NASDAQ:LIVN LivaNova Q3 2023 Earnings Report $46.67 -0.50 (-1.06%) Closing price 04:00 PM EasternExtended Trading$46.67 0.00 (0.00%) As of 06:12 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast LivaNova EPS ResultsActual EPS$0.73Consensus EPS $0.64Beat/MissBeat by +$0.09One Year Ago EPS$0.58LivaNova Revenue ResultsActual Revenue$286.10 millionExpected Revenue$271.97 millionBeat/MissBeat by +$14.13 millionYoY Revenue Growth+13.30%LivaNova Announcement DetailsQuarterQ3 2023Date11/1/2023TimeBefore Market OpensConference Call DateWednesday, November 1, 2023Conference Call Time8:00AM ETUpcoming EarningsLivaNova's Q2 2025 earnings is scheduled for Wednesday, July 30, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by LivaNova Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 1, 2023 ShareLink copied to clipboard.Key Takeaways LivaNova delivered 12% revenue growth in Q3 2023 with a 23% increase in adjusted operating income, driving adjusted operating margin to 16%. The company raised its full-year 2023 guidance to 9–11% constant currency revenue growth, adjusted EPS of $2.60–$2.80, and narrowed adjusted free cash flow to $85–$95 million. Cardiopulmonary revenue grew 18%, led by mid-teens oxygenator demand and over 25% Heart Lung Machine growth on the Essence system rollout, although capacity limits and tougher Q4 comps may temper sequential gains. Global Epilepsy sales rose 6%, with 815 new patient implants and continued end-of-service upgrades to the SenTiva platform, supporting upgraded full-year guidance of 7–9% growth. Strategic pipeline progress includes completion of unipolar patient enrollment in the RECOVER study (data due mid-2024), active OSPREY OSA trial recruitment at 25 sites, and an ongoing CEO search with candidates under interview. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallLivaNova Q3 202300:00 / 00:00Speed:1x1.25x1.5x2xThere are 13 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Livinova Plc Third Quarter of 2023 Earnings Conference Call. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's call, Mr. Matthew Dodds, Livanova's Senior Vice President of Corporate Development end of the call. Please go ahead. Speaker 100:00:30Thank you, Alex, and welcome to our conference call and webcast discussing LivaNova's financial results for the Q3 of 2023. Joining me on today's call are Bill Cozzi, our Chairman end of the Board of Directors and Interim Chief Executive Officer Alex Schwartzberg, our Chief Financial Officer Stephanie Bolton, President of Global Epilepsy and Brianna Gotland, Director of Investor Relations. Before we begin, I would like to remind you that the Discussions during this call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent 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 100:01:21Also, the discussions will include certain non GAAP financial measures with respect to our performance, Including, but not limited to, sales results, which will all be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website. We have also posted a presentation 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, Events and Presentations at investor. Speaker 100:02:06Livanova.com. With that, I will now turn the Speaker 200:02:10call over to Bill. Thank you, Matt, and thank you everyone for joining us. Welcome to LivaNova's conference call for the Q3 of 2023. Before turning to results for the quarter, allow me to provide a brief update on the CEO search. Our process remains on track And the Board and I are currently interviewing select candidates. Speaker 200:02:32We are encouraged by our progress and are committed to selecting the right individual to lead the company. For For the remainder of the call, I'll discuss our Q3 results and then turn to our strategic portfolio initiatives. After my comments, Alex will provide additional details on our performance and updates to 2023 guidance. I'll wrap up with closing remarks Before moving on to Q and A. In the quarter, we achieved 12% revenue growth versus the prior year marked by double digit growth across all regions and improved profitability. Speaker 200:03:09Our performance reflects strong execution throughout the organization as demonstrated by the growth in all three business units. Notably, we maintained our commitment to modest leverage, achieving adjusted operating income growth of 23%, Contributing to value creation in the quarter. Now turning to segment results. For the cardiopulmonary segment, Revenue was $145,000,000 in the quarter, an increase of 18% versus the Q3 of 2022. Oxygenator revenue grew in the mid teens, driven globally by higher than expected demand again. Speaker 200:03:51And I'd like to acknowledge our cardiopulmonary manufacturing and supply chain team on their excellent performance in the quarter. Heart Lung Machine revenue increased more than 25%, driven by Essence installations in the U. S. And Europe end of August, we received U. S. Speaker 200:04:14FDA 510 clearance that enable increased customer adoption of Essence. Accordingly, our commercial rollout is now fully underway, And we have been successful in both evaluations and placements, including shipments to highly prestigious hospital systems in the U. S. While we continue to anticipate increased contribution from Essence through year end, we should see a more meaningful benefit end. In 2024 and beyond, we now expect cardiopulmonary revenue to grow 12% to 14% For full year 2023, our revised forecast incorporates the strong performance through the 1st 9 months of the year In HLMs and oxygenators, with our current oxygenator production capacity running at its limit. Speaker 200:05:15As previously stated, we continue to expect a modest ramp in Essence revenue through year end. Epilepsy revenue increased 6% versus the Q3 of 2022. U. S. Epilepsy revenue increased 7% year over year, driven by higher realized price and favorable product mix. Speaker 200:05:39We achieved 815 new patient implants in the quarter, representing 1% growth versus the prior year, But well aligned with our expectations after the 13% growth experienced in the 2nd quarter. We achieved 1827 replacements, representing a decline of 1% versus the prior year. Again though, very much in line with our phasing expectations. Epilepsy revenue in Europe Grew 7% versus prior year led by the U. K. Speaker 200:06:17And epilepsy revenue in the Rest of World region decreased 3%, Primarily due to uneven distributor ordering patterns and the sanctions. Building on our commitment to invest in our core businesses, we had a very successful go live in Houston with our first manufacturing execution systems, Widely known as MES. And we now have 15 super users in the LivaNova organization. This initiative represents a meaningful operating upgrade to fully digitized manufacturing quality systems. For the full year 2023, we now expect global epilepsy revenue to grow 7% to 9%. Speaker 200:07:02Our revised forecast incorporates the performance during the 1st 9 months of the year. ACS revenue was $11,000,000 in the quarter, an increase of 27% versus the Q3 of 2022, Reflecting growth in cardiac and respiratory case volumes, partially offset by product mix. For 2023, we continue to expect ACS to be flat year over year. Turning now end. To the strategic portfolio initiatives, DTD revenue for the Q3 was $2,000,000 For 2023, we continue to anticipate DTD revenue of approximately $6,000,000 to $8,000,000 Primarily from the RECOVER study. Speaker 200:07:53The RECOVER study continues to advance. As a reminder, Enrollment for the unipolar cohort of the study has been completed. Upon receipt of the 12 month follow-up data For the 500 unipolar patients in June of 2024, we will conduct the final analysis. We continue to expect the publication of that study results by late 2024. The bipolar cohort continues to enroll as expected and we're pleased with the success We had in refocusing our recruitment efforts from unipolar to bipolar patients. Speaker 200:08:35As a reminder, the bipolar cohort Is similar to the unipolar cohort in that the randomized controlled study is designed with frequent interim analyses That assess if predictive probability of success or futility was reached or if the study should continue enrolling. Moving to OSA, the OSPREY trial continues to progress with all 25 sites actively recruiting patients. In heart failure, the closeout of the Anthem clinical study is progressing. We continue to Expand the overall R and D spend related to heart failure this year to be approximately $24,000,000 The majority of which occurred in the first half of the year. With that, I will turn the call over to Alex. Speaker 300:09:27Thanks, Bill. During my portion of the call, I'll share a brief recap of the 3rd quarter results and provide commentary on 2023 guidance. Turning to results. Revenue in the quarter was $286,000,000 an increase of 12% versus 2022. Foreign exchange in the quarter had a favorable year over year impact of approximately $3,000,000 or 1% of revenue. Speaker 300:09:56Adjusted gross margin as a percent of net revenue was 71% compared to 70% in the Q3 of 2022. Adjusted gross margin was impacted favorably by realized price, higher volume which drove favorable fixed overhead absorption As well as lower inbound freight costs, which offset component cost inflation. Adjusted R and D expense in the Q3 was $42,000,000 in line with Q3 of 2022. R and D as a percent of net revenue was 15%, down from 16% in the Q3 of 2022. While flat on a dollar basis versus the prior year, R and D expense declined sequentially, largely driven by lower costs end of the year. Speaker 300:10:50Excluding the costs related to Anthem, our R and D investment increased 4% versus the prior Adjusted SG and A expense for the Q3 was $115,000,000 Compared to $98,000,000 in the Q3 of 2022. SG and A as a percent of net revenue was 40% as compared to 39% in the Q3 of 2022. The year over year increase was driven by targeted investments Adjusted operating income was $45,000,000 compared to $37,000,000 in the Q3 of last year. Adjusted operating income margin was 16% compared to 15% in the Q3 of 2022. Adjusted operating income was driven by improved gross margin and operating expense leverage. Speaker 300:11:56Adjusted effective tax rate in the quarter was 10% versus 8% in the Q3 of 2022. The higher tax rate is primarily attributable to changes in geographic mix. The global tax landscape continues to evolve And will impact our effective tax rate in 2024. We will share more details as they become available, but we anticipate the rate to be Adjusted diluted earnings per share was $0.73 compared to $0.58 in the Q3 of 2022. Our cash balance at September 30 was $234,000,000 up from $214,000,000 at year end 20 Total debt at September 30 was $587,000,000 up from $542,000,000 at year end 2020 The increase in total debt was driven by the delayed draw of the $50,000,000 On the Term Loan A facility that we put in place in July of 2022. Speaker 300:13:10Net debt, including restricted cash at September 30th was $98,000,000 Adjusted free cash flow for the quarter was $26,000,000 Down from $41,000,000 in the prior year period. The year over year decrease was driven by higher working capital, Which was a function of higher revenue as well as investments in inventory supporting the launch of Essence and capital spend phasing. Capital spend was $22,000,000 in the 1st 9 months of the year compared to $17,000,000 in the prior year. The increase was driven by TP Manufacturing Infrastructure Investments. Now turning to our revised 2023 guidance. Speaker 300:14:00As Bill mentioned, based on our performance through the Q3, we're increasing our full year 2023 revenue And adjusted diluted earnings per share guidance, while narrowing the range on the adjusted free cash flow. We now expect 2023 revenue growth on a constant currency basis between 9% 11% And continue to assume approximately a 1% tailwind from exchange rates. We now expect adjusted diluted earnings per share in the range of $2.60 to $2.80 With adjusted diluted weighted average shares outstanding to be 54,000,000 for the full year. Adjusted free cash flow Is now expected to be in the range of $85,000,000 to $95,000,000 In summary, I'm encouraged by the company's execution and financial performance in the 1st 9 months of the year. We remain positioned to drive improved operating leverage By year end, having achieved 14% adjusted operating margin and 23% Adjusted operating income growth for the 1st 9 months of the year. Speaker 300:15:17I'm pleased that we have achieved this While investing in critical capabilities for the company, including innovation, manufacturing infrastructure and IT modernization. And with that, I'll turn the call back over to Bill. Speaker 200:15:33Thank you, Alex. As a company, We have executed against our targets through the 1st 9 months of 2023. We're well positioned to deliver on our full year guidance, Including operating leverage by year end as well as pipeline commitments. Achieving these communicated goals And creating shareholder value, our top priorities of the executive leadership team and our colleagues around the globe. Let me take a minute to thank our entire organization for their focus on patients, innovation and value creation. Speaker 200:16:09We look forward to building on this level of performance through the remainder of the year and into 2024. With that, Alex, we are ready to open the call for questions. Operator00:16:23Thank you. Thank you. Our first question for today comes from Rick Wise of Stifel. Rick, your line is now open. Please go ahead. Speaker 400:16:51Good morning, everybody. Thanks. Bill, let me first of all, it's great to see the solid quarter overall. End. A lot of good things happening and you make a bunch of encouraging comments. Speaker 400:17:04And I said, Hat before, I start off with The 4th I just want to touch on the 4th quarter. When I if I'm looking at it correctly, Your current guide, even though it's stepped up a bit, implies a bit lower growth in EPS than I might have thought And then we had modeled and just wanted to better understand, is this just thoughtful, prudent conservatism? Is there something I'm not understanding? Is this something related to tax rate? If you could just give us a little more color there and understand. Speaker 200:17:42Sure, Rick. Thanks for the question. Getting right at the EPS range, We have been all throughout the year really paying close attention to not only sales and profitability performance, But also this balance of supporting some well known needs we have infrastructurally manufacturing, Innovation and some strategic investments. We have notably been cautious on the latter set of choices that we've made To ensure that we put the 1st 3 quarters of the year into a strong position. We do have some targeted investments in the core business around Growth and profitability and we're going to support some of those investments in the 4th quarter. Speaker 200:18:34Additionally, we can't predict this ongoing competitor supply situation, particularly in the CP business And very much focused on oxygenators and the impact it's going to have on volume and our ability to achieve the same amount of sales end of the year. And the corresponding EPS benefit we get from that. We got a few ongoing inflationary pressures we've got least our eyes on, particularly on components. But hopefully that'll give you a little better picture of where we're sitting right now. Speaker 400:19:07Got you. And just and again, it's always management's favorite question this time of year. Maybe you'll talk a little bit about the 2024 setup. You made some encouraging comments there at the end. Speaker 500:19:26Maybe you could expand on that a Speaker 400:19:28little bit. Just key drivers for next year or things the organization and you Are focused on, but maybe most particularly, given the strong cardiopulmonary performance, How much more how long should we anticipate that running that benefit lasting? What inning are we in there as we look ahead to the year ahead? Thank you very much. Speaker 200:19:59Yes, Ricky. Thank you. Let me take the latter part of that Question first. Just to be clear, our manufacturing organization on the cardiopulmonary side focused on oxygenators Are running flat out right now. We don't have any more available capacity. Speaker 200:20:18Everything that we make, We sell. We were surprised that our competitors have not yet Seemingly put much greater volume back into the marketplace. And so I have given up Trying to predict if and when that's going to happen because we just don't know. We mentioned to you guys last quarter That we were pretty sure they were going to be back. Clearly, the numbers we just showed you, they've not popped back. Speaker 200:20:53I actually have been asking a lot of the same questions you're asking about the upcoming year. We can't project that and we won't. As it relates to 2024, we really are looking forward to covering that in much greater detail, Rick, with you and All others, when we do our Q4 call, we had an encouraging and successful Board meeting in October, Where we took our strategic business plan for the coming year and let us Just defer that discussion until we get to the 4th quarter results. Speaker 400:21:32Thanks very much, Phil. Speaker 200:21:34Hey, Rick. Thanks. Operator00:21:37Thank you. Our next question comes from Mike Pollock of Wolfe Research. Your line is now open. Please go ahead. Speaker 600:21:46Hey, good morning. Thank you for the question. One more on cardiopulmonary and I'm Specifically looking at the implied 4th quarter guidance, if I'm doing the math right, segment revenue down Sequentially and year on year, it just strikes me as very conservative. The question is on the oxygenator disruptions at competitors, Can you remind us on the timing of that over the last year or 18 months? Was that primarily a 2023 phenomenon? Speaker 600:22:17Or are there some Tough comps in the back half of twenty twenty two that we're coming up upon. Speaker 200:22:22Hey, Mike. Yes, thanks for the question. You're on to a really important topic. And by the way, this is our math and our math only. But we did start to see the first escalation In the oxygenator revenue uptake in the Q4 of 2022. Speaker 200:22:44So number 1, we know that we're up against a little bit of a tougher comp as we go into that quarter. Number 2, and please excuse me, I'm not trying to be repetitive here, but we're just running flat out In the plant, I can't and our organization can't produce any more oxys. So when we do our projections based on those two critical factors, we're having a really hard time seeing how we could sustain The double digit growth. So once we're in the Q4 of 2023 against that tougher comp and as we look forward on Oxy's, We can't see the sustainability. Now of course, we're looking at everything we can do in the Short term to optimize our production capabilities. Speaker 200:23:38But you guys know well, we've got Molding, assembly, packaging and sterilization here. There's just no magic wand where we can in a very short term Create a notable recovery scenario. And by the way, we are operating well within all the quality boundaries of our quality management system to make sure that we're not just optimizing volume, but everything that's going out Of that facility is at the quality levels we expect. So by the way, I'm not in any way complaining about all that. I'm just Sharing that we are doing the absolute best that we can in the situation that we have. Speaker 600:24:21Helpful. For my follow-up, I'll ask on the CEO search. I appreciate the comments. I guess as I look at LivaNova, My question is, is it difficult to find the right fit before you know what happens with depression and sleep as examples? Those are Potentially transformative opportunities, sought to clear clinical data risk and I just is it I rolled this forward, Bill, and kind of wonder if A better timing for somebody new would be middle or back half of next year when you maybe know a little bit more about These pipeline programs and how the data is going to turn out and therefore the potential commercial prospects. Speaker 600:25:09Any color on end. This would be great. Thank you so much. Speaker 200:25:13Yes. Thanks for the question. Actually, we have been pleasantly encouraged By the number of people who want to be a CEO. The same questions that you have asked, we have been getting asked in our process. But I see no hint that it's dampened candidate interest and people coming to the company. Speaker 200:25:39As I mentioned in my earlier remarks, the Board and myself are in and have been in some active interviewing now Since late August, early September, all our attention is on finding the right person. We said initially, it would more likely take 6 to 9 months, we kind of moved a little past the 6 month window, but we'll continue to do 2 things, Keep the process at the level of quality that we have it. And we're not flexing on our spec. When we say we're going to find the right person, we've described over the last couple of calls, those things that are really important to us In terms of getting the right candidate and we're just staying connected to that. Thank you. Speaker 200:26:30Sure. Thank you for the question. Operator00:26:34Thank you. Our next question comes from Adam Maeder of Piper Sandler. Your line is now open. Please go ahead. Speaker 700:26:43Hi, good morning guys. Thank you for taking the questions and congrats on the next quarter. I wanted to start on Speaker 300:26:49CP. Good morning. Wanted to Speaker 700:26:52start on specifically CP and Heart Lung Machines. And I I think you said that segment grew 25%, HLMs did in Q3. I'm curious if you can just talk a little bit more about The Essence rollout, what was the contribution in the quarter from Essence? How many systems did you place? Kind of how you Foresee that evolving going forward. Speaker 700:27:15And then also just remind us on the pricing strategy relative to S5 and then I had a follow-up. Thanks. Speaker 200:27:23Sure. Thanks for the question. We did move, as I mentioned in my earlier comments to kind of a full launch. And for sure, our HLM revenue growth was driven primarily by Essence installations in U. S. Speaker 200:27:37And Europe With just some S5 placements in Rest of World, all of our Essence orders to date are achieving the expected price target. We have talked in the past that we were expecting to because of the quality advancements in technology in essence, we were hoping to get Roundabout a 30% price premium above traditional S5. At this very early stage, all of that expectation Is being achieved. We're not yet at a point where we're going to start talking about units placed. What we actually are enthused about is the quality of our pipeline and funnel And the customer interest that we're seeing in both U. Speaker 200:28:26S. And Europe. So what we hope to do is Prove ourselves even to the next level, if you would, in the Q4. And then we can circle back some more on Essent's performance As 2024 starts to roll Speaker 700:28:44out. That's great color, Bill. Thank you for that. And for the follow-up, You know, realize you're not you're a little bit limited in terms of what you can see in 2024, but I did want to ask about the heart failure program closure. Bit. Speaker 700:28:59I think that's $24,000,000 of spend this year. Any updated thoughts, even just broad strokes on how you think about That spend as it relates to next year, letting that flow through to investors versus reinvestment in the business. And then I guess I'll test my luck and also ask about associated spend with depression and OSA next year as well. Thank you. Speaker 200:29:24Sure. Let me I'm going to have Alex comment on our heart failure. He's got his a real tight handle on our game plan there. Speaker 300:29:32Hi, Adam. So look, our heart failure program, we continue down the path of closing that out end of the year, we expect some residual costs into next year. We're looking at our capital deployment as part of our budgeting process, we'll update you guys as we end Q4 and on Speaker 200:29:57all of our expectations for Performance in next year. And to close out on your DTD OSA questions, What we did as you would expect in our business planning is the best we can do given the little bit of uncertainty that resides particularly on DTD It's due scenario planning. We have completed scenario planning for a possible launch of that product, Obviously, not until we get into 2025, but we would have to start to prepare our homework for late 2024 commercial activity. That's what we'll talk about when we get into our Q4 review. And we'll actually be prepared To give you quite a bit of insight, I think in both of what we're going to try and do, why we're going to do it and what that spend Will be, as you would already guess, there are more than a few moving parts there. Speaker 200:31:01And so we're going to take the benefit of the next couple of months to really button that down, but we have a really good kickoff on that planning effort. And of course, the scenario has to operate under the financial premise That depression has a chance to be a goal and more details to follow. Speaker 700:31:22All right. We'll stay tuned. Thanks again. Speaker 200:31:25Hey, thank you. Operator00:31:28Thank you. Our next question comes from Matt Taylor of Jefferies. Your line is now open. Please go ahead. Speaker 800:31:38Hi. Thank you for taking the question. I guess I was wondering if you could talk a little bit more about the epilepsy dynamics bit. Under the hood and give us some color on trends in new patient starts, the replacements, Also the things that you've been doing with your sales force, how the landscape has been with the centers opening and maybe carry that forward and talk at least at a high level What to expect with those dynamics next year? Speaker 200:32:07Hey, Matt, thanks. We've got the benefit of having Steph here, and she has been spending Ordinent amounts of time on these two topics. So I'm going to just turn that question right over to Stephanie Bolton. Speaker 900:32:19Thanks, Matt. So as mentioned during the last call that we had, we've really been focusing on Producing consistent performance and having a consistent execution. And I continue to be encouraged by what that looks like with the team, particularly in the U. S. So we keep leaning into our consistent operating mechanism and Focusing on the fundamentals of the collaboration between the different groups. Speaker 900:32:50Our Q3 Was another sort of consistent execution quarter and our NPI entirely in line with our expectations given how we exited Q2. So I'm really pleased that we'll continue to anticipate that normal run rate as we move through towards the end of the year. So in terms of the sales teams, they are very much focused on our Customers that have the most amount of opportunity to treat our DRE population. And we continue with our CEC strategy with our cams in the field. So everything is moving in a very nice direction And we continue to work on our consistent execution. Speaker 800:33:40Maria, anything notable to call out in terms of changing dynamics next year in the business? Speaker 900:33:48No notable changes as it stands now. We have full and appropriate coverage in the U. S. About SECs, they remain our firm priority moving forward. Speaker 800:34:01Okay, great. Thank you very much. Speaker 200:34:04Thank you, Matt. Operator00:34:06Thank you. Our next question comes from Mike Batson of Needham and Company. Your line is now open. Please go ahead. Speaker 200:34:15Yes, thanks. Speaker 300:34:16I guess just good to Speaker 1000:34:18see the strong growth in ACS. So, is that do you think that's back to kind of steady strong double digit growth now? Speaker 200:34:30Well, we continue to keep our eyes on that. When we had let me give you just a little bit of color on the ACS side. I mentioned just briefly that we had some case volume benefit. In fairness, we had a couple of other smaller tailwind events That happened in the quarter. And that related to some back order clearance, a few minor catch ups in purchases In Europe and a one time adjustment in service revenue. Speaker 200:35:00And so it was the combination of those two things that kind of elevated That year on year growth for ACS. We're maintaining kind of our full year guidance, continuing to work closely with our ACS leadership team To look at how we can further grow and improve profitability in the year ahead. But our guidance remains pretty much what we mentioned to you last time. Speaker 1000:35:28Okay. Thanks. And then just as far as Osprey goes, bit. Good to hear that you've got all the sites up and running. Can you give us any sort of update on where enrollment is and what your expectation is in terms of when The data could be released. Speaker 1000:35:43Is it possible we could see in 2024 or is it really going to be more 2025? Speaker 200:35:48I'm going to flip that one right to Matt. Speaker 100:35:50Sure. Thanks, Mike. So Osprey's, as Bill said, was on track. We've talked about getting the enrollment completed in 2024, 6 months follow-up. To your point, it looks right now like kind of late 'twenty four, early 'twenty five. Speaker 100:36:06We'd get the data, a little bit of time end to analyze it and that's why we've talked about a filing in 2025. Speaker 800:36:14Okay, got it. Thank you. Operator00:36:19Thank you. Our next question comes from Anthony Petrone of Mizuho Group. Speaker 1100:36:29Thanks. Maybe one on epilepsy and then bit. I'll ask a little bit about margins. Maybe just a little bit more on end of service. I know the company is actually tracking those patients. Speaker 1100:36:44Just wondering where you guys are in terms of how many patients are still in the queue for end of service and would assume that most of those would be if they choose to upgrade, they would upgrade at Scentiva. And then I have a follow-up on margins. Speaker 200:37:00Thanks, Anthony. I'm going to flip that one over to Steph. Speaker 900:37:03The Sure. Hi, Anthony. Nice to speak to you. So each quarter we have an overview of our identification for both end of service end of the year. And I continue to be encouraged by what that looks like. Speaker 900:37:17And for sure, you're absolutely right. The end of service patients that we have Coming through now we're opting to move to our Scentiva platform. So again, we're seeing incremental improvement and that's The piece that you see around the mix and the change, so that's with end of service patients opting to move to our latest platform. Speaker 1100:37:40And again, in terms of the tailwind, I mean, is can that last all the way through 2024 into 2025? Or Are you ending the end of the queue there on end of service? And then just quickly on margins, Just to recap on the amount of R and D spend on Recover and then under a scenario where You don't get an ideal readout there. I'm wondering, will those R and D dollars be redeployed elsewhere in the business or would you let those fall to the bottom line? Thanks again and congrats on a good quarter here. Speaker 900:38:18I think what I'd like to say in terms of end of service, we keep updating our models every single quarter. So we should have more information on that beginning part of next year. Due to the fact that a number of our patients are opting for SenTiva We launched in 2017, so we're starting to see the first replacements of those. We'll continue to see a slightly higher end of service identification because of that reason. But we'll keep you updated with that. Speaker 300:38:50And Anthony on depression, The RECOVER study burn is approximately, call it, dollars 30,000,000 on an annual basis. And so to answer your question About how do we think about capital deployment for next year. Again, as I said, we'll update you guys Early in 2024 about how we're thinking about our budget and guidance for next year. Obviously, there's Multiple scenarios as they relate to depression. Speaker 200:39:23But that depression will be fully funded throughout 2024 unless we get some kind of Unexpected news in June of 2024. Correct. Operator00:39:35Thank you. Speaker 200:39:37Thanks for the question. Operator00:39:40Thank you. Our next question comes from Matt Miksic of Barclays. Your line is now open. Please go ahead. Thanks so much. Operator00:39:50Can you hear me okay? Speaker 200:39:52We can. Good morning. Speaker 500:39:54Great, terrific. Good morning. Thanks and congrats on the quarter. Speaker 200:40:00Hey, thanks. Speaker 500:40:01So Yes. Just one question following up on some of the work that you're doing with in the epilepsy business. And I guess maybe this is Stephanie or for the team. Bit. Is this something that, given the sort of new implants in the quarter, It seemed like they maybe dipped a bit. Speaker 500:40:24You said it was in line with your expectations. Just to get us a sense of The cadence for the year and how we should think about Q4, I know you're entering 2024, is that something we should expect to kind of sequentially improve or Is there another quarter or 2 of balancing internalizing some of the new programs and a pipeline concept that would end of the year, I have one follow-up. Speaker 900:40:55Yes. Hi, Matt. So as I look specifically at Q3 and the reason why I say I'm continued or I continue to be encouraged by that sort of consistent execution is when we look back towards Q2, we had a 13% increase in our NPI for that quarter. So it is entirely in line with my expectation that we saw what we did in Q3. In fact, because I was I continue to be encouraged due to the fact that we didn't see a dip. Speaker 900:41:26Now when we look towards the 4th quarter, I'll refer you back to the original full year guidance that we gave in terms of mid single digit for MPI end of service. So we anticipate a normal run rate for the Q4. Speaker 500:41:45Okay. Thanks for that. And then just a follow-up on sort of Cash flows and maybe the ability to sort of reinvest here and your maybe priorities for reinvesting some of the R and D spend that you're unwinding into the end of this year. If you could provide Any color on your most recent thought? And I understand there's a strat plan underway and there's a new CEO Potentially coming on board soon and you want to get ahead of that, but either your latest thoughts on how to think about netting back to the P and L and being redeployed for what kinds of investments? Speaker 500:42:33Thanks. Speaker 300:42:36Matt, this is Alex. I'll take the free cash flow. We our target for this year is $85,000,000 to 90 $5,000,000 of adjusted free cash flow. Our goal is to continue to drive cash conversion. Net. Speaker 300:42:53That's what the organization is focused on. That is assuming an expectation that we continue to see improvements In profitability and working capital management. As far as Capital deployment for next year, we're not ready to talk about that at this point. Obviously, there are multiple scenarios in terms of Success with depression and getting us ready for a potential launch there. We'll update you guys as we get into 2024 early in the Q1. Speaker 500:43:35Okay, fair enough. Thanks. Speaker 200:43:39Thank you. Operator00:43:41Thank you. Our next question comes from David Rescott of Baird. David, your line is now open. Please go ahead. Speaker 1200:43:50Hey, guys. Thanks for taking the question. I wanted to start on Essence and kind of the margin contribution from that segment. I appreciate end. The comments around the pricing premium, I know it's really in the early days here still just getting underway, but just wondering how we should think about maybe valuation or leverage from that product as that ramps and as you move into 2024 and beyond just relative to the rest of the portfolio? Speaker 300:44:21So this is as far as Essent's margins are concerned, we expect sort of Some margin improvement as we scale the volumes there. The cost base is slightly higher And we obviously compensate for that with our price premium at this point. Essence as it continues to ramp into 2024, we'll have a margin improvement For the cardiopulmonary business, our capital business has a higher margin base end of our consumable business, so slightly different perhaps from other companies. But that's the way we think about the business That Essence will have a strong contribution to our gross margin improvement in 2024. Speaker 1200:45:21Okay. That's helpful. And then just 2 quick follow ups on, I think, Some prior comments that you made actually at our conference. Just wondering, 1, I think the prior expectation maybe had been to have a CEO replacement end of the Speaker 800:45:39year, Speaker 1200:45:42I think we had asked in the past just about whether or not any of this concern or anything you're seeing around GLP-1s are impacting the enrollment of the OSPRE trial. So just wondering if there's any updated thoughts on both of those. Thank you. Speaker 200:45:56Thanks, Hugh. I'll take the first one. You're exactly right. We had talked back In April at the time of my arrival about a 6 to 9 month window. And of course that 9 month window would take us into the end. Speaker 200:46:10The January timeframe, we're not as you would guess, we're not operating under any deadline. We're going to find the right person. We'll know that right When we see them, every effort is being made to get that person in sooner. I want to make sure that that commitment is clear. At the same time, we'll find that right person and we won't be pushed by any timeframes or calendars or anything. Speaker 200:46:38So The Board is very sincerely committed to the spec, as I mentioned just a few minutes ago. And I don't think we're going to see us waiver from that. Now Matt, would you comment on the GLP-1, please? Speaker 100:46:50Sure. On the GLP-1s, we don't believe we're seeing any impact moment of Osprey. And also, the trial is relatively small, 125 to 150 patients is our expectation. So we're not seeing anything. Speaker 800:47:07Okay, great. Thanks. Speaker 200:47:09Thank you. Operator00:47:12Thank you. Our next question is a follow-up question from Michael Pollack of Wolfe Research. Your line is now open. Please go ahead. Speaker 600:47:22Thank you for taking the follow-up. Just one. Alex, I thought in your prepared remarks, you said something about the tax rate. What did you say? What's a good input in 'twenty four or 'twenty five? Speaker 300:47:35Yes. Thanks, Mike. Recall from our Investor Day in December of 2021, we kind of foreshadowed an increased tax rate. At that time, we were saying that over the course of 2022 to 2024, we'd expect tax rate to be in the range of 15% to 20 percent, we're going to see that happen in 2024. So That's what I would recommend that you guys start modeling. Speaker 600:48:08So I just want to be clear that this is for your adjusted reporting, The adjusted tax rate goes from something like 10% this year to 15% or 20% next year? And if that's true, What's driving it? I mean, what are the changes? Speaker 300:48:26Yes. That is correct. The changes are We're enjoying a very low tax rate today. It's very different versus if you look at some of our competitors. And we expect that to kind of normalize as some of our tax planning we lose the benefits Some of the tax planning that we've enjoyed over the last few years. Speaker 600:48:56Okay. It's just that feels yes, it feels like a big step up. So okay, I appreciate the comments. Thank you. Speaker 200:49:04Thank Operator00:49:05you. Thank you. At this time, we currently have no further questions. So I'll hand it back to Bill Cozzi for any further remarks. Speaker 200:49:16Thank you, everyone, for joining us on today's call. On behalf of the entire team, we appreciate your support and your interest in LivaNova. Thank you. Operator00:49:27Thank you for joining today's call. You may now disconnect your lines.Read morePowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) LivaNova Earnings HeadlinesLivaNova PLC (LIVN) Latest Stock News & Headlines - Yahoo FinanceJuly 9 at 5:15 PM | finance.yahoo.comLivaNova to Announce Second-Quarter 2025 ResultsJuly 9 at 5:15 PM | finance.yahoo.comElon’s BIGGEST warning yet?Tesla's About to Prove Everyone Wrong... Again Back in 2018, when Jeff Brown told everyone to buy Tesla… The "experts" said Elon was finished and Tesla was headed for bankruptcy. Now they're saying the same thing, but Jeff has uncovered Tesla's next breakthrough.July 10 at 2:00 AM | Brownstone Research (Ad)LivaNova: The Sell-Off Is Excessive HereJuly 7 at 2:13 PM | seekingalpha.comAre Options Traders Betting on a Big Move in LivaNova Stock?June 25, 2025 | msn.comLivaNova Initiates Process with U.S. Centers for Medicare and Medicaid Services for Reconsideration of National Coverage for VNS Therapy for Treatment-Resistant DepressionJune 6, 2025 | uk.finance.yahoo.comSee More LivaNova Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like LivaNova? Sign up for Earnings360's daily newsletter to receive timely earnings updates on LivaNova and other key companies, straight to your email. Email Address About LivaNovaLivaNova (NASDAQ:LIVN) is a global medical technology company specializing in cardiovascular and neuromodulation solutions. Through its Cardiopulmonary segment, LivaNova offers a comprehensive portfolio of products designed for use in cardiac surgery and extracorporeal circulation. Key offerings include heart-lung machines, oxygenators, autotransfusion systems and proprietary mechanical circulatory support devices that aid clinicians in complex procedures such as cardiopulmonary bypass and extracorporeal membrane oxygenation (ECMO). In its Neuromodulation segment, LivaNova develops and markets the VNS Therapy System, an implantable device that delivers targeted vagus nerve stimulation for the treatment of drug-resistant epilepsy and depression. The company’s neuromodulation therapies build on decades of clinical research, providing physicians with an alternative approach to patients who have not responded adequately to pharmaceuticals. Formed in 2015 through the merger of Sorin Group and Cyberonics, LivaNova combines a rich heritage of innovation dating back to the 1950s with a forward-looking focus on next-generation medical technologies. Headquartered in London, the company maintains research, development and manufacturing operations across Europe, North America and the Asia-Pacific region, serving customers in over 100 countries. Under the leadership of President and CEO Tony Milner, LivaNova continues to expand its global footprint and invest in clinical studies and device enhancements. The company’s strategic priorities include broadening its product portfolio, strengthening regulatory partnerships and driving adoption of its advanced therapies to improve patient outcomes worldwide.Written by Jeffrey Neal JohnsonView LivaNova ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Smith & Wesson Stock Falls on Earnings Miss, Tariff WoesWhat to Expect From the Q2 Earnings Reporting CycleBroadcom Slides on Solid Earnings, AI Outlook Still StrongFive Below Pops on Strong Earnings, But Rally May StallRed Robin's Comeback: Q1 Earnings Spark Investor HopesOllie’s Q1 Earnings: The Good, the Bad, and What’s NextBroadcom Earnings Preview: AVGO Stock Near Record Highs Upcoming Earnings Bank of America (7/14/2025)America Movil (7/15/2025)Bank of New York Mellon (7/15/2025)BlackRock (7/15/2025)Citigroup (7/15/2025)JPMorgan Chase & Co. 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There are 13 speakers on the call. Operator00:00:00Good day, ladies and gentlemen, and welcome to the Livinova Plc Third Quarter of 2023 Earnings Conference Call. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's call, Mr. Matthew Dodds, Livanova's Senior Vice President of Corporate Development end of the call. Please go ahead. Speaker 100:00:30Thank you, Alex, and welcome to our conference call and webcast discussing LivaNova's financial results for the Q3 of 2023. Joining me on today's call are Bill Cozzi, our Chairman end of the Board of Directors and Interim Chief Executive Officer Alex Schwartzberg, our Chief Financial Officer Stephanie Bolton, President of Global Epilepsy and Brianna Gotland, Director of Investor Relations. Before we begin, I would like to remind you that the Discussions during this call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent 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 100:01:21Also, the discussions will include certain non GAAP financial measures with respect to our performance, Including, but not limited to, sales results, which will all be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website. We have also posted a presentation 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, Events and Presentations at investor. Speaker 100:02:06Livanova.com. With that, I will now turn the Speaker 200:02:10call over to Bill. Thank you, Matt, and thank you everyone for joining us. Welcome to LivaNova's conference call for the Q3 of 2023. Before turning to results for the quarter, allow me to provide a brief update on the CEO search. Our process remains on track And the Board and I are currently interviewing select candidates. Speaker 200:02:32We are encouraged by our progress and are committed to selecting the right individual to lead the company. For For the remainder of the call, I'll discuss our Q3 results and then turn to our strategic portfolio initiatives. After my comments, Alex will provide additional details on our performance and updates to 2023 guidance. I'll wrap up with closing remarks Before moving on to Q and A. In the quarter, we achieved 12% revenue growth versus the prior year marked by double digit growth across all regions and improved profitability. Speaker 200:03:09Our performance reflects strong execution throughout the organization as demonstrated by the growth in all three business units. Notably, we maintained our commitment to modest leverage, achieving adjusted operating income growth of 23%, Contributing to value creation in the quarter. Now turning to segment results. For the cardiopulmonary segment, Revenue was $145,000,000 in the quarter, an increase of 18% versus the Q3 of 2022. Oxygenator revenue grew in the mid teens, driven globally by higher than expected demand again. Speaker 200:03:51And I'd like to acknowledge our cardiopulmonary manufacturing and supply chain team on their excellent performance in the quarter. Heart Lung Machine revenue increased more than 25%, driven by Essence installations in the U. S. And Europe end of August, we received U. S. Speaker 200:04:14FDA 510 clearance that enable increased customer adoption of Essence. Accordingly, our commercial rollout is now fully underway, And we have been successful in both evaluations and placements, including shipments to highly prestigious hospital systems in the U. S. While we continue to anticipate increased contribution from Essence through year end, we should see a more meaningful benefit end. In 2024 and beyond, we now expect cardiopulmonary revenue to grow 12% to 14% For full year 2023, our revised forecast incorporates the strong performance through the 1st 9 months of the year In HLMs and oxygenators, with our current oxygenator production capacity running at its limit. Speaker 200:05:15As previously stated, we continue to expect a modest ramp in Essence revenue through year end. Epilepsy revenue increased 6% versus the Q3 of 2022. U. S. Epilepsy revenue increased 7% year over year, driven by higher realized price and favorable product mix. Speaker 200:05:39We achieved 815 new patient implants in the quarter, representing 1% growth versus the prior year, But well aligned with our expectations after the 13% growth experienced in the 2nd quarter. We achieved 1827 replacements, representing a decline of 1% versus the prior year. Again though, very much in line with our phasing expectations. Epilepsy revenue in Europe Grew 7% versus prior year led by the U. K. Speaker 200:06:17And epilepsy revenue in the Rest of World region decreased 3%, Primarily due to uneven distributor ordering patterns and the sanctions. Building on our commitment to invest in our core businesses, we had a very successful go live in Houston with our first manufacturing execution systems, Widely known as MES. And we now have 15 super users in the LivaNova organization. This initiative represents a meaningful operating upgrade to fully digitized manufacturing quality systems. For the full year 2023, we now expect global epilepsy revenue to grow 7% to 9%. Speaker 200:07:02Our revised forecast incorporates the performance during the 1st 9 months of the year. ACS revenue was $11,000,000 in the quarter, an increase of 27% versus the Q3 of 2022, Reflecting growth in cardiac and respiratory case volumes, partially offset by product mix. For 2023, we continue to expect ACS to be flat year over year. Turning now end. To the strategic portfolio initiatives, DTD revenue for the Q3 was $2,000,000 For 2023, we continue to anticipate DTD revenue of approximately $6,000,000 to $8,000,000 Primarily from the RECOVER study. Speaker 200:07:53The RECOVER study continues to advance. As a reminder, Enrollment for the unipolar cohort of the study has been completed. Upon receipt of the 12 month follow-up data For the 500 unipolar patients in June of 2024, we will conduct the final analysis. We continue to expect the publication of that study results by late 2024. The bipolar cohort continues to enroll as expected and we're pleased with the success We had in refocusing our recruitment efforts from unipolar to bipolar patients. Speaker 200:08:35As a reminder, the bipolar cohort Is similar to the unipolar cohort in that the randomized controlled study is designed with frequent interim analyses That assess if predictive probability of success or futility was reached or if the study should continue enrolling. Moving to OSA, the OSPREY trial continues to progress with all 25 sites actively recruiting patients. In heart failure, the closeout of the Anthem clinical study is progressing. We continue to Expand the overall R and D spend related to heart failure this year to be approximately $24,000,000 The majority of which occurred in the first half of the year. With that, I will turn the call over to Alex. Speaker 300:09:27Thanks, Bill. During my portion of the call, I'll share a brief recap of the 3rd quarter results and provide commentary on 2023 guidance. Turning to results. Revenue in the quarter was $286,000,000 an increase of 12% versus 2022. Foreign exchange in the quarter had a favorable year over year impact of approximately $3,000,000 or 1% of revenue. Speaker 300:09:56Adjusted gross margin as a percent of net revenue was 71% compared to 70% in the Q3 of 2022. Adjusted gross margin was impacted favorably by realized price, higher volume which drove favorable fixed overhead absorption As well as lower inbound freight costs, which offset component cost inflation. Adjusted R and D expense in the Q3 was $42,000,000 in line with Q3 of 2022. R and D as a percent of net revenue was 15%, down from 16% in the Q3 of 2022. While flat on a dollar basis versus the prior year, R and D expense declined sequentially, largely driven by lower costs end of the year. Speaker 300:10:50Excluding the costs related to Anthem, our R and D investment increased 4% versus the prior Adjusted SG and A expense for the Q3 was $115,000,000 Compared to $98,000,000 in the Q3 of 2022. SG and A as a percent of net revenue was 40% as compared to 39% in the Q3 of 2022. The year over year increase was driven by targeted investments Adjusted operating income was $45,000,000 compared to $37,000,000 in the Q3 of last year. Adjusted operating income margin was 16% compared to 15% in the Q3 of 2022. Adjusted operating income was driven by improved gross margin and operating expense leverage. Speaker 300:11:56Adjusted effective tax rate in the quarter was 10% versus 8% in the Q3 of 2022. The higher tax rate is primarily attributable to changes in geographic mix. The global tax landscape continues to evolve And will impact our effective tax rate in 2024. We will share more details as they become available, but we anticipate the rate to be Adjusted diluted earnings per share was $0.73 compared to $0.58 in the Q3 of 2022. Our cash balance at September 30 was $234,000,000 up from $214,000,000 at year end 20 Total debt at September 30 was $587,000,000 up from $542,000,000 at year end 2020 The increase in total debt was driven by the delayed draw of the $50,000,000 On the Term Loan A facility that we put in place in July of 2022. Speaker 300:13:10Net debt, including restricted cash at September 30th was $98,000,000 Adjusted free cash flow for the quarter was $26,000,000 Down from $41,000,000 in the prior year period. The year over year decrease was driven by higher working capital, Which was a function of higher revenue as well as investments in inventory supporting the launch of Essence and capital spend phasing. Capital spend was $22,000,000 in the 1st 9 months of the year compared to $17,000,000 in the prior year. The increase was driven by TP Manufacturing Infrastructure Investments. Now turning to our revised 2023 guidance. Speaker 300:14:00As Bill mentioned, based on our performance through the Q3, we're increasing our full year 2023 revenue And adjusted diluted earnings per share guidance, while narrowing the range on the adjusted free cash flow. We now expect 2023 revenue growth on a constant currency basis between 9% 11% And continue to assume approximately a 1% tailwind from exchange rates. We now expect adjusted diluted earnings per share in the range of $2.60 to $2.80 With adjusted diluted weighted average shares outstanding to be 54,000,000 for the full year. Adjusted free cash flow Is now expected to be in the range of $85,000,000 to $95,000,000 In summary, I'm encouraged by the company's execution and financial performance in the 1st 9 months of the year. We remain positioned to drive improved operating leverage By year end, having achieved 14% adjusted operating margin and 23% Adjusted operating income growth for the 1st 9 months of the year. Speaker 300:15:17I'm pleased that we have achieved this While investing in critical capabilities for the company, including innovation, manufacturing infrastructure and IT modernization. And with that, I'll turn the call back over to Bill. Speaker 200:15:33Thank you, Alex. As a company, We have executed against our targets through the 1st 9 months of 2023. We're well positioned to deliver on our full year guidance, Including operating leverage by year end as well as pipeline commitments. Achieving these communicated goals And creating shareholder value, our top priorities of the executive leadership team and our colleagues around the globe. Let me take a minute to thank our entire organization for their focus on patients, innovation and value creation. Speaker 200:16:09We look forward to building on this level of performance through the remainder of the year and into 2024. With that, Alex, we are ready to open the call for questions. Operator00:16:23Thank you. Thank you. Our first question for today comes from Rick Wise of Stifel. Rick, your line is now open. Please go ahead. Speaker 400:16:51Good morning, everybody. Thanks. Bill, let me first of all, it's great to see the solid quarter overall. End. A lot of good things happening and you make a bunch of encouraging comments. Speaker 400:17:04And I said, Hat before, I start off with The 4th I just want to touch on the 4th quarter. When I if I'm looking at it correctly, Your current guide, even though it's stepped up a bit, implies a bit lower growth in EPS than I might have thought And then we had modeled and just wanted to better understand, is this just thoughtful, prudent conservatism? Is there something I'm not understanding? Is this something related to tax rate? If you could just give us a little more color there and understand. Speaker 200:17:42Sure, Rick. Thanks for the question. Getting right at the EPS range, We have been all throughout the year really paying close attention to not only sales and profitability performance, But also this balance of supporting some well known needs we have infrastructurally manufacturing, Innovation and some strategic investments. We have notably been cautious on the latter set of choices that we've made To ensure that we put the 1st 3 quarters of the year into a strong position. We do have some targeted investments in the core business around Growth and profitability and we're going to support some of those investments in the 4th quarter. Speaker 200:18:34Additionally, we can't predict this ongoing competitor supply situation, particularly in the CP business And very much focused on oxygenators and the impact it's going to have on volume and our ability to achieve the same amount of sales end of the year. And the corresponding EPS benefit we get from that. We got a few ongoing inflationary pressures we've got least our eyes on, particularly on components. But hopefully that'll give you a little better picture of where we're sitting right now. Speaker 400:19:07Got you. And just and again, it's always management's favorite question this time of year. Maybe you'll talk a little bit about the 2024 setup. You made some encouraging comments there at the end. Speaker 500:19:26Maybe you could expand on that a Speaker 400:19:28little bit. Just key drivers for next year or things the organization and you Are focused on, but maybe most particularly, given the strong cardiopulmonary performance, How much more how long should we anticipate that running that benefit lasting? What inning are we in there as we look ahead to the year ahead? Thank you very much. Speaker 200:19:59Yes, Ricky. Thank you. Let me take the latter part of that Question first. Just to be clear, our manufacturing organization on the cardiopulmonary side focused on oxygenators Are running flat out right now. We don't have any more available capacity. Speaker 200:20:18Everything that we make, We sell. We were surprised that our competitors have not yet Seemingly put much greater volume back into the marketplace. And so I have given up Trying to predict if and when that's going to happen because we just don't know. We mentioned to you guys last quarter That we were pretty sure they were going to be back. Clearly, the numbers we just showed you, they've not popped back. Speaker 200:20:53I actually have been asking a lot of the same questions you're asking about the upcoming year. We can't project that and we won't. As it relates to 2024, we really are looking forward to covering that in much greater detail, Rick, with you and All others, when we do our Q4 call, we had an encouraging and successful Board meeting in October, Where we took our strategic business plan for the coming year and let us Just defer that discussion until we get to the 4th quarter results. Speaker 400:21:32Thanks very much, Phil. Speaker 200:21:34Hey, Rick. Thanks. Operator00:21:37Thank you. Our next question comes from Mike Pollock of Wolfe Research. Your line is now open. Please go ahead. Speaker 600:21:46Hey, good morning. Thank you for the question. One more on cardiopulmonary and I'm Specifically looking at the implied 4th quarter guidance, if I'm doing the math right, segment revenue down Sequentially and year on year, it just strikes me as very conservative. The question is on the oxygenator disruptions at competitors, Can you remind us on the timing of that over the last year or 18 months? Was that primarily a 2023 phenomenon? Speaker 600:22:17Or are there some Tough comps in the back half of twenty twenty two that we're coming up upon. Speaker 200:22:22Hey, Mike. Yes, thanks for the question. You're on to a really important topic. And by the way, this is our math and our math only. But we did start to see the first escalation In the oxygenator revenue uptake in the Q4 of 2022. Speaker 200:22:44So number 1, we know that we're up against a little bit of a tougher comp as we go into that quarter. Number 2, and please excuse me, I'm not trying to be repetitive here, but we're just running flat out In the plant, I can't and our organization can't produce any more oxys. So when we do our projections based on those two critical factors, we're having a really hard time seeing how we could sustain The double digit growth. So once we're in the Q4 of 2023 against that tougher comp and as we look forward on Oxy's, We can't see the sustainability. Now of course, we're looking at everything we can do in the Short term to optimize our production capabilities. Speaker 200:23:38But you guys know well, we've got Molding, assembly, packaging and sterilization here. There's just no magic wand where we can in a very short term Create a notable recovery scenario. And by the way, we are operating well within all the quality boundaries of our quality management system to make sure that we're not just optimizing volume, but everything that's going out Of that facility is at the quality levels we expect. So by the way, I'm not in any way complaining about all that. I'm just Sharing that we are doing the absolute best that we can in the situation that we have. Speaker 600:24:21Helpful. For my follow-up, I'll ask on the CEO search. I appreciate the comments. I guess as I look at LivaNova, My question is, is it difficult to find the right fit before you know what happens with depression and sleep as examples? Those are Potentially transformative opportunities, sought to clear clinical data risk and I just is it I rolled this forward, Bill, and kind of wonder if A better timing for somebody new would be middle or back half of next year when you maybe know a little bit more about These pipeline programs and how the data is going to turn out and therefore the potential commercial prospects. Speaker 600:25:09Any color on end. This would be great. Thank you so much. Speaker 200:25:13Yes. Thanks for the question. Actually, we have been pleasantly encouraged By the number of people who want to be a CEO. The same questions that you have asked, we have been getting asked in our process. But I see no hint that it's dampened candidate interest and people coming to the company. Speaker 200:25:39As I mentioned in my earlier remarks, the Board and myself are in and have been in some active interviewing now Since late August, early September, all our attention is on finding the right person. We said initially, it would more likely take 6 to 9 months, we kind of moved a little past the 6 month window, but we'll continue to do 2 things, Keep the process at the level of quality that we have it. And we're not flexing on our spec. When we say we're going to find the right person, we've described over the last couple of calls, those things that are really important to us In terms of getting the right candidate and we're just staying connected to that. Thank you. Speaker 200:26:30Sure. Thank you for the question. Operator00:26:34Thank you. Our next question comes from Adam Maeder of Piper Sandler. Your line is now open. Please go ahead. Speaker 700:26:43Hi, good morning guys. Thank you for taking the questions and congrats on the next quarter. I wanted to start on Speaker 300:26:49CP. Good morning. Wanted to Speaker 700:26:52start on specifically CP and Heart Lung Machines. And I I think you said that segment grew 25%, HLMs did in Q3. I'm curious if you can just talk a little bit more about The Essence rollout, what was the contribution in the quarter from Essence? How many systems did you place? Kind of how you Foresee that evolving going forward. Speaker 700:27:15And then also just remind us on the pricing strategy relative to S5 and then I had a follow-up. Thanks. Speaker 200:27:23Sure. Thanks for the question. We did move, as I mentioned in my earlier comments to kind of a full launch. And for sure, our HLM revenue growth was driven primarily by Essence installations in U. S. Speaker 200:27:37And Europe With just some S5 placements in Rest of World, all of our Essence orders to date are achieving the expected price target. We have talked in the past that we were expecting to because of the quality advancements in technology in essence, we were hoping to get Roundabout a 30% price premium above traditional S5. At this very early stage, all of that expectation Is being achieved. We're not yet at a point where we're going to start talking about units placed. What we actually are enthused about is the quality of our pipeline and funnel And the customer interest that we're seeing in both U. Speaker 200:28:26S. And Europe. So what we hope to do is Prove ourselves even to the next level, if you would, in the Q4. And then we can circle back some more on Essent's performance As 2024 starts to roll Speaker 700:28:44out. That's great color, Bill. Thank you for that. And for the follow-up, You know, realize you're not you're a little bit limited in terms of what you can see in 2024, but I did want to ask about the heart failure program closure. Bit. Speaker 700:28:59I think that's $24,000,000 of spend this year. Any updated thoughts, even just broad strokes on how you think about That spend as it relates to next year, letting that flow through to investors versus reinvestment in the business. And then I guess I'll test my luck and also ask about associated spend with depression and OSA next year as well. Thank you. Speaker 200:29:24Sure. Let me I'm going to have Alex comment on our heart failure. He's got his a real tight handle on our game plan there. Speaker 300:29:32Hi, Adam. So look, our heart failure program, we continue down the path of closing that out end of the year, we expect some residual costs into next year. We're looking at our capital deployment as part of our budgeting process, we'll update you guys as we end Q4 and on Speaker 200:29:57all of our expectations for Performance in next year. And to close out on your DTD OSA questions, What we did as you would expect in our business planning is the best we can do given the little bit of uncertainty that resides particularly on DTD It's due scenario planning. We have completed scenario planning for a possible launch of that product, Obviously, not until we get into 2025, but we would have to start to prepare our homework for late 2024 commercial activity. That's what we'll talk about when we get into our Q4 review. And we'll actually be prepared To give you quite a bit of insight, I think in both of what we're going to try and do, why we're going to do it and what that spend Will be, as you would already guess, there are more than a few moving parts there. Speaker 200:31:01And so we're going to take the benefit of the next couple of months to really button that down, but we have a really good kickoff on that planning effort. And of course, the scenario has to operate under the financial premise That depression has a chance to be a goal and more details to follow. Speaker 700:31:22All right. We'll stay tuned. Thanks again. Speaker 200:31:25Hey, thank you. Operator00:31:28Thank you. Our next question comes from Matt Taylor of Jefferies. Your line is now open. Please go ahead. Speaker 800:31:38Hi. Thank you for taking the question. I guess I was wondering if you could talk a little bit more about the epilepsy dynamics bit. Under the hood and give us some color on trends in new patient starts, the replacements, Also the things that you've been doing with your sales force, how the landscape has been with the centers opening and maybe carry that forward and talk at least at a high level What to expect with those dynamics next year? Speaker 200:32:07Hey, Matt, thanks. We've got the benefit of having Steph here, and she has been spending Ordinent amounts of time on these two topics. So I'm going to just turn that question right over to Stephanie Bolton. Speaker 900:32:19Thanks, Matt. So as mentioned during the last call that we had, we've really been focusing on Producing consistent performance and having a consistent execution. And I continue to be encouraged by what that looks like with the team, particularly in the U. S. So we keep leaning into our consistent operating mechanism and Focusing on the fundamentals of the collaboration between the different groups. Speaker 900:32:50Our Q3 Was another sort of consistent execution quarter and our NPI entirely in line with our expectations given how we exited Q2. So I'm really pleased that we'll continue to anticipate that normal run rate as we move through towards the end of the year. So in terms of the sales teams, they are very much focused on our Customers that have the most amount of opportunity to treat our DRE population. And we continue with our CEC strategy with our cams in the field. So everything is moving in a very nice direction And we continue to work on our consistent execution. Speaker 800:33:40Maria, anything notable to call out in terms of changing dynamics next year in the business? Speaker 900:33:48No notable changes as it stands now. We have full and appropriate coverage in the U. S. About SECs, they remain our firm priority moving forward. Speaker 800:34:01Okay, great. Thank you very much. Speaker 200:34:04Thank you, Matt. Operator00:34:06Thank you. Our next question comes from Mike Batson of Needham and Company. Your line is now open. Please go ahead. Speaker 200:34:15Yes, thanks. Speaker 300:34:16I guess just good to Speaker 1000:34:18see the strong growth in ACS. So, is that do you think that's back to kind of steady strong double digit growth now? Speaker 200:34:30Well, we continue to keep our eyes on that. When we had let me give you just a little bit of color on the ACS side. I mentioned just briefly that we had some case volume benefit. In fairness, we had a couple of other smaller tailwind events That happened in the quarter. And that related to some back order clearance, a few minor catch ups in purchases In Europe and a one time adjustment in service revenue. Speaker 200:35:00And so it was the combination of those two things that kind of elevated That year on year growth for ACS. We're maintaining kind of our full year guidance, continuing to work closely with our ACS leadership team To look at how we can further grow and improve profitability in the year ahead. But our guidance remains pretty much what we mentioned to you last time. Speaker 1000:35:28Okay. Thanks. And then just as far as Osprey goes, bit. Good to hear that you've got all the sites up and running. Can you give us any sort of update on where enrollment is and what your expectation is in terms of when The data could be released. Speaker 1000:35:43Is it possible we could see in 2024 or is it really going to be more 2025? Speaker 200:35:48I'm going to flip that one right to Matt. Speaker 100:35:50Sure. Thanks, Mike. So Osprey's, as Bill said, was on track. We've talked about getting the enrollment completed in 2024, 6 months follow-up. To your point, it looks right now like kind of late 'twenty four, early 'twenty five. Speaker 100:36:06We'd get the data, a little bit of time end to analyze it and that's why we've talked about a filing in 2025. Speaker 800:36:14Okay, got it. Thank you. Operator00:36:19Thank you. Our next question comes from Anthony Petrone of Mizuho Group. Speaker 1100:36:29Thanks. Maybe one on epilepsy and then bit. I'll ask a little bit about margins. Maybe just a little bit more on end of service. I know the company is actually tracking those patients. Speaker 1100:36:44Just wondering where you guys are in terms of how many patients are still in the queue for end of service and would assume that most of those would be if they choose to upgrade, they would upgrade at Scentiva. And then I have a follow-up on margins. Speaker 200:37:00Thanks, Anthony. I'm going to flip that one over to Steph. Speaker 900:37:03The Sure. Hi, Anthony. Nice to speak to you. So each quarter we have an overview of our identification for both end of service end of the year. And I continue to be encouraged by what that looks like. Speaker 900:37:17And for sure, you're absolutely right. The end of service patients that we have Coming through now we're opting to move to our Scentiva platform. So again, we're seeing incremental improvement and that's The piece that you see around the mix and the change, so that's with end of service patients opting to move to our latest platform. Speaker 1100:37:40And again, in terms of the tailwind, I mean, is can that last all the way through 2024 into 2025? Or Are you ending the end of the queue there on end of service? And then just quickly on margins, Just to recap on the amount of R and D spend on Recover and then under a scenario where You don't get an ideal readout there. I'm wondering, will those R and D dollars be redeployed elsewhere in the business or would you let those fall to the bottom line? Thanks again and congrats on a good quarter here. Speaker 900:38:18I think what I'd like to say in terms of end of service, we keep updating our models every single quarter. So we should have more information on that beginning part of next year. Due to the fact that a number of our patients are opting for SenTiva We launched in 2017, so we're starting to see the first replacements of those. We'll continue to see a slightly higher end of service identification because of that reason. But we'll keep you updated with that. Speaker 300:38:50And Anthony on depression, The RECOVER study burn is approximately, call it, dollars 30,000,000 on an annual basis. And so to answer your question About how do we think about capital deployment for next year. Again, as I said, we'll update you guys Early in 2024 about how we're thinking about our budget and guidance for next year. Obviously, there's Multiple scenarios as they relate to depression. Speaker 200:39:23But that depression will be fully funded throughout 2024 unless we get some kind of Unexpected news in June of 2024. Correct. Operator00:39:35Thank you. Speaker 200:39:37Thanks for the question. Operator00:39:40Thank you. Our next question comes from Matt Miksic of Barclays. Your line is now open. Please go ahead. Thanks so much. Operator00:39:50Can you hear me okay? Speaker 200:39:52We can. Good morning. Speaker 500:39:54Great, terrific. Good morning. Thanks and congrats on the quarter. Speaker 200:40:00Hey, thanks. Speaker 500:40:01So Yes. Just one question following up on some of the work that you're doing with in the epilepsy business. And I guess maybe this is Stephanie or for the team. Bit. Is this something that, given the sort of new implants in the quarter, It seemed like they maybe dipped a bit. Speaker 500:40:24You said it was in line with your expectations. Just to get us a sense of The cadence for the year and how we should think about Q4, I know you're entering 2024, is that something we should expect to kind of sequentially improve or Is there another quarter or 2 of balancing internalizing some of the new programs and a pipeline concept that would end of the year, I have one follow-up. Speaker 900:40:55Yes. Hi, Matt. So as I look specifically at Q3 and the reason why I say I'm continued or I continue to be encouraged by that sort of consistent execution is when we look back towards Q2, we had a 13% increase in our NPI for that quarter. So it is entirely in line with my expectation that we saw what we did in Q3. In fact, because I was I continue to be encouraged due to the fact that we didn't see a dip. Speaker 900:41:26Now when we look towards the 4th quarter, I'll refer you back to the original full year guidance that we gave in terms of mid single digit for MPI end of service. So we anticipate a normal run rate for the Q4. Speaker 500:41:45Okay. Thanks for that. And then just a follow-up on sort of Cash flows and maybe the ability to sort of reinvest here and your maybe priorities for reinvesting some of the R and D spend that you're unwinding into the end of this year. If you could provide Any color on your most recent thought? And I understand there's a strat plan underway and there's a new CEO Potentially coming on board soon and you want to get ahead of that, but either your latest thoughts on how to think about netting back to the P and L and being redeployed for what kinds of investments? Speaker 500:42:33Thanks. Speaker 300:42:36Matt, this is Alex. I'll take the free cash flow. We our target for this year is $85,000,000 to 90 $5,000,000 of adjusted free cash flow. Our goal is to continue to drive cash conversion. Net. Speaker 300:42:53That's what the organization is focused on. That is assuming an expectation that we continue to see improvements In profitability and working capital management. As far as Capital deployment for next year, we're not ready to talk about that at this point. Obviously, there are multiple scenarios in terms of Success with depression and getting us ready for a potential launch there. We'll update you guys as we get into 2024 early in the Q1. Speaker 500:43:35Okay, fair enough. Thanks. Speaker 200:43:39Thank you. Operator00:43:41Thank you. Our next question comes from David Rescott of Baird. David, your line is now open. Please go ahead. Speaker 1200:43:50Hey, guys. Thanks for taking the question. I wanted to start on Essence and kind of the margin contribution from that segment. I appreciate end. The comments around the pricing premium, I know it's really in the early days here still just getting underway, but just wondering how we should think about maybe valuation or leverage from that product as that ramps and as you move into 2024 and beyond just relative to the rest of the portfolio? Speaker 300:44:21So this is as far as Essent's margins are concerned, we expect sort of Some margin improvement as we scale the volumes there. The cost base is slightly higher And we obviously compensate for that with our price premium at this point. Essence as it continues to ramp into 2024, we'll have a margin improvement For the cardiopulmonary business, our capital business has a higher margin base end of our consumable business, so slightly different perhaps from other companies. But that's the way we think about the business That Essence will have a strong contribution to our gross margin improvement in 2024. Speaker 1200:45:21Okay. That's helpful. And then just 2 quick follow ups on, I think, Some prior comments that you made actually at our conference. Just wondering, 1, I think the prior expectation maybe had been to have a CEO replacement end of the Speaker 800:45:39year, Speaker 1200:45:42I think we had asked in the past just about whether or not any of this concern or anything you're seeing around GLP-1s are impacting the enrollment of the OSPRE trial. So just wondering if there's any updated thoughts on both of those. Thank you. Speaker 200:45:56Thanks, Hugh. I'll take the first one. You're exactly right. We had talked back In April at the time of my arrival about a 6 to 9 month window. And of course that 9 month window would take us into the end. Speaker 200:46:10The January timeframe, we're not as you would guess, we're not operating under any deadline. We're going to find the right person. We'll know that right When we see them, every effort is being made to get that person in sooner. I want to make sure that that commitment is clear. At the same time, we'll find that right person and we won't be pushed by any timeframes or calendars or anything. Speaker 200:46:38So The Board is very sincerely committed to the spec, as I mentioned just a few minutes ago. And I don't think we're going to see us waiver from that. Now Matt, would you comment on the GLP-1, please? Speaker 100:46:50Sure. On the GLP-1s, we don't believe we're seeing any impact moment of Osprey. And also, the trial is relatively small, 125 to 150 patients is our expectation. So we're not seeing anything. Speaker 800:47:07Okay, great. Thanks. Speaker 200:47:09Thank you. Operator00:47:12Thank you. Our next question is a follow-up question from Michael Pollack of Wolfe Research. Your line is now open. Please go ahead. Speaker 600:47:22Thank you for taking the follow-up. Just one. Alex, I thought in your prepared remarks, you said something about the tax rate. What did you say? What's a good input in 'twenty four or 'twenty five? Speaker 300:47:35Yes. Thanks, Mike. Recall from our Investor Day in December of 2021, we kind of foreshadowed an increased tax rate. At that time, we were saying that over the course of 2022 to 2024, we'd expect tax rate to be in the range of 15% to 20 percent, we're going to see that happen in 2024. So That's what I would recommend that you guys start modeling. Speaker 600:48:08So I just want to be clear that this is for your adjusted reporting, The adjusted tax rate goes from something like 10% this year to 15% or 20% next year? And if that's true, What's driving it? I mean, what are the changes? Speaker 300:48:26Yes. That is correct. The changes are We're enjoying a very low tax rate today. It's very different versus if you look at some of our competitors. And we expect that to kind of normalize as some of our tax planning we lose the benefits Some of the tax planning that we've enjoyed over the last few years. Speaker 600:48:56Okay. It's just that feels yes, it feels like a big step up. So okay, I appreciate the comments. Thank you. Speaker 200:49:04Thank Operator00:49:05you. Thank you. At this time, we currently have no further questions. So I'll hand it back to Bill Cozzi for any further remarks. Speaker 200:49:16Thank you, everyone, for joining us on today's call. On behalf of the entire team, we appreciate your support and your interest in LivaNova. Thank you. Operator00:49:27Thank you for joining today's call. You may now disconnect your lines.Read morePowered by