Q2 2021 LivaNova PLC Earnings Call
Good day, ladies and gentlemen, and welcome to leave and Nobody P. C. L second quarter, So I need to N V earnings Conference call at this time, all participants and listen only mode.
I'll figure speakers per sensation.
A question and answer session.
And my day This conference is being recorded.
And I'd like to introduce your host for today's conference Mr. Matthew Dodds, and even though by senior Vice President of corporate development. Please go ahead Sir.
Thank you Crystal and welcome to our conference call and webcast.
US discussing we even though a us financial results for the second quarter of 2021, joining me on today's call are Damien Mcdonald, our Chief Executive Officer, Alex Schwartzberg, Our interim Chief Financial Officer, who will be appointed as our Chief Financial Officer effective August 1 and Lindsay Little our senior director of Investor Relations.
<unk> before we begin I would like to remind you that the discussions during this call will include forward looking statements factors that could cause actual results to differ materially are discussed and the company's most recent filings and documents furnished to the SEC, including today's press release is available on our website, we do not.
Not undertake to update any forward looking statement on.
Also the discussions will include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results, which will all be stated on a constant currency basis reconciliations to the most directly comparable GAAP financial measures can.
And be found in today's press release, which is available on our website.
We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool.
Can find the presentation and press release and the investors section of.
Say under news <unk> events, and presentations at Investor day, lever and Nova Dot Com with that I will now turn the call over to Damien. Thank you, Matt and thank you to everyone joining us today.
And welcome to our conference call for the second quarter of 2021.
First I'd like to officially.
Of our web site shortly.
And as our newly appointed CFO.
Alex has served as our interim CFO since October 'twenty, and 'twenty and brings more than 25 years of industry experience to our team Alex Congratulations on the appointment and thank you.
I'll start off by discussing some recent updates and move to sales results.
And welcome out and then review our strategic portfolio initiatives.
After my comments, Alex will provide you with additional details on our results and increases to our 2021 full year guidance.
And then I'll wrap up with closing remarks before moving onto Q&A.
The neuromodulation.
<unk> and cardiovascular business has continued to recover from the depressed levels of activity that began early in 2020 related to COVID-19.
After a slow start and 2021 trends improved in March and showed good momentum in the second quarter, especially and the U S. While.
While some regions continued to be impacted we saw.
Sequential progress and case volumes and less apprehension by patients seeking treatment.
Although we anticipate continued impact from COVID-19, we.
We expect procedure volumes in the second half to show further improvement in the U S and globally.
Moving to recent events on June 1.
And we completed the initial closing of a heart valve divestiture, including both manufacturing sites.
Further closings related to the sale and for sales infrastructure and various geographies around the world will follow and the second half of the year.
Financial results for the heart valve business, a deconsolidation effective June 1.
Also during June we received investigational device exemption and FDA approval to proceed with a confirmatory clinical trial and obstructive sleep apnea.
Hey.
The Osprey trial will seek to demonstrate the safety and effectiveness of the order of 6000 and system, our Implantables Hypoglossal Neurostimulator.
On tended to treat adult patients with moderate to severe OA site.
After receiving approval, we immediately launched the startup phase of the Osprey study and anticipate enrolling our first patient later this year us.
<unk> is a randomized controlled trial and.
And we will include approximately 20.
And <unk> across the United States and enroll a maximum of 150 adult patients who did not achieve results from traditional CPAP therapy, all have declined it's us.
Yeah.
Now I'll discuss our core growth drivers epilepsy and Acs.
Epilepsy sales increased 100.
Third and 2% globally versus the second quarter of 2020 with growth across all 3 regions. This.
This increase from the India that was experienced in April of 'twenty, and 'twenty reflects improved market dynamics, resulting from increased hospital access and patient willingness to return to clinics.
U.
U S epilepsy sales increased 108% versus the second quarter of 2020 totaled implants improved versus the prior year driven by replacements, which had benefited from a catch up and the procedure and the third and 2020.
Importantly, new implants grew 40% year over year and 13% sequentially.
<unk> and progress in U S epilepsy is being bolstered by our go to market initiatives, which currently encompasses 12 dedicated teams and 3 of which were formed during the second quarter.
The non established teams accounted for approximately 16% of U S sales up from approximately 10% and Q1.
And these teams are delivering sales and implant growth that is trending above the baseline business compared to the second quarter of 2020 as well as in comparison to the second quarter of 2019 levels.
Epilepsy sales and Europe grew 105% versus prior year led by the UK.
Italy and Germany.
Meanwhile, we achieved growth of 65% and the rest of World region led by Asia Pacific as non emergent procedures continue to recover.
Based on performance and the first half of the year, we now expect global epilepsy sales to grow at 25% to 30% up.
Prior guidance of 15% to 20%.
Our force forecast includes sequential growth and new implants, and patients and their caregivers return to in person and physician visits.
In addition, we anticipate a continued tailwind and replacement implants related to the backlog created in 2020.
ACS sales were $13 million and the quarter and increase of 120% from the second quarter of 2020.
Growth was driven by the continued adoption of livestock and an increase in procedure volumes.
Given our performance and the first half of the year, we now forecast Acs to grow at least 25% in 2000.
From F..1 up from our prior guidance of at least 20 per cent.
Turning now to DTD sales and the second quarter was $3 million in 2020..1 we continue to and anticipate DTD sales of approximately $10 million to $15 million from a combination of the recover study and replacement implants.
Implants with CMS eligible patients.
During our Investor event held last month, we provided initial key metrics for the recover study around site activation and patient consent and patient implants with.
We've continued to make progress since this update based on the sequential acceleration of patients consenting into the store.
2000, and continue to expect to implant 250, unipolar patients and or 150 bipolar patients in their respective recover rounds by year end.
And heart failure, the anthem <unk> pivotal trial continues to advance after reaching a key milestone of 300.
Patients enrolled in April as.
And as previously discussed we expect to start analyzing the functional endpoint data in the first half of 2022.
So for the cardiopulmonary business sales were $118 million in the quarter and increase of 12% versus the second quarter of 2020.
Oxygenator sales increased and the high teens globally with the U S and Europe, leading the growth.
Heart lung machine sales decreased in the mid to high single digits. This unfavorable variance was primarily impacted by the timing of hospital capital equipment purchases largely in the middle East and Latam.
These impacts were partially.
The offset by better than expected sales in the us.
Moving to heart valves sales for the quarter were $15 million, which was a decline of 22% compared to the sales for the second quarter of 2020.
It should be noted that this comparison only includes heartfelt sell through June 1 and the.
Second quarter of 2021 versus a full quarter of heart valves sales and the second quarter of 2020.
I'll now turn the call over to Alex for an overview of the financial results.
Thank you Damian and I will discuss our second quarter results in greater detail and then provide an update to our revised 2000 and 'twenty 1 guidance.
Sales and the quarter were $265 million and increase of 41% versus the second quarter of 2020.
Sales in the quarter, excluding the heart valve business were $250 million and increase of 48% as compared to the same quarter of the previous year.
Cardiovascular sales were $146 million.
Up 13% from the second quarter of 2020.
Neuromodulation sales were $118 million and increase of 102% compared to the second quarter of 2020.
Adjusted gross margin as a percent of net sales in the quarter was 70% up from 61% and the second quarter of 2020.
The margin increase was primarily driven by product and geographic mix.
Adjusted R&D expense and the second quarter was 44 million.
Compared to $35 million in the second quarter of 2020 on.
R&D as a percentage of net sales was 16, 5% down from 19, 3% in the second quarter of 2020.
Overall R&D on an absolute dollar basis is increasing behind continued progress.
Dress and the anthem half for us pivotal trial and the recover study.
SG&A expense for the second quarter was $102 million.
Compared to <unk> 18, $80 million and the second quarter of 2020.
SG&A as a percentage of net sales.
<unk> was 38, 4% down from 43, 7% and the second quarter of 2020.
The dollar increase in SG&A is primarily due to commercial related variable and discretionary spending last year.
As a result of COVID-19.
Adjusted operating income from continuing operations.
And was $39 million compared to an adjusted operating loss from continuing operations of $4 million and the second quarter of last year.
Adjusted operating income margin from continuing operations was <unk> 15.
18% compared to a loss of 2% and the second quarter of 2020.
The adjusted effective tax rate and the second quarter was 14, 7% compared to 2.8% and the second quarter of 2020.
The higher tax rate is primarily attributable to geographic.
Income mix.
Adjusted diluted earnings per share from continuing operations in the quarter was 52.
Compared to an adjusted diluted loss per share from continuing operations of <unk> 15.
And the second quarter of 2020.
The cash balance at June 30.
2021 was $329 million up.
Up $77 million from the cash balance of $253 million at year end 2020.
Net debt at quarter end was $426 million versus $505 million at year end 2000.
The decrease and net debt is driven by our increased cash balance.
Our adjusted free cash flow for the second quarter of 2021 was $20 million.
Capital spending for the first half of 2021 was $15 million, which.
Is $3 million lower than the first half of 2020.
Now turning to our revised 2021 guidance as Damien mentioned based on our performance during the first half of 2021.
We are increasing our previously announced full year sales EPS and adjusted free.
Cash flow guidance.
Overall, we anticipate the momentum of the Neuromodulation business to continue.
And we're now forecasting 2021 sales growth between 5 and 10% on a constant currency basis, which assumes 1% tailwind from exchange rates.
This is up from our prior guidance.
<unk> zero to 5% growth.
We are projecting adjusted diluted earnings per share from continuing operations in the range of $1.60 to $1.90 up from our prior guidance of $1.31 to $1.81.
We assume our share count to be approximately $50 million.
Adjusted cash flow from operations is expected to be between $35 million to $55 million up from our previous guidance.
30 million to $50 million.
With that.
I'll turn the call back to Damien for some final comments. Thanks.
Thanks, Alex and.
Summary, we built good momentum during the first half of the year and we are optimistic regarding the growth outlook for the remainder of the year and taking this into consideration we increased the midpoint within all our guidance ranges.
While we acknowledge that.
We continue to live with changing market dynamics, resulting from the pandemic, we remain focused on execution to deliver our pipeline commitments and our updated full year guidance.
And with that Crystal I'll open the lineup for questions.
Thank you.
Have question at this time. Please press Star then the number 1.
Telephone batch them.
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As we entered the kinase session. This limit yourself to 1 question and 1 follow up question and then return to the key if you have any additional follow up.
And so your first question.
Comes from the line of Mr. Rick Wise from Stifel. Sir Your line is open.
Good morning, everybody.
Nice to see the.
And the solid quarter.
Thanks for that.
And maybe.
Damien let's start off with.
Neuroma.
Epilepsy.
It's great to hear that the ultra regions showing.
Improved performance.
And.
Maybe you could talk and a little more detail just.
About what Youre seeing.
And what we can expect.
Both on the new implant side and the replacement side I mean.
Tremendous momentum on new implants.
Is that to what extent.
Is that the.
The new sales team approach.
You know vs.
You know new accounts, just help us better understand.
Operating there.
Yeah, Great question and good to hear from you and good morning, Rick.
Very pleased with how the team is executing and getting us back to what I think look more like 2019 levels of performance.
Total U S implants rose, 70% year on year, which is a.
Very strong performance.
Performance for the team.
Epilepsy implants in the quarter also grew slightly from 2019 and I think again, that's a really important signal for.
And that business bouncing back to 2019 levels.
And in the past few quarters and have services recovered faster than M. P.
And what have you been talking about that tailwind from the backlog.
Procedures from 2020.
And they grew about 85% year on year, and and nearly 20% sequentially, which I think theres, a big a big sign to NPI us grew about 40%.
And low teens.
Eventually.
And again and a service really leading the way there.
I think a lot has to do with the new go to market strategy, you know as I pointed out and in the script.
And they've gone from around 10% of the U S sales to 16% of the U S sales.
And that is.
So quite potent for us because we believe that's how we're going to continue to make changes and our awareness and impact on new patient implants overtime.
And in a matter of you wanted to add anything on that no I would say that and Rick the us as the majority of the business, but we're also seeing a lot of good trends in areas in Europe and some.
Other international markets as well in the quarter. We just know most focuses on the US. So we gave them a few more nuggets there.
Great.
Maybe 2 more.
You, you've made and encouraging comments about the DTD trial.
Yeah.
And I think your words gave me and were.
We've made good progress and the quarter toward debt $2.51.50.
By year and can you give us.
Any sense of you know.
As things are reopening recovering hopefully.
Returning to normal was enrolled.
Enrollment in line and accelerate it.
Why are you it sounds like Youre, more confident and reaching your year and targets but.
Any more detail there you could share.
Yes, I think since the education event, we hosted you know we've seen the progress in line with our forecast.
And we noted in May.
About 3 quarters about sites were activated over half of that target number of patients who have consented and just so everyone's on the consensus like a technical precursor to the implant stage.
And then over 1 third of the target number of patients implanted and that's continued to progress and when.
And we've seen net.
Basically running on our model since since then.
Okay.
Alex Congratulations to you.
And I'd give you full credit for the excellent print on.
Already.
But maybe you could help us.
Through the second half and a little more detail.
Tell us how do we think about the third quarter fourth quarter sales cadence I mean, I mean, I sort of think about the third quarters, and normally and lights and med Tech and life is.
Sequentially softer because of seasonality and vacations.
No that's not it could be more flat to up this year.
Of the business trends, Youre, seeing and new sales initiatives and a recovery and how do we think about splitting up and thinking about the second half.
And yes, so you're right Rick first of all thanks for the congratulatory remarks.
I would say look the.
The trial.
And the seasonal trends.
We expect to be similar as we've seen historically Q3 sort of being.
A slower quarter relative to Q4.
1 thing I will remind us that heart valves are out of our sales trajectory for.
For the second half of the year. So that's going to have an impact in terms of in terms of comps.
We feel good about the sales trajectory and as Damien said, we are expecting sequential growth and the second half.
Now that we've reached the midpoint to the year we're.
And we're more comfortable updating our guidance and.
And.
Putting all of our EPS upside generated into our new guidance range.
Just continued Alex.
Just if I can interrupt just us.
As we think about the third quarter X.
Next heart valves.
Does it match.
The first quarter revenue levels is that the right way to think about it as.
As we get ready for us.
Yes at least yes.
Okay.
Yeah look we you know us.
And I think we feel pretty good about the second half of the year, we continue to see unpredictable.
The impact of Covid, especially and pockets of APAC middle East and and Latin America.
On the U S trends about obviously improved and.
But.
Not yet quite back to.
Normal on on epilepsy, particularly on.
And so on NPI or new patient implants.
So as we look look toward the back half of the year.
We're assuming is delivering the same level of EPS as we delivered and the first half.
Got you thanks for all that color.
Thanks, Rick.
Your next question comes from the line of Mike Matson from Needham and company. Sir Your line is open.
Hi, good morning, Thanks for taking my questions.
I guess I wanted to start with Neuromodulation. So obviously good performance there.
But.
Wanted to ask about the strength of replacements did mentioned there is a bit of a backlog there. So.
Is there a risk debt.
On that.
Slows down the replacement part of the business and maybe we see air pocket before.
And the do implants.
Continue to pick up.
I guess in other words, how much confidence do you have or visibility do you have and the backlog that that that part of the business can be sustained or replacement portion.
Hey, Mike its Matt so on the replacements like we said before that in 2020, we thought or about 1200 replacements.
And based on our modeling should have occurred that did not.
And into that a little bit, but we still think there's at least 1000 of those replacements that are still out there and available. So we did burn a little bit and the first and second quarter, but just thinking about that math that should carry into 2022.
So I don't I don't think it's going to and it's anything you need to worry about through this year and then in terms of the new implants and as Damien said, we did actually show nice growth sequentially and you know our expectation is that will show growth sequentially again in the third quarter, so not quite back to what we call baseline but getting.
Okay. Thanks, that's helpful. And then I just had a couple on the Osprey trial. So.
Is this in fact, a pivotal trial and other words would support FDA approval of or 6000 and that was a little confused because the slides called that a confirmatory trial really sure what that net and then I wanted to get a better.
And there the timing.
But the follow up period for the endpoint in the trial and could we see results.
Yes, yes.
Great question and so the.
Things for us that are important here is that we finished the th and 3 trial and weren't happy with how.
I understand it was executed as we took that over and so we're calling it a confirmatory trial, but yes. It does support as a pivotal the FDA approval cycle for a PMA. So that is correct. It is a PMA pivotal approval trial.
And as far as follow up it's a 6 month.
Follow up.
And.
And then on the timing, Mike we're assuming approval in 2024 right now.
Okay got it.
Thanks, and I'll, let some others get on.
Thanks, Mike.
Your next question comes from the line of Adam <unk> from Piper Sandler Sir Your line is open.
Hey, guys. Thanks for taking the questions. Congrats on the results and to you Alex on the appointment to permanent CFO.
Maybe just 1 kind of short term question to start I guess I was just hoping to get a little.
Little bit more color on Q2, and and how the business progress.
Over the course of the quarter.
Or by month, and just just trying to get a better sense for the recent trajectory there and exit momentum that you have and then if youre seeing any kind of early impact from the Delta variant in recent weeks and I had a couple of follow ups. Thanks.
Hey, Adam.
Thanks for your question, Yeah look day.
Amy and mentioned in his remarks.
We started to see strengthen our trajectory and March and it continued throughout the quarter.
So we came out at the end of Q2 with with really good trends.
Really happy with.
With the with the type of trends that we saw in epilepsy.
U S and particular across the board across all franchises, we saw some some really strong trends so.
That made us feel pretty good about.
So we're on to the year second half.
No.
Also in terms of beyond.
Beyond the sales trend we saw some some some good progress in terms of gross margin and where we are.
We're seeing leverage across the rest of the P&L. So.
All positive in terms of debt.
Delta.
Sure everyone is doing we watch this carefully.
On a guy we started our internal monitoring through <unk> see the same and we've been tracking net by geography.
Streaming closely and then on a focused Friday calls we talked about this with the.
The teams every week.
The balance to look at where we see pockets and hotspots.
Latam is.
And issue Middle East Africa, still being an issue and in the U S.
<unk> pretty carefully this whole, Florida, Georgia, Louisiana Spike and.
It's important to for US is an important.
For us and all of the franchises.
We're watching it again I'm sure like everyone else, but we're.
Confident at the moment that we're going to be able to execute to the goals. We just laid out.
That's really helpful. Thanks for that color and then for.
My next question just on.
Geography, I think you said that's expected to grow low to mid single digits. This year and you talked a little bit about capital being soft, but maybe I was hoping to get a little bit more color or puts and takes there and then I know youre not giving obviously guidance for 'twenty 2 at this time, but just conceptually I wanted to ask you about the CPE business won the new.
On <unk> machine US launch, what's the right way to think about the growth trajectory of that business.
What type of impacted Polaris had and just how do we think about kind of the stage rollout timing and then I had 1 quick follow up.
Alright, Adam So on your question around CPE and Oxygenate, there's we saw.
We continue to see progress and the quarter, we had approximately 12% sequential growth.
Which which was positive.
In terms of the capital cycle.
DHL on sales tend to be kind of lumpy. So it's.
We're not seeing anything that we hadn't.
And predicted and our forecast earlier this year.
And then in terms of 22022, we've said this is a low single digit market, so with Polaris coming online.
Say at least for now and maybe think mid single digits until we get more visibility on exact timing.
Timing.
Got it okay. Thanks, guys and then to sneak in 1 more if I may just.
Ask about obstructive sleep apnea.
Just wanted to learn a little bit more about the technology itself.
This next gen device kind of relative to the previous generation.
And for a $6 and what changes have been made to the design and the feature set.
Do you kind of view the value proposition versus the the other available technologies. Thanks, so much guys.
So in terms of the technology and not a lot of changes to the device overall in terms of what it does the number of electric.
Electrodes on the lead really just and I think refining and enhancing the components for reliability.
2 of the big differences versus the current therapy out there inspire.
We don't have the second lead right now is just a single lead and we have more electrodes, we have 6 electrodes.
And they sit further back on the nerve and inspire so you can theoretically recruit additional muscle fibers and you can sort of adjust the shape of the tongue a bit better versus just stick it out.
That's kind of a core component.
We think that that'll actually help a little bit more with complete.
Trick collapse, which is about a third of patients. So there is some differentiation I think and the way it works, but in terms of the devices I wouldn't call. This thick and enhanced device from a therapy effect.
Got it crystal clear thanks, Matt.
Concerning your next question comes from the line of.
Anthony Petrone from Jefferies. Sir Your line is open.
Hey, Anthony.
Alright.
Yeah.
Yeah.
Okay.
Maybe we haven't traveled giving you on.
Crystal due on the jump to the next 1 and we'll come back to Anthony if he can get back in.
Okay.
Your next question comes from the line of Mr. Michael Pollock.
From Baird Sir your line is open.
Hi, good morning.
You hear me.
Yeah, Hi, Mike how are you.
And they very well.
Question for probably Alex on just gross margin and to the second half obviously, we pull.
Heart valves out, which just you know it should be and accretive exercise to the gross margin I previously did the math last.
Sure when you first announced it probably 200 basis points of lift just from stripping heart valves out of the model on gross margin is that does that in and around the ballpark.
That's right Mike.
We expect gross margins to increase and this year.
Relative to 2020 by about 300 basis points.
So the outlook is.
Trying to get to 70 and beyond.
Yeah.
All of that all of that are.
Positive.
Trend is really.
Really driven by us.
But by the product mix right as we sell more neuromodulation.
Also the increased volumes on cardiopulmonary.
Debt that will will.
And we'll drive.
Well it will definitely drive some some upside there.
On R&D.
Alright.
And model the frame the shape of this curve I know, you're investing and a lot of important initiatives.
Are we at a quarterly run rate on a quarterly number here of $44 million.
Is this going higher are kind of flat here for the next few quarters. How do you see this playing out rest of this year into next.
Ah yes.
We see a little bit of a step up and the second half, especially as we enroll the osprey trial.
So.
A bit of a bit of a step up but.
And we.
And we're sort of and the ballpark there with with our first half trends.
On the other trial okay.
Sort of the base.
Yes, and then and then on operator. This is my last 1.
And.
On the map the CCC comments are you.
Is the protocol for this study designed such that all these patients go through the drug and do sleep endoscopy and you.
Pull the Triple C patients out and then run a trial kind of <unk>.
<unk> with the current FDA indication for hypoglossal nerve stimulation or are you expecting that.
This study is going to have.
On a triple C and a non triple C.
Subgroups.
So you got me on the endoscopy and I'm going to have to get back to you.
The CCC, it's going to include the CCC patients I don't think theyre going to be separated from the other patients and the trial.
But if that if that's wrong on I'll, let you know, but they are definitely going to be on the ground.
And you run the dice to identify the nature of the airway so.
And that wanted to do and that's part of the protocol then.
I'll check I'll check on that okay. Thank you.
Thanks, Mike Thanks, Mike.
Yeah.
Your next question comes from the line of Mr. Anthony Petrone from Jefferies. Sir Your line is open.
Hi, Good morning, apologies were hopping between calls.
So apologies if some of these got asked my first question would be on <unk>.
On VNS backlog, you mentioned last quarter, there was still about 1000 patients.
Really that were backlog and I believe those were replacement patients.
<unk>. So just wondering if theres an update there and.
And how long of a tailwind does that represent I think last quarter, you mentioned into 2020.2 and then on the margin side, just trying to quantify there was certainly and outperformance both at the gross and operating level versus our estimate certainly the.
And besides revenue beat helps there just.
Short of trying to work through that how much of that was the revenue beat versus just cost savings and if you can Alex maybe just some high level thoughts on where you see the adjusted operating margin profile trending.
Perhaps over the next several years. Thank you very much congratulations on.
And good quarter.
Thanks, Anthony it's Matt so for VNS and it's still over 1000 patients. The way that works is we probably reduced the 2020 number by about 150 to 200, but we're still not back to normal I would say and U S. Epilepsy in terms of market trend. So there were.
The additional ones added so the net is still I would say north of a thousand.
Yeah.
Anthony in terms of the margin profile gross margin.
Yes, it was.
It was sort of outperformed.
On the basis of.
Summit of sales volumes, but.
That's a kind of a mixed phenomenon right as we sell.
More and more Neuromodulation, which is cash.
Carries a higher gross margin and the rest of the fleet.
On.
And that really helps.
Trending at.
Somewhere in the 70% range and we expect to maintain that our improved debt and the back half of the year and into 2022.
In terms of the operating margin.
And we feel pretty good about where we landed in Q2.
I would say, it's going to be pretty similar in in the second half our goal I think we've stated all along that we wanted to.
Striving to get to 20%.
Im not sure and we can get there in 2022, but we're certainly going to give us a try.
Helpful. Thank you.
Congrats again.
Thank you.
Your next question comes from the line of Matt Taylor from UBS, Sir Your line is up on.
Hey, Matt.
Hey, good Damien.
And how're you doing thanks for taking the question.
And so I wanted to ask more about the epilepsy dynamics, just as a follow up on.
Replacement versus de Novo could you talk about and how that mix looks today and different geographies and how you expect it to change overtime and when.
When might you be able to recapture those thousand better still out there and any more color on the trends would be really helpful.
Hey, Matt its Matt for U S. We're currently getting closer to 70% now.
Year, and a half ago, we were closer.
60% range, so no surprise.
Totally gone up we do expect it to eventually start to go down next year.
Internationally in Europe, it's about our splits about 52% NPI, 48%, Pos so not quite as high as the us but almost.
50, 50, and then in the other markets International markets, it's like 85% NPI and.
And again all of them over time, we do expect the end of service to move up.
Yeah.
Okay great.
And what have you seen and in the recapture and.
And I guess versus your modeling and how are those coming along and what's the pace that you can recapture those thousands and are out there.
So again, it's not perfect math, but we think 150 to 200 were captured in the second quarter. There were some captured in the first quarter.
Expect it to continue to go up and the back half of the year, but we don't know us how long the tail last because with.
And with this therapy and the settings, it really depends by patient where even when you get the alert that your batteries below 17% you could potentially go a year so.
We we don't have a perfect window on.
We and <unk> is going to come in by month, but you know within a year period, we have very high confidence. So what we think right now is more and the third and fourth quarter.
Some will spill over into 2022, and then by 'twenty 3 we're largely back to normal.
Got it okay.
And I just wanted to ask.
Hypothetical question on recover.
Sumit you do hit your enrollment goal for the cohorts by the end of the year.
And based on what you have seen in the registry data previously could you just clarify.
Some goalposts about when you might be able to see.
Separation of the curves enough to make a signal that you have a high fixed debt.
<unk> 4.
On a positive result, how long I guess could that taken and reasonably good scenario.
So that right now we're assuming at some time in the back half of.
'twenty 2.
And you know, it's phasing and we get to look a lot you know for each arm and gets to look every 25 patients. So we don't have long intervals of waiting but based on the statistics. It was designed on.
It's somewhere in the back half and again, we've committed to late 'twenty 2 early 'twenty 3 from a shift to registry.
'twenty that just gives us some time for CMS to decide and then also.
We're in the back half we think the odds are the highest so that's how we're currently looking at.
Yeah.
Okay, and just on the softer side of things what can you do ahead of time, I guess to start to raise awareness and see.
And what are you doing now and what can you do next year to start to get the psychiatry can you.
Excited about this.
I think our real focus is just on and recover but we've also done I think a very good job and working with our publications subgroup.
And of the investigators to map out a publication strategy and.
So we are actively publishing in the area and engaging more with intervention psychiatrist.
We're also working to make sure we've got capacity to implant so whether that's a neurosurgeon A&P or general surgeon.
<unk>.
And so that we can make sure that the flow works from interventional psychiatrist to the implant that back to the interventional psychiatrists.
No.
They're 2 of the steps, we're taking among the many aspects of what the team is doing.
And very focused too on on mapping using DRG data.
And you know where the centers.
And how we would think about our commercial expansion strategy once we get to certain milestones with CMS.
Okay. Thank you very much guys.
Isn't it.
We have our last question.
From the queue, we have Mr. Scott Wagner from Bayou Bridge company your.
Your line is open.
Thanks, John.
Thanks, you, replacing items from there on but not the bridge right.
Wonder if you change jobs recently.
Yes.
Thanks, guys and congratulations Alex so the permanent and tenure.
On.
So the first question please.
It relates to operating margin this quarter, which I think came in.
Reasonable 14 point and 9%.
Now of course.
And that margin.
Uh huh.
Benefiting from the revenues that you.
Book full heart valves for a couple of quarters. So I wonder if you can give us a sense Alex as best you can.
What do you think the underlying margin for you and cardiopulmonary.
Advanced circuits and.
Chuck luxury support.
And on the remote business was this quarter or if you were to completely net sales and costs from us.
Hum valves that would be helpful.
I guess follow on question.
SG&A trending up to about $105 million now that you've exited heart valves.
And there's an.
And with us.
And folks that we did in that business.
The prices will remain flat goes up and sometimes that would be helpful.
Second question just relates to cardiopulmonary please.
Okay.
From what I think.
Correct me, if I'm wrong, but you.
Got it and.
And the outlook.
And being somewhat model right.
And you were flowing to weak capital trends on top of what was already a weak capital years before.
Are you confident that you're not losing market share.
No.
Nothing that has now entered the market with a non machine and climbing strong momentum I Wonder if you can comment on.
The more than <unk>.
Some sense of the timing for Polaris.
And you'll new good interest device. Please.
Right. So let's take this 1.
And so our operating margin excluding heart valves are largely.
Largely the same Scott because as you know the heart valve business carries a lower gross margin relative to the rest of the fleet.
And so.
Taking that out.
And the mix.
The operating margin isn't drastically affected recall, when we announced the divestiture and we said we were going to be dealing with some stranded cost in the back half of the year, So that that's absorbed and our guidance.
And our margin for.
The balance of the year and.
And that's.
We're working on on on costs to get those out as soon as possible, but we're where we're supporting the transitional services agreement with with core some which require requires us to.
<unk> to debt to continue to us to spend from from an SG&A perspective.
Now just just look.
And I believe your second question was on cardiopulmonary and and in particular, the <unk> cycle. So.
In the quarter.
Some really good trends in the U S.
Rest of World.
I'd say it was it was pretty lumpy.
We had forecasted during the year.
The HL on business.
Business would be down.
Vs versus 2020, because remember we're coming up on the end of the S..3 to us 5 convergence cycle. So.
And the HL on business. We are we are not losing share we.
We believe that it is in line the business is running in line with our forecast.
Yeah, a couple more things got us Matt last year, we thought the HL and business would do worse than it did capital didn't fall as much as we thought it was down about 15% last year for the full year.
In terms of the getting HLA.
Capital, We certainly know it's out there and we know they launched it we check with the CP team all the time they have just not said much about that product, having an impact yet.
And then in terms of the timing of Polaris.
No change, we still said first half and Europe around mid year and the.
L M US and then and some of the other markets and the back half of the year.
That's helpful guys and then maybe just.
1 clarification, please and Alex.
Just to.
Fully understand what youre, saying on on selling and marketing costs.
105 million that you book in the quarter.
Do you expect that to remain stable if you like into the second half of the year until you work on some of these stranded costs and just.
Trying to understand what sort of costs come out of the business now and <unk> to halt Belk.
That's correct Scott.
And remember, we're still and we're still investing behind.
And you go to market initiatives in Neuromodulation and Acs.
Understood maybe last 1 from me.
Very much appreciate all of these investor education sessions, you've done on the various different divisions that helpful.
But I think what would be most helpful.
From.
And framework whole margin I'm glad to.
To get some sense of your operating costs are expected.
Delivery of your parts on the social.
And you've talked a little bit about 7 days and we know the definitive date and that the artery for fiscal 'twenty 1.
We're still looking at.
The fourth quarter.
We're hoping to be lives and fact that perhaps.
Lance.
Bain to be live of course, the issues with border crossings and you know who's been vaccinated and who hasn't and just complicating our planning, but our current plan is mid fourth quarter.
Got it and so much guys.
She is Scott Scott.
We have a follow up question from Mr. Rick Wise.
Rice from Stifel say line.
Okay.
Hi, sorry for the follow up.
And I wanted to hear you comment.
And if you if you would a little bit on a tandem life and lifespan progress.
Obviously terrific year over year numbers, but if I'm looking and understanding the numbers correctly.
Flattish and interest of $1 sequentially, just you know what's going on where are we and the rollout.
And what's next how do we think about the second half et cetera et cetera. Thanks a lot.
Yeah, Rick and I.
Look we still expect our Acs to accelerate its growth and the second half of the year.
We like we like the.
I mean, the comps versus last year, if you recall and in the quarter basically like spark was anticipated in Q3.
There was a there was a sort of a.
A slowdown and placements so.
And I would say we were looking at the business sequentially, we like.
<unk> sequential progress, where we're making in.
And in terms of procedure volumes as well as.
The debt.
The capital placement and Rick it's.
Accelerate growth on an absolute basis, not a percent basis just to cash.
And.
And we've talked about previously.
And they'd be doing it's about accounts account acquisition and.
Those plans are right on track with the team through the midpoint, which is terrific. We also committed to putting on up to 20 heads. This year, we're about halfway through and we're about halfway through the recruiting.
We like what we're seeing in terms of.
What a attraction to we've been able to I think really up the talent that we're bringing in to the team and I think that will ultimately right through and foster uptime.
All of those people in the field and.
We're really pleased with how this is progressing.
So not to put words in your outstanding.
And but we Shouldnt anticipate further sequential dollar.
Acceleration.
Third and fourth quarter into next year.
And the direction you want thank you correct Thats correct, yes.
And then ladies and gentlemen.
And so you wanted to ask a question. Please press star 1.
And no question over the phone Sir please continue.
Okay. Thank you Crystal and thank you everyone for your time and the whole series of questions and your interest on behalf of the entire <unk> I. Appreciate your support so live and Nova.
And we look forward to speaking to you next quarter. Thanks, everyone.
Ladies and gentlemen, this concludes on today's conference call. Thank you for participating you may now disconnect.
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