LivaNova PLC (LIVN) September 15, 2026 Conference Transcript

Well, I think we're all set to get started. Thanks, everyone, for joining. I'm Dave Rescott, senior med tech analyst here at Baird. Happy to have the Levinova team here with us. We've got Vlad, the CEO. We've got Alex, the CFO. And we've got IMAT, the chief innovation officer. So happy to have the team here. And thanks for joining us. um you know i i wanted to start maybe um you know from from a high level here um i feel like this is the way we kind of started this this last year as well but you know you've delivered this double digit top line growth um i think almost every single quarter for the past three to four years um you know you typically got excuse me guide that mid to high single digit growth right guidance this year is that the high single you know level you know what's I guess led to the success of this you know double digit growth number how sustainable do

you think it is and you know how should we be thinking about that in the context of where numbers are you know shaken out so far for this year first of all good morning and David thank you for the opportunity to join you and thank you for everybody for your interest in joining this morning so first of all well thank you for pointing out the performance we're pleased with the growth we delivered over the last several quarters you know the focus was very clear you know one is on talent so I we strongly believe that you know good leaders and good teams deliver good results so there was a lot of focus on talent and we about 45 percent of our directors and above are new in the role whether either coming from an external world or being promoted and developed internally number two we focused a lot on execution and competitiveness and one of the big examples of that is our improvements in supply chain that we had in cardiopulmonary business and number three is innovation so while we've executed in our core we also are getting into new categories with sleep apnea getting in the markets that are faster growth markets and that can kind of accelerate the growth profile of Livanova so people execution innovation have been drivers of our success over the past few quarters moving forward you know our strategy is pretty clear you know we we are number one we're building strong foundation and sustaining growth in our core and the goal is to grow faster than the markets in our core expand margins expand cash and use this as an opportunity to kind of reinvest back in the core but at the same time get into the markets with high unmet need faster growth and where we have the right to win and for us that next chapter is sleep apnea so that's that's that and that and then maybe the last time I think I'll say is more on the tactical level you know we've outlined our strategy during the investor day and there were several tailwinds that followed that you know that we didn't consider in the in our invested the discussion you know number one is the reimbursement improvement on new patients for epilepsy so there was nearly 50% improvement that went live as of January 1st this year for the new patient implants so that's that's number one that's been an important tailwind for us number two is on the cardiopulmonary front we gained about 10 points of share over the last two years but the market is still operating in deficit for oxygenators and and the governor of that kind of the reason for the deficit one of the reasons was that component shortage in the market and so we were able to sign a long-term agreement with Thermo Fisher that really removes some you know output or supply as a barrier for for future growth so that long-term agreement has been a very important development for uh for the market overall but for us specifically and then number number three is that in obstructive sleep apnea by at the time of investor day we didn't have full data set uh with our policing responder rate results and uh we kind of assumed at the time 65 responder rate and when the results came out after the clinical study was complete we were at 85 percent and that's very significant because now you know the current data on the market where the current incubant you know one out of three patients that get implanted does not have a positive response with 85 percent it's one out of seven patients doesn't have so it's a very different conversation with patients so so those are the three tailwinds that came after the investor day discussions and that you know in a way gives us more confidence in in our long a long-range financial plan you know I think at the

investor day you also outlined you know through through 28 there's the now to 28 period in the 28 to 2030 period the the now to 28 you know earnings growth I believe also is in this mid to high single-digit guidance range I think past couple years, even though you've had some moving pieces below the line, some reprioritized R&D, you've also still delivered mid-teens earnings growth over that period.

So when you think about the pace of top-line growth versus the earnings growth of the leverage that you have through the 28 period, is it also fair to assume that maybe there's some conservatism baked into that as much as we assume there has been on the on the top line well i think just generally speaking we have two large-scale businesses right and the the growth that we're able to deliver has translated into margin expansion eps growth these businesses are very leverageable if you will these are platform technologies that we generate growth in a particular region or in a particular product line we're able to translate that into profitability. We said in our investor day that during kind of the first phase of our LRP that margin expansion is going to be leveraged into launching into OSA. So we're looking to stand up a new channel that we don't have today, which will help us accelerate our growth in the second phase of our plan. But the profitability that we're able to generate from cardiopulmonary and epilepsy of C businesses will be reinvested in OSA. So our margin expansion will not be as significant as we've seen in years past. And we said that our EPS essentially will grow in line with our top line growth. So that's kind of the way we see it and it's gonna play out that way.

Vlad, you mentioned that versus the analyst day, right? Reimbursement in VNS has gone, right? You fixed some of the supply chain challenges in Cardiopulmon, the market that's constrained at this point. And that perhaps is going to lead to better top-line growth, we'll say. And at the time, I think you guided to investing behind or ahead of some of these new product launches in 27, 28, and committed to keeping at least a 20% operating margin, which was below where you were in 2025, right? Does the better drivers on the top line, that being reimbursement and the thermo agreement, also suggest that maybe you have better opportunities on the operating margin front, meaning that, hey, getting down to 20% is a little bit less likely, and maybe we can squeeze a little bit more out of this top line and grow earnings faster?

I'll just say, look, we're not going to continue to update our LRP every quarter, but obviously the signals are there that give us an opportunity to look at that as a way to create value for the company.

At this point in time, we're sticking to the targets that we set. and obviously you know we'll update guidance accordingly as we enter 2027 yeah and I think that just to add and the one thing I failed to mention on the tailwind as well is that on epilepsy we have more understanding on the core VNS data that came out of real-world evidence and also gave us kind of significant tailwind moving forward our previous data set with the previous device showed about 40% efficacy clinical efficacy and that that was done early 2000s you know now with the new device the core VNS data shows that 80% of epilepsy patients reacted positively so that's a significant change in in patient algorithm so come on epilepsy front and i'm going to your question as well the previous question we have two significant tailwinds reimbursement and clinical data we want to get some time behind our belt to see how the clinical community reacts to two of those um on the supply chain um again we are the the impact of uh thermo fish agreement is mid to long term and we want to

see how the competitive landscape plays out there and I know I say again I think we've given a range on top line we have more confidence in that range now basically given the way the clinical data ended ended up I think you know consensus on the operating margin front is it like 21 to 21 and a half right next year and you know it could be as low as I guess 20 right based on what you know or what what you're expecting at this point is there any reason to think that the street is is under modeling the the opex investment needed to drive some of these 27 28 you know growth opportunities or do you feel as

though you know where numbers are at this point are in a decent spot I mean I think we're we're in a good place relatively speaking I would I just say the the timing of the OSA launch will dictate a little bit of the investment profile. So we kind of laid out the range of the PMA supplement submission in the second half of this year, first half of next year. We do not intend to build the sales force until we submit. So that will be an indicator and sort of dictate the level of investment that we'll make in 2027 which will ultimately translate it to our margin profile okay and the submission time yeah still still within that range second half of this year first half of next year have you called out what what level of investment is required to build out a sales force behind that 50 100 million 75 no we haven't done that specifically yet but as we get into 2027 we'll be very transparent about uh you know how much we're investing in in osa yeah okay um maybe moving

on to epilepsy the vns business um you know you talked about reimbursement you talked about core vns um growth is re-accelerating at this point um you know can you parse out maybe um you know what the contribution um from from price is um versus underlying volumes i think you've also talked about increasing utilization potential increasing the number of centers that are out there to help us break down you know what's driving this better growth and maybe what the legs each of those segments has yeah so I'll start and maybe turn to Ahmed to talk about what we're seeing with clinical and reimbursement impacts of but so when you think about it on the epilepsy front

again there there are two dynamics that we're facing you know number one is improved reimbursement by about 50 percent that removes the economic barrier from providers to perform vns procedures number two is you know the clinical data that shows significant improvement versus the previous data set this impacted both price and volume so on the price side we were able to go back to our customers and renegotiate volume discounts that we provided previously because they want a significant economic pressure under old reimbursement algorithm that that renegotiation kind of led to a jump in price and today we're seeing 2x pricing improvement versus our normal annual price increases in epilepsy this is a relatively short-term effect it will happen this year and next year as we complete a cycle of renegotiation of contracts but then on the volume front maybe I meant you can talk a little bit about what we're seeing yeah I mean maybe I'll also double click a little bit on the core data because I think it's really important so prior to core as Vlad mentioned we relied on communicating what's on our FDA label which effectively shows that you get about 40% seizure reduction and when a

physician and a patient was making a choice at the time when they were evaluating different neuromodulation devices VNS was always known as lower invasiveness but unclear about how competitive its efficacy or effectiveness is on with the core data now that we can demonstrate that we also have 80% seizure reduction now that dialogue in the medical community is changing very quickly as we roll out the data where you get comparable efficacy or effectiveness with significantly less invasive procedure so that gives us a lot of excitement and the second piece is that we're very excited that we're gonna launch our next generation device next year it's our next generation IPG it has a fundamental different advantage than today's technology it does have a Bluetooth connectivity and that allows the device to connect to the patient's phone so a physician can communicate with the device remotely and why is that important because it fundamentally improves the workflow for the patient and the physician because now you don't have to go to the physician's office 10 to 12 times the first year and one or two times every year after that you can do all of that remotely so we're very excited about the capabilities of the next-gen IPG I want to ask about that that as well but on the the comments

around you know pricing contribution to two times that of historically what you've seen my guess is based on the timing of how that rolls through it ramps through 2026 and then it starts to ramp down in 2027, meaning that at least for Q1 of 27, maybe part of Q2, you have some pricing tailwind still as you annualize some of those contracts. But by the time you get to the back half of 2027, at least on the contract perspective excluding this new product, that that's the way in which we should think about phasing of price.

Yeah, I think that's fair. I think the way I would think about price holistically, you have our annual price increase and I think Livanova is very disciplined about that. Then on top of that you have this impact that mainly came this year somewhat will come next year from this renegotiation of volume discounts and then next year as we launch new and upgraded product you will start seeing some price uplift as well there. Do you have a sense for or I guess would it be fair to think that a next-gen product in this market and which reimbursement has just gone on 50% will have a bigger contribution than what contract price renegotiation has been so far this year we haven't so we're still doing the homework on kind of how we the price points at with the launch but I mean you can think about it is significantly differentiated product versus what is on the market today it improves patient's flow it changes the way the the patient physician interaction is going it's it has significantly different

more upgraded features so I think it's fair to say it's gonna be not as incremental as I mean if you think back to the last new product launch in 2017 with Santiva we launched with about a 10% increase in ASP so we think the value proposition warrants a premium price we just we're not in the position to disclose what that is at this point is this as big of a step change in your mind is is what price what Santiva commanded in terms of capabilities absolutely because it fundamentally changes the workflow for the patient

physician today when you talk to patients if they're adult they don't have a driving license and if they're pediatric they obviously don't have a driving license the the concept that you have to visit a physician's office is a big deal because on average they travel about 40 miles for each visit so we do have a group of patients and caregivers that choose not to do neuromodulation because of that so it is a substantial improvement in the workflow for both the patient and the physician.

Last one on epilepsy and I want to move to Cardiopalm but you know there's a I believe a new class of some epilepsy drugs coming in 27 or 28 or 29 the Xenon drug you know if you look back to 1819 the Epidiolex came out or everybody tried them and deferred and then get to the implant anyway so I guess have you heard anything in the field about this about how do you feel about your your your competitive positioning here and if at all is there any learnings from the dialects that yeah I mean there there's some few important facts so in epilepsy about two-thirds of patients react to drugs and about one-third our drug visits an epilepsy that number hasn't

really changed over time and a lot of the innovation in the drug space has been about reducing the side effects of these drugs versus improving efficacy of these drugs because these drugs work by reducing brain activity and when you reduce brain activity obviously you have some side effects so if you look at for example Xenon's clinical data you would see that seizure reduction or seizure freedom rates are not fundamentally different than existing anti-seizure medicine so we don't view it as a fundamental change we do appreciate that there's going to be more options for patients and these ASMs are utilized together adjunctly with neuromodulation so usually patients are on both so we don't anticipate any major change and we've also done some market research that confirmed that for us okay you know moving on to Cardiopalm you know Another business that's been growing double-edged for the past several years, I think everybody's been waiting to see when it's going to go back down to mid-single-edged, and it has not come yet.

So, you know, can you talk about your level of confidence in that business, right? There's moving pieces around now, oxygenator supply, you know, HLM, at least in the U.S., is at the end of the cycle.

You've got international opportunities on the HLM side. so how do you think all those kind of coalesce to you know get to the LRP in that side yeah so so maybe as I started with a short term you know we've guided this year to nine and a half to ten and a half percent and that's about 250 bibs improvement from since we started this year so we're confident and in this year guide regarding longer-term view the two dimensions of this you know one is this is the market that has improved its growth rate you know as number of procedures so historically open-heart surgery was low single-digit growth procedure market after COVID has accelerated to mid single-digit and it has been consistently there and and some of the reasons for that is a we are getting older as a society so people are having more complex procedures number two there's a large group of patients that have undergone minimally invasive procedures like stenting or or valve replacement that are going it back now into more complicated open procedures and then finally countries with underpenetrated cardiovascular procedures like China India for example they're bigger part of the overall pool now and they're contributing to faster growth so so we are confident in this healthier growth of the market and that mid-single-digit procedure growth at the same time we're confident in our ability to grow faster than the market and it comes from four growth drivers that we see you know number one is um our essence uh platform you know all the way through 2027 price mix effect will continue to play a role and this is until in 2027 all units placed will be uh essence units so the price mix effect may kind of slow however we still have significant volume growth opportunity on essence And that is, if you think about it, there are about 10,000 units of Levanova's hard-lung machines out in the market. That represents approximately 70% market share. And only 20% of those 10,000 units today are essence. So we still have significant upgrade opportunity. And I can make an argument that there is a sense of urgency that is increasing to replace those units that are out there in the market. Because now it's nearly 20 years of capital equipment cycle. And the normal capital equipment upgrade cycle is 7 to 10 years. So there is a sense of urgency to upgrade the entire market. So I still believe there's a volume opportunity on Essence. Number two, oxygenate a market share. we gained 10 points of market share we've guided additional 800 bibs of share growth at the time of investor day so taking the kind of mid 40s but now with new manufacturing capabilities with the long-term agreement with thermo fisher we are building capacity toward to be able to support north of 70% share so that now that's number two oxygenator number three we are launching new heater cooler and air manager and at a premium price versus the old generation and these are kind of modules within every HLM so that that creates a significant opportunity for us and number four that you know the regular price increases that would take every year so you commented on double digit growth in the past and part of the reason of this double-digit growth is that every growth every cylinder of kind of growth engine fired in a positive way so moving forward you know I think there will be some hiccups I would I don't expect that everything will go smoothly but given the fact that we have this four major growth drivers gives us strong confidence in our guide I think on um you know in the u.s cardiopulme business this quarter uh there's a big focus on that two

percent growth number i think it was 14 maybe in q1 so your average is eight or nine for for the first half um sounds like timing was a component there that's obviously where essence is fully upgraded and price mix has gone away so can you i guess comment on um you know uh some of the dynamics there and if if at all we could extrapolate some of those first half averages is what, you know, market growth looks like once you get to the end of 2027 and price mixes out of the way.

Look, you know, you mentioned the fact that, you know, we performed extremely well in the first quarter, right, 14% growth. So we did average up nearly 8% for the first half. You know, when you have a capital business, it's very uneven. You have orders that are placed. It's not like a hospital replaces one machine. they often replace multiple machines so you have capital equipment placements that happen very unevenly and so that's what exactly what happened in the second quarter in in the US those orders were accelerated into the first quarter so I think we're right on track with our with our business plan and we still expect the US to contribute to high single digit growth in the second half of the year so I think this this business is is continuing to perform extremely well well I described all the key drivers of growth and you know we we still fully expect them to materialize in 26 and into 27 so is the assumption I guess that second half U.S. cardiopulme growth is similar to that average of the high single-digit in the first half?

That's right. And I don't know the the mix of heart and lung versus auctioneers in international markets, but you know if you've got high single-digit U.S. growth this year, a point in time at which Essence is fully upgraded, is that a similar way to think about what happens in the 28 plus time frame when international markets have been fully upgraded on the the essence cycle as well I think strategically innovation is a key element of our growth story here so we're going to continue to invest behind innovation in the cardiopulmonary business we we said this is one of our top capital allocation priorities so that's gonna we have to continue to

innovate and our pipeline will absolutely reflect that I don't know if you want to mention in 2028 one of the drivers will be the new oxygenator launched that's obviously it's a highly differentiated oxygenator so there could be price opportunities for there and that has to do with the printed circuit board upgrades that's more on the essence yeah that's more on the essence piece so we view long-term innovation essence to make the device provide guidance to the perfusionist and add increased digital capabilities to provide that guidance and the PCB upgrade allows us to do that I was referring to the actual oxygenator we have in a late-stage development program

we are in manufacturing expansion stage of a next-gen oxygenator that we plan to launch in 2020 okay and then squeeze in two and thirty seconds but just to follow up to the the next-gen HLM any timelines on that or when that could be and then on OSA right heard the comments on that reimbursement you know is maybe not going to be as clear until 2028 your launch plans are for second half 2027 so how do we think about the decision points around rolling out and investing behind OSA me want to talk about OSA first yeah I mean at the time of launch so we work together with inspire for the new CPT code that's

going to go into effect in 2028 January 1st. At the time of launch we will use the prevailing CPT code at that time. It launches earlier than that date we will use different codes.

And then you know from an HLM per se you mentioned next-gen I think you know we're going to continue to add kind of incrementally in terms of there's not going to be this new machine that we're developing as a next-gen machine but we will continue to add modules to it like we're doing with the new heater cooler that's that's gonna launch next year the essence air manager those are all sort of add-on components that you know where we can leverage our 10,000 unit install base to drive kind of an upgrade cycle in in that that particular segment so and then you know long long term I think you know you mentioned the PCBA upgrade yes we're doing that just to support the digitization of the platform and ultimately we'll be able to push software upgrades and additional features you know to to the essence platform to make make it smarter as ahmed described that we're out of time so thanks for joining us right thanks