LivaNova PLC

is being recorded. I would now like to introduce your host for today's conference, Mr. Matthew Dodds, LevaNova's Senior Vice President of Corporate Development and IT. Please go ahead, sir.

Thank you, Emily, and welcome to our conference call and webcast discussing LevaNova's financial results for the second quarter of 2024. Joining me on today's call are Vladimir Makatsaria, our Chief Executive Officer and member of the Board of Directors, Alex Schwarzberg, our Chief Financial Officer, Amit Tozel, our Chief Innovation Officer, and Zach Glazier, Manager 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 revenue 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 investor section of our website under news, events, and presentations at investor.livanova.com. With that, I will now turn the call over to Vlad.

Thank you, Matt, and thank you everyone for joining us. Welcome to Live and Know's conference call for the second quarter of 2024. Let me start by addressing the judgment by the European Court of Justice that came out on Monday in connection with the SNEA litigation. The ECJ responded to a question raised by the Italian Supreme Court on European demerger law. While this is a complex matter and there are a lot more nuance here, The ECJ ruling effectively says that a company spun off in a demerger can still be responsible for liabilities prior to the spinoff. The ECJ also says it is up to national law to decide if a company can be held responsible for liabilities that arise after the spinoff. While we're disappointed with the ECJ decision, the case now goes back to the Italian Supreme Court for it to decide on all the appeals. While the timing of the decision by the Italian Supreme Court is uncertain, we do not expect a decision until at least 2025. Now, before turning to the results for the quarter, I'd like to provide an update on the three strategic imperatives we previously highlighted. First, maximizing the strength of our cardiopulmonary and epilepsy businesses. This quarter marks the sixth consecutive quarter of double digit revenue growth. Capitalizing on this momentum to achieve sustainable above market growth for both businesses remains a key priority. We also remain committed to margin expansion and improving cash generation. Second, setting the direction for the difficult to treat depression and obstructive sleep apnea programs. In difficult to treat depression, we announced the preliminary results for the unipolar patient cohort of the ReCOVER clinical study in June. Following additional in-depth analysis of the data and input from leading independent clinical, scientific, and reimbursement experts, we decided to continue to pursue CMS coverage. As we move forward, this decision includes the deployment of a new operating model that allows us to reduce investment in the program until a CMS coverage decision is made. This direction will improve Levonor's financial profile in 2025 and allow us to continue pursuing coverage for patient population with a significant unmet need. Alex will provide more detail on the financial impact of this decision later in the call. In obstructive sleep apnea, the Osprey clinical study achieved positive predictive outcome and concluded enrollment in March. We plan to review the entirety of the Osprey clinical data and set the direction for the obstructive sleep apnea program in the second quarter of 2025. Third, we continue to explore areas of high unmet clinical need in markets with high growth potential and aligned with our strengths and capabilities. Overall, we're pleased with our progress in this strategic imperative. And to enable our success, we will continue to focus on execution, innovation, and people. For the remainder of the call, I will discuss our second quarter results and opportunities in cardiopulmonary and epilepsy businesses. After my comments, Alex will provide additional details on our results and update 2024 guidance. I will wrap up with closing remarks before moving to Q&A. There are basically three key takeaways from our financial performance. First, we're marking our sixth consecutive quarter of double-digit growth. In the quarter, we achieved 10% revenue growth versus prior year. Excluding the impact of the ACS segment wind down, revenue increased 11% versus 2023. We achieved this while expanding margins. We're increasing our 2024 full year revenue and adjusted earnings per share guidance. Third, we expect our decision to difficult to treat depression to result in at least 30 cents of incremental adjusted EPS in 2025. Now turning to segment results. For the cardiopulmonary segment, revenue was $174 million in the quarter. An increase of 14% versus the second quarter of 2023. Chart long machine revenue increased over 25%, driven by essence. We are pleased to see a sequential ramp in essence placements and continuing strong price mix in the quarter. Oxygenator revenue grew more than 15%, driven by customer demand and price. The oxygenated business continues to see strong demand, and our efforts to continuously increase manufacturing capacity remain on track. We now expect cardiopulmonary revenue to grow 12 to 13% for the full year 2024. Our revised forecast incorporates continued HLM growth and demand for consumers. We see three key opportunities. to drive long-term growth in cardiopulmonary business. First, HLM upgrades. We estimate our global installed base of HLMs is roughly 3,000, and we have opportunity to upgrade them to Essence. While we do not provide unit sales numbers, as a point of reference, we expect that Essence will represent approximately 40% of our annual placements in 2024, and we're targeting 75% in 2025. Second, expanding our recurrent revenue capture rate, including servicing our equipment and software upgrades. As the essence installed base continues to grow, we will look to drive additional revenue growth through these opportunities. Third, consumable market share. We have a leading global market position in HLMs And we have the opportunity to gain share in oxygenators and other disposables. We're already gaining share in disposables behind our commercial execution and ability to supply. Any great organization starts with great talent. And on that note, I'm very pleased to announce that Franco Paletti has been appointed President of Cardiopulmonary Business. Franco has spent the majority of his career with Levanova, spanning from various geographies and functions. He most recently led the cardiopulmonary business on an interim basis. Under his leadership, the team has consistently delivered strong results while always putting patients and customers first. Turning to epilepsy, revenue increased 7% versus the second quarter of 2023. US epilepsy revenue increased 6% year over year with growth in both new and replacement implants. We achieved 886 new patient implants in the quarter, representing 6% growth versus the prior year. We realized 2066 replacement implants in the quarter, also representing 6% growth versus the prior year. Epilepsy revenue in Europe and the rest of the world grew 8% versus prior year. For the full year, 2024, we continue to expect global epilepsy revenue to grow six to seven percent. Our forecast continues to incorporate mid single digit growth for the U.S. new patients. We now expect mixing mid single digit growth for international revenue and low to mid single digit growth for the U.S. replacements. Today, we're the market leader in drug resistant epilepsy surgery. we see two key growth opportunities for the epilepsy business. First, we continue to drive increased procedure penetration through market access and clinical evidence initiatives. Second, we see growth opportunity driven by innovation. And to this end, we're pleased to welcome Holly Grammar, who is our vice president of research and development for neuromodulation. Holly has a proven track record of leading high performing teams and is an accomplished R&D executive with more than 25 years of experience. We're excited that Holy has joined Livanova to lead the acceleration of our innovation pipeline in neuromodulation.