LivaNova Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 3, 2023

Key Takeaways

  • 13% revenue growth in Q1 drove an increase in full-year 2023 revenue guidance to 4–6% and adjusted EPS guidance to $2.50–$2.70.
  • Adjusted operating margin fell to 10% in Q1, down from 12% last year, pressured by inflation, geographic and product mix shifts, R&D investments and launch expenses.
  • ACS segment revenue declined 16% year-over-year after a ~90% drop in COVID-related cases, though non-COVID volumes rose; ACS still expected to grow 4–6% in 2023.
  • Pipeline progress includes 500 unipolar implants enrolled in the DTD RECOVER study (final analysis and late-2024 publication expected) and expansion of the OSPREY OSA trial to 24 active sites targeting 2025 FDA approval.
  • Interim CEO Bill Cozzi emphasized focus on “patients, performance and execution” as the board searches for a permanent CEO with strong strategic and operational expertise.
AI Generated. May Contain Errors.
Earnings Conference Call
LivaNova Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the LivaNova Plc First Quarter of 2023 Earnings Conference Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Mr. Matthew Dodds, LivaNova's Senior Vice President of Corporate Development.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Bailey, and welcome to our conference call and webcast discussing LivaNova's financial results for the Q1 of 2023. Joining me on today's call are Bill Cozzi, Our Chair of the Board of Directors and Interim Chief Executive Officer Alex Schwarzberg, our Chief Financial Officer and Brianna Gottlin, 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. Also, the discussions will include certain non GAAP financial measures with respect to our performance, Including, but not limited to, sales results, which will all be stated on a constant currency basis, reconciliations The most directly comparable GAAP financial measures can be found in today's press release, which is available on our website.

Speaker 1

We have also posted an earnings update to our website that summarizes the points of today's call. This update is complementary to the other call materials and should be used as an enhanced communication tool. You can find the update and press release in the Investors section of our website under News, Events and Presentations at investor. Livanova.com. Now it is my pleasure to introduce you to Bill Cozzi.

Speaker 1

Bill joined LivaNova's Board of Directors in 2018 after the conclusion of his 42 year career at Becton Dickinson, where he retired as Executive Vice President and Chief Operating Officer in 2016. At BD, he served as a member

Speaker 2

of the corporate leadership

Speaker 1

team and held various executive roles since 1988. As a result, he brings expertise in strategy execution, operations and financial discipline. With that, I will turn the call over to Bill.

Speaker 3

Thank you, Matt, and thank you everyone for joining us. It is my pleasure and privilege to welcome you to LivaNova's conference call for the 1st Quarter of 2023 as LivaNova's Chair and Interim Chief Executive Officer. 1st and foremost, On behalf of the Board and the executive leadership team, I'd like to express our gratitude to Damian McDonald for his dedicated leadership And countless contributions to the company over the last 7 years. We wish him all the best in his future endeavors. In this interim role, my focus is firmly on patients, performance and execution.

Speaker 3

In the coming weeks, I'll continue to engage with our global customers and colleagues as well as the investor and analyst communities. Even though I'm new in learning, I'm already working alongside our experienced executive leadership team and the Board, and I do remain confident that we'll facilitate a smooth and positive transition as we search for LivaNova's next leader. For the remainder of the call, I'll discuss our Q1 results And then turn to our strategic portfolio initiatives. After my comments, Alex will provide additional details on the results And increases to 2023 guidance. I'll wrap up with closing remarks before moving on to Q and A.

Speaker 3

In the quarter, we achieved 13% revenue growth marked by strength in the cardiopulmonary and neuromodulation businesses, While advanced circulatory support remained unfavorably impacted by a decline in severe COVID cases, We were particularly pleased with the way the Rest of World and Europe regions drove results, especially in emerging markets. Worth noting, these regions comprised 47% of total company revenue in the quarter, up from 43% in the prior year period. Now turning to segment results. For the cardiopulmonary segment, revenue was 130 Oxygenator revenue grew in the high teens, driven by higher demand and improving supply chain performance. Heart lung machine revenue increased in the low double digits driven by new installations and replacements in the Rest of World and Europe regions.

Speaker 3

As a reminder, our Essence heart lung machine received U. S. FDA 510 clearance in March And approvals from Health Canada and the Japanese PMDA also during that Q1. Additionally, we initiated a broad commercial release in Europe. We now expect Cardiopulmonary revenue to grow 5% to 7% for full year 2023.

Speaker 3

Our revised forecast includes more clarity around the rollout of Essence based on recent approvals. In addition, our revision now incorporates the strong first quarter performance And oxygenators. Alex will comment on some underlying factors that impacted the Q1 result in cardiopulmonary. Epilepsy revenues increased 11% versus the Q1 of 2022, with strength across all three regions, including growth in both new and replacement implants. U.

Speaker 3

S. Epilepsy revenue increased 8% year over year, driven by growth in total implants, higher realized price and product mix. In the U. S, We are continuing to emphasize our commercial strategy in comprehensive epilepsy centers. As many of you know, These CECs currently do the majority of surgical epilepsy procedures and are focused on engaging with KOLs at these sites remains a top priority.

Speaker 3

Epilepsy revenue in Europe grew 14% versus prior year led by the UK. The rest of world region achieved 30% growth led by Brazil. For the full year 2023, We continue to expect global epilepsy revenue to grow 3% to 5% as we take a fresh look at the factors driving new patient Surgical penetration. I will be spending a notable amount of time with our key customers and KOLs. And again, Alex will comment on some underlying factors that impacted that strong first quarter result in epilepsy.

Speaker 3

ACS revenue was $10,000,000 in the quarter, representing a decrease of 16% from the Q1 of 2022. Results continue to be impacted by the year over year reduction in severe COVID cases and in part by product mix, partially offset by growth in non COVID cases. Our field data suggests ACS Case volumes related to COVID declined approximately 90% year over year as fewer hospitalized patients progressed to a severity that required ECMO therapy. However, that field data also suggests ACS non COVID case volumes increased versus the Q1 of 2022, driven by the easing of hospital capacity constraints and account acquisition. For 2023, we continue to expect ACS to grow 4% to 6% with the majority of the growth in the back half of the year.

Speaker 3

As a reminder, this is the last quarter this business will be significantly impacted by COVID comparisons. Turning now to the strategic portfolio initiatives. DTD revenue in the Q1 was $2,000,000 For 2023, we now anticipate DTD revenue of approximately $8,000,000 primarily from the RECOVER study. The RECOVER study continues to advance. In March, the interim Analysis for the 475th patient in the unipolar cohort was completed and confirmed the study's continuation.

Speaker 3

Subsequently, we randomized the 500th unipolar patient into the trial. Upon receipt of the 12 month follow-up data For the 500 unipolar patients, we will conduct the final analysis and expect the publication of the study results by late 2024. Now that enrollment in the unipolar cohort is complete, our recruitment efforts have been refocused On the bipolar cohort, we expect to reach 150 bipolar patient implants in late Q3 or early Q4. By now, I'm sure you've familiarized yourself with the RECOVER study. I recently met with 2 of the studies' principal investigators, Doctor.

Speaker 3

John Rush and Doctor. Charles Conway. These conversations reflect The continued excitement from the KOL community, and I hope you appreciate the company's total commitment to finish this initiative. Moving now to OSA. The OSPREY trial continues to progress with 24 study sites actively recruiting patients.

Speaker 3

Similar to my comments on DTD, myself, the Board and our project team remain committed to this project as well. In heart failure, the closeout of the ANTHEM clinical study is in progress. We have fully defined Most of the accelerated costs in 2023, part of which occurred in the Q1. Therefore, our expectation is that the overall R and D spend related to heart failure this year will be approximately $24,000,000 With that summary, I'll turn the call over to Alex.

Speaker 2

Thanks, Bill. During my portion of the call, I'll share a brief recap of the Q1 results and provide commentary on 2023 guidance. Turning to results, revenue in the quarter was $263,000,000 an increase of 13% versus 2022. In the quarter, we saw strong oxygenator demand, better than expected replacement implants and some accelerated orders. Additionally, we were able to continue to drive strong realized price from actions taken in the second half of twenty twenty two.

Speaker 2

Foreign exchange in the quarter had an unfavorable year over year impact Approximately $7,000,000 or 3 percent of revenue. Adjusted gross margin as a percent of net revenue was 69% compared to 71% in the Q1 of 2022. Adjusted gross margin was unfavorably impacted by inflationary pressures, Geographic and product mix, partially offset by pricing improvements. Adjusted R and D expense In the Q1 was $46,000,000 compared to $40,000,000 in the Q1 of 2022. R and D as a percent of net revenue was 18% versus 17% in the Q1 of 2022.

Speaker 2

The year over year increase was driven by continued investments and strategic portfolio initiatives and the costs associated with closing out the Anthem trial. Adjusted SG and A expense for the Q1 was $108,000,000 compared to $102,000,000 in the first The year over year increase on a dollar basis was driven by higher sales and marketing expenses. These include Essence launch expenses and variable costs associated with increased revenues. Adjusted operating income was $27,000,000 compared to $28,000,000 in the Q1 of last year. Adjusted operating income margin was 10% compared to 12% in the Q1 of 2022.

Speaker 2

Adjusted operating income was negatively impacted by 1, product and geographic mix 2, incremental investments in the OSA and DTD programs as well as accelerated spend related to the closeout of the heart failure program. And 3, commercial investments focused on the Essence launch. These key elements negatively impacted adjusted operating income margin by 300 basis points versus the prior year. Adjusted effective tax rate in the quarter was 6% versus 7% in the Q1 of 2022. Adjusted diluted earnings per share was $0.43 compared to $0.48 in the Q1 of 2022.

Speaker 2

Our cash balance at March 31 was $214,000,000 in line with $214,000,000 at year end 2022. Total debt at March 31 was $542,000,000 in line with $542,000,000 at year end 2022. Net debt including restricted cash at March 31st Adjusted free cash flow for the quarter was $20,000,000 up from $17,000,000 in the prior year. Free cash flow generation was improved by working capital management. Capital investments were $8,000,000 in the Q1 compared to $5,000,000 in the prior year quarter.

Speaker 2

Now turning to our revised 2023 guidance. As Bill mentioned, based on our performance during the Q1, We are increasing our full year 2023 revenue and earnings per share guidance. We now expect 2023 revenue growth on a constant currency basis between 4% 6% and continues to assume approximately a 1% tailwind from exchange rates. We now expect adjusted diluted earnings per share in the range of $2.50 and $2.70 with adjusted diluted weighted average shares outstanding to be 54,000,000 for the full year. Adjusted free cash flow is still expected to be in the range of $80,000,000 to $100,000,000 In summary, I'm encouraged by the Q1 top line performance, and we remain positioned to drive operating leverage by year end.

Speaker 2

With that, I'll turn the call back over to Bill.

Speaker 3

Thank you, Alex. LivaNova's Q1 performance demonstrated continued progress across the portfolio and positions the company well to deliver on its pipeline and its full year guidance. We're eager to build upon the Q1 results with a firm focus on patients, performance and execution throughout the remainder of 2023. In closing, we're committed to our DTD and OSA programs. And let me be equally clear, We're also focused on accelerating new patient penetration in U.

Speaker 3

S. Epilepsy, continuing strong performance in the Rest of World and Europe regions, And of course, driving the successful launch of Essence. Our employees remain dedicated to helping patients worldwide and are focused on long term innovation and shareholder value creation. And by the way, I thank them for the welcome they have extended to me over the last couple of weeks. With that, Bailey, we're ready to open the call for questions.

Operator

Thank And then return to the queue if you have additional follow ups. The first question today comes from the line of Rick Wise from Stifel. Please go ahead. Your line is now open.

Speaker 4

Good morning, everybody. Good morning, Bill. Good to hear your voice again.

Speaker 3

Good morning, Rick.

Speaker 4

Thanks. It was great to hear you spell it in such clarity some of your priorities, Patience performance execution and I appreciate the summary at the end. But maybe just for Those who maybe know you less well than I do, maybe talk in a little more detail about your priorities during this. How are you going to go about driving these things during this interim period? Do you How active a role do you expect to play and maybe taking those the NPI build, the focus on the rest The world and the essence launch, I mean, how will your typically hands on detailed approach Help drive that forward.

Speaker 4

Thank you, Bill.

Speaker 3

Hey, Rick. Thank you. Thank you for the question. I've talked a lot with all of the colleagues here at Liebenobe and the interim role is, as you already know, is something to be thought through. But the way I've thought through it goes as follows.

Speaker 3

As I mentioned earlier, attention on patients' performance and execution. And that's from my personal perspective, that's head down And all in. So I would challenge myself to operate In this interim role, just the same as I was used to operating in my prior roles, the Board had requested this As we made this transition, the organization has been just terrific In the way that we're starting to collaborate. But I'd reiterate the 4 initial takeaways from the 1st couple of weeks and the way I just closed, We're really committed to the SPIs. We're really going to look closely at epilepsy and what can we further do To improve our performance in surgical penetration, we're going to look at how can we take best advantage of this already strong performance That we're seeing in the regions.

Speaker 3

My comment about 47% of revenue in those areas, it's notable. And It's a really good signal about how the company is progressing when you think about the year on year success. And then, Essence also at the Top of the list, as I mentioned. Just to circle back, I want to make sure I've left it clear with you that Interim refers to the timeframe that I will be here. It in no way Refers to my commitment to the business.

Speaker 3

We're doing everything I can to work with this executive team And to effectively make better the performance of the company as we seek the next leader.

Speaker 4

That's a great answer, Bill, and thank you for that. I'm going to ask 1.5 follow ups. 1, the first is on the guide, To what extent is the 2023 guide thoughtfully conservative, maybe as usual? Or is it extra conservative Given this transition period. And maybe you could talk to us at a high level again, how do you see, how is the Board thinking about The search for the next leader, is it inside the company, outside?

Speaker 4

What are your priorities? What are you looking for? What characteristics As you pursue the search. Thanks, Bill.

Speaker 3

Thanks. That 1.5 sure sounded like 2, but let me take a shot at it. So Alex did a nice job of sharing with you the kind of the drivers behind the 13% growth in that quarter. What I think is prudent and it even becomes more prudent at the start of the year. You just make sure you've got some understanding of underlying factors.

Speaker 3

There were definitely a couple. I mean, even the new guy caught a couple of things in the P and L that said, this looks a little bit favorable. I'll throw you an example. I said, geez, I don't think we want to count on Russia, okay, each and every quarter and to extend that out is just one example. So Alex has got a full handle on that.

Speaker 3

And you know what, I'll have him in a second add a little color to that. But I'd like to think that we're being prudent, and particularly at this stage of the year. Now to your second question there, the Board has really done a thorough job in their specificity About the next CEO, and I would not drag you through what actually is a pretty thorough job spec For the next CEO, let me hit the 100,000 foot level. The nature of this business is that Great strategic capability is meaningful. And that would certainly going to be at the top of the list.

Speaker 3

What, I guess the real Secondary expectation though for us is to link that ability to look longer term, But to align that thinking with really favorable operating acumen And the ability to link those two things to continually improving financial outcomes, it sounds pretty, I guess, pretty obvious, But that's really at the top of our list at that 100,000 foot level. Things like Cost discipline and things like operational excellence, they are going to be just as important as trying to find that person Luke is really talented looking around the corner. And particularly with these set of platforms, particularly you think about SPI, okay. Those two things really become essential to ensuring the success of the company if and when Alex, anything to add on the My prudent comments about the guide.

Speaker 2

As I as you said, Bill, we're looking at the underlying market dynamics And how that really translates into growth for the remainder of the year. As I mentioned, we saw a strong oxygenator demand. We saw better than expected replacement implants in epilepsy, and we also saw some accelerated orders Into the quarter, so kind of a phasing thing. And we just want to make sure that all of these Parts are sustainable and that was the rationale for our guide.

Operator

Thanks again. Thank you. The next question today comes from the line of Michael Pollack from Wolfe Research. Please go ahead. Your line is now open.

Speaker 5

Hi, good morning. Thank you for taking the questions. I have 2, 1 on the leadership transition and 1 on depression. Bill, I'm curious for your perspective on this. We get this question when things like this happen.

Speaker 5

Why now, Damian's transition? Obviously, few weeks ago, it was kind of a straightforward question to answer with the revenue preannounced. It wasn't about the quarter. But how do you see this? And Is there anything in here that the Street needs to be concerned about?

Speaker 5

Or is it, To your other comment, head down and execute. And no, there's nothing else here. So any color there would be helpful.

Speaker 3

Yes. Thanks for the question. As we did try and talk about earlier, I mean, Damian resigned and We certainly appreciate his leadership and the things he did for the company. There was no new job that was announced. There were no personal issues reflected.

Speaker 3

There was a very constructive Commitment to help the company in the transition window throughout the month of May and all those things are right on the rails. So at this point in time, that's kind of our that's the understanding of everything that happened. And It's that simple. I don't have any story to add.

Speaker 5

Understood. On depression, I would just like a reminder on, look, for the unipolar cohort, The 500 patient is in, the premise now is follow for the full 12 months and then We'll see what we see. I guess, can you remind us at the 475th patient interim analysis, these Rolling interims tested for early futility and early success. And I think there are some criteria as to what kind of Utility might have looked like at 475 and what early success might have looked like at 475 In terms of separation VNS versus control, so would you be willing to frame up those parameters like You were above this, you were below this and you're somewhere in the middle, and so you're continuing. And then the Follow-up there is like what is required at 500 fully followed in terms of separation To be statistically significant at the end of this.

Speaker 5

So, any color there would be great. Thank you so much.

Speaker 3

Yes. Thanks for the question. Here I am in day 19. So I'm going to flip this right over to Matt, okay, who really is a much better source of information.

Speaker 1

Thanks, Bill, and hi, Mike. So for your questions, at 475, The potential to stop enrolling early, the upper bound that was around 80%. And then the futility, it got all the way up to 45%. So it's somewhere in between there. There is no look at 500.

Speaker 1

So we are going full 12 month enrollment with all patients, which That goes out to mid-twenty 24. Again, the study was always designed for 500 patients in both arms, unipolar and bipolar. And to your specific question, primary endpoint is time and response. It's somewhere in the low 60% range to hit the P value of 0.023.

Speaker 6

Thank you.

Speaker 1

Sure. Thanks, Mike. Thank you.

Operator

The next question today comes from the line of Matt Taylor from Jefferies. Please go ahead. Your line is now open.

Speaker 7

Hey, good morning. Thank you for taking the question. Excuse me, I'm sorry. I was hoping that you could talk a little bit more about The epilepsy trends, both the over performance in replacements, where did that come from and then the Focus on new patients. And I know in speaking with Matt, maybe a month ago or so, he was telling me about some interesting things you're doing with The incentives and the sales force, I'd love if you could touch on that.

Speaker 3

Yes. Let me ask Matt to go first, but then I do want to add some comments.

Speaker 1

All right. So Matt, I'll start with EOS, then I'll turn it over to Bill for NPI, then we can flip back on some of the things we've recently done. So for EOS, we still believe we're largely through the COVID related backlog. Again, not perfect math, but that's our thinking. Also remember that Q1 was the lowest comp of the year in 2022.

Speaker 1

So we did have an easier comp this quarter. Now all that said, we did put some programs in place late last year to help identify patients Lost to follow-up. We think we might be seeing some early success there, but again, it's early. So that's what really drove the EOS. I'll turn it over to Bill for some comments on NPI, then I'll talk a little bit about some of the things we've been looking at on the sales force.

Speaker 1

Yes.

Speaker 3

By way of background, I think some of you might recall that some of the previous calls we've referenced that the really important efforts To make sure that we've got our sales organization appropriately targeted, resourced and capable Really dealing with the KOLs in these comprehensive epilepsy centers. And that continues. And I believe in a very constructive way, admittedly The volume is up there, but it's being done in a very constructive approach to our customers. And then the second thing that As a senior management team, we've all had a chance to chat here over the last couple of weeks. This is a very high Priority strategic parameter for all of us.

Speaker 3

So, I'll be out next week. The first time I've had a chance, but I'll start You've heard me reference maybe a few times my commitment to getting out. I'll be out next week for a couple of days. I'll follow that up frequently, Making sure that we have increasing depth of understanding of A, the customer, B, the surgical penetration expectations and C, of course, most importantly, what else should we be doing to arm our sales rep With better information and capability.

Speaker 1

And then as your follow-up, we did mention last quarter That we did make some changes to the U. S. Epilepsy sales force late last year and then early into this year, A lot of involuntary change. In general, we had about 20 people change positions and what we were Highlighting was the quality has been very high for the replacements we've had Of the 2012 have direct neuromodulation experience. Others are in areas like diabetes and neurosurgery.

Speaker 1

So very encouraging and early days, some of these new hires have made already a nice contribution to the overall performance.

Speaker 8

Great. Thanks guys. Very thorough. Appreciate it.

Operator

Thank you. The next question today comes from the line of Adam Maeder from Piper Sandler. Please go ahead. Your line is now open.

Speaker 6

Hi, good morning everyone. Thanks for taking the questions and congrats on a solid start to the year. Wanted to start on the CP business And just get a little bit more color there. It looks like the performance was really driven OUS, while US was a little bit softer. Are you able to just kind of flesh out those trends by region for us?

Speaker 6

It's perhaps just simply driven by Essence And timing there, but any thoughts would be helpful. And then can you also just remind us how your pricing essence, I think it's being priced at a premium, but would love to get some color there as well. And I had a follow-up or 2. Thanks.

Speaker 3

Yes. Alex and I have had this Almost identical conversation. I'm just going to flip it over to him because he's really got his arms around it.

Speaker 2

Hey, Adam. So CP, we saw really solid demand for oxygenators and the heart lung machines. We have seen some really good placement Volumes, OUS. We expect revenue from Essence to start to Meaningfully in the second half of the year. So that was sort of if you look at the regional breakdown, the U.

Speaker 2

S. Was less positive in the quarter, but that's because customers are deferring orders at this point in time. We just got the clearance in the U. S. And we should start to see volumes ramp in the second half.

Speaker 2

The other component of our solid performance on the consumables businesses It's really we're seeing some of our competitors experiencing supply chain challenges. And Frankly, our supply chain is our team is doing extremely well, and we're able to capture some of the placements. So Feeling really strong about what and how the business performed in the 1st quarter and really looking forward to the remainder of the year. Price.

Speaker 6

That's helpful color, Alex.

Speaker 2

Yes. One other thing just in terms of price on Essence, yes, we've been commenting to A premium price offering. Obviously, the features and benefits of Essence are superior. At the same time, the cost of the unit itself is higher. But so we are going to price Essence at a very reasonable premium that customers will still appreciate.

Speaker 6

Great. Thank you for the fulsome response. Maybe switching gears to Obstructive sleep apnea, I guess first was hoping to ask, how you're thinking about timelines for That program, I think before you were anticipating FDA approval by year end 2024, wanted to see if that's still the case. And then second, the data from the THN3 trial were recently published in a medical journal. Just any color Or thoughts on that publication.

Speaker 6

And then just one question that I get sometimes From investors is just talk about kind of the learnings and any changes to either the trial design or the device design with Osprey, relative to that previous study? Thanks.

Speaker 1

Sure, Adam. It's Matt. I'll go through all those. So for OSA, We are still making progress on recruitment implants. We have increased the study sites from 20.

Speaker 1

We're now at 24. So that's going well. We've incrementally invested on several fronts to drive the recruitment funnel. But remember, this is a randomized trial. Other trials Not been randomized.

Speaker 1

So there is some drop off in the funnel. We've had a strong funnel of patients, but there is some drop off. So we do expect to complete enrollment now in 2024 And looking at FDA approval now in 2025. And then related to the JAMA publication, Our take here was that generally quite positive. It highlighted a lot of what you've already seen in THN3, Especially in the areas of the primary endpoints and how the author fell, we did on that.

Speaker 1

So I think that's the full takeaway from the JAMA publication.

Speaker 6

Okay. That's helpful, Matt. And just any flavor for Changes to the device itself or trial design? And then I sorry, I have one more follow-up for you guys. Thanks.

Speaker 1

Sure. So no changes to Osprey, the same. In terms of the device, nothing new to report there on the current device. We basically just tightened up a few things on the existing device to make it a bit more reliable.

Speaker 6

Okay, got it. Thank you for that. And then just one last one clarification on the cost savings from the heart failure program. I guess it was a little bit unclear to me in the prepared remarks. What

Speaker 2

is the expectation

Speaker 6

For any cost savings this year, is anything reflected in the updated guidance? Thanks so much for taking the questions.

Speaker 3

Yes. Alex has got this one. Alex, would you please?

Speaker 2

Yes. So as we mentioned, the total cost we estimate To be around $24,000,000 for the year. Look, our number one priority here is patient safety. So it's a complex implanted device and want to make sure that We take patients into account and patient safety into account. So last year, we spent roughly, Call it $27,000,000 So the savings this year are minimal, but we expect to drive significant savings in 2024.

Speaker 6

Okay, perfect. Thank you.

Speaker 1

Thanks, Adam.

Operator

Thank you. The next question today comes from the line of Mike Matson from Needham and Company. Please go ahead. Your line is now open.

Speaker 3

Yes, thanks. So Bill, I

Speaker 8

think you mentioned that you were planning to exit Russia. So Correct me if that's wrong, but can

Speaker 3

you just tell us how much

Speaker 8

of your revenue is coming from Russia?

Speaker 3

That was one of the things that caught my eye. You You know what was said. And then in the Q1, Alex, it was a couple of million. I mean, it was notable. I don't have the exact number here in front of me.

Speaker 3

Alex, do you?

Speaker 2

Yes, I do. It's roughly 1% of our revenue, Right. Historically, so it wasn't a significant amount, but we were not planning And we're not incorporating those revenues into our guidance. So the ability to Serve those customers in the quarter, just not necessarily counting on a repeat Order pattern throughout the remainder of the year?

Speaker 3

Yes, we got no reason to treat it anything other than a one time event at this particular moment.

Speaker 8

Okay, got it. And then as far as the just on the trial spending, so you commented on heart failure And the prior Adam's questions, but I guess just the sequencing of the $24,000,000 in costs this year, I mean is that kind of Spread evenly throughout the 4 quarters or will it be more kind of weighted to the first half of the year?

Speaker 2

It's going to be phased. We actually accelerated the spending in the Q1 As we obviously seeing patients come in for their visits and really closing out The components of the sites, so I think that we'll see An uptick in spend in the first half and then it should start to ramp down by the end of the year.

Speaker 8

Okay, thanks. And then just as far as RECOVER goes, I mean, now that you hit the 500 patient mark, I know you're focused on the bipolar now, but I mean, is it Reasonable to assume the spending levels there would be lower for the follow-up period or?

Speaker 2

No, it's not because recall our focus now shifts to the bipolar cohort. So recruitment of The bipolar patients, obviously continuing to monitor the unipolar patients. So our spend really does not go down at all this year.

Speaker 4

Okay. Thank you.

Speaker 1

Thanks, Mike.

Operator

Thank you. The next question today comes from the line of Matt Miksic from Barclays. Please go ahead. Your line is now open.

Speaker 9

Hi, this is Sarah on for Matt. Thanks for taking our questions. Just a quick follow-up on the RECOVERGE study. I believe you said you'd The final analysis and results by late 2024 instead of maybe earlier with mid-twenty 24. Is coverage decision by year end 2024 still the right way to think about this?

Speaker 1

Yes, sure, Sarah. So we're still expecting the data around mid We're now in the 12 month follow-up. There's going to be a couple of months of analysis, but we should have it mid-twenty 24 and we still expect a publication Around year end of 2024.

Speaker 9

Okay. Thank you for that. And then another As you know, a theme for this quarter we've seen is there seems to be a significant ramp in utilization and volumes across many of our end markets. Can you talk about how your businesses participated in this ramp? And if they still remain below

Speaker 2

I can comment to that, Sarah. So we've seen Mark, a market recovery. We continue to see a market recovery in volume. So As we think about our sources of growth in the quarter, particularly in the emerging markets, Areas like China, where if you recall, last year this time, Those regions were really going through the omicron COVID impact. And so we are absolutely seeing that recovery and that's Part of the reason we saw the substantial growth in the quarter, so we said it was an easier comp, if you will, but We feel encouraged by the what we're seeing from a customer demand perspective.

Speaker 1

And then in epilepsy, we still track on a quarterly basis, The epilepsy monitoring unit or EMU trends, they're still not back to pre COVID levels. We estimate they're Around 85%, 86% capacity, and that covers all surgery, not just VNS. But then internationally, our business there It's well above pre COVID levels, so that is rebounding quite nicely.

Speaker 9

Okay. Thank you.

Speaker 1

Thank you, Sarah.

Operator

Thank you. There are no additional questions waiting at this time. So I'd like to turn the conference over to Tulkosi for any closing

Speaker 3

Well, thank you everyone for joining today's call. On behalf of the entire team, we appreciate your support and your interest in the company And we look forward to speaking with you soon. Thank you.

Operator

This concludes today's conference call. Thank you all for your participation. You may now disconnect your line.

Speaker 1

Thank you,

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