Q1 2025 LivaNova PLC Earnings Call
The End
U.S. Department of State
Emily: Good day ladies and gentlemen and welcome to the LivaNova PLC First Quarter 2025 earnings conference call. My name is Emily and I'll be coordinating your call today.
Emily: As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President and Investor Relations. Please go ahead.
Briana Gotlin: Thank you and welcome to our conference call and webcast discussing LivaNova's financial results for the first quarter of 2025.
Speaker Change: Joining me on today's call are Vladimir Makatsaria or Chief Executive Officer and Member of the Board of Directors
Zach Glazer: Alex Shvartsburg, Archief Financial Officer, Ahmet Tezel, Archief Innovation Officer, Stephanie Bolton, President of Global Epilepsy, and Zach Glazer, Director of Investor Relations.
Speaker Change: Before we begin, I would like to remind you that the discussions during this call will include forward-looking statements.
Speaker Change: 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 statement.
Speaker Change: Also, the discussions will include certain non-GAAP financial measures with respect to our performance, including but not limited to revenue results which will be stated on a constant currency and organic basis.
Speaker Change: Reconciliation to the most directly comparable gaps financial measures can be found in today's press release, which is available on our website.
Speaker Change: We have also posted a presentation to a website that summarizes the points of today's call.
Speaker Change: This presentation is complimentary to the other call materials and should be used as an enhanced communication tool.
Vlad: You can find the presentation and press release in the Investor's section of our website under news, events and presentations at investor.livaNova.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 LivaNova's conference call for the first quarter of 2025. Before turning to results in the quarter, allow me to comment on a few important updates.
Vlad: The 12-month data from our Osprey trial, the sneer ruling, and the impact of terrorists.
Vlad: This morning we announced 12 months top line data from Osprey, a randomized control trial for moderate to severe obstructive sleep apnea or OSA.
Vlad: The study featured a differentiated neurostimulation modality called proximal hypoglossal neurostimulation or PHGNS.
Vlad: The Osprey trial demonstrated rapid and sustained improvement for patients who received the HGNS, including those with severe OSA elevated body mass index or BMI and high risk of complete concentric collapse.
Vlad: At 12 months of therapy, the treatment on responder rate was 65% [inaudible]
Vlad: The Osprey 12-month results further validate the potential of this therapy as a treatment alternative for the large and growing OSA population.
Vlad: With the strength of our clinical data, the expertise of our neuromodulation team and the strategic growth opportunity ahead, we are eager to bring the innovation to patients.
Vlad: Ahmet will provide additional details on the trial results and our differentiated technology later in the call.
Turning to the snail litigation.
Vlad: Our first quarter results include a liability of $360 million related to the Italian Supreme Court decision.
Vlad: which we disclosed a few weeks ago. Importantly, we believe the court's decision effectively retires a long-standing overhang on the company.
Vlad: Alex will provide more details on the financial implications of the ruling later in the call.
Vlad: Regarding tariffs, we're operating in an uncertain environment and our top priority is to provide critical medical technologies to our customers and their patients. [inaudible]
Vlad: Based on an assessment of our geographic manufacturing footprint and supply chain, at present, where expect tariffs will be a small and manageable headwind, FolivaNova, which is captured within the guidance provided today.
Vlad: Alex will provide more details on our manufacturing footprint and financial consideration related to tariffs later in the call.
Vlad: For the remainder of the call, I will discuss our first quarter results and update our revenue guidance for the full year 2025.
Vlad: After my comments, Ahmet will discuss our significant clinical and regulatory achievements in OSA and progress in difficult to treat depression or DTD.
Vlad: Alex will then provide additional details on our results and updated 2025 guidance.
Vlad: I will wrap up with closing remarks before moving to Q&A.
Vlad: In the quarter, we achieved 10% organic revenue growth versus the prior year [inaudible]
Vlad: Driven by the continued success of the essence rollout, demand for cardiopulmonary consumables, and strong neuromodulation performance in the Europe and rest of the world regions.
Notably, this marks the eighth time. [inaudible]
Vlad: In the past nine quarters, that LivaNova has delivered double-digit, organic revenue growth.
Vlad: This top line result, coupled with operational efficiencies, contributed to meaningful operating income growth and cash generation.
Now turning to segment results.
Vlad: For the Cardiopumenary segment, revenue was $176 million in the quarter.
and increase of 15% versus the first quarter of 2024.
Vlad: Hardline Machine Revenue grew approximately 30% versus the prior year period. [inaudible]
Vlad: In the quarter, we achieved a strong increase in essence placement and sustained favorable price premiums.
Vlad: Oxygenator Revenue grew in the high single digits driven by customer demand and price.
Vlad: The Oxygenated Business continues to see strong demand outpacing the market's ability to supply.
Vlad: Our operations team is working diligently to increase manufacturing capacity to meet customer demand.
Vlad: We now expect Cardiopulmonary revenue to grow 9-10% for the full year of 2025, up from 7-8% previously.
Vlad: Our revised forecast incorporates continued HLM growth as we launch essence in the new market and continue to increase penetration in existing markets.
Vlad: Notably, in April , we received regulatory approval for essence in China, which is our second largest market for HLM after the US.
I'll forecast also reflect increased demand for consumables
Vlad: Beyond 2025, we believe further oxygenated capacity expansion will continue to enable growth for the cardiopulmonary business.
Vlad: We're currently investing in an additional manufacturing line which we expect to have running by mid-next year.
Vlad: We expect that this increase in output will support our strategy of taking additional share in consumables going forward.
Vlad: We also anticipate sustaining double-digit growth in HLM as we continue to launch essence in new markets and further increase penetration in existing ones.
Starting to epilepsy [inaudible]
Vlad: Revenue increased 4% versus the first quarter of 2024, led by the Europe and rest of world regions, which increased the combined 13% versus the prior year period.
Vlad: We were pleased by the notable improvements in commercial execution across Europe during the quarter.
Vlad: This performance was balanced by U.S. epilepsy revenue growth, which increased 2% year over year.
Vlad: During the quarter, our US policy business experienced procedure deferrals related to a voluntary field safety notification, which we estimate had an unfavorable impact on revenue of less than two million dollars.
Vlad: The field safety notice involved a component issue that affected 0.13% of current and past sentiva generators and required a design change.
Vlad: While the current version of Sintiva continues to be implanted, the design change was recently approved by the FDA.
Vlad: We expect the updated Geneva generators to be available for distribution by mid-year in the US and most major geographies during the second half of 2025.
Vlad: We believe customer anticipation for the updated generators is delayed procedures in the first half of the year and will primarily impact timing rather than procedure loss. [inaudible]
Vlad: For the full year 2025, we continue to expect epilepsy revenue growth of 4-5%.
Vlad: Our forecast incorporates low single-digit growth in the US versus mid single-digit growth previously.
Vlad: and assumes the Europe and rest of world regions will grow a combined blow double digits for the year, up from high single digits previously.
Vlad: We continue to see momentum in our global epilepsy business across volume, price, and mix, and we feel confident in our ability to achieve mid single digit growth this year.
Vlad: Before turning the call to Ahmet, I would like to mention a change in our reporting. Over the last year, as LivaNova CEO , I have reviewed our communication and disclosure practices.
Vlad: That reflection has led us to refine what report on a quarterly basis.
Vlad: While we have historically disclosed US new patients and replacement implant volume growth, going forward we will not be disclosing this matrix each quarter.
Vlad: However, we will continue to periodically comment on and provide insights into trends when relevant and appropriate to do so.
Vlad: We are making this change because we firmly believe that viewing this business through a long-term value creation framework is the best lens for investors.
Vlad: Our quarterly disclosure approach will focus on revenue growth, which best represents our business performance and is in line with our existing practice for the Europe and rest of world regions.
Vlad: Our teams around the world remain focused on narrowing the drug-resistant epilepsy treatment gap and maximizing BNS therapy access.
Vlad: In summary, due to the strong growth we saw in the first quarter. [inaudible]
Vlad: As well as the continued success of the essence rollout, market share gains and cardio pulmonary consumables, and pricing strategies, we are raising our overall organic growth outlook by 100 basis points.
to between seven and eight percent. [inaudible]
Vlad: Alex will provide additional details on our 2025 guidance later in the poll.
Vlad: With that, I will turn the call over to Ahmet to provide an update on our recent clinical and regulatory achievements in OSA and progress in DTD.
Speaker Change: Thanks, Vlad. As Vlad mentioned, and as was announced in a standalone press release this morning, LivaNova achieved two critical milestones in the OSA program.
Speaker Change: First, we're excited to share the strong 12-month top-line data from our Austrian clinical study for modern to severe USA.
Speaker Change: Responder rates in the treatment group were strong throughout the first year, with one in four patients responding on day one, 50% responding by a month three, and 65% responding by the 12 month mark.
demonstrating rapid therapeutic onset and durable benefits over time.
Speaker Change: As a reminder, Austria is the first and only randomized control trial for hypoglossal nurse simulation therapy to support U.S. regulatory approval to date.
Speaker Change: The study features a differentiated nerve stimulation modality called proximal hypoglossal nerve stimulation or P-H-N-S which utilizes six electrodes placed on the proximal trunk of the hypoglossal nerve.
Speaker Change: It offers broad access to the muscles controlling the airways and provides customized titration.
Speaker Change: The study enrolled a patient population representative of the general OSA population, including patients with greater OSA severity and higher BMI relative to other large-scale trials in support of USFDA approval.
Speaker Change: Notably, Osrey was also designed to include patients with complete concentric collapse or triple C.
Speaker Change: Importantly, response rates and AHA reductions at month 12 for patients in Osprey with predicted risk of triple C were consistent with the results of the full study population, demonstrating the robustness of the therapeutic response.
Speaker Change: In addition, we're excited about the median infant procedure time of 72 minutes exhibiting speed and efficiency of implantation.
Speaker Change: We are pleased to announce that we recently completed our PMA submission to the FDA based on meeting the primary safety and efficacy standpoint.
Speaker Change: We have provided the agency with the interim 12-month results from the study and intend to share the complete 12-month data set in support of its inclusion on the product label.
Speaker Change: We look forward to continuing to work with the agency on their review.
Speaker Change: With respect to our product plans, we're pleased with the progress we have made in the development of our MRI compatible device as we work toward a full commercial launch.
Speaker Change: As we look ahead, we are working to ensure a competitive and differentiated product portfolio through our proximal hypoglastal nerve stimulation platform.
Speaker Change: For example, one area of exploration is fully utilizing all six electrodes of RPHNS technology to further improve the already strong treatment effect.
Speaker Change: Since each electrode can be operated independently, proximal HMS offers the potential to further customize therapy for challenging patients.
Speaker Change: We will provide additional details on our product roadmap and launch plans during the investor day later this year.
Speaker Change: Turning to difficult to treat depression, we are pleased to share that two additional critical publications have been released bringing the total to four. The fifth and final critical publication is expected to be published in the second quarter. [inaudible]
Speaker Change: Collectively, the article highlights the significant onmet need of this markedly ill population with treatment resistant depression or TRD.
Speaker Change: The recovery data demonstrates that Vienna's therapy improves symptoms, function, and quality of life in TRD patients over time.
These are all come measures identified as clinically relevant by CMS.
Speaker Change: Depressive symptoms, daily function and quality of life taken together as a novel composite metric present a more complete picture of the treatment effectiveness than symptoms alone.
Speaker Change: The fifth and final critical publication, currently under review, utilizes this composite metric and demonstrates a favorable response to Vienna's therapy in TRD patients who had previously failed multiple treatments, including intervention therapy.
Speaker Change: Researchers found that patients with previous electroconvulsive therapy or transcranial magnetic stimulation treatment has statistically significant and clinically meaningful benefits with the NS therapy.
Speaker Change: Notably, VNS therapy is the only treatment that has demonstrated therapeutic effects in patients that previously failed electroconvulsive therapy.
Speaker Change: As a reminder, all pre-specified recover endpoints favored active vNacerity and the totality of evidence supports our pursuit of Medicare coverage for vNacerity for TRD patients with high unmet treatment needs.
Speaker Change: As we have done throughout the recovery program, we continue to partner with CMS through the coverage with evidence development program, working toward a request for national coverage.
Speaker Change: We will initiate the reconsideration submission process following publication of the fifth and final critical manuscript.
Alex: In summary, we are encouraged by the significant regulatory and clinical milestones achieved in OSA and our progress in a difficult to treat depression program. We look forward to sharing future updates. With that, I will turn the call over to Alex. Thank you very much.
Thanks, Ahmet.
Alex: During my portion of the call, I'll share a brief recap of the first quarter results and provide commentary on our updated full-year 2025 guidance.
Alex: which reflects improving business performance and incorporates the impact of snea and tariffs.
Alex: Turning to results, revenue in the quarter was $317 million, an increase of 9% on a constant currency basis, and 10% on an organic basis versus the prior year. [inaudible]
Alex: Foreign exchange in the quarter had an unfavorable year-over-year impact of approximately $4 million or 1%.
Alex: Adjusted gross margin as a percent of net revenue with 70 percent compared to 71 percent in the first quarter of 2024
Alex: This year, over a year, decreased, was driven by unfavorable product mix and inflationary headwinds.
Partially offset by favorable pricing across segments and geographies.
Alex: Adjusted R&D expense in the first quarter was $38 million, compared to $43 million in the first quarter of 2024.
Alex: R&D as a percent of net revenue was 12 percent, down from 15 percent in the first quarter of 2024.
Alex: The year-over-year decrease was primarily driven by investment optimization in the DTD program as we continue to pursue CMS coverage and the wind-down of the ACS segment.
Alex: Adjusted SGNA expense for the first quarter was $120 million, compared to $113 million in the first quarter of 2024.
Alex: As she and I as a percent of net revenue was 38% and in line with the first quarter of 2024.
Alex: The year-over-year increase on a dollar basis was driven by commercial investments to support growth as well as systems infrastructure to drive efficiencies and scalability.
Alex: Adjusted operating income was $65 million, compared to $53 million in the first quarter of 2024.
Alex: Adjusted operating income margin was 20%, compared to 18% in the first quarter of 2024.
Alex: This increase was primarily driven by higher revenue, optimization of DTD program spend, and the wind-down of the ACF segment.
Alex: Adjusted effective tax rate in the quarter was 24%, compared to 21% in the first quarter of 2024.
Alex: The increase was related to changes in geographic mix and a roll off of tax attributes that have contributed to our historically low effective tax rate. [inaudible]
Alex: Adjusted diluted earnings per share was 88 cents, compared to 73 cents in the first quarter of 2024. The increase was primarily driven by adjusted operating income growth.
and partially offset by higher effective tax rate.
which negatively impacted EPS by three cents. [inaudible]
Our cash balance at March 31st. [inaudible]
with $738 million, up from $429 million at year-end 2024.
Alex: The increase primarily reflects the reclassification of $295 million, a restricted cash, due to the termination of the collateral cash deposit associated with the Sneha litigation guarantee.
Alex: Adjusted pre-cashelo for the quarter with $20 million, up from $11 million in the prior year period.
Alex: The year-over-year increase was primarily driven by stronger operating results and continued working capital improvements.
Alex: I'd like to point out this year we accelerated LivaNova short-term and son of bonus payouts in the first quarter.
which have historically been paid in the second quarter. [inaudible]
Alex: This will also create a tailwind for our free cash flow in the second quarter on a year-over-year basis.
Alex: Capital spend was $11 million in the first quarter compared to $6 million in the prior year period.
Alex: The year-over-year increase was driven by IT investments and cardiopulmonary capacity expansion initiatives.
Now, Turning Tour, updated 2025 guidance.
Alex: We now forecast 2025 revenue growth between 6 and 7% on a constant currency basis.
and between 7 and 8% on an organic basis.
Alex: The impact of foreign currency is now expected to be a headwind between 0 and 1%.
Alex: We continue to forecast a full-year adjusted effective tax rate of approximately 24 percent, representing an increase of 300 basis points versus 2024.
Alex: And now I'll provide an update on the CN environmental litigation matter.
Alex: In connection with the Italian Supreme Court decision on March 14th that LivaNova can be held liable for the established liabilities of Snia, the company recorded a liability of $360 million in the first quarter.
Alex: The court also ruled that LivaNova should not be held responsible for certain payments.
Alex: was previously decided by the Court of Appeal of Milan in the amount of approximately $170 million.
Alex: Considering the Supreme Court's ruling and our strong cash position, on May 2nd, we repaid $200 million of term facilities which had a principal balance of $313 million as of March 31st.
Alex: The remaining term facilities balance is now considered a permanent part of the company's capital structure.
Alex: As a result, beginning in the second quarter, the related net interest expense will no longer be excluded from operational financial results.
Alex: The adjusted diluted earnings per share impact for the balance of 2025 is approximately 20 cents.
Alex: Importantly, we believe the court's decision effectively retires a longstanding overhang on the company.
Alex: to incorporate this NEA impact and reflect the stronger operational performance in our business.
Alex: We're updating our 2025 adjusted diluted earnings per share range to $3.60 to $3.70 with adjusted diluted weighted average shares outstanding to be approximately $55 million for the full year.
Alex: If we were to exclude this knee-ahead win, as we did in the fourth quarter, our previous guidance range would have increased by approximately 15 cents to $3.85 at midpoint.
Alex: A Joseph Pre-Cash Low still expected to be in the range of 135 to 155 million dollars due to working capital improvements.
This range includes approximately $90 million of capital spend.
Alex: driven by critical investments in IT infrastructure, innovation, and growth, including the Cardiopulmonary Compacted Expansion Initiatives.
Alex: I'd also like to call out that the guidance ranges shared today incorporate our best estimate of the potential impact of currently applicable tariffs.
Alex: We have initiated a tariff mitigation plan that includes both a holistic assessment of our supply chain as well as potential pricing actions.
Alex: Based on the assessment, LivaNova is well positioned to manage the impact of tariffs.
Terrific impacts on our supply chain.
and component costs are currently estimated to be negligible.
Alex: With respect to our manufacturing footprint, our neuromodulation products are manufactured in the US.
Alex: and approximately 80% of the corresponding revenue is generated in the US.
Alex: R.H.L.M. and the bulk of our cardiopulmonary disposables are manufactured in Germany and Italy respectively.
Alex: and approximately two-thirds of our cardiopulmonary revenue is generated outside of the US.
Alex: In total, we estimate a tariff impact of less than $5 million in dollars.
on adjusted operating income for the balance of the year. [inaudible]
Alex: The 2025 guidance range is shared today fully incorporate the impact from currently applicable tariffs.
So we acknowledge the environment remains uncertain
Alex: In summary, we had another quarter of strong execution marked by double digit organic revenue growth.
This drove over 200 basis points of operating income expansion. Thank you very much.
Alex: A 21% increase in the adjusted diluted earnings per share and meaningful improvement in cash generation.
Alex: Our updated 2025 guidance reflects both the strength of our underlying performance and continued investment in our core businesses and innovation pipeline.
Alex: We look forward to providing a more comprehensive update on our capital allocation plans.
at our investor day.
With that, I'll turn the call back over to what?
Thank you, Alex [inaudible]
Let me close by reinforcing what makes Liva Nova unique.
Alex: We hold leadership positions in both cardiopulmonary and epilepsy where we are continuing to drive growth and margin extension while investing in innovation.
Alex: Cardiopulmonary grew double digits in the first quarter, with increasing adoption of essence.
Alex: Strong demand for consumables and clear line of sight to additional growth as we continue the essence roll out and expand manufacturing capacity.
Alex: In epilepsy, our full yet trajectory remains unchanged as we focus on maximizing VNS therapy access.
in the under-penetrated drug-resistant epilepsy patient population. [inaudible]
Alex: Beyond the core, we are successfully executing against clinical and regulatory milestones in OSA.
Alex: In particular, the strong 12-month data from the Osprey trial validates the potential of our differentiated, proximal HGNS therapy and positions OSA as a significant long-term growth opportunity for LivaNova.
Alex: We also make an important progress towards CMS reimbursement or consideration in difficult-to-treat depression.
Alex: This program represents a meaningful opportunity to expand our portfolio and serve a large patient population with high-on-met need.
Alex: Finally, we believe the Italian Supreme Court's decision regarding the snea matter effectively retires a long-standing overhang for LivaNova and enables us to allocate capital with greater flexibility in line with our focus on long-term value creation.
Alex: We look forward to providing more detail on our pipeline, growth opportunities, and capital allocation strategy at our invest today.
Alex: With that, we are ready to open the call for questions.
Alex: Thank you. If 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 and then two. Thank you.
Alex: As we enter the Q&A session, please limit yourself to one question and one follow-up question and then return to the Q if you have additional follow-ups
Speaker Change: Our first question comes from the line of Rick Wise with Stiefel.
Please go ahead.
Good morning, everybody. Hi, Vlad.
Speaker Change: It's a lot done back here in a clearly directionally positive, very constructive performance seat.
Good to see it.
Speaker Change: And just, gosh, I can start in ten places, I'll start with the Osprey data.
maybe just at a high level, can you help?
us understand it can you help us frame.
Where you feel the data...
put you on a market, dynamic, market competitive basis. [inaudible]
Speaker Change: against the existing competitors, and maybe just give us some color on. [inaudible]
Speaker Change: You know, timelines and how you're thinking about developing the commercial potential as you move forward.
Thank you.
Speaker Change: Good to hear you. So we're very happy with this transfer of the clinical data and you know just to recap. Let's get started.
Speaker Change: In our pivotal, which was the first RCT in the field for the approval, we enrolled more severe patients compared to the other pivotal trials. So we started with higher NHI, higher BMI.
Speaker Change: The other really important differentiation is that we did not exclude triple C patients.
Speaker Change: I've seen our trial about a third of the patients who are high risk for triple C and in a general population it's about 25%. So we enrolled it slightly higher patients than the general population in terms of triple C risk. [inaudible]
Speaker Change: Now, despite this, more severe patients in the baseline and not excluding triple C patients,
Speaker Change: So, despite the severity and no exclusion of triple C, the therapeutic response was very strong, so we're very excited about it.
Now moving forward while these results are already very strong.
Speaker Change: We believe there's further optimization we can do of this technology because of that differentiated six electrode architecture where you put the electrodes on the proximal end of the nerve, at the trunk of the nerve.
Speaker Change: and that allows you to control a broader multiple groups that control the airway.
Speaker Change: Turning them on and off at different time points, and we're going to achieve that by using some automated algorithms so that the existing technology is very strong, but where this could go is even stronger. So we're very excited about it.
Speaker Change: You know, I don't want to comment on FDA timelines, but this is a modular PMA, so we already submitted multiple modules working closely.
Speaker Change: with the agency, and our last module was the critical module, and as we mentioned, we submitted that as well. So, we're hoping for a relatively quick review, and the fact that it's a module of PMA also helps that as well. And in terms of the commercial piece, I'll turn it over to Vlad.
and Rick Good Morning, thank you for the question and so...
Vlad: From a strategy point of view, this aligns very well with our direction to expand our portfolio into the areas of climate, clinical needs, high growth, and the areas where we have the right to win with our capabilities in your imagination. Thank you.
Vlad: And we believe that this differentiation, you know, first in their approach with a proximal hypoglossal nurse in relation. Secondly with the technology with six electrodes.
Vlad: And then finally where the addressable market was more severe patients, with high BMI, with the triple C, that we also anticipate a different change of commercial strategy.
Vlad: We are also in discussions with a number of potential partners to do that and now that we have 12 months data, you know, we're able to continue those discussions moving forward.
Vlad: And, you know, by the end of the day, we will frame our full strategy, including commercial execution moving forward.
Speaker Change: Great. And just my follow-up question. I was hoping you could unpack the outlook for the HLM business and a little more detail.
Vlad: I would say for essence you got some new geographic approvals, et cetera, and just help us understand where we are.
Vlad: in the essence placement rollout, rollout, lifecycle. And on the oxygenator side, you're expanding capacity. But is there anything new, any new perspective is on competitive return to the market? Or, you know, what's your line of sight there? Thank you so much.
Thank you.
Vlad: You know, the last two years, we've gained share, we estimate that we've progressed our share from low to mid-30s and getting the exit from surgical perfusion business gives us additional opportunity for... [inaudible]
Vlad: to share again, moving forward in the areas of each alarm heater cooler and then bypass disposables.
Vlad: On the Oxygenator, we continue to see strong demand and the demand continues to outpace the market's ability to supply. We continue to see our share gain momentum.
Vlad: In 2025, we are on traps, we have another 10% increase, and we have invested an additional manufacturing line, which we expectable life in the middle of next year, and that will give us a step change in 20% capacity increase.
Vlad: So on the disposable business, we, you know, we're pleased with the performance in terms of sheer gain and we see a path for longer-term growth and market share gain given our expansion and our capacity.
So that's on oxygenator front. On the HLM front.
just to remind you that Athens was...
Vlad: represented 40% of all the HLM placements in 2024. And this year we are on pass.
to get to 60% [inaudible]
Vlad: And so then if we look forward, we'll go from 60 to 80 and then to 100%
A major milestone for us is China.
Vlad: where we got regulatory approval for Athens. They had to expect the timeline, so in April , we received the approval in China. China is our second largest market worldwide after the US, in terms of HLNs. [inaudible]
Bye bye, um...
Vlad: The other thing that we're pleased with is we were able so far to maintain the price premium versus the previous generation.
Vlad: and that obviously is the significant growth rival for us. So I think on HLM, you know, we're very pleased with the performance in the first quarter. We're on path to get to 60% placement penetration and to maintain price premium.
Bye.
Thank you so much.
Speaker Change: Thank you. The next question comes from David Roman with Goldman Sachs. Please go ahead, David.
David Roman: Go through a little bit more detail as you think about the progression of what transpired between Q4 and Q1 and help us think about the sustainability of some of the changes you've made and the updated guidance you provided for that segment.
Or, hi, David, it's Kathy, thanks for the question.
David Roman: and focusing on our organic patient demand. We have started the year in a very healthy position and our performances and difficulties of organic patient demand.
David Roman: We've made some talent changes and the impact of those are starting to read through. We've got experienced leaders supporting the field in the team.
David Roman: The team in the field, rather, and we believe that the performance OUS will continue and we've incorporated that in the improved expectations for Europe .
for the guide, so...
David Roman: The other thing I would say is that we still know the significant opportunity in the region. The DRE population is even less penetrated outside the US and with our footprint and market leadership positions, we're able to drive penetration. Thanks for the question. Thank you.
and many more. Thank you. Thank you.
David Roman: of Revenue and Marketing Improvement. Is that? Should we think about the takeaway as you're utilizing, is that revenue and gross profit? That's it.
David Roman: Improvements that are helping cover the incremental investments in OSA and to see if there are other kind of objects the adjustments included in there as well [inaudible]
David Roman: Hi, David. Yes, it's largely revenue and growth margin, upside. We continue to optimize our spend across the PNL, but it's largely the top line and the associated growth margin. Thank you very much.
Got it, thank you [inaudible]
Speaker Change: Thank you. Our next question comes from Adam Maeder with Piper Sandler. Please go ahead.
Adam Mader: Good morning, all, and thank you for taking the questions, congrats, and then I start to the year.
Speaker Change: From my vantage point, I wanted to start on tariffs. Alex, if I heard the commentary correctly, it sounds pretty manageable. I think he said $5 million impact to adjusted operating income this year. Hopefully I heard that right. Can you just double click on some of the assumptions and the tariff math that's...
Speaker Change: built into, you know, the guidance. I think that came in better than expected. And then in terms of the care of mitigation strategy and kind of what's baked into the guidance, does that assume you're taking price?
Speaker Change: or passing one price, or is that not contemplated as an offset at this time? And then I'll follow up. Thanks.
Adam Mader: Hi, Adam. Yeah, so let me just start off. I think it's. [inaudible]
Speaker Change: You know, it's important to note that we are very well positioned [inaudible]
Speaker Change: Just, again, re-emphasize our manufacturing footprint. So our neuromod products, right, are manufactured in the US. 80% of our revenue comes from the US.
Speaker Change: Our HLM business and the bulk of our CP consumables are manufactured in Germany and Italy, right? And then two-thirds of that revenue base comes from outside the US.
Speaker Change: So you take that sort of as a whole, I think we have a largely manageable situation based on what we know today.
Speaker Change: And again, the tariffs are indeed captured in our guidance that we provided today, and that's less than $5 million in impact on our adjusted operating income for the balance of the year.
Thank you.
Speaker Change: Anderson, thanks Alex for the color there. You know, maybe I'll just ask one on the guidance front as well. You know, you raise the guidance seven to eight percent organic. Next.
Thank you very much. Thank you. Thank you.
Speaker Change: You know, on the top line, just maybe walk us through, you know, quarterly sequencing and I show the street sitting at Q2 revenue, I think 331 million. [inaudible]
Speaker Change: Or so 97 cents for just an EPS, just any reaction to those figures and any comments as you kind of think about the rest of your playing out. Thank you. Thank you very much.
and many more. Thank you for joining us. Thank you.
Speaker Change: I think from a top of one perspective, you know, you're the street is probably in the right zip code.
I think are...
Investments begin to kind of ramp.
Usually, our Q1 is kind of the...
Speaker Change: on the lower end of this spectrum as it relates to OPEX, so we start to ramp our...
Speaker Change: are operating expenses, kind of in the neighborhood of $162.25 million per quarter. So I think that's largely in line. Then of course in Q2, we start...
Speaker Change: The balance of the Permanente Facilities, so that's now incorporated into the operational performance metrics. So that's kind of the key adjustment there. Thank you.
Thank you.
Thank you.
Speaker Change: Thank you. The next question comes from Matt Taylor with Jeffries. Please go ahead.
Speaker Change: Good morning. This is Mike Sorkone from Matt Taylor. Thanks for taking the question. Just a quick clarification on Adam's first question. That $5 million tariff impact. Does that include the offsets from the mitigation strategies? Or is that just gross tariff impact and then any mitigation strategy would reduce that impact? Yeah.
Speaker Change: Yeah, so and I apologize to Adam for for missing that part of this question. Yeah, so we we had assumed that there might be some call it marginal price pricing actions to offset the, you know, the cost related to the tariffs. [inaudible]
Speaker Change: Okay, thank you. That's very helpful. Then I had one on US epilepsy. What type of visibility do you have into the channel? And I'm really trying to get at your level of confidence that the US epilepsy business won't be impacted in the near term more severely than you're baking into guidance?
Speaker Change: Sure, hi Mark, it's Steph. So we continue to be confident in the long-term trajectory of the business which we believe is the mid single-digit range.
Speaker Change: The epilepsy market is large, it's growing, and we are the market leader in the remodulation.
Speaker Change: From a shorter term perspective, where please, as I've already alluded to, with the performance and the execution that we've seen in Europe and Rest of World, which is reflected in this guide, we remain committed to our strategy, which is to maximize being a therapy access.
and to address this large unnamed DRE. [inaudible]
Speaker Change: You know, when you think about it, there are 40,000 patients in the US that are diagnosed each year, less than 25% of them are treated with a surgical intervention. So that's very much our mission to ensure that patients get access to advanced therapy. Okay.
Got it. Thank you very much.
and many more. Thank you. Thank you.
Speaker Change: Thank you. Our next question comes from Mike Matson with Needleman Co. Please go ahead.
Oh.
Speaker Change: Yeah, thanks for taking my question. You know, just with all the moving parts on the balance sheet with the other. Thank you very much.
Speaker Change: Potential payment of the cash out for Sneha, and then the debt repayment that you did. Can you just give us an estimate of where your leverage ratio is going to be, you know, once all that's kind of done. Thank you very much.
Speaker Change: And our leverage ratio today is extremely healthy, so I'll provide the sort of the exact numbers on some of our follow-up calls, Mike.
Speaker Change: I don't have that off the top of my head, but I assure you that our leverage ratio is very healthy at this point.
Thank you.
Speaker Change: Yeah, yeah, no, I'm not worried about it. I just was curious, you know, how much flexibility you have to do things like sherry purses or M&A about it. You kind of resolved that, that overhang of uncertainty around how much you would have to pay Italy for this person. [inaudible]
Speaker Change: We had a very healthy and strong cash balance to deal with that.
Speaker Change: We took the opportunity to repay $200 million of the term facility.
in terms of our capital allocation strategy.
Speaker Change: You know, our priorities to continue to build on the strong foundation and continue to invest in the core.
Speaker Change: to build on our market leadership. There with with innovation in Apple FC and C.P.
Speaker Change: As we talk about the T.P. manufacturing investments, our second priority is around OSA and because that presents a significant growth opportunity, obviously we've made great progress on that so far from a clinical and regulatory perspective. Thank you, David.
Speaker Change: and then we're open to the organic options for growth and really focused on attractive markets.
Ahmet: Hi, Ahmet Needs, and R.R.I. to win, and that will be done in a very difficult approach. Thank you very much.
Ahmet: So overall, I'm very comfortable with our capital structure as it stands today. We do have additional borrowing capacity if necessary.
Speaker Change: Okay, got it. And then just one quick one on the tariff. So you're saying that the 5 million is based on current tariff. So I'm assuming that
Ahmet: If the terror rates were to increase, when we hit that 90-day mark, post-April second, that number would likely increase. I mean obviously who knows what's going to actually happen, but...
Ahmet: Yeah, look, you know, we're operating in uncertain and kind of evolving.
Ahmet: environment, you know, when the 90-day time frame expires, you know, we'll reassess.
Ahmet: Right? Our teams are focused on the fundamentals and making sure that we have continuity supply to our customers and serving our patients. So, you know, as the 90-day clock expires, we'll take a look at our mitigation strategies, should the tariff situation change again? Bye.
Okay, got it. Thank you.
Speaker Change: Thank you. The next question comes from David, Rescott Woodbad. Please go ahead, David.
David Rescott: Oh, great. Thanks for taking the questions. I wanted to ask on this, you know, the bridge to the updated EES outlook that you provided in the. Thank you.
Speaker Change: Investor, Doc, you know, I think what you called out is, you know, had the snea environmental liability payout and associated debt reduction, not been there, he would have raised by 15 cents, can see the math again in the slide. [inaudible]
Speaker Change: You know, our initial look at some of the back of the envelope math was you had the twelve cents beat in the quarter, maybe seven or eight cents of a headwind from tariffs and...
Speaker Change: Our math at the time was about a 20, you know, sent effects kind of net change benefits. So it would imply that maybe the rays could have been higher than the 15 cents. So just want to get an understanding what the effective kind of communication is here on the rays, and then maybe any quantification that you have on what that aircraft change. [inaudible]
Speaker Change: would have impacted or has faked into the guy at this point. [inaudible]
Hi, David. So look, our SX impact is largely reflected.
Speaker Change: in the top line. Given our sort of geographic footprint, and our geography bar, OPAC,
Speaker Change: RPNL is kind of naturally hitched, right? So, you know, when the dollar gets stronger, top line is impacted negatively but we get the benefit of, you know, the op-x schemes there. So, we don't really have...
Speaker Change: We don't really have a massive impact on our bottom line from an FX perspective. It's kind of a naturally hedged, if you will.
Speaker Change: Okay, perfect, that makes sense. Aaron, you know, the updated guide for the Cardiopole segment this year.
Speaker Change: You know, you talked about China recent approvals there, wondering if maybe it could size up the opportunity there. You know, the 30%, I think it was 30% HLN growth in the quarter. I think it was pretty impressive. You know, relative to where you were. [inaudible]
Speaker Change: I'm exiting last year, and even given the the comps that you had last year, I hope that those comps even really get that much tougher in the second half or in Q2 or the rest of 2025. So, can you help us think about how you arrived at this, you know, new cardio poem growth, I don't look especially with again, what seems to be pretty strong friends, not as strong kind of comps even on the HLM side next year, or in the back half of this year, and then China coming on as well.
Thank you.
Speaker Change: You know, our regulatory approval in China came a bit earlier but then we expected but really not a major impact in terms of our guide.
Um, um,
You know, we still expect...
Speaker Change: Strong Growth with HLM, Q1, I want to remind everybody that the capital equipment sales are not linear, right? So Q1, we had a very strong quarter with 30% growth. We don't expect that to continue throughout the year, but we still have assumed a strong ramp in the last three quarters of the year.
Speaker Change: So that's based into our adjusted guides for CP, which is now expected to be 9% to 10%, relative to 7% to 8% that we projected in the end of Q4.
Speaker Change: And David, this is Lada, and we're very pleased with our execution in CE Bulls on HLM and
Speaker Change: And I'll be very pleased with our first quarter performance. It's early in the year, so we are working very hard to maintain this momentum. And, you know, when the time is right we will, you know, keep informing you on our progress on growth. Thank you very much.
Speaker Change: Thank you. The next question comes from Michael Polark with Wolf Research. Please go ahead, Michael.
Michael Polak: Good morning, I have a question on depression. In the slide deck, I see that depression revenue and the guidance is 12 million at the midpoint. I didn't see that in the fourth quarter.
Speaker Change: Jack, so is all that incremental or was there a placeholder in before and then the driver it has driven by program optimization efforts, and I'm curious what that means because 12 million is. [inaudible]
Speaker Change: is the best number I've seen out of depression and it's even better than peak recover enrollment years so I'm curious what's driving the up thick.
Hey Mike, it's Alex.
Speaker Change: So yeah, we upped our radio assumption in DTB. I think you've heard us talk about this in the past. You know, we have a small commercial infrastructure in place. The team was during...
Speaker Change: The recover enrollment periods, they were largely focused on driving the patient funnel for recover. What we've done now is we're waiting our re-engagement with CMS.
Speaker Change: We basically restarted our process, that we've had over time to look at... [inaudible]
Speaker Change: You know, basically driving the new patient funnel for patients who are interested in the device, right? And so that goes through a very long appeals process with payers.
Speaker Change: which is not very efficient, and that is the reason we're so keen on getting, you know, reimbursement with CMS. So that is the rationale for increasing our revenue in DGD.
Speaker Change: Was there something in the guidance before? There wasn't in the old deck, so I'm curious what the old input was.
Speaker Change: Yeah, it was largely the same. It was a marginal increase relative to the speediest guy, yeah.
Speaker Change: Okay, for my follow-up, I want to ask on sleep apnea, I'm-
Small two-parter 72-minute average case time in Osprey
Speaker Change: What's your perspective on what that could be in the real world as you train surgeons and get them comfortable with your device and how do you think that compares to what the competitors delivered in their pivotal trials. [inaudible]
Speaker Change: And then the second part is on pricing, any preliminary view of how you might approach price as you develop a commercial strategy at the market level of hypoglossal nerve stem or perhaps a discount to differentiate. Thank you so much.
Speaker Change: Yeah, I'll start with more of the clinical questions and I'll ask Alex to comment on the pricing piece. So one of the key points of our design is that
Speaker Change: You put the electrode cuff at the proximal end. So that really limits or minimizes dissection in the tissue when you're placing the cuff.
Speaker Change: Therefore, you win a lot of time. That is one reason we're 72 minutes in...
You know, other trials.
Speaker Change: For example, Inspire, they had a longer time period, but one reason for that was that they had a secondary censor that they had to implant, so there was three incisions instead of two.
Speaker Change: So it's a little bit of apples to orange comparison but 72 minutes is a low. We're very excited about it because it's an easy implant to the proximal end and the last comment I'll make is that
Speaker Change: What we hear from our surgeons is that if you have done inspire, it's very easy to move and implant an offspring device.
Speaker Change: You do not need to learn new skills. It's actually because of the proximal end piece. It's actually something very straightforward to transfer into. Thank you.
Speaker Change: So with that I'll ask Alex to comment on the commercial piece. Yeah, I think it's part of our photo market commercial strategy and we'll talk a little bit more about that later in the year during investor day. Our team, I don't want to, you know, do a big roll out of our pricing strategy, but our teams, you know, continue to work on.
and many more. Thank you. Thank you.
Speaker Change: Thank you. Those are all the questions we have time for today until I'll turn the call back to Vladimir Makatsaria for closing remarks.
Speaker Change: Thank you, Emily, for facilitating the call and thank you everyone for joining the call today and on behalf of our entire team we really appreciate your support and interest in LivaNova and have a great day.
Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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