LivaNova PLC

Thank you, Jacqueline, and welcome to our conference call and webcast discussing Leva Nova's financial results for the first quarter of 2021. Joining me on today's call are Jamie McDonald, our Chief Executive Officer, Alex Schwarzberg, our Interim Chief Financial Officer, and Melissa Farina, our Vice President 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 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 will now turn the call over to Damian.

Thank you, Matt, and thank you to everyone for joining us today, and welcome to our conference call for the first quarter of 2021. Today I'll start off by discussing some recent updates to our business, then move to sales results, focusing first on our primary growth drivers, epilepsy and ACS. Then I'll discuss our strategic portfolio initiatives, DTD, heart failure, and OSA. After my comments, Alex will provide you with additional details on our results and reaffirm 2021 footer year guidance. I'll then wrap up by closing comments and moving to a Q&A. The neuromodulation and cardiovascular businesses continue to recover from the depressed levels of activity that began in the second quarter of 2020. In the first two months of this year, procedure volumes in the US were significantly impacted by elevated COVID case levels. but trends improved in March and we exited the quarter with good momentum. The rest of the world and Europe regions continue to experience high degrees of variability and many countries saw worsening sequential trends or shutdown for varying periods of time. We continue to see market fluctuations related to COVID case volumes and a patient's willingness to seek treatment. Despite this uncertainty though, we expect procedure volumes to improve as we move through the year. Moving to recent events, We achieved a key clinical milestone in our heart failure program with more than 300 patients now enrolled in our Anthem HEF-REF Pivotal Trial. Once we follow these patients for nine months and randomize a total of 400 patients, the resulting data will be reviewed in anticipation of filing with the FDA. If approved for use by the FDA, this will become the first VNS-based therapy for the adjunctive treatment of chronic heart failure in the US. Earlier this week, we announced that the UNCOVER study, a collaboration with Verily, and a subset of the RECOVER study enrolled its first patient. Data obtained from Verily-developed digital tools will complement the clinical outcomes collected in the RECOVER study, providing clinicians with a more comprehensive view of depression patient biomarkers. In cardiopulmonary research, BCAPTA, a new inline blood gas monitoring system, received 510K clearance earlier this month. The system, which is integrated into our HLM, is designed to easily and accurately monitor blood gas parameters during pediatric and adult cardiopulmonary bypass procedures. It enables the perfusionist to quickly react to parameter changes. BCAPTA is a key development for our HLM platform and the first of several new innovations we expect to roll out as we make continued progress towards our next generation HLM. Also this month, our S5 Pro HLM received 510K clearance. The product features vCaptor as a primary component, along with new sensor technology and improved software. These product enhancements build upon our 45 plus years of safety and reliability. Related to our heart valve divestiture, we amended the purchase agreement with Gyrus in April to provide for a deferred closing of a subsidiary responsible for site management services at the Seleucia campus. We expect the initial closing of the heart valve operations in Italy and Canada to occur on June 1, consistent with the timeline previously announced. This will be followed by closings of the sales infrastructure in the second half of the year. Now I'll discuss our core growth drivers, epilepsy and ACS. Epilepsy sales increased 15% globally versus the first quarter of 2020, with growth across all three regions. This increase is attributable to improving market dynamics, mainly in the US. US epilepsy sales increased 12% versus the first quarter of 2020. Total implants improved versus the prior year, driven primarily by replacements. Epilepsy sales in Europe grew 1% versus prior year levels, led by France, Italy and Germany, offset by results in the UK. Meanwhile, we achieved growth of 69% in the rest of world region, led by the Middle East and Asia Pacific. For the full year, we continue to expect global epilepsy sales to grow 15% to 20%, including sequential growth in new implants as patients and their caregivers return to in-person physician visits. In addition... We anticipate a tailwind in replacement implants related to the backlog created in 2020. Our progress is propelled by our US go-to-market initiative. These dedicated teams now account for just over 10% of US sales and their results are trending above the baseline business. We have added one new team in Q1 and expect to deploy three new teams during the second quarter. ACS sales were $13 million in the quarter, an increase of 24% from the first quarter of 2020. Growth was driven by the continued adoption of LifeSpark and an increase in procedure volumes. We forecast ACS to grow at least 20% in 2021. Turning now to DTD, sales in the first quarter were $1 million. In 2021, we anticipate DTD sales of approximately $10 to $15 million from a combination of recover study and replacement implants for CMS-eligible patients. We're encouraged by a sequential acceleration of patients consenting into the study, and we continue to expect to implant 250 unipolar patients and or 150 bipolar patients in their respective recover arms by year end. In heart failure, the Anthem HF-Ref US Pivotal Trial continues to make progress ahead of expectations. with enrolments surpassing 300 patients. As previously said, we believe we will start analysing the interim data in the first half of 2022. We also continue to make progress in OSA. Since submitting the IDE for approval in late December, we've been responding to additional questions and still expect to start the study in mid-2021. For the cardiopulmonary business, sales were $109 million in the quarter, a decline of 10% versus the first quarter of 2020. Oxygenator sales declined in the mid-teens globally, with the US and Asia-Pacific performing better than Europe and LATAM. HLM sales increased in the mid-single digits and were favourably impacted by better-than-expected S5 sales in the rest of the world and the US regions. Moving to heart valves, sales for the segment were $21 million in the quarter, a decrease of 19% versus the first quarter of 2020. I'll now turn the call over to Alex for an overview of the financial results. Alex?

Thank you, Damian. I'll discuss our first quarter results in greater detail. Sales in the quarter were $248 million, a decline of 0.4% versus the first quarter of 2020. Cardiovascular sales were $143 million, down 9% from the first quarter of 2020. Neuromodulation sales were $104 million, an increase of 15% compared to the first quarter of 2020. Adjusted gross margin as a percent of net sales in the quarter was 68.6%, up 30 basis points from the first quarter of 2020. The margin increase was primarily driven by sales mix offset by unfavorable manufacturing variances. Adjusted R&D expense for the first quarter was $42 million, compared to $41 million in the first quarter of 2020. R&D, as a percentage of net sales, was 16.9% for both periods. Overall, R&D is increasing behind continued progress in the Anthem HFREF pivotal trial and the RECOVER study. Adjusted SG&A expense for the first quarter was $96 million, compared to $104 million in the first quarter of 2020. SG&A as a percentage of net sales was 38.9% down from 42.8% in the first quarter of 2020 behind continued focus on cost containment measures. Adjusted operating income from continuing operations was $32 million compared to $21 million in the first quarter of last year. Adjusted operating income margin from continuing operations was 12.7% compared to 8.7% in the first quarter of 2020. The adjusted effective tax rate in the quarter was 10.8% compared to 8.2% in the first quarter of 2020. The higher tax rate is primarily attributable to geographic income mix. Finally, adjusted diluted earnings per share from continuing operations in the quarter was $0.35 compared to $0.33 in the first quarter of 2020. Moving to cash flow, the cash balance at March 31, 2021 was $253 million in line with our cash balance at December 31, 2020. Net debt at quarter end was approximately $503 million versus $505 million at year end 2020. Our adjusted free cash flow excluding extraordinary items through the first quarter of 2021 was negative $10 million. As compared to the first quarter of 2020, our free cash flow was largely impacted by cash interest payments and divestiture related expenses. Capital spending for the first quarter was $8 million which was flat to the first quarter of 2020. Now turning to 2021 guidance. As Damian mentioned, we are reaffirming our previously announced full year sales and EPS guidance. To recap, we are forecasting 2021 sales growth between 8 and 13% on a constant currency basis, which assumes a 1% tailwind from exchange rates. We're projecting adjusted diluted earnings per share from continuing operations in the range of $1.40 to $1.90. Adjusted cash flow from operations excluding extraordinary items is expected to be in the range of $30 to $50 million. For modeling purposes, we assume sales in the first half will be lower than the second half due to softness in several international markets including LATAM and Europe, primarily related to the impacts of COVID-19. Additionally, we expect EPS in the second quarter to be roughly in line with the first quarter, primarily related to the phasing of spending for pipeline clinical studies. With that, I'll turn the call back to Damian for some final comments.