Q4 2024 LivaNova PLC Earnings Call
Thank you and welcome to our conference call and webcast discussing leaving over financial results for the fourth quarter and full year of 2020 for joining me on today's call are Vladimir market via our Chief Executive Officer, and member of the board of directors.
Alex Schwartzberg, our Chief Financial Officer.
The Val our Chief Innovation officer, exactly either 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 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.
Also the discussions will include certain non-GAAP financial measures with respect to our performance.
<unk>, but not limited to revenue results, which will be stated on a constant currency and organic 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 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.
You can find the presentation and press release in the investors section of our website under news <unk> events and presentations.
Vlad: Investor Dot, even though by dot com with that I'll turn the call over to Vlad.
Vlad: Thank you Briana and thank you everyone for joining us today.
Vlad: Welcome to <unk> conference call for the fourth quarter and full year of 'twenty to 'twenty four.
Vlad: The year was marked by strong financial results significant innovation milestones and a meaningful transformation milestones on culture.
Vlad: We delivered 11% organic revenue growth in 2024.
Vlad: Our second consecutive year of double digit organic growth.
Vlad: We also expanded operating margins and increased free cash flow.
Vlad: We are pleased with this result, and the execution that made them possible.
Vlad: Additionally.
Vlad: We're encouraged by the clinical milestones achieved in obstructive sleep apnea difficult to treat depression and the three year results from the largest real world evidence study of VNS therapy for epilepsy called core Vms.
Vlad: And obstructive sleep apnea or OSA.
Vlad: Preclinical study met its primary efficacy and safety endpoints.
Vlad: Visit achievement unlocks a strategic growth opportunity for Levo novel.
Vlad: We plan to bring this technology to market and in doing so we will leverage and extend the vast clinical and scientific expertise of our neuromodulation business to a new therapeutic area.
Vlad: We will increase investments in order to accelerate product development and ensure a competitive and differentiated product portfolio.
Vlad: With growing worldwide prevalence and improve diagnosis for OSA.
Vlad: We expect the hypoglossal nerve stimulation market to approach $2 billion by the end of the decade with plenty of room for treatment alternatives.
Vlad: Based on these factors combined with a strong preclinical data. We are confident this program will generate value for Levi Nova and I are excited by the opportunity to impact more patient lives.
Vlad: In difficult to treat depression or DTD we.
Vlad: We continue our pursuit of CMS coverage.
Vlad: Five critical publications will support our position drove which were already published in December.
Vlad: A positive reimbursement decision would represent a meaningful opportunity for critically ill patients with DTD wild.
Vlad: While further diversifying our portfolio.
Vlad: Finally, and importantly in 2024 lever Nova embarks on a transformative journey to strengthen our talent and culture.
Vlad: With a clear focus on innovation and the growth mindset.
Vlad: To accelerate our future progress, we have prioritized attracting industry, leading professionals, while developing and promoting top talent from within.
Vlad: Over the past year, approximately 30% of our overall director level and above positions have been filled by new hires or internal promotions, bringing fresh perspectives and expertise to drive our next phase of growth.
Vlad: We have also enhanced our executive leadership team with five new leaders.
Speaker Change: Most recently, we welcomed Natalia because manner as our chief Human Resources Officer.
Speaker Change: With more than 25 years of global experience in Med Tech and Pharmaceuticals, and I would tell you is a proven leader.
Speaker Change: Who will play a pivotal role in shaping our down strategy.
Speaker Change: Im excited to partner with <unk> and the entire executive leadership team as we continue building a high performing innovative organization poised for future.
Speaker Change: For the remainder of the call I will discuss our results and topline guidance for full year 2025.
Speaker Change: After my comments, Amit will discuss our innovation pipeline.
Speaker Change: Alex will then provide additional details on our results and 2025 guidance.
Speaker Change: I will wrap up with closing remarks before moving on to Q&A.
Speaker Change: In the quarter, which is 5% revenue growth and 7% organic growth versus the prior year.
Speaker Change: On a full year basis, we achieved 9% revenue growth and 11% organic growth versus the prior year driven by the strength in both the cardiopulmonary and epilepsy businesses.
Speaker Change: Notably, we achieved 41% growth in adjusted operating income and 21% growth in adjusted diluting earnings per share.
Speaker Change: I want to acknowledge the entire organization for their dedication to enhancing our cash generation.
Speaker Change: Progress was evident in our strong free cash flow performance, delivering $163 million and adjusted free cash flow for the full year 2024.
Speaker Change: Now turning to segment results for.
Speaker Change: For the Cardiopulmonary segment revenue was $182 million in the quarter and.
Speaker Change: An increase of 11% versus the fourth quarter of 2023.
Speaker Change: Heart lung machine revenue grew in the mid single digits. Despite the difficult year over year comparison as a reminder, the HSM business grew more than 40% in the fourth quarter of 2023.
Due to accelerated essence placements.
Speaker Change: Following approval of the inline blood monitoring.
Speaker Change: In the fourth quarter of 2024, we were pleased to see a sequential increase in essence revenue.
Speaker Change: And continued strong price mix.
Speaker Change: As a point of reference.
Speaker Change: <unk> represented approximately 40%.
Speaker Change: Of our annual <unk> units placed in 2024.
Speaker Change: Oxygen Meda revenue grew in the mid teens, driven by customer demand and price.
Speaker Change: We successfully exited the year with approximately 10% increase in manufacturing capacity.
Speaker Change: And we'll continue to see global demand outpaced supply.
Speaker Change: Cardiopulmonary revenue for the full year was $684 million.
Speaker Change: And grew 14%.
Speaker Change: We expect cardiopulmonary revenue to grow 7% to 8% for the full year of 2025.
Speaker Change: Our forecast incorporates continued <unk> growth as we launch <unk> in new markets and continued to increase penetration in existing markets.
Speaker Change: We expect the essence to represent approximately 60% of our annual <unk> units placed in 2025, while maintaining our price premium.
Speaker Change: Our forecast also reflects continuing strong demand for consumables.
Speaker Change: An expanded manufacturing capacity.
Speaker Change: We believe there are opportunities to further accelerated growth in essence and to continue to grow our market share in consumables, we are working diligently to expand oxygenate the manufacturing capacity.
Speaker Change: The level built into guidance.
Speaker Change: Turning to epilepsy.
Speaker Change: Revenue increased 1% versus the fourth quarter of 2023.
Speaker Change: U S epilepsy revenue increased 4% year over year, driven by product mix price and total implants.
Speaker Change: We achieved approximately 1% growth in both new patients and replacement implants versus the prior year.
Speaker Change: Epilepsy revenue in Europe, and rest of the world declined a combined 9% versus prior year.
Speaker Change: We have taken measures to improve commercial execution and have confidence in the future growth of this business.
Speaker Change: For the full year epilepsy revenue grew 7%.
Speaker Change: U S epilepsy revenue grew 8% and achieved 5% growth in both new patients and replacement implants versus the prior year.
Speaker Change: <unk> revenue in Europe, and rest of world.
Speaker Change: Grew a combined 2% versus 2023.
Speaker Change: With double digit growth in rest of world offset by a decline in Europe.
Speaker Change: For the full year of 2025, we expect global epilepsy revenue to grow 4% to 5%.
Speaker Change: Our forecast incorporates our continued mid single digit growth rate for U S new patient implants.
Speaker Change: We expect U S replacement units to be flat due to the decline in total implants that occurred in 2019 and 2020.
Speaker Change: Our forecast also assumes that.
Speaker Change: The rest of World and Europe regions return to a combined high single digit growth rate in 2025.
Speaker Change: We will continue our efforts focused on narrowing the drug resistant epilepsy treatment gap and driving growth in surgical therapies for this significantly underpenetrated patient population.
Speaker Change: In summary, our growth in 2024 was driven by healthy markets.
Speaker Change: The successful rollout of <unk> <unk>.
Speaker Change: Market share gains in cardiopulmonary consumables and pricing strategy.
Speaker Change: These drivers will continue to fuel our growth in 2025.
Speaker Change: As a result.
Speaker Change: We are guiding full year, 2025% organic revenue growth between six and 7%.
Speaker Change: Alex will provide additional details on our 2025 guidance later in the call with that I will turn the call over to Amit to discuss our innovation pipeline.
Amit: Thank you for that.
Amit: Innovation is a key focus area for liver, Nova and modify our growth drivers as we look to the future.
Amit: Our R&D organization is focused on enhancing our core portfolio, while also advancing our difficult to treat depression and obstructive sleep apnea programs.
Amit: We are pleased with the progress we made in 2024 across our entire portfolio.
Amit: In CP, we continue to make progress in developing a next generation oxygen later.
Amit: Enhancing capabilities for assets, such as adding advanced inline blood monitoring.
Amit: This is designed to guide the perfusion is during the procedure to further optimize patient tailored outcomes.
We're also working on various product upgrades throughout the CPE portfolio.
Amit: For example, we are pleased to announce the commercial launch of protector glass in the USA and Canada with the approval for use in Ecmo procedures.
Amit: This is our first dual lumen catalyst to carry this equity indication within the U S.
Amit: Product further strengthens our full suite of CPE solutions, and we expect this new offering to be a growth driver in 2025.
Amit: In epilepsy, who are focusing on the next generation system with cloud connectivity and driving clinical evidence initiatives for VNS therapy.
Amit: In December we shared interim data from our core via this study at the American Epilepsy Society or Aes.
Amit: This is the largest global long term contemporary registry of VNS therapy in level over its history.
Amit: At <unk>, we presented preliminary conclusions from seven posters covering a wide variety of subjects from this data set.
Amit: Including one examining long term outcomes in patients with generalized tonic clonic seizures with VNS therapy.
Amit: The data showed that VNS therapy reduce the frequency of generalized tonic clonic seizures with a responder rate of 70%.
Amit: And median seizure frequency reduction of 83% at 36 months.
Amit: We expect a number of publications from the core datasets throughout 2025.
Amit: The first of which was published in epilepsy earlier this month.
Amit: The authors concluded that the results from the core study support VNS is a compelling therapy in drug resistant epilepsy associated with Linux Gusto syndrome.
Amit: In OSA the Osprey clinical study met its primary efficacy and safety endpoints.
As a reminder, Australia is the first and only randomized control trial for hypoglossal nerve stimulation therapy to support a U S regulatory approval to date.
Amit: The patients in Osprey are also the most severe ever studied in a U S pivotal trial.
Amit: These patients had a higher baseline mean BMI. In addition to higher median apnea Hypopnea index and higher oxygen Desaturation index compared to other pivotal U S trials.
Amit: Based on these trials characteristics and ask for a six month clinical outcomes. We're confident that our clinical data set is competitive with the current standard of care.
Amit: When comparing median values from baseline to just six months of therapy.
Amit: Three subjects in the active group demonstrated a 66, 2% reduction in HIV at a $63 three.
Amit: 3% reduction in ODI.
Amit: We are very pleased with the six month outcomes, particularly the rapid onset of therapy with osprey.
Amit: We're excited to share the 12 month outcomes when they become available in the second quarter.
Amit: We still expect to complete the PMA submission in the first half of 2025.
Amit: Glad mentioned, we're accelerating investment in the OSA product development to deliver a competitive and differentiated product portfolio.
Amit: In difficult to treat depression, two publications were published in December and the remaining three were submitted the.
Amit: The article highlights a significant unmet need of severely ill Medicare beneficiaries with treatment resistant depression, or TRT with limited treatment alternatives.
Amit: Recover data demonstrates that VNS therapy improves symptoms function and quality of life in CRD patients over time.
Amit: These are outcome measures identified as clinically relevant by CMS symptoms function and quality of life taken together present, a more complete picture of treatment effectiveness.
Amit: Symptoms alone.
Amit: All pre specified recover endpoints favored active VNS therapy.
Amit: <unk> is evidence supports our pursuit of Medicare coverage for VNS therapy for <unk> patients with high unmet treatment needs.
Amit: As we have done throughout the recovery program, we continue to partner with CMS and informed the agency of our progress.
Amit: We are working towards a formal request for coverage once all five critical amount of scripts are published.
Amit: This will be a formal reconsideration submission for the guidelines of the CMS national coverage determination process.
Amit: In summary, we are encouraged by our progress in core innovation as well as in the OSA in difficult to treat depression program.
Amit: Looking ahead, we will continue to improve R&D efficiency and our cadence of innovation enabled by our new operating model and governance process.
Amit: As a result over time, our investment in R&D as a percentage of revenue should decrease to align with the industry benchmark.
Alex Schwartzberg: With that I will turn the call over to Alex.
Alex Schwartzberg: Thanks, Amit.
Speaker Change: During my portion of the call I'll share a brief recap of the fourth quarter results and provide commentary on 2025 guidance.
Alex Schwartzberg: Turning to results.
Alex Schwartzberg: The new in the quarter was $322 million.
Alex Schwartzberg: An increase of 5% on a constant currency basis and 7%.
Alex Schwartzberg: On an organic basis versus 2023.
Alex Schwartzberg: Foreign exchange in the quarter had an unfavorable year over year impact of approximately $3 million or 1%.
Alex Schwartzberg: Adjusted gross margin as a percent of net revenue was 69% compared to 68% in the fourth quarter of 2023.
Alex Schwartzberg: This year over year increase was driven by favorable product mix and pricing.
Alex Schwartzberg: As a reminder, fourth quarter 2023 gross margin was negatively impacted by costs associated with the cyber security incident.
Alex Schwartzberg: Adjusted R&D expense in the fourth quarter was $40 million compared to $42 million in the fourth quarter of 2023.
Alex Schwartzberg: R&D as a percent of net revenue was 13% down from 14% in the fourth quarter of 2023.
Alex Schwartzberg: The year over year decrease was largely driven by the closeout of the heart failure trial and the wind down of the ECS segment.
Alex Schwartzberg: Adjusted SG&A expense for the fourth quarter was $127 million compared to $120 million in the fourth quarter of 2023.
Alex Schwartzberg: SG&A as a percent of net revenue was 40% as compared to 39% in the fourth quarter of 2023.
Alex Schwartzberg: The year over year increase was driven by commercial activities to support growth.
Alex Schwartzberg: As well as investments to enable infrastructure for scalability.
Alex Schwartzberg: Adjusted operating income was $56 million.
Compared to $48 million in the fourth quarter of 2023.
Alex Schwartzberg: Adjusted operating income margin was 17% compared to 16% in the fourth quarter of 2023.
Alex Schwartzberg: This increase was primarily driven by higher revenue improved operating leverage and the wind down of the heart failure program and the Acs segment.
Alex Schwartzberg: Adjusted effective tax rate in the quarter was 20% compared to negative 3% in the fourth quarter of 2023.
Alex Schwartzberg: The increase is related to developments in the global tax landscape.
Alex Schwartzberg: The negative tax rate in the prior year period was impacted by the release of evaluation allowance.
Alex Schwartzberg: Adjusted diluted earnings per share was <unk> 81.
Alex Schwartzberg: Compared to 87 in the fourth quarter of 2023.
Alex Schwartzberg: The decrease was primarily driven by the higher effective tax rate.
Alex Schwartzberg: Which was a 19 <unk>.
Alex Schwartzberg: Favorable impact to EPS.
Alex Schwartzberg: Our cash balance at December 31 was $429 million up from $267 million at year end 2023.
Alex Schwartzberg: Total debt at year end 2024 was $628 million up from $587 million at year end 2023.
Alex Schwartzberg: This increase in total debt was driven by the closing of a $345 million private offering of convertible senior notes maturing in 2029.
Alex Schwartzberg: And repurchase of the $230 million of convertible senior notes, which mature in 2025.
Alex Schwartzberg: Adjusted free cash flow for the quarter was $62 million up from $61 million in the prior year period.
Alex Schwartzberg: The year over year increase was primarily driven by stronger operating results and working capital improvements.
Alex Schwartzberg: Adjusted free cash flow for the full year of 2024 was $163 million up from $96 million in the prior year period, representing 70% growth.
Alex Schwartzberg: We saw a significant improvement in cash conversion during 2024.
Alex Schwartzberg: Capital spend was $47 million in 2024 compared to $35 million in the prior year period.
Alex Schwartzberg: The year over year increase was driven by it investments and cardiopulmonary capacity expansion initiatives.
Alex Schwartzberg: Now turning to our 2025 guidance, we forecast 2025 revenue growth between 5% and 6% on a constant currency basis and between six and 7%.
Alex Schwartzberg: On an organic basis.
Alex Schwartzberg: The impact of foreign currency is expected to be a headwind of 1.5% to 2% based on current exchange rates.
Alex Schwartzberg: We forecast a full year adjusted effective tax rate of approximately 24%.
Alex Schwartzberg: Representing an increase of 300 basis points versus 2024.
Alex Schwartzberg: We project adjusted diluted earnings per share in the range of $3 65.
Alex Schwartzberg: The $3 75.
Alex Schwartzberg: With adjusted diluted weighted average shares outstanding to be approximately $55 million for.
Alex Schwartzberg: For the full year.
Alex Schwartzberg: Despite the unfavorable impact caused by the step up in our adjusted effective tax rate.
Alex Schwartzberg: The increased investment to accelerate OSA and core product development. This EPS range represents growth of 9% at midpoint.
Alex Schwartzberg: Adjusted free cash flow is expected to be in the range of $135 million to $155 million.
Alex Schwartzberg: This range includes $90 million and capital spending.
Alex Schwartzberg: <unk> $43 million increase versus the prior year.
Alex Schwartzberg: This increase supports critical investments in it infrastructure innovation and growth, including cardiopulmonary capacity expansion initiatives.
Alex Schwartzberg: Briefly I would like to provide an update on the <unk> litigation.
Alex Schwartzberg: On February 26, 2025, Italian Supreme Court will hold a public hearing in connection with the matter.
Alex Schwartzberg: While the company does not anticipate a decision at the hearing.
Alex Schwartzberg: We expect a ruling in the first half of 2025 and response to all of them, even though there is appeals.
Alex Schwartzberg: And the counter appeal submitted by the Italian public administrations.
Alex Schwartzberg: We look forward to the court's decision and we will provide updates as they become available.
Alex Schwartzberg: Please note.
Alex Schwartzberg: That our full year 2025 guidance issued today does not include any potential impact.
Alex Schwartzberg: Snia ruling.
Alex Schwartzberg: I'd also like to call out that our guidance does not include tariff related impacts.
Alex Schwartzberg: While the global tariff dynamic is fluid, we expect the impact of tariffs to be immaterial based on what we understand today.
Alex Schwartzberg: In summary, the company's 2020 for execution and financial performance were strong.
Alex Schwartzberg: We delivered double digit organic revenue growth and more than 400 basis points of adjusted operating margin expansion.
Alex Schwartzberg: We also achieved a 20% increase in adjusted diluted earnings per share and a substantial improvement in cash generation.
Alex Schwartzberg: This performance was realized while investing in innovation and critical capabilities.
Alex Schwartzberg: Our 2025 guidance is balanced.
Alex Schwartzberg: And we are well positioned to achieve another successful year.
Vlad: With that I'll turn the call back over to Vlad.
Vlad: Thank you Alex.
Speaker Change: 2024, we delivered strong financial results achieved significant pipeline milestones and meaningfully strengthened our talented team and culture.
Speaker Change: I want to thank all our colleagues around the world for their dedication to serving customers and their patients.
Speaker Change: In 2025.
Speaker Change: We will focus on talent innovation growth.
Speaker Change: And operational excellence with our solid financial foundation clear portfolio strategy and capable team.
Speaker Change: We're well positioned to build on our momentum and drive value for all stakeholders in 2025 and beyond.
Speaker Change: With that we're ready to open the call for questions.
Thank you.
Speaker Change: You have a question at this time. Please press the Star then the number one key on your Touchtone telephone.
Speaker Change: The question has been answered or you wish to me the.
Speaker Change: Keith Please press Star then the number of Kate.
Speaker Change: On to the Q&A session. Please limit yourself to one question and one follow up and then my time to the queue. If you have additional follow up.
Speaker Change: Our first question today comes from Greg <unk>.
Speaker Change: With Stifel.
Davidson: Your line Davidson. Please go ahead.
Davidson: Hi, Good morning, how are you all.
Speaker Change: Thanks for taking the question.
Speaker Change: Just to start off a ton of things to ask about here sort of debating which ones.
Speaker Change: Maybe let's talk about.
Speaker Change: Sure.
Speaker Change: Perhaps cardiopulmonary.
Speaker Change: <unk>.
Speaker Change: Just help us better understand.
Speaker Change: And think through.
The U S and EU cardiopulmonary performance in the quarter.
Speaker Change: I mean.
Speaker Change: You came in overall, a little less than we had looked for.
Speaker Change: Good.
Speaker Change: But you did better in rest of world and you talked about it a little bit but.
Speaker Change: I appreciate the comps in the essence upgrade.
Speaker Change: But issues is a driver, but help us just better understand.
Speaker Change: Where you are.
Speaker Change: In that process, what happened in the quarter and sort of U S and Europe and why you're so confident about that.
Speaker Change: The outlooks for 25, thank you.
Alex Schwartzberg: Hey, Rick it's it's Alex.
Rick: Look we're actually very pleased with our performance in the quarter.
Rick: As you mentioned, we did have a challenging comp.
Rick: With <unk>, we grew HL and placements in Q4 of 2023.
Rick: By 40%.
So needless to say it was always a challenge, but we did see sequential growth in.
Rick: In <unk> placements.
Rick: Q3, so we're pleased with that we continue to see strong.
Rick: Strong demand for consumables.
Rick: We continue to see the market.
Rick: Demand outpaced supply. So we're still we're still operating in a back order situation. We our team has done a great job.
Rick: <unk>, we exited the year.
Rick: Growing our capacity at about 10%.
Rick: We expect to continue to work to build our capacity in 2025.
Speaker Change: And Neil.
Rick: Neil that.
Rick: Some opportunities for continued growth and some upside.
Rick: So generally speaking.
Rick: All of the leverage that we expected in cardiopulmonary business.
Rick: Performance perspective played out as planned.
Rick: Yes.
Rick: Helpful. Thank you.
Rick: And.
Rick: Again, a lot of ways to go here, but.
Rick: Let me focus on the innovation pipeline.
Rick: I think you're speaking.
Rick: Sure.
Rick: More clearly about the importance of the innovation pipeline and maybe two part question one help us better understand.
Rick: Maybe you could quantify a little bit more.
Rick: The impact of the launch of the <unk>.
Rick: The new.
Rick: Ecmo related.
Rick: <unk>.
Rick: The implications or the incremental potential benefit in 'twenty five.
Rick: Yes.
Rick: On revenues of that new product.
Rick: And just.
Rick: What else should we expect from.
Rick: What are you asking for applied.
Rick: From the innovation team.
Rick: In 25, what what should we be expecting.
There's a incremental products that could drive both volume price share improved mix margin that kind of thing.
Rick: Thank you very much.
Rick: Okay. Thank you for a great question I'll start and then ill ask comments to build on the question but.
Rick: If I step back innovation like I said is.
Rick: One of the four strategic imperatives all pillars.
Rick: Sure.
Rick: Leave on Nova.
Rick: If I unpack that a little bit the first one is really to deliver on key milestones in our epilepsy and cardiopulmonary businesses.
Rick: I feel we've built.
Rick: Very strong leadership team in research and development, but also in all the functions that support innovation.
Rick: <unk>.
Rick: At the same time, we are improving our processes governance culture.
Rick: So driving.
Rick: Milestone delivery in epilepsy, and cardiopulmonary is number one number two is we have two important I would say market access.
Rick: Milestones with MDA submission for OSA and with the CMS submission for the <unk> those are very important milestones for our future growth and the team is executing versus that and then the third one.
Rick: As we continue to build the innovation capabilities, including business development, including external.
Rick: Our capabilities for innovation and so maybe you can give us a little bit more so.
Rick: So maybe.
Rick: I'll comment a little bit about some near term.
Rick: Programs that we are focused on on the epilepsy side.
Rick: Our key strategy is to provide connected care. So this year, we plan to submit for an FDA approval.
To initiate that process of ensuring that our VNS therapy is cloud connected so that's a big milestone that we're going to achieve this year.
Rick: On the.
Rick: CPE side, Besides protective plus we are actively working on our nextgen auction data, which is in the kind of mid life of product developments.
Rick: And we are doing continuous upgrades to excellence because as you know.
Rick: Software driven product that gives us lot of flexibility to add new features and we're also going to supported with.
Auxiliary equipment that essentially works together with HSM device. So we have a few launches coming up that will support the HL and system essence with additional auxiliary equipment that supports it. So in both businesses, we have some near term opportunities and as Rod mentioned in OSA.
Rick: Big year for Us, we're going to submit our PMA in the first half and with depression, we are going to conclude our submission.
Rick: Two CMS hopefully in the coming months.
Rick: Yes.
Rick: This is Brian So we expect this business.
To grow approximately 10% and thats, primarily driven by the launch of protesting on glass.
Speaker Change: Got you. Thank you so much.
Speaker Change: Our next question comes from Michael Pollack with Wolfe Research Your line is open.
Michael Pollack: Hey, good morning, I have a question about the sleep apnea assumptions in the guidance. How much are you spending to prep for that launch what is the nature of that spend are you already at the point, where you might be hiring a sales force and.
Speaker Change: Is the timing such that our submission in the first part of this year sets the stage for that.
Michael Pollack: Proper commercial launch in 2026.
Michael Pollack: Good morning, So let me start with.
Speaker Change: Maybe just a strategic view on lets say and then I'll turn it over to Alex.
Alex Schwartzberg: On the financials.
Alex Schwartzberg: Okay, I think our strategy has been continue and the sustained momentum of growth in our core and then get into faster growth markets and OSA and DVD are enabling us to do that.
Alex Schwartzberg: Our confidence in OSA has increased overtime.
Alex Schwartzberg: For a number of reasons first is significant unmet need with 85% of patients still on diagnostics.
Alex Schwartzberg: And as a consequence of the market is growing fast and we expect it to be like I said, a $2 billion by the end of the decade, and clearly space for new competitors.
Alex Schwartzberg: And what.
Alex Schwartzberg: What gives us the right to win which is an important element of our strategy is.
Alex Schwartzberg: We're very pleased with our clinical data, so far and confident in the 12 months results.
Alex Schwartzberg: And we believe.
Alex Schwartzberg: Our architecture of our technology is differentiated to give us competitive advantage to win in.
Alex Schwartzberg: In this marketplace.
Speaker Change: And then I'll turn it to Alex for further comments, yes, Mike from a from a spend perspective in 2024, we invested $27 million.
Speaker Change: And I'll say it was largely to completed enrollment in the trial.
Speaker Change: We are expecting too.
Speaker Change: To invest an incremental $8 million in 2025.
Speaker Change: However, we are shifting our investments from clinical spend.
Speaker Change: Two more into product development.
Speaker Change: It was mentioned.
Speaker Change: We're looking to drive a compelling portfolio as we prepare to launch <unk>.
Speaker Change: Yes.
In more detail about the long range financial projections.
Speaker Change: Surrounding OSA at our Investor Day later this year.
Maybe I'll just add a little bit about your timing question. So we are going to submit the.
Speaker Change: First off this year, obviously, we can't predict.
Speaker Change: Review timelines, but usually new PMA is about nine to 12 months.
Speaker Change: With FDA, if everything goes well, we anticipated would partially due to the strength of the clinical data and then we will do a limited commercial launch followed by a full commercial launch later.
Speaker Change: Because we're going to have a cadence of upgrades on the feature set of the device.
Speaker Change: Okay.
Speaker Change: As a follow up I'd like to ask about O U S. Epilepsy disappointed in the quarter you called out execution issues, what is the nature of those issues.
Speaker Change: The guidance for 25 years and beds and acceleration.
Speaker Change: How confident and argue that that business can return to growth. Thank you for taking the questions.
Speaker Change: Yes, yes.
Speaker Change: Yes, we had some some personnel issues they were isolated across different markets.
Speaker Change: I think we mentioned that on the previous quarter's call as well we've taken action.
Speaker Change: During the quarter to remediate and we are.
Speaker Change: Confidence in our ability to grow that business again as you know historically, we've grown our <unk> business at high single low double digit levels, and we expect to get back to that level of growth in 'twenty, five and moving and moving forward.
Speaker Change: Hi.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question comes from Matt Taylor with Jefferies.
Speaker Change: Your line is open. Please go ahead.
Matt Taylor: Hi, good morning, Thanks for taking the question.
Speaker Change: I wanted to ask actually about revenue phasing or EPS phasing. This year is there anything special to call out, especially with the volatility that we saw in the revenue trends in narrow body CP, maybe you could just help us understand how things like tough comps et cetera could play through the year and that.
Matt Taylor: Two businesses.
Matt Taylor: Hey, Matt.
Matt Taylor: No theres really nothing nothing.
Speaker Change: From a phasing perspective as normal Q1 tends to be our lowest quarter and then we kind of ramp up over the course of the year with Q4 being our highest revenue quarter, but.
Speaker Change: Nothing special in terms of revenue phasing is sort of consistent.
Speaker Change: Performance and growth.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Follow up on sweep.
Speaker Change: A lot of color there to Mike's question, but.
Speaker Change: What are we going to hear more about your specific plans through either developing that you've also talked about potentially partnering or trying to monetize that asset.
Speaker Change: Yeah, So Matt Thanks for the question.
Speaker Change: There will be.
Speaker Change: Couple of important milestones throughout the year, So first of all.
Speaker Change: In quarter two.
Speaker Change: We will announce.
Speaker Change: 12 months results of Osprey study.
Speaker Change: And I think that will be an important milestone.
Speaker Change: From a clinical point of view for us.
Speaker Change: First one would be the FDA submission, which we plan to do.
Speaker Change: Before the end of quarter two.
Speaker Change: And then the third one is the Investor day.
Speaker Change: Quarter four.
Speaker Change: Where we will.
Speaker Change: Lay out.
Speaker Change: Full commercialization plan.
Speaker Change: Execution plan.
Speaker Change: And provide.
Speaker Change: Our long term financial outlook.
Speaker Change: Okay, Alright, great. Thank you Bob.
Speaker Change: Next question comes from David Driscoll with Baird. Please go ahead.
David Driscoll: Thanks for taking the questions wanted to ask first on herd.
Speaker Change: The comments around.
Speaker Change: A potential decision or a decision at least in the first half of 2025.
Speaker Change: Do you have a sense.
Speaker Change: Once that comes out around the timing of which if you have to make that pay out when that timing would be is that something that would also happened in the first half of 'twenty five does it come in the second half of 'twenty five and I guess do you have any further visibility on to maybe the thoughts around structuring kind of a payout over subsequent quarters.
Speaker Change: Yeah.
David Driscoll: Hey, David.
Speaker Change: Really we expect.
Speaker Change: We expect this hearing to take place tomorrow.
Speaker Change: And we don't expect a decision.
We do expect a decision sometime in the first half.
Speaker Change: It's nearly impossible for us to speculate.
Speaker Change: On the decision, hence where we're holding to the fact that.
Speaker Change: There is no liability at this point in time, and hence we we haven't built that into our guidance.
Speaker Change: I think I've talked in.
Speaker Change: Previously about the annualized impact.
Speaker Change: On EPS.
Speaker Change: The ruling goes against Us and it's in the quantum that was Rus debt was originally ruled by the lower court.
Speaker Change: Which was 454 million euros.
Speaker Change: We've fine tuned given the latest.
Speaker Change: Interest rates.
Speaker Change: FX.
Speaker Change: And we estimate the quarterly impact is around 11.
Speaker Change: Okay. Thank you maybe on.
Speaker Change: Yeah.
Speaker Change: The epilepsy Neuromodulation this in 2025.
Speaker Change: Heard the comments there around.
Speaker Change: Slower I guess weaker replacement cycle from the 2020.
Speaker Change: Weaker I guess.
Speaker Change: Down year in that segment.
Speaker Change: From Covid when you think about the potential.
Speaker Change: Joel impact there in 2025, I heard you called out 2019, and 2020 impacts on the replacement cycle for 25.
Speaker Change: Much of that.
Speaker Change: Is baked.
Speaker Change: Or coming from that 2020 down year in the question more so is it.
Speaker Change: Looking into 2026.
Speaker Change: Is there the potential for some of that weaker 2020 volumes to drag into 'twenty sector has a lot of this.
Speaker Change: <unk> going to be in 'twenty, five and therefore can be offset by some other segments or some other kind of new investment in the R&D pipeline and as you get into 'twenty six 'twenty seven.
Speaker Change: Thank you.
David Driscoll: Yes, David Thank Joe Let me start and then I'll ask Alex to build on this but.
Speaker Change: To step back.
Speaker Change: Okay.
Speaker Change: GRE.
Speaker Change: It's still a massive opportunity for us.
Speaker Change: And the starting point there is.
Speaker Change: Just on the U S. There are over 1 million patients that are untreated.
Speaker Change: Today that number is even larger around the world. So the driving procedure penetration is.
Speaker Change: He is a significant opportunity.
Speaker Change: And <unk>.
Speaker Change: Plays to our strength because we are the market leader in the space. So our key focus is to increase.
Speaker Change: New patient than one patients through better commercial execution through bringing innovation.
Speaker Change: <unk> talked about it and we can unpack that a bit more through working on market access both on our reimbursement and indication point of view.
Speaker Change: And through demonstrating clinical evidence of the VNS technology. So all of that gives us.
Confidence in.
Speaker Change: <unk> continues to improve then you paid.
Speaker Change: Yes.
Each will be the main growth driver for us in 2025 and beyond.
Speaker Change: And then.
Speaker Change: Just follow up on your question around replacements.
Speaker Change: And we've been we've been talking about this for a while now but we are now lapping.
Speaker Change: Sort of down years in total implants in 2019, and 2020 and that's what we're factoring into our forecast for this year. So we expect.
Speaker Change: Placements to be flat in 2025.
Speaker Change: And then.
Speaker Change: We'll see how how does.
Speaker Change: The year goes in.
Speaker Change: What what that looks like for 2026.
Matt Taylor: Our next question comes from Matt <unk> with Barclays.
Speaker Change: Your line is open.
Speaker Change: Thanks, so much for taking the question so.
Speaker Change: Just one follow up on an epilepsy in the comments you made.
Speaker Change: Talk about 4% to 5% for the full year and.
Speaker Change: Journey.
Speaker Change: Business to that kind of high single digit range with that is that guide kind of assume that you would get there by midyear.
Speaker Change: Any color in terms of the mechanics of the changes that you've made.
Speaker Change: Regionally or anything else you could you could add to that that airport.
Matt Taylor: Thanks, Matt.
Speaker Change: Believe it's going to be as Alex said is going to be well balanced throughout the year.
Matt Taylor: Sure.
Matt Taylor: We will start seeing already at the end of last year, good leading indicators in terms of the team and how they're executing and so we expect.
Matt Taylor: Kind of coming back to.
Normalized growth in fixing those execution issues.
Matt Taylor: Great, great really well balanced throughout the year.
Matt Taylor: Got it so maybe exiting the year at that high single digit level for.
Matt Taylor: For the full year more like.
Matt Taylor: Ballots.
Matt Taylor: Mid single digits across the board is that fair.
Matt Taylor: I would say.
Matt Taylor: Mid single digits across the board.
Matt Taylor: And we've guided but specifically to Europe, and some of the areas, where we reflect the execution issues.
Matt Taylor: And the rest of the world.
Matt Taylor: We believe a return to high single digits and low double digit growth.
Matt Taylor: Throughout the year.
Matt Taylor: Got it okay.
Matt Taylor: And then just.
Speaker Change: Appreciate all the color on the OSA side and looking forward to seeing the data carried about.
Speaker Change: The strategy as it continues to develop it on cardiopulmonary.
Speaker Change: Larry.
Speaker Change: Really strong continued growth there you're investing in capacity I remember.
Speaker Change: The thinking was that this was going to be.
Speaker Change: Kind of a temporary.
Speaker Change: It's almost like it's temporary.
Speaker Change: Well in the business that over time.
Speaker Change: You were kind of expecting or projecting maybe not having the visibility a year ago or six months ago that this might start to fade.
Speaker Change: Right.
Speaker Change: It might be a little more permanent.
Speaker Change: Or sustainable in the high single digit range can you talk a little bit about that has there been kind of an increasing confidence or.
Speaker Change:
Speaker Change: Yes.
Speaker Change: Horrible share gains there I appreciate the color.
Speaker Change: Matt. Thank you for the question I think for me also joining by about a year ago. This was a learning journey. Both in terms of how we execute but also about the market and so you are right I have significantly more confidence now on sustainability of that growth.
Speaker Change: And it starts really its about three dimensions for US one is quite poor.
Speaker Change: And we've talked about them the procedure growth.
<unk> has been better than it was historically and I think thats driven by the fact that maybe.
Speaker Change: Patients that are coming in.
Speaker Change: <unk> in hospital setting both cardio vascular disease are more advanced and I'm going to open heart surgeries and then maybe some other reason behind them, but the market seems healthy.
Speaker Change: Leave Aloha from my experience as a real benchmark and pricing strategies and that really helped us.
Speaker Change: Specifically in our disposables.
Speaker Change: And we believe that price will continue to be significant.
Speaker Change: Growth lever for us.
Speaker Change: We talked about <unk>.
Speaker Change: From 40%.
Speaker Change: Awesome.
Placement.
Speaker Change: Versus the older players in all units placed in 2024% to 60%.
Speaker Change: And then in 2024.
Speaker Change: The price upgrade was about double essence versus the previous generation.
Speaker Change: So we believe that the.
Speaker Change: Upgrade from 40% to 60% will be a major driver and the way you can think about it is the.
Speaker Change: A year after it will be 80% and then the year after will be close to 100%. So it gives us.
Speaker Change: Tailwind.
Speaker Change: Into the future.
Speaker Change: And then finally and I think this is where most questions work as our market share on the disposables and.
Speaker Change: Over the past couple of years, we had a very strong run in terms of market share gains we estimate that we gain from low <unk> to mid <unk> in terms of share.
Speaker Change: And that trend continues throughout the year I think one of the reasons that we've achieved market share gains with our ability to execute on capacity increases and I want to bring it a little bit of color to that.
Speaker Change: Last year, we were able to improve our manufacturing processes and increased shifts and drives 10% capacity increase.
Speaker Change: This year.
Speaker Change: It's going to be continuous improvement.
Speaker Change: Okay.
Speaker Change: An improvement in our manufacturing processes.
Speaker Change: As well as bringing our key suppliers.
Speaker Change: Sure.
Speaker Change: And upgraded level off.
Speaker Change: Capacity supply for key components.
Speaker Change: So that gives us a path.
Speaker Change: 10% to 15% capacity increase this year, we are guiding.
Speaker Change: What's in the guidance of 7% and reuse, but I think we have about 2% to 15%.
Speaker Change: Okay.
Speaker Change: Our suppliers executes on on their commitments.
Speaker Change: And then finally, a 26 and beyond we are expanding our manufacturing footprint to make sure that we can deliver on this long term. So net net I think we are very well positioned to continue to gain market share and youll need.
Speaker Change: Some of the recent disruption with one of our competitors.
Speaker Change: I think we're well positioned to.
Speaker Change: <expletive>.
Speaker Change: The advantage of that disruption as well.
Speaker Change: That's very helpful color. Thanks.
Speaker Change: Our next question comes from David Roman with Goldman Sachs.
Speaker Change: Please go ahead.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you and good morning.
Speaker Change: I had one question just from a capital allocation standpoint, and one maybe just to try to pull a lot of the moving parts here together in the quarter and the outlook, maybe starting on the capital allocation side like.
Speaker Change: Can you help us think about the decision making process to invest in different parts of the business and I guess when you look at the success you've had with the <unk> upgrade and some of the drivers within your core franchises.
Speaker Change: A significant return for you from both a strategic and financial perspective, and then if you look over to some of the pipeline initiatives, whether that's DTD. Our OSA does continue to consume a significant amount of resources that looked like it's very hard to see a scenario where those become.
Speaker Change: Our return accretive over time, so how do you think about investing in our core business continuing to pursue these moonshot type R&D initiatives versus utilizing some of that cash for external investments.
Speaker Change: Yes.
Speaker Change: Just going to.
Correct. One word you used in your question then not moon shots anymore.
Speaker Change: And with that caveat I am going to start and then I'll ask Alex to build on that so you're absolutely right that.
Speaker Change: Number one foundation for our future growth today is continuing to sustain.
Speaker Change: Growth in our core businesses in epilepsy, and cardiopulmonary and like I said.
Speaker Change: This.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: For things that will drive our growth will be <unk> in epilepsy.
Speaker Change: Upgrade to Athens.
Speaker Change: In cardio.
Speaker Change: Cardiopulmonary gaining more share in cardiopulmonary disposables.
Speaker Change: And our pricing.
Speaker Change: So this continues.
Speaker Change: To drive our growth and.
Speaker Change: We have reinvested in our core.
Speaker Change: To make sure that our innovation pipeline in the core and our commercial execution and all manufacturing capacity.
Speaker Change: Are well positioned to drive this growth in the future.
Speaker Change: I always say on DTD.
Speaker Change: Very important for us because they get us into the faster growth markets and in both areas.
Speaker Change: We've achieved significant milestones that de risk our.
Confidence in making this business was successful in creating value for our shareholders, but if I look holistically.
Speaker Change: In terms of R&D spend for example, our R&D spend.
Speaker Change: <unk> is as a percentage of sales is declining.
Speaker Change: We proportionately spending more on our core businesses and less on OSA in <unk> driven by the fact that all clinical spend has gone down.
Speaker Change: And so now we are on OSA, specifically, we're more in the product development spend.
Speaker Change: And we feel very strong about our ability to win in this market.
Alex Schwartzberg: And maybe Alex if he can bring more color yeah, I'd just say that.
Alex Schwartzberg: First of all we'll talk more about our capital allocation strategy during our Investor day, but just at a high level, we're looking at very.
Alex Schwartzberg: Very large.
Underserved markets that continue to grow both OSA DTD as an untapped opportunity.
Alex Schwartzberg: We feel like we have the opportunity to win in that space.
Alex Schwartzberg: The clinical evidence that we've generated through these studies is very compelling.
Alex Schwartzberg: And we believe that.
Alex Schwartzberg: Through science, we have the ability.
Alex Schwartzberg: An opportunity to compete and win.
Speaker Change: Maybe I'll just add one comment I want to emphasize something glass.
Speaker Change: I'll be very quick so are probably at least 10% of sales will continue to go towards the benchmark lower numbers, particularly because of what <unk> said, our clinical spend are coming to an end for both OSA in depression that allows us to significantly reduce the burden on those two elements.
Okay.
Speaker Change: I appreciate all the perspective, and maybe just to kind of just want to make sure that kind of taking away here.
Speaker Change: The key message in the quarter and those in the forward outlook, Obviously 2025 24 excuse me carried a period.
Speaker Change: Elevated growth associated with the essence upgrades.
Speaker Change: You've talked a lot about that as we looked at 2025, 6% to 7% organic growth that reflects the continuation of above.
Speaker Change: And market growth and then the earnings guidance that you've offered does include continued investment in OSA. So as I think about the base business is it fair to think about 6% to 7% top line growth almost double that on the bottom line when excluding some of the investment in these new growth initiatives and I'm not asking you for.
Speaker Change: We're in <unk>, but just conceptually is that a fair way to think about your topline and bottomline growth objectives on a go forward basis, which is.
Speaker Change: Core growth in your existing franchises leverage through the P&L that allows you to reinvest into some of these new initiatives, but still drive earnings growth ahead of ahead of the top line.
Speaker Change: Yes.
Speaker Change: Hi, David So we will we'll unpack the components of our our businesses in.
Speaker Change: The P&L.
Speaker Change: Associated with them so in the core so cardiopulmonary in epilepsy. Our objective is to continue in this has been a stated objective since last guide here to continue to grow those businesses at above market.
Speaker Change: Growth rates.
Speaker Change: And with that continue to grow our bottom line and continue to expand our margins there.
Speaker Change: A faster pace than revenue growth so.
Speaker Change: You sort of have to.
Speaker Change: Compartmentalize that with with the core relative to these growth opportunities. These growth opportunities, we'll have to nurture them. We're not naive to say that we will have to invest behind them, but they do represent significant growth opportunities with very healthy margin profiles. So we're excited.
Speaker Change: <unk>.
Speaker Change: Bringing those to market.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our next question comes from Adam <unk> with Piper Sandler. Please go ahead.
Speaker Change: Hi, good morning, and thank you for taking the questions.
Speaker Change: Wanted to start with one on the topline guidance for 2025.
Speaker Change: Specifically around what's assumed for pricing so just remind us how much price you took.
Speaker Change: And the growth contribution for calendar year 'twenty four and then how do we think about that 6% to 7% organic growth guidance for 25, and let's assume for price mix benefit and that I had a follow up thanks.
Speaker Change: Yes.
Speaker Change: Good morning.
Speaker Change: <unk>.
Speaker Change: Our price in and I exclude equipment out of the sorry, excluding the ethylene subgrade contributed approximately.
Speaker Change: Two and a half to 300 bps of growth.
Speaker Change: In 'twenty 'twenty four.
Speaker Change: <unk> continues to be a strong lever off of our performance.
But if behind your question is do we have upsides on those than I think our opportunity to accelerated growth.
Speaker Change: <unk> will come from <unk>.
Speaker Change: Areas and one is to continue.
Speaker Change: Gained share in our cardiopulmonary disposables and tool has accelerated beyond.
Speaker Change: 60% penetration of essence or.
Speaker Change: Additional price premium on vessels. So those will be the bigger drivers I think price like I said is.
Speaker Change: The strength of capability of Lenovo.
Speaker Change: And I think it's well reflected in the guidance.
Speaker Change: That's helpful. Thanks for the color there and for the follow up.
Speaker Change: Ask about <unk>.
Sleep apnea, it certainly sounds like there's a lot of product development work, that's going on behind the scenes.
I was hoping you could flesh that out for us.
Speaker Change: What exactly are you working on.
Speaker Change: I guess a couple of things are you trying to expand or better the recharge burden, maybe just remind us about the MRI compatibility or are you looking at a primary cell device.
Speaker Change: How quickly can those pieces of innovation.
Speaker Change: Come to the marketplace.
<unk>.
Speaker Change: Yes sure so.
Speaker Change: Obviously, we did a clinical trial with a design and <unk>.
Speaker Change: Typically with any of these types of clinical development. The device that you do design within the device that you launch you do some upgrades and you look at things like manufacture ability and yield.
Speaker Change: Some product feature related improvements. So we are doing a lot of that.
Speaker Change: <unk> compatibility is important to us so in the full commercial launch there.
Speaker Change: <unk> will be MRI compatible.
Speaker Change: That's an important element when it comes to the primary seller rechargeable.
Speaker Change: Our position is that there is pros and cons on both we don't believe primary cell has just pros and.
Speaker Change: Rechargeable batteries, Colin so there's some advantages.
Speaker Change: For having rechargeable for example, youre not.
Speaker Change: Strictly by the energy energy consumption. So you can find more therapy, because you're not worried about the depleting the battery, but what we're really working on is that we have a very unique architectural design, we have six electrodes and what the six electrodes allows us to do is that it really allows you to titrate and do a personalized <unk>.
Speaker Change: Treatment for each patient so a lot of our efforts are going into how do we continue to see upgraded therapy by fully utilizing this architectural advantage we have with the six electrodes. So our energy is going throw more future sets and improvements of therapy.
Speaker Change: And MRI comparatively as I said will be part of the launch, but we're not actively working on a primary cell because it will negate some of the architectural advantages we have if we have energy restrictions in the battery.
Okay.
Very helpful color. Thanks, Matt.
Speaker Change: Thank you, we'll now take time for the question. So I'll pass you back key Latino market area for any closing remarks.
Well, thank you everybody.
The body for joining the call today for questions and on behalf of our entire team.
Speaker Change: Certainly I appreciate your support and interest in live on all of them have a great day. Thank you.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your line.
Speaker Change: Yeah.
Speaker Change: [music].