LivaNova Q2 2025 Earnings Report

LivaNova EPS Results

• Actual EPS: $1.05
• Consensus EPS: $0.84
• Beat/Miss: Beat by +$0.21
• One Year Ago EPS: $0.93

LivaNova Revenue Results

• Actual Revenue: $352.50 million
• Expected Revenue: $332.20 million
• Beat/Miss: Beat by +$20.31 million
• YoY Revenue Growth: +10.60%

LivaNova Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 6, 2025
• Conference Call Time: 8:00AM ET

LivaNova (NASDAQ:LIVN), a medical device company, designs, develops, manufactures, and sells therapeutic solutions worldwide. The company operates through Cardiopulmonary, Neuromodulation, and Advanced Circulatory Support segments. The Cardiopulmonary segment develops, produces, and sells cardiopulmonary products, including oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae, connect, and other related products. The Neuromodulation segment designs, develops, markets, and sells VNS Therapy System, an implantable pulse generator and connective lead that stimulates the vagus nerve; difficult-to-treat depression and drug-resistant epilepsy devices. The Advanced Circulatory Support segment develops, produces, and sells temporary life support products. It serves perfusionists, neurologists, neurosurgeons, and other physicians, as well as hospitals, other medical institutions, and healthcare providers. The company sells its products through direct sales representatives and independent distributors. LivaNova PLC was incorporated in 2015 and is headquartered in London, the United Kingdom.

LivaNova Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q2, LivaNova delivered 10% organic revenue growth year-over-year, achieved 160 basis points of operating margin expansion and strong cash generation, and raised its full-year 2025 revenue guidance to 9–10% organic growth.
• Positive Sentiment: Cardiopulmonary revenue grew 13% in the quarter, driven by double-digit heart-lung machine and oxygenator demand, prompting management to lift full-year cardiopulmonary growth guidance to 12–13%.
• Negative Sentiment: Strong oxygenator demand is outpacing production capacity and third-party supply remains a limiting factor, potentially constraining faster consumables revenue growth.
• Positive Sentiment: Long-term VNS therapy data from the Core VNS study showed median seizure reductions of 80% for focal seizures and 95% for focal-to-bilateral tonic-clonic seizures at 36 months, strengthening the epilepsy franchise.
• Positive Sentiment: CMS proposed reclassifying VNS end-of-service procedures to a higher payment level effective January 2026, which could boost Medicare reimbursement by ~48% and support greater VNS adoption.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to the LivaNova plc Second Quarter twenty twenty five Earnings Conference As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Ms. Brianna Gottman, LivaNova's Vice President of Investor Relations. Please go ahead.

[Briana Gotlin, VP-IR at LivaNova]

Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the 2025. Joining me on today's call are Vladimir Makaptsaria, our Chief Executive Officer and Member of the Board of Directors Alex Schwartzberg, our Chief Financial Officer Amit Tazel, our Chief Innovation Officer Stephanie Bolton, President of Global Epilepsy and Zach Glaser, Director of Investor Relations. Before we begin, I would like to remind you that the discussions during this call will include forward looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC, including today's press release that is available on our website. We do not undertake to update any forward looking statements.

[Briana Gotlin, VP-IR at LivaNova]

Also, the discussions will include certain non GAAP financial measures with respect to our performance, including, but not limited to, revenue results, which will be stated on a constant currency and organic basis. 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.livanova.com. With that, I'll turn the call over to Vlad.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Thank you, Brianna, and thank you everyone for joining us today. Welcome to LivaNova's conference call for the 2025. In the quarter, LivaNova delivered 10% organic revenue growth versus the prior year, driven by continued momentum in our cardiopulmonary business and solid neuromodulation performance across all regions. Our ability to sustain strong organic growth reflects not only robust demand, but also disciplined execution across our portfolio. This execution also contributed to meaningful operating margin expansion and strong cash generation.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Before turning to segment results, I'd like to highlight some important clinical and regulatory milestones from the quarter. In epilepsy, we announced long term results from the core VNS study, the largest real world evidence study of VNS therapy to date. The data shows clinically meaningful and durable results demonstrating the effectiveness of VNS Therapy in both children and adults with drug resistant epilepsy or DRE. The outcome further validate early and sustained reductions in seizures frequency across multiple seizure sites, including the most severe and disabling seizures. For example, the thirty six month data analysis showed a median seizure reduction of eighty percent in patients with focal onset seizures with impaired awareness and ninety five percent in those with focal to bilateral tonic clonic seizures.

[Vladimir Makatsaria, CEO & Director at LivaNova]

These results have been well received by the clinical community and I expect it to strengthen the foundation of our epilepsy franchise while supporting our commercial and educational initiatives going forward. In difficult to treat depression or DTD, we initiated the process with CMS to seek national Medicare coverage for VNS therapy in unipolar patients with treatment resistant depression. The first step in the process for CMS reconsideration was the submission of a draft formal request. This request is supported by five peer reviewed publications from the RECOVER study and strong twenty four months outcome demonstrating the durability of VNS therapy in the severely ill patient population. And in obstructive sleep apnea or OSA, our advancing program continues to represent a significant long term growth opportunity for LivaNova.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Our submission with the FDA is progressing and we remain confident in the ability of our differentiated neurostimulation modality called proximal hypoglossal nerve stimulation or PHGNS. This is a new therapeutic modality with the potential to treat a wide range of challenging patients including those with high apnea hypophia index, high body mass index, and complete concentric collapse. We're excited for the PGNS to utilize a new therapeutic modality and have a positive impact on patients with sleep apnea. These achievements underscore the strength of our team and our ability to execute across clinical, regulatory and operational priorities. We remain focused on delivering life changing therapies to large patient populations with significant unmet needs.

[Vladimir Makatsaria, CEO & Director at LivaNova]

For the remainder of the call, I will discuss our second quarter segment results and updates to our revenue guidance for the full year 2025. After my comments, Amit will discuss our recent clinical and regulatory achievements. Alex will then provide additional details on our results and updated 2025 guidance. I will wrap up with closing remarks before moving to Q and A. Now turning to segment results.

[Vladimir Makatsaria, CEO & Director at LivaNova]

For the cardiopulmonary segment, revenue was $199,000,000 in the quarter, an increase of 13% versus the 2024. Heart lung machine revenue grew in the low double digits versus the prior year period. Essence placements increased on both a year over year and sequential basis and sustained favorable price premium. Oxygenator revenue grew in the low double digits, driven by procedure growth, market share gains and price. Strong demand for oxygenators is outpacing the market's ability to supply.

[Vladimir Makatsaria, CEO & Director at LivaNova]

While our manufacturing capacity expansion plans are progressing well and remain on track, third party supply is a limiting factor for even more rapid expansion. Our team remains focused on working with suppliers to meet our production needs. We now expect cardiopulmonary revenue to grow 12 to 13% for the full year 2025, up from 9% to 10% previously. Our revised forecast assumes continued HLM growth as we launch Essence in new markets and increase penetration in existing markets. Notably, we anticipate launching Essence in China in the third quarter, which is our second largest market for HLMs after The U.

[Vladimir Makatsaria, CEO & Director at LivaNova]

S. We still expect Essence to represent approximately 60% of our annual HLM units placements in 2025, up from 40% in 2024. Our forecast reflects a robust demand for consumables. Turning to epilepsy. Revenue increased 6% versus the 2024 with growth across all regions.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Epilepsy revenue in the Europe and rest of world regions increased a combined 9% versus the prior year period, while U. S. Epilepsy revenue increased 5% year over year. We are pleased with the strong commercial execution globally. Specifically, in The U.

[Vladimir Makatsaria, CEO & Director at LivaNova]

S, the field safety and identification process was managed very well accompanied by a successful transition to the updated SANTIVA generator while also meeting market demand. We fully completed the inventory swap in The U. S. Faster than we anticipated mitigating potential procedure deferrals and recapturing some previously delayed implants. We expect updated generators to be available for distribution in most other major geographies during the 2025 as regulatory approvals are received.

[Vladimir Makatsaria, CEO & Director at LivaNova]

For the full year 2025, we now expect epilepsy revenue growth of 4.5 to 5.5%, up from 4% to 5% previously. Our forecast now incorporates mid single digit growth in The U. S, up from low single digits previously, given the faster than expected inventory swap and increased visibility into deferred procedure recapture. Our outlook assumes the Europe and Rest of World regions will grow at combined low double digits for the year consistent with the prior guidance. We continue to see momentum in our global epilepsy business across volume, price and mix and we feel confident in our ability to achieve mid single digit growth this year.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Looking ahead, we are pleased with the recent CMS recommendation to move end of service or EOS procedures from level four into a level five ambulatory payment classification or APC code. Assigning EOS to level five would increase reimbursement support for hospitals providing VNS therapy to Medicare patients. If finalized, this change would take effect 01/01/2026 and provide outpatient facilities with higher reimbursement for VNS Therapy EOS procedures under Medicare. The proposed 48% increase in reimbursement for EOS procedures would meaningfully improve hospital economics over the lifetime of therapy for patients with DRE leading to a more sustainable financial position for providers to establish and maintain a long term VNS therapy practice. This proposal aligns with our market access strategy to drive greater VNS therapy adoption where a significant clinical unmet need still exists.

[Vladimir Makatsaria, CEO & Director at LivaNova]

In summary, due to the strong growth we saw in the quarter as well as the sustained success for the ESSENCE rollout, market share gains in cardiopulmonary consumables, commercial execution in epilepsy and pricing strategy, we're raising our overall organic growth outlook by 200 basis points to between 910%. Alex will provide additional details on our 2025 guidance later in the call. With that, I'll turn the call over to Amit to provide an update on our recent clinical and regulatory achievements in epilepsy and DTD, progress in OSA and an opportunity to advance HLM innovation.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Thanks Vlad. As Vlad highlighted, we recently announced long term data from Core VNS, which is our largest global prospective study ever conducted. This is the strongest and most compelling data to date showing that VNS Therapy delivers durable meaningful seizure reduction. Core VNS further validated the effectiveness of VNS Therapy on severe focal seizures in both children and adults with DRE and demonstrated that VNS Therapy is associated with substantial reduction in generalized tonic clonic seizures in people with DRE. This data demonstrates that patients with DRE who have exhausted numerous treatment options and continue to suffer frequent debilitating seizures benefit from VNS therapy.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

We published compelling twenty four month data on generalized tonic clonic or GTC seizures in patients who have failed as many as 20 anti seizure medications and had a median of four GTC seizures per month at baseline. At twelve months, the median reduction in GTC seizure frequency was seventy four percent and was sustained through twenty four months increasing to seventy seven percent. The core VNS thirty six month data analysis, which Vlad previously discussed, also reaffirms the effectiveness of VNS Therapy on severe focal seizures in pediatric and adult patients. The effectiveness was noted as early as three months after implantation, followed by further substantial reduction at the twelve, twenty four and thirty six month study visits. This strong data in a very large patient cohort is important for our strategy and will support our efforts to narrow the treatment gap, increase access to care and drive awareness of surgical therapies for the significantly underpenetrated DRE population.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Turning to difficult to treat depression, in May, we initiated the process with CMS to seek national Medicare coverage for VNS Therapy in Unipolar patients with treatment resistant depression or TRD. Our application is supported by five peer reviewed publications from the RECOVER study. The fifth critical paper, which was recently published in the Journal of Clinical Psychiatry, demonstrates that patients with previous electroconvulsive therapy or transcranial magnetic stimulation treatment had statistically significant and clinically meaningful benefits with VNS Therapy versus the control arm. Notably, VNS Therapy is the only treatment that has demonstrated therapeutic effects in patients that previously failed electroconvulsive therapy. In addition, the strong twenty four month outcome demonstrated significant durability of VNS therapy over time and further validate its impact in this severely ill patient population.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Specifically, among the patients who achieved clinically meaningful benefit at twelve months, the median durability of benefit across all the outcome measures was 81.3% at twenty four months. This demonstrates significant durability for these unipolar patients who at baseline in the RECOVER study had failed more than 13 antidepressant treatments on average. Observing all BNS therapy patients in the active treatment arm of the RECOVER trial from month twelve to month twenty four, researchers also found improvements in all outcome measures, with the median rate of response for clinically meaningful benefit increasing from forty point two percent at month twelve to fifty one point six percent at month twenty four. Notably, we are not aware of any evidence in the literature of any other therapies that can claim this profound level of sustained durability and increasing benefit, including pharmacotherapies or interventional therapies, such as electroconvulsive therapy or transcranial magnetic stimulation. Additionally, we are encouraged by the composite suicidality data, which showed an estimated forty three percent higher of of achieving meaningful improvement in suicidal symptoms versus the control arm through the first twelve months of the recovery study.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Importantly, there was separation between the active and control arms on this metric as early as month three and the observed separation was consistent throughout the twelve months. The composite suicidality data will be incorporated into our formal CMS submission upon publication in a peer reviewed journal. As we have done throughout the RECOVER program, we continue to closely partner with CMS through the Coverage with Evidence Development Framework as we progress through the coverage reconsideration. LivaNova is focused on developing clinical evidence that supports VNS Therapy for patients with TRD. We believe that this evidence resonates with HCPs treating these vulnerable patients and see VNS Therapy as a viable treatment option.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

In addition, we believe our growing body of evidence supports coverage and reimbursement for VNS Therapy in TRD. For example, Highmark, an insurer primarily serving the Mid Atlantic is now covering VNS Therapy for TRD when specific criteria are met. We view Highmark's recent decision as a positive step towards opening access for commercially insured patients. In OSA, our next generation PHE and S technology utilizes a new therapeutic modality to serve the large and growing patient population. Our modular PMA submission is progressing with the FDA and we look forward to sharing the complete twelve month OSFIRE data set later this year, which underscores the strength of our differentiated clinical evidence.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

PHE and S enables more complete control of the tongue and airway, providing the ability to treat a wide range of challenging patients, including those with high AHI, high BMI and complete concentric collapse or CCC and delivers durable holistic clinical responses. Of particular significance, our study showed that the patient population with a high risk of CCC had comparable results to the broad patient population further underscoring the clinical potential of proximal hypoglossal nerve stimulation. Lastly, in cardiopulmonary, as we look to maximize recurring revenue stream, including equipment service and software, we're upgrading a critical printed circuit board assembly or PCBA to enable more advanced software updates, driving innovation and delivering greater long term value to our customers across the Essence fleet. This new PCBA provides significant optionality to support ongoing Essence system software updates, aligned with our future expansion roadmap. In summary, we're encouraged by the recent clinical and regulatory milestones achieved in epilepsy and depression as well as our progress in the OSA program and near term innovation opportunities in cardiopulmonary.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

We look forward to sharing future updates. With that, I will turn the call over to Alex.

[Alex Shvartsburg, CFO at LivaNova]

Thanks, Amit. During my portion of the call, I'll share a brief recap of the second quarter results and provide commentary on our updated full year 2025 guidance, which reflects our strong first half performance and improving business outlook. Turning to results. Revenue in the quarter was $353,000,000 an increase of 9% on a constant currency basis and 10% on an organic basis versus the prior year. As a reminder, we took a $6,000,000 provision for the Italian payback measure in the 2024.

[Alex Shvartsburg, CFO at LivaNova]

Excluding the prior year adjustment, organic growth was 8%. Foreign exchange in the quarter had a favorable year over year impact of approximately $4,000,000 or 1%. Adjusted gross margin as a percent of net revenue was 69 percent, up from 68% in the 2024. This year over year increase was driven by the provision taken in the 2024 for the Italian payback measure as well as positive pricing and geographic mix. During the quarter, as part of our ongoing audit procedures, we identified that direct labor and overhead costs related to cardiopulmonary service business were misclassified as SG and A expenses instead of cost of goods sold.

[Alex Shvartsburg, CFO at LivaNova]

As a result, we performed a reclassification of $4,800,000 from SG and A expense to cost of goods sold for the second quarter on a prospective basis. To be clear, this reclassification is restricted to a small portion of operating expenses and there is no impact on historical or expected net income, operating profits or cash flows. For additional information including the historical reclassification, please refer to the supplemental table provided in the earnings release issued earlier today. Adjusted SG and A expense for the second quarter was $121,000,000 compared to $109,000,000 in the 2024. SG and A as a percent of net revenue was 34% in line with the 2024.

[Alex Shvartsburg, CFO at LivaNova]

The year over year increase on a dollar basis was driven by variable costs associated with increased sales, commercial investments to support growth as well as system infrastructure modernization to drive long term efficiencies and scalability. Adjusted R and D expense in the second quarter was $44,000,000 compared to $41,000,000 in the 2024. R and D as a percent of net revenue was 13% in line with the 2024. The year over year increase on a dollar basis was driven by increased investment in cardiopulmonary and OSA to support new product development. This expenditure was partially offset by cost optimization of the DTD program as we pursue CMS coverage.

[Alex Shvartsburg, CFO at LivaNova]

Adjusted operating income was $77,000,000 compared to $67,000,000 in the 2024. Adjusted operating income margin was 22% compared to 21% in the 2024. This increase was primarily driven by higher revenue and optimization of DTD program spend. Adjusted effective tax rate in the quarter was 22% compared to 21% in the 2024. The increase was related to changes in geographic mix and a roll off of certain tax attributes that have contributed to our historically low effective tax rate.

[Alex Shvartsburg, CFO at LivaNova]

Adjusted diluted earnings per share was $1.05 compared to $0.93 in the 2024. The increase was primarily driven by adjusted operating income growth. Our cash balance at June 30 was $594,000,000 up from $429,000,000 at year end 2024. This increase primarily reflects the reclassification of $295,000,000 of restricted cash due to the termination of the collateral cash deposit associated with the Sneel litigation guarantee. Total debt at June 30 was $431,000,000 compared to $628,000,000 at year end 2024.

[Alex Shvartsburg, CFO at LivaNova]

The reduction in total debt was a result of the $200,000,000 early repayment of the term facilities. Adjusted free cash flow in the first half was $68,000,000 up from $53,000,000 in the prior year period. The year over year increase was primarily driven by stronger operating results and disciplined working capital management. Capital spend in the first half was $26,000,000 compared to $19,000,000 in the prior year period. The year over year increase was driven by IT investments and cardiopulmonary capacity expansion initiatives.

[Alex Shvartsburg, CFO at LivaNova]

Now turning to our updated 2025 guidance. As Vlad mentioned, based on our performance to date, we are increasing our full year 2025 revenue, adjusted earnings per share and adjusted free cash flow guidance. We now forecast 2025 revenue growth between 89% on a constant currency basis and between 910% on an organic basis. The impact of foreign currency is now expected to be a tailwind of approximately 1%. We have revised our full year adjusted effective tax rate to approximately 23% which represents an increase of 200 basis points versus 2024.

[Alex Shvartsburg, CFO at LivaNova]

The 100 basis point improvement versus our prior guidance is reflective of our ongoing tax optimization efforts. To reflect the stronger operational performance in our business, we now project adjusted diluted earnings per share in the range of $3.7 to $3.8 with adjusted diluted weighted average shares outstanding to be approximately $55,000,000 for the full year. This higher range is primarily driven by increased revenue expectations and favorable net interest expense due to the timing of the Sneel liability payment. This $0.10 increase includes an investment in the Essence PCBA conversion, which we expect to impact cost of goods in the fourth quarter of this year. As Amit mentioned, the PCBA investment will support future advanced Essence software updates.

[Alex Shvartsburg, CFO at LivaNova]

Please refer to the adjusted diluted EPS guidance bridge on slide 17 in the investor presentation. Adjusted free cash flow is now expected to be in the range of $140,000,000 to $160,000,000 which is $5,000,000 higher compared to our prior guidance due to higher income expectations as well as working capital improvements. This range includes approximately $95,000,000 of capital spend up from $90,000,000 in the prior guide, driven by critical investments in IT infrastructure, innovation and growth, including the cardiopulmonary capacity expansion initiatives. I'd also like to call out that the guidance ranges shared today incorporate our best estimate of the potential impact of currently applicable tariffs. As previously discussed, we have a tariff mitigation plan in place that includes both holistic assessment of our supply chain as well as potential pricing actions.

[Alex Shvartsburg, CFO at LivaNova]

Based on the assessment, LivaNova remains well positioned to manage the impact of tariffs. We continue to estimate a tariff net impact of less than $5,000,000 on adjusted operating income for the full year. The 2025 guidance range shared today fully incorporates the impact from currently applicable tariffs, though we acknowledge the environment remains uncertain. In summary, we had another quarter of strong execution marked by double digit organic revenue growth, which drove 90 basis points of operating margin expansion, a 13% increase in adjusted diluted earnings per share and improvement in cash generation. Our updated 2025 guidance reflects the strength of our underlying performance and continued investment in our core business and innovation pipeline.

[Alex Shvartsburg, CFO at LivaNova]

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

[Vladimir Makatsaria, CEO & Director at LivaNova]

Thank you, Alex. In conclusion, we are pleased with the strength and durability of growth in our cardiopulmonary and epilepsy businesses, which delivered 10% organic growth and 160 basis points of operating margin expansion through the first half of the year. We're building on the strong foundation by investing behind our core businesses to sustain our market leadership and clinical excellence. We are excited about our advancing OSA program, which represents a significant long term opportunity for LivaNova. We're making important progress towards CMS reimbursement reconsideration in difficult to treat depression.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Consistent with our strategy to extend the portfolio into high growth markets and address large patient populations with significant unmet needs, OSA and DTD each provide meaningful and distinct opportunities to accomplish this goal. With our strong team and critical milestone achievement, we are well positioned to sustain our momentum and capitalize on the opportunities that lie ahead to drive long term value creation. We look forward to discussing each of these opportunities in greater detail at our Investor Day later this year. With that, we are ready to open the call for questions.

[Operator]

Thank First question comes from Rick Wise with Stifel. Your line is open. Please go ahead.

[Rick Wise, Managing Director at Stifel Financial]

Good morning, everybody. Good to see the strong quarter of positive execution and all the good news. A lot to talk about. I guess I'll start with the epilepsy business. Maybe talk us through maybe in a little more detail, the positive data, that, Ahmed walked us through and and maybe help us better understand how you how we should imagine you leveraging the data, the implications for growth, for patient access, etcetera, etcetera.

[Rick Wise, Managing Director at Stifel Financial]

Just help us understand how we translate that into the outlook.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Good morning, Rick. This is Ahmed. So maybe I'll start and then ask Steph to talk about the impact it will have. So this this was a very large study, over 800 patients that allows us to look at subgroups as well. We we obviously knew, the impact that VNS has on patients, but this is the largest study to demonstrate it in a very broad population.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

We were particularly pleased with the three year data on focal epilepsy showing eighty one percent reduction in seizures. We also have twenty four month data on generalized, which also showed a reduction of seventy seven percent. Now we have thirty six month data as well, which also is very strong, but we haven't published yet. But when that that's why we're only talking about twenty four months. The impact is going to be broad.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

We can utilize this obviously for publications. We can utilize it with regulatory agencies. We can utilize it to broaden our label working with regulatory agencies. So it's a large study that has a major impact. We're very pleased with the results.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

But I'll ask Steph to comment around the impact and the feedback she's hearing from our physicians.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

Lovely. Thanks, Amit. And, Harith, good to speak to you.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

First to say, and I'm gonna give you some sort of anecdotal fee feedback feedback rather from the field, but these results have been extremely well received so far by our investigators and also our key opinion leaders in our clinical community. And they're very much expected to strengthen the foundation of our epilepsy franchise. We are at the very beginning of our rollout activities, but the feedback early on is really encouraging. Some KOLs telling us that the strength and the size of this dataset will change how they counsel patients about VNS therapy and will likely mean they consider VNS earlier in their treatment algorithm and will also drive penetration of the therapy. So whilst it's a little bit premature to comment more precisely on the impact to the business, at this time, we see the clinical evidence as a key component to our epilepsy strategy and so far has been very well received.

[Rick Wise, Managing Director at Stifel Financial]

That's that's great. I'm I'm just gonna stick with a couple of high level questions here and stick with sort of the same related topic. But the CMS boosting or proposal to boost end of service procedures to level five from level four sounds meaningful, sounds significant. So on the good side, again, talk to us about how quickly assuming that their proposal holds, talk about how you would take action and what that could mean for the outlook for the business in 2026, how quickly it could be impactful? And I apologize if I'm misremembering, Is this the same proposal that was made last year and didn't go through, or am I just totally confusing, the topic? Thank you.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

Thanks, Rick. Let let me give you some background. So first to say that we are really pleased with the CMS recommendation to move end of service or EOS procedures to level five. This would mean that our providers would have a meaningful increase in reimbursement support for those hospitals hospitals that that provide provide DNS therapy to Medicare patients. The proposal will give our centers about 48% increase in reimbursement for EOS.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

And as a reminder, EOS compromises or comprises rather of 70% of our implants in The US, and forty percent of DRE patients are under our Medicare plans. So if finalized, the change will take effect from Jan one twenty six. Now in terms of impact, this is still a proposal. Nevertheless, any meaningful change to alleviate cost pressure is a positive positive step forward to creating a more sustainable financial position for our providers that are supporting the lifetime of care for that patient with DRE. So while it's premature to comment on the exact impact, we believe if finalized, this will have a very positive impact on procedure penetration.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

And we and the team remain highly confident and optimistic that the proposal will be finalized. So if we think a little bit about level six, so that was part of our strategy, and it really is the tip of the arrow when we look at our reimbursement activities. We still believe that that is core and central to our mission around NPI, and we're gonna continue to work with CMS and other stakeholders, in order to prioritize level six, in the coming discussions.

[Rick Wise, Managing Director at Stifel Financial]

Thank you for the detailed response.

[Operator]

We now turn to David Roman with Goldman Sachs. Your line is open. Please go ahead.

[David Roman, Managing Director at Goldman Sachs]

Thank you. Good morning, everybody. I wanted just to start with the oxygenator business. And maybe you could break down a few of the different moving pieces here into what you're seeing from an underlying demand standpoint. And then secondly, what's happening from a LivaNova and industry capacity standpoint?

[David Roman, Managing Director at Goldman Sachs]

Because I believe it was about at this point in time when you were expected to have additional capacity come on. But are we at a point such that capacity continues to chase the demand? And what are the factors influencing that?

[Vladimir Makatsaria, CEO & Director at LivaNova]

David, good morning. Thank you for the question. So first of all, let me start by saying that we see very healthy procedure growth levels elevated from historical rates. So we are in in mid single digit growth. We estimate the procedure growth to be mid single digit growth, and we see that trend continue.

[Vladimir Makatsaria, CEO & Director at LivaNova]

If you look at our performance over the last couple of years, we have been gaining market share, and we estimate that we're gonna move down market share from low thirties to now very high thirties in terms of percentage. And we estimate that we benefited from, you know, our market share gains came from both market growth and, you know, gaining some of the share from the competitors. So that's that's number two. We see that strong momentum continue moving forward. Now if I move into the kind of the supply from the market, so the supply is not catching up with demand.

[Vladimir Makatsaria, CEO & Director at LivaNova]

I think the market was, couple years ago, was caught by surprise a little bit on the procedure growth elevation. So we have been working hard to improve our capacity and output. So last year, we've increased our output by 10%. That was driven by improved processes and improved number of increased number of shifts. This year, we continue to improve our processes and shifts.

[Vladimir Makatsaria, CEO & Director at LivaNova]

At the same time, our suppliers have invested in expansion of their capacity. And so we estimate that, you know, this year will be somewhere in the high single digit output growth versus last year. The next year, we are adding another manufacturing line that is tracking well, and so we anticipate another significant improvement in the in output next year. I'll comment in the remarks regarding third party suppliers and our capacity means that we have kind of we've built capacity ahead of of of our kind of third party suppliers' ability to provide us with some of the components. In other words, the more components we get today, you know, we we can we can increase our output further this year as well.

[Vladimir Makatsaria, CEO & Director at LivaNova]

But net net is we continue to gain share, and we don't see too much differentiated activity from our competitors in this case.

[David Roman, Managing Director at Goldman Sachs]

Very helpful. And maybe just a follow-up on neuromodulation. I think year to date, you're running roughly already at the midpoint of your guidance, and that does include the headwinds associated with some of the generator supply dynamics that you've talked about. I also think you're facing some replacement headwinds in The U. S.

[David Roman, Managing Director at Goldman Sachs]

So as you contextualize the year to date performance in the 2025 guidance on the neuromodulation business, should we how should we think about this in context of of a longer term view? And and and does the 5% type number represent more of a transitionary level of performance such that we can see an acceleration on the go forward?

[Alex Shvartsburg, CFO at LivaNova]

David. It's Alex. I would say, look, we're very pleased with our performance in the first half of the year considering the fact that we've been dealing with the field safety notice. Our team has done a really good job of executing against the conversion of the Sanctiva generators, and so we see positive momentum there. We as we talked about in the first quarter, we had we estimated our deferred procedures to be approximately less than $2,000,000.

[Alex Shvartsburg, CFO at LivaNova]

We have recaptured some of that, and now we feel bullish about our ability to recapture the balance of that this year. So we feel like this is a, you know, solid mid single digit growth business, and that's how we're forecasting it. As we've said all along, we believe that this is a durable mid single digit growth business for LivaNova.

[David Roman, Managing Director at Goldman Sachs]

Great. We'll look to the next updates at the analyst meeting.

[Operator]

Our next question comes from Michael Pollock with Wolfe Research. Your line is open. Please go ahead.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Hi, good morning. I have one on Essence and then I'm going to follow-up on the epilepsy reimbursement update. So on Essence, China launch expected in the third quarter, I know you've described it as the second largest market for your HLM products. Can you be more precise what portion of the S5 base is China? And then the other China question is, in the global, tariff landscape, trade landscape shifting, there was news, I think, early July, China, launching some restrictions on medical device imports from Europe. I have no edge on this.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

So can you help me understand if this is an impact for for your essence China launch or or, no influence whatsoever? Thank you.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Mike, good morning. Thank you for the question. So let let me start with the second part of your question, on on trade restrictions. You know, we're monitoring closely. We have very capable commercial team in China, and they're executing strong versus goals.

[Vladimir Makatsaria, CEO & Director at LivaNova]

And and so we we don't see any meaningful negative impact, and and we're very confident in our ability to continue grow, in China. So as as as as for your second part of the question. China launch overall, so first of all, we're very excited that Essence was approved in China six months ahead of our internal expectations. And that does indicate high demand on this product from health care system. You know, like you mentioned and I've said, China is is our second largest market.

[Vladimir Makatsaria, CEO & Director at LivaNova]

And although we don't comment on on exact number of units, I will tell you that we are a kind of a a significant market leader in HLMs in China. You know, I I spent six years working living and working in Asia. A lot of that of that time was focused on China. And so from my experience, Chinese market rewards differentiations, differentiation. And we believe that Essence is an innovative product and is differentiated, from that point of view.

[Vladimir Makatsaria, CEO & Director at LivaNova]

So we believe that China is gonna be a very strong opportunity for us to to continue to drive upgrade of Essence technology.

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Helpful. And then my follow-up on the the APC upgrade to level five for Medicare end of service patients in epilepsy. So I get the point that, you know, higher is better for this. I guess I'm interested to what extent you think this can positively influence providers' interest in doing new patients. And so I guess the way to ask the question is from an NPI through all of the replacements that might happen, how many total, events are there?

[Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC]

Mainly, how many how many replacements does an average epilepsy patient have? I think that's the number I'm interested in today to kind of better reframe lifetime economics, for a provider for this this therapy. Thank you.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

Thanks, Mike. Yeah. Great question. So we estimate that patients, about seventy percent of patients having the first implant will go on to have a second, and that reimplantation rate continues to get higher off to that point. So a lifetime of a patient could have anywhere up to six, seven, eight replacements.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

So this is a really meaningful step towards having a sustainable service for VNS therapy, for a provider. And centers often look at their sort of total service costs across the premier spectrum. And as I've said, Medicare is approximately 40% of that for us. I do honestly believe that this will change the dynamics within our centers, and that in itself will help further penetrate certainly into new patients as well.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Thank you.

[Operator]

We now turn to David Rescott with Baird. Your line is open. Please go ahead.

[David Rescott, Senior Research Analyst at Baird]

Great. Thanks for taking the questions. I had a follow-up on the the the APC code and then then a follow-up on on the EPS guide. But I guess first on this new APC code, I I recall last year, when there was the potential in the, advisory panel for the hospital outpatient, program to to potentially have a lift, I believe, at the at the time was the NPI, side of of the implants. You know, there was an argument that the the average kind of cranial nerve procedure, that's a comparable code, had gone up, you know, over a certain period of time relative to the kind of unchanged reimbursement levels that that you've seen, for for this code under the APC five.

[David Rescott, Senior Research Analyst at Baird]

And and I I I think a lot of those devices, that do have the higher reimbursement, do have a higher ASP, I believe, than than what you sell VNS for. So is there an argument beyond, you know, perhaps the uptake that you could see based on favorable reimbursement to to leverage maybe more of a premium price, here with the product? And then I I don't believe that the new advisory panel for the the hospital outpatient program, that that we saw last year has been updated yet, but I'm I'm curious if, you're expecting to maybe reapply to to try to push that the original level five code to the level six.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

Hi, David. It's Steph here. So, maybe just to go back a step. So so what the proposed rule gives us with EOS is that both NPI and EOS will be in level five. It just doesn't change our strategy in that we will continue to lobby for level six.

[Stephanie Bolton, President of Global Epilepsy at LivaNova]

And level six, essentially, will be what covers our NPI procedure. As we look ahead and certainly as we look ahead towards innovation pathway through our product development process, that's where we'll be looking to ensure that we are maximizing price. Hope that gets to your question.

[David Rescott, Senior Research Analyst at Baird]

Yeah. That's great. Thank you. And then on the, the updated EPS guide for the year, I know there's a bunch of moving parts in there. But when we look at from the the math on our end, I think you raised the the EPS guide by by $0.10 or so.

[David Rescott, Senior Research Analyst at Baird]

You had a $0.18 beat, in the quarter. I believe the SNIA payout is now about $0.12 lower than what was the expectation in the prior quarter. So maybe that implies that the either tariff headwind or something else is maybe $0.15 to $0.20 or so. Can you help kind of quantify just the moving pieces around the beat relative to the raise in the EPS side for the year? Thank you.

[Alex Shvartsburg, CFO at LivaNova]

Hi, David. I I will refer you to the the bridge that we provided in our, presentation. But at at the highest level, the components that you described are the right ones. I wanna call out the fact that given the strength of our first half performance, we have decided to make an investment in a PCBA upgrade conversion, which Amit described briefly in his remarks. This is a great opportunity for us to enhance our software to handle, you know, call it, future revenue streams for our essence business.

[Alex Shvartsburg, CFO at LivaNova]

It's core to our strategy to drive growth beyond the the replacement cycle, and we felt like this year, had an opportunity to invest behind that piece of innovation. I'm gonna turn it over to Amit, and he can probably describe this, in in a much more succinct way.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Sure. So as you know, perfusion today is a little bit of art where the perfusion is is guiding the machine. As the leader in this market, we believe we need to change that where the machine itself is providing assistance and guidance to the perfusionist. And to be able to do that, you need a lot more processing power in the system so that you can add algorithms. And, this was a planned innovation for, Essence, but due to the strength of our business, we accelerated it both due to financial strength, but also our r and d capability improved where we can do things much faster now that enabled us to accelerate the development and upgrade essence.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

And we believe these features that we're gonna add, software features, also gonna drive growth because it's gonna add more capability to the system and it's gonna improve outcomes and that's gonna ensure that we can also monetize some of these investments because of adding new capabilities to the system.

[Operator]

We now turn to Adam Mader with Piper Sandler. Your line is open. Please go ahead.

[Adam Maeder, MD & Senior Research Analyst at Piper Sandler Companies]

Hi, good morning. Congratulations on the nice quarter and thank you for taking the questions. Two for me, both on some of the pipeline initiatives. I wanted to start on TRD and the Highmark coverage decision. Just hoping you could maybe double click on that for us, talk about some of the requirements for coverage.

[Adam Maeder, MD & Senior Research Analyst at Piper Sandler Companies]

When did that go into effect? And anything you can kind of share at this point regarding commercial implants? And the last part of that question would just be, do you have any visibility, or ongoing discussions with other commercial payers that you can talk about at this point? And then I have one follow-up.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

Yeah. I mean, today, in United States, we have a process where you have to go through an approval, with a private, coverage to be implanted with VNS. And what Highmark has told us is that based on the benefits they're seeing and based on the economics, they prefer that rather than exceptions that it would be covered directly for the patient population. So Highmark and Livano worked together to remove that exception process so that it will be covered. Now we are very excited about it because Highmark Blue Shield Blue Cross is a group that other Blue Cross Blue Shield groups look as well.

[Ahmet Tezel, Chief Innovation Officer at LivaNova]

They're more on the kind of front end of things. But we are generally working, obviously, together with private coverage private insurance groups to ensure that we have more broad coverage with VNS. But at this point, I don't think I can comment which group would be next and what will be next steps. But we're working very closely with all of them, and we're working closely with them because of this exception process that we use today to get coverage for the select patients.

[Adam Maeder, MD & Senior Research Analyst at Piper Sandler Companies]

Okay. Understood. That's helpful color, Amit. Thanks for that. And, the other question that I wanted to ask was regarding the obstructive sleep apnea program.

[Adam Maeder, MD & Senior Research Analyst at Piper Sandler Companies]

And just wondering if the company has updated thoughts around path forward there, whether it's going at it alone with the direct sales force and commercializing or potentially using a commercial partner. And yeah, just would love any color around the the market strategy for the OSA initiative. Thank you.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Adam, thank you. So first of all, let me start that we are confident in our ability to commercialize this portfolio internally. But at the same time, we're still open to a possibility of of partnership if we believe that the arrangement can be beneficial to to both parties. Now where is my confidence coming from in our ability towards the tip of this lunch? First of all, I would say this is we believe that this is a clinically differentiated product, and it allows us to treat broader population, including the most difficult triple c patients.

[Vladimir Makatsaria, CEO & Director at LivaNova]

This is a technology that utilizes a differentiated modalities and new therapeutic modality with p h g n s, proximal h g n s, that gives us kind of, you know, strong foundation. It also uses six electrodes, which is, again, which is differentiation. So that by itself, we believe, gives us enough differentiation opportunity for our commercial model. And then finally, you know, we will build on our expertise in neuromodulation. You know, we will leverage our expertise in manufacturing, in r and d, in clinical regulatory reimbursement capabilities that we already have in house.

[Vladimir Makatsaria, CEO & Director at LivaNova]

And, again, that show this differentiation and our current capabilities give us confidence to you know, in in the ability to commercialize this internally. We will give a more precise update on our plans during the Investor Day.

[Operator]

We now turn to Matt Taylor with Jefferies. Your line is open. Please go ahead.

[Analyst]

Hi, good morning. This is Matthew on for Matt Taylor. Thanks for taking our question. I just had a quick one and hoping you can help walk us through some of your latest expectations for the launch in China. Particularly, to what extent is the upward revision in your guide driven by, I guess, stronger than anticipated commercialization?

[Analyst]

Or is there anything else you'd call out in CP that led to the raise?

[Vladimir Makatsaria, CEO & Director at LivaNova]

Yeah. So on the CP business, we're guiding to double digit growth in the second half of the year, which is consistent with our double digit growth in the first half of the year. You know, we're looking at kind of two, you know, significant factors to watch out. You know, the first one and we we we talked about both of them. You know, the first one is the rollout and the launch of Essence in China, specifically our ability to maintain the premium.

[Vladimir Makatsaria, CEO & Director at LivaNova]

And I think with the team is progressing really price premium, and the team is progressing very well. And then on the consumable side, this is unrelated. So this will be on oxygenator output of supply. You know, we are executing well, and we are monitoring our continued share gain journey and also working very closely with third party suppliers to make sure that we can continue to increase our output. So those two factors, I think, are the ones to watch as kind of opportunities for for additional growth in second half of the year.

[Operator]

Our final question today comes from Matt Miksic with Barclays. Your line is open. Please go ahead.

[Matt Miksic, Equity Research Analyst at Barclays Investment Bank]

Hey, thanks so much for taking the question. Covered a lot here, but I thought it might be helpful just to maybe talk about sort of the growth model your cardiopulmonary just because you're, you know, you're obviously punching, you know, way above the the level that most folks, think, would would, you know, suggest or think about for for this category of of procedures. Can you talk a little bit about maybe break down the mix or the or the system placement and the and the consumable placement or something that'll help us understand, you know, the shape of this growth? Is this like a two or three quarter phase and then we annualize? Or or are you leaning into systems and and placements and and market position in such a way that, you know, as utilization goes up, we're gonna see a kind of a longer wave of growth that might go two or three years on not to get, you know, too far ahead of ourselves.

[Matt Miksic, Equity Research Analyst at Barclays Investment Bank]

But that kind of color, think, would be, would be super helpful. Congrats on on the great results and all the the great data and and coverage advancements. Thanks.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Matt, good morning. Good to hear from you. Look. I I would great question. I I would start by the fact that, you know, versus a year ago, my confidence and durability of growth in this business has increased.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Then if I say if I kind of pinpoint on why are we now guiding significantly higher than our original forecast is due to the fact that all the growth cylinders are firing very strongly. First is market growing, proceed in terms of procedures continues to to perform healthy. Our upgrade on Essence is going as planned, and we're able to maintain price premium at a consistent level as we did last year. So to remind you, we will be 60% of all units placed this year will be Essence. Next year, we plan for 80%, and then the year after, a 100%.

[Vladimir Makatsaria, CEO & Director at LivaNova]

So that gives us kind of outside of this year additional two years of just growth momentum in essence driven by the the upgrade rollout. Beyond that, like Amit talked about, we will start monetizing our software and service, and that will continue to drive our growth. So that's the first one. The second growth driver has been our share gains in oxygenators. And short term, you know, like I said, we have increased our market share from around 30 to around 40%.

[Vladimir Makatsaria, CEO & Director at LivaNova]

We see this momentum continue. Right? We continue to invest in our output. We we continue to see a lack of competitive activity in the in this in this area. And then beyond kind of the next couple of years, we are looking at a new new generation launch in oxygenators that is clinically differentiated and that will kind of trigger growth, mid and long term.

[Vladimir Makatsaria, CEO & Director at LivaNova]

And then then the last significant growth opportunity for us this year has been execution of our pricing strategies. And and like I said before, I think we have a Nova has really benchmark pricing capabilities, and we continue to execute it well. And and it it kind of remains another growth driver. So in in in summary, the four growth drivers of strong procedure growth, essence upgrade, market share gain and cardiopulmonary consumables and pricing strategies give us that confidence of durability in our growth in cardiopulmonary business moving forward.

[Operator]

That's all the time we have for questions. I'll now hand back to Vladimir Makatsaria for any final remarks.

[Vladimir Makatsaria, CEO & Director at LivaNova]

Alright. Everybody, thank you thank you very much for thoughtful questions. Thank you very much for joining us today and for your interest in LivaNova. And on behalf of the entire team, we appreciate your support and interest in LivaNova, and have a great day ahead. Thank you.

[Operator]

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Participants

Executives

• Briana Gotlin, VP-IR
• Vladimir Makatsaria, CEO & Director
• Ahmet Tezel, Chief Innovation Officer
• Alex Shvartsburg, CFO
• Stephanie Bolton, President of Global Epilepsy

Analysts

• Rick Wise, Managing Director at Stifel Financial
• David Roman, Managing Director at Goldman Sachs
• Mike Polark, Senior Equity Research Analyst - Medical Devices at Wolfe Research, LLC
• David Rescott, Senior Research Analyst at Baird
• Adam Maeder, MD & Senior Research Analyst at Piper Sandler Companies
• Analyst
• Matt Miksic, Equity Research Analyst at Barclays Investment Bank