LivaNova PLC

Good day, ladies and gentlemen, and welcome to the Levernova PLC fourth quarter and full year 2021 earnings conference call. If you'd like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Matthew Dodds, Levernova's Senior Vice President of Corporate Development. Please go ahead, sir.

Thank you, Lydia, and welcome to our conference call and webcast discussing Levanova's financial results for the fourth quarter and full year 2021. Joining me on today's call are Jamie McDonald, our Chief Executive Officer, Alex Schwarzberg, our Chief Financial Officer, and Lindsay Little, our Senior 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 can 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, 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 everyone for joining us.

Today, we reported our fourth quarter and full year 2021 results, with full year results meeting or exceeding the high end of our guidance range. Before discussing the results, I want to provide you a brief update on the SNEA litigation. On February 21, The Court of Appeal of Milan notified us that it suspended payment of the 454 million euro judgment until a decision has been reached on the appeal to the Court of Cassation, which is the Italian Supreme Court. This suspension is subject to providing a first demand bank surety of 270 million euros within 30 calendar days. We believe that we can satisfy the condition of the surety. Now, turning to our fourth quarter results. I want to start off by discussing sales results, followed by a review of our strategic portfolio initiatives. After my comments, Alex will provide you with additional details on our results and 2022 guidance. Then I'll wrap up with closing remarks before we move on to Q&A. We're proud of our fourth quarter results where, excluding heart valves, we experienced both sequential and year-over-year revenue growth across all regions. For the full year, we are pleased to have achieved all our key financial targets. I'd like to highlight that effective fourth quarter 2021, we changed our segment reporting from two to three reportable segments. These reportable segments are neuromodulation, cardiopulmonary or CP, and advanced circulatory support or ACS. The change reflects the way we internally manage evaluate performance, and allocate resources. This new structure drives further accountability and execution and provides greater transparency to growth and margin profiles. Additionally, due to the impact of the pandemic on our prior year results, today's commentary includes certain comparisons to 2019. We believe this provides helpful context for the underlying trajectory of our business. These comparisons are reflected on slide 20 of the earnings presentation. Turning to our core growth drivers, epilepsy and ACS. Global epilepsy sales for the fourth quarter increased approximately 10% versus 2020, and 8% sequentially, with growth across all three regions. Additionally, epilepsy sales on a full year basis were 28% above 2020 levels, which was in line with the midpoint guidance, and 7% above 2019 levels. These results reflect our commitment to serving our patients and delivering sales growth while navigating ongoing COVID-related challenges. US epilepsy sales increased 11% versus fourth quarter 2020 and were 7% above 2019 levels. Total implants grew in the mid to high single digits versus the prior year and were in line with 2019 levels. Similar to prior quarter trends, total implant growth was driven by replacements, which continued to benefit from the catch-up in procedures deferred due to the pandemic. Additionally, sales and implants improved sequentially with increases in both new patients and end-of-service implants. Our progress in US epilepsy continues to be supported by our go-to-market initiative, which currently encompasses 12 dedicated CEC teams. These teams accounted for approximately 19% of US sales and implants in the quarter. They continue to deliver sales and implant growth but trended above the baseline business compared to the fourth quarters of 2020 and 2019. Epilepsy sales in Europe grew 11% versus prior year, led by the UK and Italy. We achieved growth of nearly 10% in the rest of world region, led by a recovery in China, Taiwan and Brazil. Compared to 2019, Europe's sales were unchanged while rest of world sales grew 23%. For the full year 2022, we expect global epilepsy sales to grow 5% to 7%. Our forecast includes growth in new implants in the US as patients and their caregivers return to in-person physician visits and hospital capacity improves. In addition, we anticipate a continued tailwind in replacement implants related to the backlog created in 2020 that has continued into this year. We are pleased with the progress of the go-to-market initiative and a plan on adding four new dedicated teams in the US during 2022. ACS sales were $14 million in the quarter representing an increase of 4% from the fourth quarter of 2020 and a sequential decline of 10%. Results were impacted by a reduction in patients treated with ECMO given hospital staff shortages as well as capacity limitations. Notably, ACS sales for the full year were $55 million and grew over 30%, in line with guidance. We expect ACS to grow at least 20% in 2022. Turning now to DTD, sales for the fourth quarter were $3 million and for the full year were $9 million. For 2022, we anticipate DTD sales of approximately $10 to $12 million, primarily from the recover study. The recovery study continues to progress, and we're very close to implanting our 250th unipolar patient, and we'll communicate when this milestone has been achieved. While we remain focused on enrolling both the unipolar and bipolar cohorts, the unipolar cohort continues to enroll at a faster pace, primarily because it is more prevalent patient population. As a reminder, we can submit the data from the two cohorts separately for transition to the prospective longitudinal study or registry. We still anticipate a transition to registry to occur for the unipolar cohort in late 2022 or early 2023. In heart failure, the Ansem HFREF US Pivotal Trial continues to advance. We are pleased to report that we recently achieved two key milestones. First, in late December, we enrolled the 400th patient. And second, in mid-January, the 300th patient completed the nine-month follow-up visit. Given these milestone achievements, the first interim analysis is being conducted by the independent statisticians. Once all pre-specified conditions have been met, including safety, a trend towards the primary endpoint and success in the three functional endpoints, we may submit the functional data to the FDA, which could occur as early as mid-2022. If we do not meet all the criteria, the independent statisticians will take another look at the data after the 500th patient is enrolled. Moving to OSA, the Osprey trial continues to advance with approximately half of the 20 study sites currently screening patients. While we have experienced delays in scheduling sleep tests and surgeries, we're excited to announce that our first patient is scheduled for surgery. We look forward to communicating when this key milestone is achieved. Importantly, we still assume submission for FDA approval in mid-2024. For the cardiopulmonary segment, sales were $133 million in the quarter, an increase of 12% versus the fourth quarter of 2020. Oxygenator sales increased by approximately 20% globally, with strong growth in Europe and the rest of the world regions. Heart-lung machine sales increased in the mid-single digits, with over 40% growth in the U.S., offset by declines in Europe and the rest of the world. Additionally, cardiac pulmonary sales were generally in line with 2019 levels for the quarter, but were below 2019 on a full-year basis given COVID-related pressures on procedure volumes and the cadence of the HLM conversion cycle. We expect cardiac pulmonary sales to grow 0% to 2% for the full year 2022. Lastly, HeartValves was divested on June 1, 2021, and HeartValves sales for the fourth quarter of 2020 were $24 million.