Q4 2023 LivaNova PLC Earnings Call

Operator: Transcription by https://otter.ai, Good day, ladies and gentlemen, and welcome to the LivaNova PLC fourth quarter and full year 2023 earnings conference call. My name is Emily, and I'll be moderating your call today. After the presentation, there will be an opportunity for any questions that you can ask by pressing start, followed by the number one on your telephone keypad.

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Emily: Good day, ladies and gentlemen, and welcome to the leaving over plc fourth quarter and Sylvia 2023 earnings Conference call. My name is Emily and I'll be moderating youku today.

Emily: After the presentation, there will be the opportunity for any questions that you can ask by pressing star followed by the number one on your telephone keypads.

Operator: As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Mr. Matthew Dodds, LivaNova's Senior Vice President of Corporate Development and IT. Please go ahead, sir.

Emily: As a reminder, this conference call is being recorded.

Emily: I'd now like to introduce your host for today's conference Mr. Matthew Dodds, leaving over C. D. A vice president of corporate development and I T. Please go ahead Sir.

Matthew J. Dodds: Thank you Emily and welcome to our conference call and webcast discussing <unk> financial results for the fourth quarter and full year of 2023, joining me on today's call are Bill Cozy, our chair of the board of Directors and interim Chief Executive Officer, Alex <unk>, Our Chief Financial Officer.

Matthew J. Dodds: Thank you, Emily, and welcome to our conference call and webcast discussing LivaNova's financial results for the fourth quarter and full year of 2023. Joining me on today's call are Bill Kozy, our Chair of the Board of Directors and Interim Chief Executive Officer, Alex Schwarzberg, our Chief Financial Officer, Stephanie Bolton, President of Global Epilepsy, and Brianna Gotland, Director of Investor Relations. 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 in the company's most recent financial filings and documents furnished to the SEC, including today's press release that is available on our website. We do not undertake to update any forward-looking statements.

Matthew J. Dodds: Stephanie Bolton President of global epilepsy, and Rihanna Gotland director of Investor Relations 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 in the company's most recent financial filings.

Matthew J. Dodds: And documents furnished to the SEC, including today's press release. It is available on our website, we do not undertake to update any forward looking statements.

Matthew J. Dodds: 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 be found in today's press release, which is available on our website. We have also posted a presentation on our website that summarizes the points of today's call. This presentation is complementary to other call materials and should be used as an enhanced communication tool. You can find the presentation and press release in the Investor section of our website under News, Events, and Presentations at Investor. LivaNova.com.

Matthew J. Dodds: 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.

Matthew J. Dodds: Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website.

Matthew J. Dodds: We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to other call materials and should be used as an enhanced communication tool you can find the presentation and press release in the investors section of our website under news <unk> events and presentations.

Matthew J. Dodds: At Investor Dot, leaving though the dot com with that I will now turn the call over to Bill.

William A. Kozy: With that, I will now turn the call over to Bill. Hey, thank you, Matt. And thank you everyone for joining us. Welcome to LivaNova's conference call for the fourth quarter and full year of 2023. Before turning to results for the fourth quarter and full year, I'll start off with some comments on the naming of Vlad Makatsaraya as CEO, our decision to wind down the advanced circulatory support segment, and an update on the cybersecurity incident. Earlier this month, the board appointed Vlad as the company's CEO and a member of the board of directors, effective March 1st.

William A. Kozy: Hey, Thank you, Matt and thank you everyone for joining US welcome to <unk> conference call for the fourth quarter and full year of 2023.

William A. Kozy: Before turning to results in the fourth quarter and full year I'll start off with some comments on the naming of lapsed market sorry, as CEO, our decision to wind down the advanced circulatory support segment and an update on the cyber security incident.

William A. Kozy: Earlier this month the board appointed flat is the company's CEO and a member of the board of directors effective March one.

William A. Kozy: Vlad most recently served as a company group chairman at J&J MedTech, leading its global Ethicon surgery business. He's a respected leader in the medical technology industry with a 27-year track record of delivering results, driving innovation, and leading high-performance teams. The board and I have great confidence that Vlad is the right CEO to advance LivaNova's strategic plan and achieve our goals for long-term growth. I will continue in my role as LivaNova board chairperson and, of course, look forward to supporting VLAD as our new CEO.

William A. Kozy: Vlad most recently served as the company group Chairman at J&J Med Tech, leading its global Ethicon surgery business.

William A. Kozy: He is a respected leader in the medical technology industry with a 27 year track record of delivering results driving innovation and leading high performing teams.

Speaker Change: Gordon I have great confidence that flat is the right CEO to advanced leaving all of our strategic plan and achieve our goals for long term growth.

Speaker Change: I will continue in my role as leaving over Board Chair and of course look forward to supporting <unk> as our new CEO.

William A. Kozy: In January, we announced the winding down of the ACS segment. As part of this decision, ACS standalone cannulae and accessories will move into our cardiopulmonary segment during the first quarter. This portfolio decision allows us to focus on our core cardiopulmonary and neuromodulation businesses, which are well positioned for growth and value creation. We expect the wind-down to result in a positive contribution to adjusted operating income in 2024 as compared to 2023. We delivered strong performance despite the previously disclosed cybersecurity incident.

Speaker Change: In January we announced the wind down of the ACS segment as part of this decision Acs Standalone cannula and accessories will move into our cardiopulmonary segment during the first quarter.

Speaker Change: This portfolio decision allows us to focus on our core cardiopulmonary in neuromodulation businesses, which are well positioned for growth and value creation.

Speaker Change: We expect the wind down to result in a positive contribution to adjusted operating income in 2024 as compared to 2023.

Speaker Change: We delivered strong performance. Despite the previously disclosed cyber security incident later in the call Alex will provide comments regarding.

William A. Kozy: Later in the call, Alex will provide comments regarding the estimated impact on our financial results during the quarter. Importantly, we were able to bring all our manufacturing operations back online as noted in our prior disclosures. I must extend sincere appreciation to our LivaNova colleagues around the world who responded with urgency and extraordinary dedication. Thank you.

Alex: Excuse me the estimated impact to our financial results during the quarter.

Alex: Importantly, we were able to bring all of our manufacturing operations back online as noted in our prior disclosures I must extend sincere appreciation to our living now of our colleagues around the world who responded with urgency and extraordinary dedication. Thank you.

Alex: For the remainder of the call I'll discuss our fourth quarter and full year results and then turn to our strategic portfolio initiatives. After my comments, Alex will provide additional details on our results and 2024 guidance I'll wrap up with some closing remarks before moving on to Q&A.

William A. Kozy: For the remainder of the call, I'll discuss our fourth quarter and full-year results and then turn to our strategic portfolio initiatives. After my comments, Alex will provide additional details on our results and 2024 guidance. I'll wrap up with some closing remarks before moving on to Q&A. In the quarter, we achieved 12% revenue growth versus the prior year. This performance was driven by the cardiopulmonary and neuromodulation businesses, with particular strength in the Europe and U.S. regions.

Alex: In the quarter, we achieved 12% revenue growth versus the prior year.

This performance was driven by the cardiopulmonary and Neuromodulation businesses with particular strength in the Europe and U S regions.

William A. Kozy: On a full-year basis, we achieved 13% revenue growth versus the prior year, marked by double-digit growth across all regions. Notably, we delivered on our commitment to modest leverage, achieving 17% growth in both adjusted operating income and adjusted diluted earnings per share. Now, turning to segment results.

Alex: On a full year basis, we achieved 13% revenue growth versus the prior year marked by double digit growth across all regions.

Alex: Notably we delivered on our commitment to modest leverage achieving 17% growth in both adjusted operating income and adjusted diluted earnings per share.

Alex: Now turning to segment results for.

William A. Kozy: For the cardiopulmonary segment, revenue was $162 million in the quarter, an increase of 17% versus the fourth quarter of 2022. Heart Lung Machine revenue increased more than 40 percent, primarily driven by Essence sales in the Europe and U.S. regions. We were pleased to see a meaningful sequential ramp in essence sales during the quarter, with strong placements and pricing execution. Oxygenator revenue grew in the mid-single digits, driven by customer demand and price. As previously noted, the oxygenator business faces capacity constraints, and the team made significant efforts in the quarter to mitigate the disruption from the cybersecurity incident, including working additional shifts on weekends and holidays.

Alex: For the cardio pulmonary segment revenue was $162 million in the quarter, an increase of 17% versus the fourth quarter of 2022.

Alex: Heart lung machine revenue increased more than 40%, primarily driven by asset sales in the Europe and U S. Regions. We were pleased to see a meaningful sequential ramp in essence sales during the quarter.

Alex: With strong placements and.

Alex: And pricing execution.

Alex: Oxygenated revenue grew in the mid single digits, driven by customer demand and price.

Alex: As previously noted the oxygenated business faces capacity constraints and the team made significant efforts in the quarter to mitigate the disruption from the cyber security incident, including working additional shifts on weekends and holidays.

Alex: Cardiopulmonary revenue for the full year was $589 million and grew 18%.

William A. Kozy: Cardiopulmonary revenue for the full year was $589 million and grew 18%. We expect cardiopulmonary revenue to grow six to seven percent for the full year 2024. Our forecast incorporates strong HLM growth, which will be offset by slower growth in disposables due to the current capacity constraints. However, our recent efforts to expand oxygenator capacity are now expected to provide some benefit in the second half of the year. Epilepsy revenue increased 8% versus the fourth quarter of 2022. U.S. epilepsy revenue increased 8% year over year with growth in both new and replacement implants.

Alex: We expect cardio pulmonary revenue to grow 6% to 7% for full year 2024, our forecast incorporates strong <unk> growth, which will be offset by slower growth in disposables due to the current capacity constraints.

Alex: Our recent efforts to expand oxygenated capacity are now expected to provide some benefit in the second half of the year.

Alex: Yeah.

Alex: Epilepsy revenue increased 8% versus the fourth quarter of 2022.

Alex: The U S epilepsy revenue increased 8% year over year with growth in both new and replacement implants.

William A. Kozy: We achieved 856 new patient implants in the quarter, representing 6% growth versus the prior year. Additionally, we realized 1,982 replacement implants, representing 10% growth versus the prior year, an unusually high growth rate. Epilepsy revenue in Europe and the rest of the world grew 7% versus the prior year. For the full year, revenue increased 10%. Notably, US epilepsy achieved 3,300 new patient implants in the full year, representing 7% growth versus the prior year. Replacement implants reached 7,608 for the full year, also a 7% increase, which was higher than expected.

Alex: We achieved 856, new patient implants in the quarter, representing 6% growth versus the prior year.

Alex: We realized 1982 replacement implants, representing 10% growth versus the prior year and unusually high growth rate.

Alex: Epilepsy revenue in Europe, and the rest of the world grew 7% versus prior year.

Alex: For the full year epilepsy revenue increased 10%, notably U S. Epilepsy achieved 3300, new patient implants in the full year, representing 7% growth versus the prior year rips.

Alex: The replacement implants reached seven.

Alex: 608 for the full year also a 7% increase which was higher than expected.

William A. Kozy: For the full year 2024, we expect global epilepsy revenue to grow 6 to 7 percent. Our forecast incorporates continued mid-single-digit growth for U.S. new patients and more normalized low single-digit growth in replacement. ACS revenue was $10 million in the quarter, an increase of 5% versus the fourth quarter of 2022. ACS revenue for the full year was $40 million and grew 3%.

Alex: For the full year 2024, we expect global <unk> epilepsy revenue to grow 6% to 7%.

Our forecast incorporates our continued mid single digit growth for U S new patients.

Alex: And more normalized low single digit growth and replacement.

Alex: ACS revenue was $10 million in the quarter, an increase of 5% versus the fourth quarter of 2022.

Alex: ACS revenue for the full year was $40 million and grew 3%.

Alex: As previously noted the wind down of the ACS segment is anticipated to be substantially complete by the end of 2020 for Alex will comment on the financial impact of the Acs wind down later in the call.

William A. Kozy: As previously noted, the wind-down of the ACS segment is anticipated to be substantially complete by the end of 2024. Alex will comment on the financial impact of the ACS wind-down later in the call. DTD revenue for the fourth quarter was $2 million, and for the full year was $7 million.

<unk> revenue for the fourth quarter was $2 million and for the full year was $7 million for 2024, we anticipate DTD revenue of approximately $7 million primarily from the recover study.

William A. Kozy: For 2024, we anticipate DTD revenue of approximately $7 million, primarily from the recovery study. As a reminder, enrollment for the unipolar cohort of the study has been completed.

Alex: The recover study does.

Alex: Does continue as a reminder, enrollment for the unit polar cohort of this study has been completed we anticipate the receipt of the 12 month follow up data for the 500 unit polar patients in June of 2024, after which we will conduct a final analysis.

William A. Kozy: We anticipate the receipt of the 12-month follow-up data for the 500 unipolar patients in June of 2024, after which we will conduct a final analysis. We continue to expect the publication of this study results by late 2024. The bipolar cohort continues to enroll as expected.

Alex: We can continue to expect the publication of the study results by late 2024.

Alex: Bipolar cohort continues to enroll as expected.

Alex: Moving to OSA. The Osprey trial continues to progress with all 25 study sites recruiting patients and.

William A. Kozy: Moving to OSA, the Osprey trial continues to progress, with all 25 study sites recruiting patients. In heart failure, the closeout of the Anthem clinical study is substantially complete. Overall R&D spend related to heart failure in 2023 was $25 million, the majority of which occurred in the first half of the year. With that, I'll turn the call over to Alex. Thanks, Bill. During my portion of the call, I'll share a brief recap of the fourth quarter results. I'll offer additional details on the one-time charges in connection with the cyber security incident and the winding down of the ACS business. I'll also provide commentary on the 2024 guide. Turning to results, revenue in the quarter was $310 million, an increase of 12% versus 2022; foreign exchange in the quarter had a favorable year-over-year impact of approximately three million dollars, or one percent of revenue. Adjusted gross margin as a percent of net revenue was 68% compared to 69% in the fourth quarter of 2022. The cybersecurity incident impacted adjusted gross margin by approximately 100 basis points due to unfavorable labor costs and fixed overhead absorption.

Alex: In heart failure, the closeout of the anthem clinical study is substantially complete.

Alex: Overall R&D spend related to heart failure in 2023 was $25 million the majority of which occurred in the first half of the year with that I'll turn the call over to Alex.

Alex: Hey, Thanks, Bill during my portion of the call I'll share a brief recap of the fourth quarter results I'll offer additional details on the onetime charges in connection with the cyber security incident, and the wind down of the ACS business I will also provide commentary on the 2020 for guidance.

Alex: Turning to results revenue in the quarter was $310 million, an increase of 12% versus 2022.

Alex: Foreign exchange in the quarter had a favorable year over year impact of approximately $3 million or 1% of revenue.

Alex: Adjusted gross margin as a percent of net revenue was 68% compared to 69% in the fourth quarter of 2022 <unk>.

The cyber security incident impacted adjusted gross margin by approximately 100 basis points due to unfavorable labor costs and fixed overhead absorption.

Alex Schwarzberg: This was partially offset by higher volume and favorable product quality. Adjusted R&D expense in the fourth quarter was $42 million compared to $43 million in the fourth quarter of 2022. R&D as a percent of net revenue was 14%, down from 16% in the fourth quarter of 2022. The year-over-year decrease was largely driven by lower costs associated with the closeout of the Anthem trial.

Alex: This was partially offset by higher volume and favorable product mix.

Alex: Adjusted R&D expense in the fourth quarter was $42 million compared.

Alex: Compared to $43 million in the fourth quarter of 2022.

Alex: R&D as a percent of net revenue was 14% down from 16% in the fourth quarter of 2022.

Alex: The year over year decrease was largely driven by lower costs associated with the closeout of the anthem trial.

Alex: Excluding the costs related to anthem, our R&D investment.

Alex Schwarzberg: Excluding the costs related to Anthem, our R&D investment increased 9% versus prior years. Adjusted SG&A expense for the fourth quarter was $120 million compared to $100 million in the fourth quarter of 2022. The year-over-year increase was driven by targeted investments supporting the essence launch, legal expenses, and variable costs such as freight and commissions associated with increased revenue. Additionally, our short-term incentive plan accrual increased, resulting from business overperformance. SG&A as a percent of net revenue was 39% as compared to 36% in the fourth quarter of 2022. Adjusted operating income was $48 million compared to $47 million in the fourth quarter of last year.

Alex: <unk>, 9% versus prior year.

Alex: Adjusted SG&A expense for the fourth quarter was $120 million compared to $100 million in the fourth quarter of 2022.

Alex: The year over year increase was driven by targeted investments supporting the essence launch legal expenses and variable costs, such as freight and commissions associated with increased revenues.

Alex: Additionally, our short term incentive plan accrual increase resulting from the business over performance.

Alex: SG&A as a percent of net revenue was 39% as compared to 36% in the fourth quarter of 2022.

Alex: Adjusted operating income was $48 million compared.

Alex: Compared to a $47 million in the fourth quarter of last year adjust.

Alex Schwarzberg: Adjusted Operating Income Margin was 16%, compared to 17% in the fourth quarter of 2022. The cybersecurity incident negatively impacted Adjusted Operating Income Margin by approximately 100 basis points due to disruption to our cardiopulmonary manufacturing system. Adjusted effective tax rate in the quarter was negative three percent and in line with the fourth quarter of 2022. The tax rate was impacted by the release of a valuation allowance.

Alex: Adjusted operating income margin was 16% compared to 17% in the fourth quarter of 2022.

The cyber security incident negatively impacted adjusted operating income margin by approximately 100 basis points due to the disruption to our cardiopulmonary manufacturing sites.

Alex: Adjusted effective tax rate in the quarter was negative 3% and in line with the fourth quarter of 2022.

Alex: The tax rate was impacted by the release of evaluation allowance.

Alex: Adjusted diluted earnings per share was <unk> 87.

Alex Schwarzberg: Adjusted diluted earnings per share was $0.87 compared to $0.81 in the fourth quarter of 2022. Our cash balance as of December 31st was $267 million, up from $214 million at year-end 2022. Total debt at year-end 2023 was $587 million, up from $542 million at year-end 2022. The increase in total debt was driven by the delayed draw of $50 million on the Term Loan A facility that we put in place in July 2022. Net debt, including restricted cash at year-end, was $48 million.

Alex: Compared to 81 in the fourth quarter of 2022.

Alex: Our cash balance at December 31.

Alex: Was $267 million up from $214 million at year end 2020.

Alex: Total debt at year end 2023 was $587 million up from $542 million at year end 2022.

Alex: The increase in total debt was driven by the delayed draw of $50 million on the term loan a facility that we put in place in July 2022.

Alex: Net debt, including restricted cash at year end was $48 million.

Alex Schwarzberg: Adjusted free cash flow for the quarter was $60 million, up from $31 million in the prior year period. The year-over-year increase was driven mostly by higher income and improvements in working capital. Capital spend was $35 million in 2023 compared to $27 million in the prior year. The increase was driven by IT systems and cardiopulmonary manufacturing infrastructure investments. In connection with the cybersecurity incident, the company incurred costs of approximately $2.6 million in the fourth quarter, which are excluded from our adjusted operational results. These costs primarily included external cybersecurity experts, legal counsel, and system restoration costs.

Alex: Adjusted free cash flow for the quarter was $60 million up from $31 million in the prior year period the.

Alex: The year over year increase was driven mostly by higher income and improvements in working capital.

Alex: Capital spend was $35 million in 2023 compared to $27 million in the prior year.

Alex: The increase was driven by IP systems, and cardiopulmonary manufacturing infrastructure investments.

Alex: In connection with the cyber security incident, the company incurred costs of approximately $2 6 million in the fourth quarter, which are excluded from our adjusted operational results. These cost primarily included external cyber security experts legal counsel and system restoration costs.

Alex Schwarzberg: We continue to monitor developments in the ongoing investigation and may incur additional costs related to this incident. With respect to the wind-down of the ACS business and transition of certain products into cardiopulmonary, we recorded a pre-tax non-cash impairment charge of $103 million during the fourth quarter, which is excluded from our adjusted operational results. We expect to incur additional restructuring charges in the range of approximately $15 to $20 million, the majority of which will be recognized and paid in 2024. Also, effective in the first quarter of 2024, we are reorganizing our operating and reporting structure from three to two segments, cardiopulmonary and neuromodulation. The ACF stand-alone cannula and accessories will be included within the cardiopulmonary reportable segment.

Alex: We continue to monitor developments of the ongoing investigation and may incur additional costs.

Alex: Latest to this incident.

Alex: With respect to the wind down of the Acs business and transition of certain products into cardiopulmonary.

Alex: We recorded a pretax noncash impairment charge of $103 million during the fourth quarter.

Alex: Which is excluded from our adjusted operational results.

Alex: We expect to incur additional restructuring charges in the range of approximately $15 million to $20 million, the majority of which will be recognized and paid in 2024.

Alex: Also effective in the first quarter of 2024, we are reorganizing our operating and reporting structure from three to two segments cardiopulmonary and Neuromodulation the.

Alex: The Acs Standalone cannula and accessories will be included within the cardiopulmonary reportable segment.

Alex Schwarzberg: The remaining ATS business will be included within Other. Now turning to 2024 guidance, we forecast 2024 revenue growth on a constant currency basis between 4% and 5% and between 6% and 7% when excluding the portion of the ACS business that we will be active. Foreign currency is expected to be negligible based on the current exchange rate.

Alex: The remaining Acs business will be included within other.

Alex: Now turning to 2020 for guidance.

Alex: We forecast 2020 for revenue growth on a constant currency basis between 4% and 5% and between 6% and 7% when excluding the portion of the Acs business that we will be exiting.

Alex: Foreign currency is expected to be negligible based on current exchange rates.

Alex: We expect the wind down of the ACS business to result in a positive contribution to adjusted operating income in 2024 as compared to 2023 with an impact of approximately <unk> 10 in EPS.

Alex Schwarzberg: We expect the winding down of the ATS business to result in a positive contribution to adjusted operating income in 2024 as compared to 2023, with an impact of approximately 10 cents in EPS, because with the close out of the Anthem Clinical Study substantially complete. We expect the reduction in R&D spend related to the heart failure program to result in a positive contribution to adjusted operating income in 2024 as compared to 2023, with an impact of approximately 35 cents in APS. The global tax landscape continues to evolve and will impact our adjusted effective tax rate in 2024. We anticipate a full-year adjusted effective tax rate of approximately 21%. Applying this rate to 2023 earnings results in an unfavorable impact of approximately 45 cents in EPS. We are projecting adjusted diluted earnings per share in the range of $2.95 and $3.05, with adjusted diluted weighted average shares outstanding to be approximately 55 million for the full year.

Alex: With the closeout of the anthem clinical study substantially complete.

Alex: We expect a reduction in R&D spend related to the heart failure program to result in a positive contribution to adjusted operating income in 2024 as compared to 2023 with an impact of approximately 35 in EPS.

Alex: The global tax landscape continues to evolve and will impact our adjusted effective tax rate in 2024.

Alex: We anticipate a full year adjusted effective tax rate of approximately 21%.

Alex: Applying this rate to 2023 earnings resulted in an unfavorable impact of approximately <unk> 45 in EPS.

We are projecting adjusted diluted earnings per share in the range of $2 95 and $3 five.

Alex: With adjusted diluted weighted average shares outstanding to be approximately $55 million for the full year.

Alex: Despite the unfavorable impact caused by the step up in our adjusted effective tax rate. This EPS range represents growth of 7% at midpoint.

Alex Schwarzberg: Despite the unfavorable impact caused by the step-up in our adjusted effective tax rate, the CPS range represents growth of 7% at midpoint. We recognize that there are a number of moving parts in our 2024 EPS guidance. To be clear, the step-up in our effective tax rate will have an unfavorable impact on our EPS results.

Alex: We recognize that there are a number of moving parts in our 2024 EPS guidance to be clear the step up in our effective tax rate will have an unfavorable impact on our EPS results. However, our portfolio optimization actions, including the wind down of the Acs segment and the heart failure program.

Alex Schwarzberg: However, our portfolio optimization actions, including the wind-down of the ACS segment and the heart failure program, enable us to manage this impact. Adjusted free cash flow is expected to be in the range of 95 to 115 million dollars, an increase of approximately 9% at midpoint versus the prior year. This range includes a meaningful step-up in capital spending, which we forecast to be approximately $60 million. This increase is driven by critical investments to support innovation, growth, and infrastructure. In addition, our cash flow projections include the cost associated with the ACS wind-out. In summary...

Alex: Enable us to manage this impact.

Alex: Adjusted free cash flow is expected to be in the range of $95 million to $115 million.

Alex: An increase of approximately 9% at midpoint versus the prior year.

Alex: This range includes a meaningful step up in capital spending, which we forecast to be approximately $60 million.

Alex: This increase is driven by critical investments to support innovation growth and infrastructure.

Alex: In addition, our cash flow projections include the costs associated with the Acs wind down.

Speaker Change: In summary I'm.

Alex Schwarzberg: I'm encouraged by the company's execution and financial performance in 2023, which included double-digit revenue growth along with a 50-basis point of operating margin improvement. This 2023 performance was achieved while investing in critical capabilities for the company, including manufacturing infrastructure and IT modernization, as well as managing the impact of our business operations as a result of cyber security. These actions position us well for 2024. Our guidance implies adjusted operating income growth of approximately 25%, an improvement of 300 basis points in Adjusted Operating Income Margin. Excluding both heart failure and ATS benefits, adjusted operating income growth would have been 10%.

Speaker Change: Im encouraged by the company's execution and financial performance in 2023, which included double digit revenue growth along with a 50 basis points of operating margin improvement.

Speaker Change: This 2023 performance was achieved while investing in critical capabilities for the company.

Speaker Change: Including manufacturing infrastructure and it modernization as well as managing the impact of our business operation.

Speaker Change: As a result of the cyber security incident.

Speaker Change: These actions position us well for 2024.

Speaker Change: Our guidance implies adjusted operating income growth of approximately 25%.

Speaker Change: An improvement of 300 basis points and.

Speaker Change: And adjusted operating income margin.

Speaker Change: Excluding both heart failure in Acs benefits adjusted operating income growth would have been 10%.

William A. Kozy: This builds upon our consistent three-year trend of operating leverage improvement with 14% operating margin in 2022, 15% in 2023, and a commitment to achieving greater than 17% in 2024. And with that, I'll turn the call back over to Bill. Thank you, Alex.

This builds upon our consistent three year trend of operating leverage improvement with 14% operating margin in 2020% to 15% in 2023, and a commitment to achieving greater than 17% in 2024.

Speaker Change: With that I'll turn the call back over to Bill.

Speaker Change: Thank you Alex.

William A. Kozy: In 2023, we exceeded four-year guidance on the top and bottom lines and did generate operating leverage. We realized these results while maintaining full investment in our pipeline initiatives, investing in critical capabilities for the company, as mentioned, and taking actions related to portfolio optimization. I certainly want to take the chance to thank our entire organization for their hard work and dedication demonstrated in 2023. Under interim leadership, the organization embraced some change and saw performance opportunities as reflected in these results, and that has been very much appreciated. Looking ahead, our core businesses are focused on targeted innovation, sustained growth, and value creation. Additionally, our SPIs are fully funded, with data milestones approaching. With Vlad as CEO, I have great confidence in his leadership and that LivaNova will maintain momentum, achieving our commitments to serving patients while creating shareholder value. With that, I'm away.

William A. Kozy: <unk> 2023, we exceeded full year guidance on the top and Bottomline and did generate operating leverage we realized these results while maintaining full investment in our pipeline initiatives investing in critical capabilities for their company as mentioned and taking actions related to portfolio optimization.

William A. Kozy: Certainly want to take the chance to thank our entire organization for their hard work and dedication demonstrated in 2023 under interim leadership the organization embraced some change in <unk> performance opportunity is reflected in these results and that has been very much appreciate it.

William A. Kozy: Looking ahead, our core businesses are focused on targeted innovation sustained growth and value creation. Additionally, our spi is are fully funded.

William A. Kozy: With data milestones approaching with flat as CEO I have great confidence in his leadership and that <unk> will maintain momentum achieving our commitments to serving patients while creating shareholder value.

Speaker Change: With that Emily.

Operator: We're now ready to open the call for questions. Thank you. If you have a question at this time, please press the start button, then the number one key on your touchtone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press start followed by two.

Emily: We're now ready to open the call for questions.

Emily: Thank you.

Speaker Change: Do you have a question at this time. Please press the Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press star followed by Kay.

Operator: As we enter the Q&A session, please limit yourself to one question and one follow-up question and then return to the queue if you have additional follow-up. Our first question today comes from Rick Wise of Stafel. Please go ahead. All right, good morning, everybody.

Speaker Change: As we enter the Q&A session. Please limit yourself to one question and one follow up question and then return the kit if you have additional follow up.

Speaker Change: Our first question today comes from Rick Wise with Stifel. Please go ahead.

Alright, good morning, everybody.

Rick Wise: Hi, Bill and welcome.

Operator: Hi, Bill, and welcome, Vlad. Maybe it's hard to resist starting off since this is the first time I'm having the pleasure of speaking to you. Maybe you could talk us through at a high level your priorities as you step into the role, as broadly or deeply as you'd like in terms of operational goals or innovation, the strategic pipeline. Who are you? And what should we expect from your leadership? Thank you so much. Hey Rick, it's Matt.

Rick Wise: Flat.

Rick Wise: Maybe.

Rick Wise: These partners, it's starting off the first time I'm, having the pleasure speaking to you.

William A. Kozy: Maybe you could talk us through at a high level.

William A. Kozy: Your priorities as you step into the role.

William A. Kozy: Okay.

Speaker Change: As broadly or deeply as you'd like on in terms of operational goals or innovation.

Speaker Change: Strategic pipeline.

Speaker Change: Who are you.

Speaker Change: And what should we expect.

Speaker Change: From your leadership.

Speaker Change: Thank you so much.

Matthew J. Dodds: What I gave you in the initial intro is that Vlad was not on there. He starts March 1, so he's not on the call, but Bill could comment on, you know, it's okay, but Bill could comment briefly on, you know, initially some thoughts on Vlad. Sure, let me jump in and say that we talked to you over several months about the spec that the board had and the standard that they had created for this hire. As I mentioned a little bit, we've got somebody, Vlad, coming in to lead the company with 27 years of experience, including significant time living and working around the world internationally, a career that moved him from Moscow to Singapore to London to New York in a major healthcare company. He not only checked all the boxes on the specifications.

Speaker Change: Hey, Rick it's Matt what I gave you initial insurers.

Matt: Glad was not on there he starts March one so he is not on the call, but bill Cook.

Matt: But bill can comment briefly.

Bill: Initially some thoughts on glad.

Bill: Sure, let me jump in and.

Bill: We talked to you over several months about the spec that the board had and the standard that they had created for this for this higher as I mentioned, a little bit we've got somebody.

Bill: Flat coming in to lead the company with 27 years of experience, including significant time living and working around the world internationally, a career that move Moscow to Singapore to London to New York, and a major healthcare company and not only checked all the boxes on the spec.

Bill: He has been accountable for a multibillion dollar global business with more than 15000 employees overseeing all commercial R&D operational and supply chain activities.

William A. Kozy: He's been accountable for a multi-billion dollar global business with more than 15,000 employees, overseeing all commercial R&D, operational, and supply chain activities. His proven interest in vision, strategy, innovation, talent, market access, and execution closely aligned with the requirements that we had set in place for the role. As you know, Rick, we took a lot of questions about the timing of the hire. We just wanted to emphasize that we intentionally, you know, tried to stick to our specifications. And speaking on behalf of the board, I know that the entire board is extremely pleased with Vlad's decision to join LivaNova. That's great. That's great to review. And, Bill, I should have started with congratulations on all you've done and taken LivaNova to this point. It's really impressive.

Bill: <unk> proven interest envision strategy innovation talent market access.

Bill: And execution closely aligned with the requirements that we had set in place for for the role.

Bill: As you know Rick.

Bill: We took a lot of questions about the timing of the higher.

Bill: Just wanted to emphasize that we intentionally.

Tried to stick to our specification.

Speaker Change: And speaking on behalf of the board.

Speaker Change: I know that the entire board is extremely pleased with the with flat decision to join Libra Noma.

Speaker Change: That's great that's great to reviewing and Bill I should have started with the congratulations on all you've done and taking leaving no but to this point.

Speaker Change: It's really impressive.

Operator: Just as a follow-up question, maybe you could take us through the current competitive situation on the oxygenator side. And again, help us think through your capacity expansion. Where are you; where can it be?

Speaker Change: As a follow up question.

Speaker Change: Maybe take us through the current competitive situation on the oxygenate side.

Speaker Change: And and again help us think through your <unk>.

Speaker Change: Your capacity expansion, where are you where can it be I think you said I heard correctly.

William A. Kozy: I think you said, if I heard correctly, we're going to see expansion in the second half. But do you have any sense that competitors are coming back? Just level the playing field for us on that whole business. Thank you so much.

Speaker Change: The expansion in the second half.

Speaker Change: But do you have any sense that competitor.

Speaker Change: Competitive as they are coming back just level set us in that whole business. Thank you. So much yes. Thanks, Rick ads. That's a good question and one that's front and center here.

William A. Kozy: Yeah, yeah. Thanks, Rick. That's a good question and one that's front and center here.

William A. Kozy: First of all, at this point in time, nothing has really changed on the competitive side. We still have, as we've mentioned to you before, one smaller competitor whose position continues to dissipate. We have a major competitor who has not yet returned to the market. We don't have a time frame on that. All of our best efforts in the field to determine that remain just as uncertain.

Speaker Change: First of all.

Speaker Change: At this point in time, nothing has really changed on the competitive side, we still as we've mentioned to you before we had one smaller competitor whose position that continues to dissipate we have a major competitor who has not yet.

Speaker Change: <unk> returned to the market, we don't have a timeframe on that all of our best efforts in the field to determine that remain just still uncertain.

Speaker Change: From a capacity thing we told you we were going to work and we've identified several process improvements within our manufacturing operations to increase capacity and were right now taking actions to implement those.

William A. Kozy: On the capacity thing, we told you we were going to work, and we've identified several process improvements within the manufacturing operations to increase capacity, and we're right now taking actions to implement those. We're not ready yet to predict the level of improvement that we'll get, but we are confident that in the second half of the year, these benefits will start to have some positive impact on our ability to supply. Great, thank you. Hey, thanks, Rick. The next question comes from Anthony Petrone with Mizuho. Please go ahead.

Speaker Change: We're not ready yet to kind of predict the level of improvement that will get but we are confident that in the second half of the year. These benefits will start to have some positive impact to upscale our ability to supply.

Great. Thank you.

Speaker Change: Okay. Thanks, Rick.

Speaker Change: The next question comes from Anthony <unk> with Mizuho. Please go ahead.

Operator: Thanks and congratulations Bill on the role as interim and Vlad coming in here shortly as of March 1st. Maybe just a follow-up on, you're welcome, the first question would be a follow-up on oxygenators just as we look over the next few years. And again, wondering how much share actually the company has gained and how sticky that can be, you know, if and when competitors do come back, and then I'll have a couple of follow-ups on guidance. Sure, there's no external data, and of course, when you get into, particularly, growth markets around the world, it becomes very, very difficult.

Anthony: Thanks, and congratulations bill on on the role as interim and and <unk>.

Anthony: Glad coming in here shortly as of March 1st.

Anthony: Maybe thank you follow up on <unk>.

Anthony: First question would be a follow up on.

Anthony: An oxygenate or just as we look over the next few years.

Anthony: And again I'm wondering how much share actually has the company gained in and how sticky cannot be.

Anthony: If and when competitors do come back and then I'll have a couple of follow ups on guidance.

Anthony: Sure.

There is no external data and of course, when you get into particularly the growth markets around the world. It becomes very very difficult, but if you kind of tried to benchmark us Anthony it at 30%, maybe about 15 to 18 months ago.

William A. Kozy: But if you kind of tried to benchmark us, Anthony, at 30%, maybe about 15 to 18 months ago, our best guess, and let me underline the words best guess, is we might be sitting right now in the mid-30s somewhere. We know that about half of our high volume businesses are tender based. And so we know that we've got a good, steady position there. Our challenge will, of course, be to sustain our current revenue position in the non-tender oxygenator business.

Anthony: Our best guess and let me underline the words best guests as we might be sitting right now in the mid <unk>.

Somewhere we know that about half of our high volume businesses is tender based and so we know that we've got a good steady position. There are challenge will of course be to sustain our.

Anthony: Current revenue position.

Anthony: Non tender oxygenate, our business and our sales forces is highly aware of that and it's got significant focus on that youll get nothing but a best effort to sustain that business and we are particularly well organized in those growth markets I talked about before to do that.

William A. Kozy: And our sales force is highly aware of that and has got a significant focus on it. You'll get nothing but our best effort to sustain that business. And we are particularly well-organized in those growth markets I talked about before to do that. That's helpful. Maybe Alex, just a little bit on guidance. When we look at the earnings bridge for 2024, you have additional tax inflation in there, but you are seeing some benefits still residual from hard failure. And then ACS, I think you called 10 cents out for ACS. Just maybe to look at that relative to where that business has been running, you know, from a cost standpoint. Is that the early benefit?

Speaker Change: That's helpful. Maybe Alex just a little bit on guidance when we look at the earnings bridge for 2024.

Speaker Change: Have additional <unk>.

Speaker Change: Tax of inflation in there, but you are seeing some benefits still.

Digital from heart failure, and then ACS I think you'd called 10 cents outbreaks, yes, just maybe to look at that relative to where that business has been running.

Speaker Change: From a cost standpoint is that the early benefits.

Alex Schwarzberg: And should we expect, you know, sort of a bigger step up once that's fully annualized? Again, because the timing here is suggesting that the operations won't be fully wound down until the end of the year. So just a little bit on the Earnings Bridge and the moving pieces. Thank you. That's right, Anthony. So the ACS wind down is this is what I'll call it a transition year. In 2023, the business incurred approximately $14 million in losses.

Speaker Change: And should we expect.

Speaker Change: Sort of a bigger step up once that's fully annualized.

Speaker Change: Again, because the timing here is suggesting that the operations wont be fully wound down until the end of the year. So just a little bit on the earnings bridge and the piece the moving pieces. Thank you.

Speaker Change: That's right Anthony so the ACS wind down is this is I'll call it a transition year.

In 2023, the business incurred 14, approximately $14 million of losses.

Alex Schwarzberg: So, we're essentially a... As part of the wind-out, we expect to see significant improvements in that year-over-year, and then next year realize the full benefit. That's helpful. And then just this one quick one, I'll get back into just the phasing of that. You know, is it, is it?

Speaker Change: So we're essentially.

Anthony: As part of the wind out we expect to see significant improvements in that year over year.

Anthony: And then next year realize the full benefit of that.

Anthony: That's helpful. And then just one quick one and I'll get back in queue, just the phasing of that.

Speaker Change: Is it is it.

Alex Schwarzberg: Is it gradual, or are there certain, you know, sort of features of that wind down that can happen sooner, or should we just be thinking this is all back-end loaded, just in terms of phasing it out through calendar 2024? Thanks. It's going to be, it's going to be, it's not fully back-end loaded, but it's going to happen in the last three quarters of the year. Thanks, short

Speaker Change: Is it gradual or or are there certain.

Speaker Change: Features of that wind down that can happen sooner or.

Speaker Change: Should we just be thinking this as all backend loaded just in terms of phasing it out through calendar 2024. Thanks again.

Speaker Change: It's going to be it's going to be it's not fully backend loaded but it is going to happen in the last three.

Speaker Change: Three quarters of the year.

Speaker Change: Thanks again.

Speaker Change: Sure.

Speaker Change: Our next question comes from Michael <unk> with Wolfe. Please.

Operator: Our next question comes from Michael Polark with Wolfe. Please go ahead. Hey, good morning question on the cardiopulmonary guidance for 2024 6 to 7% growth. Can you confirm, Alex, that that's apples, apples, it has no benefit from the cannula and accessories from ACS?

Michael: Please go ahead.

Hey, Good morning question on the cardiopulmonary guidance for 2024, 6% to 7% growth.

Michael: Can you confirm Alex does that.

Michael: That's apples to apples that has no benefit from the cannula and accessories from Acs.

Operator: That's correct Mike. The cannula business. We will recast all the results at the end of Q1. So we'll have apples to apples comparisons. This guide is assuming an apples to apples comparison.

Speaker Change: That's correct Mike.

Speaker Change: <unk> business, we will recast all the results at the end of Q1, So we'll have apples to apples comparisons. This guide is assuming.

Speaker Change: And apples to apples comparison the growth profile of.

Alex Schwarzberg: The growth profile of that line of products is roughly the same as the broader cardiopulmonary portfolio. So from a growth perspective, it's apples to apples. And ACS sold 40 million units last year.

Speaker Change: That line of products is roughly the same as the broader cardiopulmonary portfolio. So from a from a <unk>.

Speaker Change: Growth perspective, it's apples to apples.

Speaker Change: ECS is $40 million last year, if I look at how you guided this year it kind of implies $20 million of Acs is.

Alex Schwarzberg: If I look at how you guided this year, it kind of implies 20 million of ACS is being exited the 2%, give or take. Does that mean this annual and accessories in total on a full year basis last year were about 20 million? It's, uh, I'll give you the exact number. It's $15 million.

Speaker Change: Being exited the 2% give or take does that mean that Daniel and accessories in total on a full year basis last year was about $20 million.

Speaker Change: It's I'll give you the exact number it's $15 million.

Speaker Change: Okay.

William A. Kozy: OK. Okay, that was my first topic. The second is just this step up in CapEx. I heard critical investments and innovation, growth, and infrastructure, those are fairly generic terms. What exactly does it mean? It sounds like oxygenator capacity, definitely. Is there anything else, and I'm thinking specifically about depression and or Sleep Readiness Investments.

Speaker Change: Okay.

Speaker Change: That was my first topic.

Speaker Change: The second is just this.

Speaker Change: The step up in Capex that heard critical investments in innovation growth infrastructure those are fairly generic terms.

Speaker Change: What exactly does that mean it sounds like.

Speaker Change: Oxygenate our capacity.

Speaker Change: Definitely is there anything else and I'm thinking specifically about the pressure in indoor sleep.

Speaker Change: Sleep readiness investments thanks for taking my questions.

Alex Schwarzberg: Thanks for taking the questions. Hey Mike, it's Bill. Let me grab that one. You hit the first one perfectly. Yes, it's Oxy Capacity and significant planning going on right now, particularly at the main facility in Mirandola to address that. Additionally, we already had some commitment to improve our IT infrastructure. The event, the cyber event, really encouraged us in a very serious way to look even more broadly at our systems.

Speaker Change: Hey, Mike It's Phil Let me, let me grab that one.

Phil: You hit the first one.

Phil: Perfectly, yes, it's oxy capacity and significant planning going on right now and particularly in the main facility in mirandola to address that Additionally.

Phil: We already had some commitment to improve our it infrastructure.

Phil: The event the cyber event I'm really encouraged us very in a very serious way, okay to look even more broadly at our systems. So you will see an uptick in our investment as a percent of sales for leaving over you'll see see us moving a couple of basis points north.

William A. Kozy: So you will see an uptick in our IT investment as a percent of sales for LivaNova. You'll see us moving a couple of basis points north of where we've always operated as we, number one, strengthen our security position and, number two, modernize a number of targeted systems, which were natural entry points for other threat actors. Those are high priorities for us.

Phil: Of where we've always operated as we number one strengthen our security position and number two modernize a number of targeted systems, which were natural entry points for other threat actors those are high priorities for us.

Operator: Yeah, I would just add to that, Mike, in that we're really focused on modernizing our ERP systems as well. We have that in kind of our long-range three-year plan. We're also accelerating those efforts into 2024. Thank you. Hey, thanks, Mike. The next question comes from Matt Taylor with Jeffreys. Please go ahead.

Speaker Change: Just add to that Mike in that.

Speaker Change: We're really focused on modernizing our ERP.

Speaker Change: ERP systems as well, we had that in kind of our long range three year plan.

Speaker Change: We're also accelerating those efforts into 2024.

Speaker Change: Thank you.

Speaker Change: Hey, Thanks, Mike.

Speaker Change: The next question comes from Matt Taylor with Jefferies. Please go ahead.

Operator: Hi, thanks for taking the question. So I just wanted to clarify your comments on the depression study. You mentioned that you'll get the results in June. Are we still going to see the results in June, or might we have to wait till July? So that's the first question. And then, I guess, just thinking about the different scenarios, can you talk about what you might do in kind of the middle of the road or less desirable scenarios? We know what you'll do if the trial is successful and, you know, build behind that. But what are you going to do if you have kind of a mixed result or a poor result?

Matthew Taylor: Alright, thanks for taking the question.

Matthew Taylor: So I just wanted to clarify on your comments on the depression. So you mentioned that you will get the results in June.

Matthew Taylor: Are we still going to see the results in June or might we have to wait till July that's the first question and then.

Matthew Taylor: I guess, just thinking about the different scenarios.

Matthew Taylor: Can you talk about what you might do in kind of middle of the road are less good scenarios, we know what youll do it.

Matthew Taylor: Trial successful and build behind that but what are you going to do if.

Matthew Taylor: You have kind of a mixed result, or a poor result could we see savings like we've seen with heart failure in Etfs.

Alex Schwarzberg: You know, can we see savings like we've seen with heart failure and ECS? Or, you know, what does the middle of the road scenario mean for spending? So yeah, so let me start, Matt.

Matthew Taylor: Or what's the middle of the road scenario mean for spending.

Matthew Taylor: So yes, so let me start Matt its Matt so for.

Alex Schwarzberg: So for the timing, as Bill said, we'll get the data in June. Our plan is to release the top-line data, but we still have to get confirmation from other critical parties, including who's publishing it, CMS, before we can confirm that. So worst case, again, as we've said, you'll see it when the publication comes out, likely at the end of the year, but the hope is we can release it in a timely manner. In terms of the way to think about the trial, there are a lot of data points, right?

Speaker Change: The timing as Bill said, we will get the data in June our plan is to release the topline data, but we still have to get confirmation from other critical parties, including this publishing CMS before we can confirm that so worst case again as we've said.

Speaker Change: You'll see it when the publication comes out likely at the end of the year, but the hope is we can release it in a timely manner.

Speaker Change: In terms of the.

Speaker Change: The way to think about the trial there is a lot of data points. So we've talked about the primary end point in time and the response there is multiple other endpoints and multiple other things we're looking at CMS cares about several other.

Alex Schwarzberg: So we talked about the primary endpoint, time and response. But there are multiple other endpoints, multiple other things we're looking at. CMS cares about several other endpoints.

Speaker Change: Endpoints.

Alex Schwarzberg: So it's really hard to say right now, you know, how we can, what we would do with the data until we see it. I don't know, Bill, if you want to comment on, you know, if the data doesn't read out in a favorable way at all, if there's a different path. Yeah, well, the only thing we'd add to that, you know, this, as everybody knows, the whole way that this was a high bar set by CMS. And the number of endpoints in a randomized clinical trial of this type again confirms the high expectations that were there.

Speaker Change: So it's really hard to say right now how how we can what we would do with the data until we see it.

Speaker Change: I don't know Bill if you want to comment on if the data doesn't readout in a favorable way at all if there's if there's a different path where the only thing we would add to that.

Bill: As everybody knows the whole way that this was a high bar set by CMS and the number of endpoints and a randomized clinical trial of this type again confirms the high expectations that were there we've already had Jonathan and his team taking the time to just take a look at scenarios.

William A. Kozy: We've already had Jonathan and his team take the time to just take a look at scenarios that might depict the data outcome. And of course, you could say, well, we're going to hit every endpoint. And by the way, that's a possible scenario, but let's wait and see. You may not hit a couple of those.

Bill: Mike depict the data outcome and of course, you could say well, we're going to hit every endpoint and by the way that's a possible scenario, but let's wait and see you may not hit a couple of those and then you are into that ambiguity situation, which I think you were starting to to get at.

William A. Kozy: And then you're into that ambiguity situation, which I think you were starting to get at. That's the work that we still have to do, but without the data and without some specific direction from CMS, it's really hard for us to say exactly what's going to happen because it's, we want to do the work once we've seen the data too. You know, we are blinded.

Bill: That's the work that we've still got to do but without the data.

Bill: And without some specific direction from CMS, it's really hard for us to say exactly what's going to happen because it's.

We want to do the work once we've seen the data to this we are blinded. We've told we've told everybody a number of times that this is the part where it gets a little more frustrating to wait, but we're getting closer we're getting there.

Operator: We've told everybody a number of times that this is the part where it gets a little more frustrating to wait, but we're getting closer. We're getting there. Thanks for the talk, guys. The next question comes from Adam Mader with Piper Sandler. Please go ahead. Hi guys, congrats on the end of the year and thanks for taking the questions. I wanted to pick up on that same topic, depression and SPIs, and maybe I'll ask it a little bit differently, but just trying to understand, you know, what is the level of SPI spend.

Speaker Change: Great. Thanks for the thoughts guys.

Speaker Change: The next question comes from Adam <unk> with Piper Sandler. Please go ahead.

Adam: Hey, guys. Congrats on the finish to the year and thank you for taking the questions I wanted to pick up on that same topic.

Adam: Shannon and Spi and maybe I'll ask it a little bit differently, but just trying to understand what is the level of Spi spend.

Speaker Change: For depression in OSA, that's baked into the guidance for 2024.

Speaker Change: Specifically wondering if the guidance accounts for some of the preparatory.

Alex Schwarzberg: for depression and OSA that's baked into the guidance for 2024 and you know, specifically wondering if the guidance accounts for some of the preparatory costs to push forward, assuming a positive trial and depression and then add a follow-up or two. Thank you. Hey Adam, it's Alex.

Speaker Change: Costs.

Speaker Change: Bush forward.

Speaker Change: Assuming a positive trial in depression, and then I had a follow up thanks.

Speaker Change: Hey, Adam it's out so we spent roughly $32 million in 2023.

Speaker Change: We are anticipating a modest increase on that spend in 2024 does the level of spend really depends on just how compelling the data is in.

Alex Schwarzberg: So we spent roughly $32 million in 2023. We are anticipating a modest increase on that spend in 2024. The level of spend really depends on just how compelling the data is, and once we know as to how the trial is trending and the results, in June, we will make a definitive decision around the level of investment and OSA. And as far as OSA goes, we spent roughly $27 million in 2023. We expect a modest step up in investment in that program as well as we continue to enroll and follow patients through the end of the trial. That's a great color.

Adam: Once we know.

Adam: How we how the trial is trending in the results.

Adam: In June we will make a definitive decision around the level of investment in the market that there was an interest there as a sub question. There about is there anything in there.

Adam: Theres, a small amount of market development spend incorporated into the guide.

Adam: In OSA, we're saying, yes, and as far as OSA goes we spent roughly $27 million in 2023, we expect a modest step up in investment in that program as well as we continue to enroll.

Adam: And followed patients patients through the end of the trial.

Speaker Change: That's great color. Thank you for the clarification there.

Operator: Thank you for the clarification there. And for my second question, I wanted to flip over to CP and the outlook for 24, the 6 to 7% growth. You know, I heard some of the prepared remarks, but I was hoping you could put a little bit of a finer point on what's assumed in that guidance for HLM growth versus Oxys. What are you assuming about the oxygenator competitor issues?

Speaker Change: And for my second question wanted to flip over to CP.

Speaker Change: And the outlook for 2000 for the 6% to 7% growth.

Speaker Change: I heard some of the prepared remarks, but was hoping you could put a little bit of a finer point on what's assumed in that guidance for HL on growth versus oxy is what are you assuming for the oxygen either competitor issues.

Alex Schwarzberg: And then just one clarification on a cybersecurity incident in Q4 of last year: what was the revenue impact, and was it reasonable to assume that was more on the CP side of the business? Thanks for taking the question. All right, let's take this one at a time.

Speaker Change: And then just one clarification on cyber security.

Speaker Change: Incident in Q4 of last year, what was the revenue impact and reasonable to assume that was more on the CPE side of the business. Thanks for taking the questions.

Speaker Change: Alright, let's let's take this one at a time so as far as the guide goes.

Alex Schwarzberg: So as far as the guide goes, we expect double-digit growth in the heart-lung segment. The guide also assumes, as Bill mentioned in the second half, a modest sort of low to mid-single-digit growth rate for the consumer. That's helpful, Alex. Yeah, go ahead. Sorry.

Speaker Change: We expect double digit growth in the heart lung segment.

Speaker Change: In our guide.

Speaker Change: Is the guide also assumes that.

Speaker Change: Due to the capacity constraints and our expected benefits Bill mentioned in the second half.

Speaker Change: A modest sort of low to mid single digit growth rate on on the consumables.

Speaker Change: That's helpful.

Speaker Change: Yes go ahead sorry.

That was the second part just wanted to clarify the cyber secure yes, sorry, cyber security impact in Q4.

Alex Schwarzberg: What was the second part you wanted to clarify, the cybersecurity impact in Q4, from a revenue standpoint, what did that look like? And I think that was on the CP side of the business, but wanted to confirm that.

Speaker Change: From a revenue standpoint, what does that look like and I think that was on the CPE side of the business, but wanted to confirm that thanks.

Speaker Change: That's right.

Alex Schwarzberg: So the incident impact is the oxygenator production; we lost about a week of production. It's kind of hard to track exactly the impact on revenue because it really depends on, you know, how the inventory flows. And, you know, when you expect to see the sort of the capacity constraint or the inventory constraint that would result in revenue loss. It wasn't material.

Speaker Change: The incident impacted the.

Speaker Change: Oxygenate or production.

Speaker Change: We lost about a week of production.

Speaker Change: Kind of hard to track exactly the impact on revenue because I.

Speaker Change: It really depends on.

Speaker Change: How the inventory flows in.

Speaker Change: When when you expect to see the sort of the capacity constrained or the inventory constraints that would result in lost revenue.

Speaker Change: It wasn't a mistake.

Speaker Change: Got it thanks Alex.

Operator: Thanks, y'all. The next question comes from Mike Matson with Needham. Please go ahead. Yeah, good morning, or good afternoon.

Speaker Change: Yes.

Speaker Change: Your next question comes from Mike Matson with Needham. Please go ahead.

Mike Matson: Yes, good morning, or good afternoon.

Operator: So just in terms of the tax rate, I think before you talked about kind of 15 to 20%, and now you're looking at like 21%. So I guess why did it end up being higher than you expected? And is this mainly through pillar two?

Mike Matson: So just in terms of the tax rate I think before you talked about kind of 15% to 20% now you're looking at like 21%. So I guess why did it ended up being higher than you expected.

Mike Matson: Is this mainly through the pillar two are there is there something else going on and then have you on the.

Alex Schwarzberg: Or is there something else going on? And then you, I'm assuming you haven't baked anything in for the stock-based compensation benefits into that 21% guide. So when we were looking at the range at a point in time, Mike, it was really difficult to predict because the tax rate is a function of jurisdictional profitability.

Mike Matson: Assuming you have a baked anything in for stock based compensation benefits is about 21% guidance.

So the.

Mike Matson: When we're looking at the range.

Mike Matson: At a point in time like it was really difficult to predict because the the tax rate as a function of jurisdictional profit profitability.

Alex Schwarzberg: So, you know, as we got closer to exiting 2023, looking at projections for 24, we got a better sense for how the mix of profitability will work out. 21% is our best estimate at this point in time. And... Yeah, I'm not sure I understand your question around stock-based compensation. I just thought that typically there's some kind of tax benefit from stock-based comp, but companies generally don't factor that into their guidance.

So as we got closer to exiting 2023 and looking at projections for 2004, we got a better sense for how the mix of <unk>.

Mike Matson: Profitability will.

Mike Matson: We will work out.

Mike Matson: 21% is our best estimate at this point in time.

Mike Matson: And.

Speaker Change: Yes, I'm not sure I understand your question around the stock based compensation.

Speaker Change: Yes.

Speaker Change: I just thought that.

Speaker Change: Typically there is sometimes.

Speaker Change: Tax benefits from stock based comp, but companies generally don't factor that into their guidance for tax rate kind of unpredictable.

Operator: It's actually kind of unpredictable. Just let us come back to you, and we'll follow up on that if that's okay with you. Yeah, sure. And then just wondering if what you've assumed in the guidance for gross margin benefit from Essence, just given the price premium there, is it going to help your gross margin in 24? And, you know, how much do you think that'll help?

Speaker Change: Let us let us come back to you and I will follow up on that.

Speaker Change: With you.

Speaker Change: Yes sure.

Speaker Change: Just wondering what you've assumed in the guidance for gross margin benefit from ethane just given the price premium there.

Speaker Change: Is it going to help your gross margins in 'twenty four and how much do you think that'll that'll hall.

Speaker Change: Yes.

Speaker Change: Absolutely supports.

Alex Schwarzberg: Yeah, it absolutely supports a gross margin improvement. We're expecting a modest gross margin improvement of about, call it 100 basis points year over year overall as a company. So, Essence plays a major role.

Speaker Change: Sure.

Speaker Change: Gross margin improvement, we're expecting a <unk>.

Speaker Change: Modest gross margin improvement of about call. It 100 basis points year over year overall as a company. So essence plays a major role in that.

Speaker Change: Okay got it thank you.

Operator: Okay, got it. Thank you. You what?

Speaker Change: Youre welcome.

Speaker Change: Our next question comes from David <unk> with Baird. Please go ahead.

Operator: Our next question comes from David Rescott with Baird. Please go ahead. Hey guys, thanks for taking the questions. I wanted to start with the Neuromod segment. I think the guide that you called out maybe was this mid-single-digit new patient growth and low single-digit replacement but ultimately getting to, I think, the six to seven percent guide for the segment as a whole. So just, I think if you do the math, you're getting to something at or below that six to seven percent.

Speaker Change: Yeah.

David: Hey, guys. Thanks for taking the questions.

David: I wanted to start on the neuro Mod segment I think the guide that you called out maybe it was this mid single digit new patient growth and low single digit replacement, but ultimately getting to I think the 6% to 7% guidance for the segment as a whole.

Speaker Change: So just.

Speaker Change: If you do the math or youre, getting something at or at or below that 6% to 7%. So I'm wondering if pricing.

Operator: So wondering if pricing is a piece there, if I'm understanding the way in which you laid out guidance for Neuromod specifically. And then, you know, I think the segment itself will do better in 2023. And you've talked about the inability for that kind of higher level of growth to be sustainable.

Speaker Change: Piece, there if I'm understanding the way in which you laid out guidance for narrow body.

Speaker Change: Typically and then.

Speaker Change: I think the segment itself has done better in 2023 and you've talked about.

Speaker Change: The inability for that kind of higher level of growth to be sustainable. So just wondering where we stand from from that point are we at a point at which neuro mod.

Operator: So just wondering where we stand from that point, you know, are we at a point at which Neuromod is seeing some structural changes to the replacement cycle or to the new implant cycle where we can start to think about better growth in Neuromod? Just getting clearer there would be helpful. Hi David, I'll take that. So in regards to the epilepsy business for US MPI, we're continuing to forecast that we'll be mid-single digit. You're right when you talk about the US sort of end-of-service element, so we expect to return to a more normalized low single-digit rate, but we still expect to see the international region continuing to grow at a low double-digit rate, so that's why you've got the sort of six to seven percent there.

Speaker Change: <unk> is seeing some structural changes to the replacement cycle or to the new implant cycle, where we can start to think about better growth in neuro Mod just any color there would be helpful.

Speaker Change: Let's take that special take that hi, David I'll take that.

In regards to the epilepsy business or U S. NPI, there with continuing to forecast that would be mid single digit.

Speaker Change: You're right when you talk about the U S.

Speaker Change: Understood.

David: We expect to return to a more normalized low single digit rate.

David: Bill.

David: The international region, continuing to grow low double digits. So that's why you've got that sort of 67%.

David: Yeah.

Alex Schwarzberg: We do continue to model end-of-service, and every quarter, we do a bit of a refresh on some of our expectations there, and as I say, our latest data tells us that we'll be experiencing more normalized end-of-service in 24. As a reminder, 22 is a really favorable comparison to 23, and our performance in 23 has been very positive, so we do expect to see the growth rate become much more normalized as we move through 24. Okay, and then just to follow up. I know it's been a while since we talked about the Italian reserve. So just wondering where we stand and giving us an update on what the timeline is there. And then maybe what you're potentially thinking about longer term around the flexibility and the balance that that could open up if and when that kind of moves to the rearview. Thank you. Hey David, it's Alex.

David: We'll continue to model and the service.

David: Every quarter, we do a bit of a refresh on the bar expectation that and as I say, our latest data tells us that we'll be expanding more normalized enter service in 2004.

David: As a reminder, 22 with a very favorable comparison to 23 and outperformance in 'twenty three has been very positive.

David: We do expect to see the growth rate.

David: We will normalize as we move through 'twenty four.

Speaker Change: Okay, and then just a follow up I know, it's been a while since we talked.

Speaker Change: Talked about the Italian reserves, so just wondering.

Speaker Change: Where we stand.

Date around what's the timeline is there.

Speaker Change: And then maybe what you're thinking about longer term around the flexibility and the bad.

Speaker Change: And that that could open up.

Speaker Change: If and when that kind of move to the rear view. Thank you.

Speaker Change: Hey, David it's Alex So with regards to the Snia litigation.

Alex Schwarzberg: So with regard to this Nia litigation, we're awaiting a binding decision from the European Court of Justice; we actually expect that decision to read out in 2024. That will then funnel its way into the Italian Supreme Court, and so we expect the Italian Supreme Court to issue an issue of decision in response to all the appeals of LivaNova and the counter appeals. So that may make its way into 2025. With regard to the capital structure around this, as you know, we took on the term loan A in 2022. That was the funding that we kind of ring-fenced to serve a potential liability. At this point in time, from an accounting perspective, we haven't booked a liability, nor do we have any indication that we will be liable. But we have the appropriate funding and cash to support a negative judgment against them.

Alex: We're awaiting a binding decision from the European Court of Justice, we actually expect.

Alex: That readout in 2024.

Alex: That will then.

Alex: Funnel its way into the Italian Supreme Court and so we expect.

Alex: Detailing Supreme Court to incorporate and issue a decision.

Alex: In response to.

Alex: To all of the appeals of leaving.

And in the counter appeals, so that may make its way into 2025.

Alex: With regards to the capital structure around this as you know.

Alex: We.

Alex: We took on the term loan a in 2022 that was the.

Alex: The funding that we kind of ring fence to serve a potential liability.

Alex: At this point in time from an accounting perspective, we haven't booked a liability because we not.

Alex: Any indication that we will we.

Alex: We will be liable.

Alex: But we have the appropriate funding and cash to support a negative judgment against us.

Alex Schwarzberg: DeGrant, thank you. The next question comes from Matt Miksic with Barclays. Please go ahead. Hey, good morning.

Alex: Okay.

Speaker Change: Okay. Thank you.

Speaker Change: Yeah.

Speaker Change: The next question comes from Matt <unk> with Barclays. Please go ahead.

Matthew Taylor: Hey, good morning, Thanks for taking the questions.

Operator: Thanks for taking the questions. And congrats on a great finish to 23. I had one follow up question on the neuro, Neuromodulation Business and Epilepsy, and I was just wondering if you could.

Matthew Taylor: And congrats on a great finish to 'twenty three.

Matthew Taylor: I had one follow up on.

Matthew Taylor: On the.

Matthew Taylor: No.

Matthew Taylor: Neuromodulation business.

Matthew Taylor: Well lets see Im just wondering.

Operator: Give any sense of, you know, following up on the comments on market trends and sort of market stabilization, I guess, normalization in 20, in 24, you know, where are we or how are you feeling about the changes that you've made to the sales organization, to the selling process, to the, you know, way in which you're focusing your folks on different centers around epilepsy in the US and the benefits that you're seeing there, how sustainable they Sure, thanks for that, Matt. I continue to be really pleased with the consistent execution, and our financial performance certainly reflects that. And I think when we look at how we're structured, It's I've dug in a lot over the past nine months since being in this role. And when we are fully staffed and disciplined in our execution, we do see consistent growth in the base business with our key accounts and how we've structured ourselves over the past couple of years. So I'm really pleased to see that that group is continuing to perform well and perform over the base.

Matthew Taylor: Good.

Matthew Taylor: Give any sense and following up on the comments on market trends and sort of market sort of stabilization I guess normalization in 'twenty and.

Matthew Taylor: In 'twenty four.

Matthew Taylor: Where are we or how are you feeling about the changes that you've made.

Matthew Taylor: The sales organization to the selling process to the.

Matthew Taylor: Wayne, which your.

Matthew Taylor: Focusing your folks on that.

Matthew Taylor: Different centers around epilepsy in the U S and.

Matthew Taylor: The benefits that you're seeing there.

Matthew Taylor: How sustainable they are and then one follow up.

Wayne: Sure Thanks for that Matt.

I continue to be really pleased around the.

Wayne: Execution.

Wayne: Financial performance.

Wayne: Need reflects that.

Wayne: I think when we look towards how we structure them.

Wayne: Yes.

Wayne: It doesn't a lot over the past nine months.

Wayne: Jean Michel and where we are fully staffed.

Wayne: And disciplined in our execution, we do see consistent over.

Wayne: Over the base.

Wayne: Our key accounts and how we subsidize the past couple of years.

Wayne: So I'm really pleased to see that that could continue.

Wayne: <unk> organized the debate.

Operator: But one point I would like to make is our strategy is sort of broader than the Salesforce structure, and in combination with our territory design, we've been making big efforts around expanding our partnership with our physician base. In fact, we have our first scientific advisory board coming together for the first time this coming weekend, and you'd be highly impressed by the caliber of those members. So, more to come. So consistent execution is the way forward for us in the epilepsy side of the business, but there is more to come in regards to our partnership with our physician base as well. Thanks for that. And I've been hopping back and forth here between a couple of calls. So I apologize, Bill and Alex, if you've already kind of talked about it, but we'd love to get a sense of where things stand with the STRAP plan. Vlad gets ready to step into his new role. Is that a first quarter call of any kind of communication for us? Or is that a second quarter, you know, any kind of update?

Wayne: One point I would like to Macys App strategy. It is broader than the sales force structure.

Wayne: In combination with our Tennessee design, we've been making big efforts around expanding our partnership with Appalachian basis. As in fact, we have asked the scientific advisory board coming together for the first time ever this coming weekend and.

Wayne: We've been highly impressed by the caliber.

Wayne: So more to come say consistent execution is the way forward in.

Wayne: In the epilepsy sound like the business.

Wayne: Bill So multi country results to our partnership with our physician base as well.

Speaker Change: Thanks for that and I've been hopping back and forth between a couple of calls so I apologize.

Speaker Change: Bill and now.

Speaker Change: If you've already.

Speaker Change: Kind of talked about it but but.

Speaker Change: Would love to get a sense of where things stand with that.

Speaker Change: Our strat plan slash gets ready to step into his new role as that.

Speaker Change: First quarter.

Speaker Change: No.

Speaker Change: Call kind of.

Speaker Change: Communication for us or is that a second quarter.

Speaker Change: Can you kind of update and again apologies if you've already gone through that.

William A. Kozy: And again, apologies if you've already gone through that, Bill. No, no, Matt, glad to take that call. At this point, you know, we're just a little over a week away from Vlad starting.

Speaker Change: No no.

Speaker Change: To take that kind of take that call at.

Speaker Change: At this point with.

Speaker Change: We're just a little over a week away from flat starting.

William A. Kozy: All the orientation discussions we've had, he seems pretty comfortable with the current state of the company. But he will, of course, be fully encouraged by the board and personally by me to bring any and all ideas forward. The company would traditionally go a little deeper on its strategic planning, you know, effort as the early summer approaches.

Speaker Change: All the orientation discussions we've had he seems pretty comfortable with the current state of the company, but he will of course be full and encouraged by the board personally by me to bring any and all ideas forward. The company would traditionally go a little deeper.

Speaker Change: On its strategic planning.

Effort as the early summer approaches so the timing for him is great. He gets here man. He's got a couple of months to get grounded that process starts up pretty active and in June July and to be clear. He has full CEO responsibility, including <unk>.

William A. Kozy: So the timing for him is great. He gets here in May. He's got a couple of months to get grounded. That process starts up pretty active in June and July.

Operator: And to be clear, he has full CEO responsibility, including, you know, strategy. And so the process and the approach that he wants to bring on March 1st are going to get full support from the board. Okay. I'll look forward to that.

Speaker Change: Strategy and so the process and the approach that he wants to bring on March <unk> is going to get full support from the board.

Speaker Change: Got it I'll approach that thanks, so much.

Operator: Thanks so much. Sure, thanks. We have no further questions.

Speaker Change: Sure. Thanks.

Speaker Change: Okay.

Speaker Change: We have no further questions I'll turn the call back to Bill Casey for closing remarks.

William A. Kozy: I'll turn the call back to Bill Kozy for closing remarks. Thank you. We thank everyone for joining us on today's call. On behalf of the entire team, we appreciate your support and your interest in LivaNova. Thanks again. This concludes our call, and you may now disconnect your lines. Thank you for watching!

Frederick Allen Wise: Thank you.

Frederick Allen Wise: We thank everyone for joining us on today's call on behalf of the entire team. We appreciate your support your interest in leaving Alba. Thanks again.

Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Yes.