer health product launches, Stork is creating a great template for how our teams can leverage our integrated global brand and marketing framework, which we will rapidly refine and replicate as we learn from the Stork rollout and launch more consumer health products.”

We are hardly surprised by Mr. Koffey’s ignorance, willful or otherwise, on these matters. Despite Politan’s stated interest in Masimo, they have repeatedly refused to engage with management to learn more about the Company and its business strategies.

Mr. Koffey himself can’t even explain why he’d make a good candidate for Masimo’s Board. When asked about his demand to be installed as a Board member during his first meeting with the Company in September 2022 and in subsequent meetings, Mr. Koffey offered no reason beyond Politan’s standing as a large shareholder. His letter shows he has not advanced his case.

By contrast, our current independent directors all have highly relevant strategic, operational, financial, and investing experience in healthcare and medical devices that has allowed them to exercise the proper level of oversight. Dr. Shimer and Mr. Cohen, the current directors standing for election in 2023, both have exceptionally deep healthcare industry experience and were supported by more than 95 percent of voting shareholders in past elections. Dr. Shimer has significant experience as a CEO and director of numerous medical device and consumer-facing technology companies, while Mr. Cohen has more than 30 years of experience in healthcare investment banking and equity research covering medical technology, devices and related industries.

Contacts

Investor Contact: Eli Kammerman
(949) 297-7077

ekammerman@masimo.com

Media Contact: Evan Lamb
(949) 396-3376

elamb@masimo.com

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