LivaNova PLC

Good day, ladies and gentlemen, and welcome to the LevaNova PLC fourth quarter and full year 2025 earnings conference call. My name is Emily and I'll be coordinating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing start, followed by the number 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, Ms. Brianna Gotland, LevaNova's Vice President of Investor Relations. Please go ahead.

Thank you and welcome to our conference call and webcast discussing Leibonova's financial results for the fourth quarter and full year of 2025. Joining me on today's call are Vladimir Makhatsaria, our Chief Executive Officer and member of the Board of Directors, Alex Schwartzberg, our Chief Financial Officer, Amit Tazel, our Chief Innovation Officer, and Zach Glazer, Director of Investor Relations. Before we begin, I would like to remind you that the discussion 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 bring us to the SEC, including today's press release that is available on our website. We do not undertake to update any forward-looking statements. 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 investor section of our website under news, events, and presentations at investor.livanova.com. With that, I'll turn the call over to Vlad.

Thank you, Brianna, and thank you, everyone, for joining us today. Welcome to Livanova's conference call for the fourth quarter and full year of 2025. 2025 was a year of strong performance for Livanova. We deliver double-digit revenue growth, meaningful adjusted operating margin expansion, and robust cash generation, reflecting strong execution across our cardiopulmonary and epilepsy businesses. 2025 marked Livanova's fifth consecutive year of double-digit EPS growth and third consecutive year of double-digit organic revenue growth. Importantly, We also continue to advance our long-term strategy and made progress toward the financial targets outlined at our November investor day. Our core businesses provide a durable foundation of growth, profitability, and cash generation, which enables disciplined investment in innovation to drive our next chapter. Entering high growth, high margin markets to build a more profitable, more sustainable financial profile over time. The first stage of that next chapter is obstructive sleep apnea, where we have a clear right to win based on rigorous clinical evidence, a differentiated technology designed to treat a broader range of challenging patients and our existing neuromodulation capabilities. At the same time, We continue to preserve upside optionality in difficult to treat depression pending a CMS reimbursement decision, and we remain focused on advancing that work required to reach clarity there. As we execute the strategy, our goal is to transform Livanova into a best-in-class medtech company for the long term. Over time, entering higher growth markets like OSA will shift Livanova's overall weighted average market growth upward and position the company for sustained acceleration. Our approach leverages our competitive advantages and is grounded in disciplined capital allocation and focused execution. We have also been deliberate in strengthening the capabilities required to execute the strategy, including our innovation engine, our digital platform investments, and targeted leadership and talent upgrades across the organization. Consistent with that focus, we recently appointed Lucille Blais as global head of commercialization for obstructive sleep apnea, further strengthening our leadership team as we prepare to scale this opportunity. Lucille brings a strong track record in creating new sleep therapy pathways improving patients' access to care, and building high-performing teams. I'd like to welcome Lucille to Libanova and look forward to her leadership in advancing our OSA program. For the remainder of the call, I will discuss our fourth quarter and full year 2025 segment results and provide top-line guidance for 2026. After my comments, Ahmet will discuss key innovation updates including recent clinical and regulatory progress. Alex will then provide additional details on our results and 2026 guidance. I will wrap up with closing remarks before moving on to Q&A. Now turning to segment results. For the cardiopulmonary segment, revenue was $207 million in the quarter, an increase of 10% versus the fourth quarter of 2024. Cardiopulmonary revenue for the full year was $785 million and grew 13%. The heart-lung machine revenue grew in the mid-single digits in the quarter, driven by an increase in essence placements and sustained favorable price premiums. Some planned ESSENS placements and tender activity for the quarter shifted into 2026, moderating the fourth quarter contribution. As a point of reference, ESSENS represented approximately 55% of our annual HLM units placed in 2025. HLM growth remained strong with full year revenue growing in the mid teens. Cardiopulmonary consumables revenue grew in the mid teens in the quarter, driven by market share gains, procedure growth and price. Strong demand for oxygenators continues to outpace the market's ability to supply. Our manufacturing capacity expansion plans are progressing well and remain on track. And we continue to partner with third party suppliers to increase component supply for even more rapid expansion. For the full year, consumables revenue grew in the low teens. Looking ahead, our growth strategy in cardiopulmonary is driven by three levers, as we outlined at Invest Today. First, continued market share gains in consumables, enabled by capacity expansion and enhanced by our next generation oxygenator with an estimated launch in 2028. Second, The continued upgrade cycle of essence where we expect approximately 80% of our new heart lung machine placements to be essence by the end of 2026. And third. Recurring revenue streams via software, hardware and service attachments leveraging the breadth of our HLM installed base. For the full year 2026, we expect cardiopulmonary revenue to grow 7% to 8%. Our forecast incorporates continued HLM growth as we drive essence penetration globally. It also reflects strong demand for consumables and expanded manufacturing capacity. Turning to epilepsy, revenue increased 9% versus the fourth quarter of 2024 with growth across all regions. Epilepsy revenue in the Europe and rest of world regions increased a combined 17% versus the prior year period, while US epilepsy revenue increased 8% year over year. These results reflect strong commercial execution globally. For the full year, epilepsy revenue grew 6% with strengths across all regions. Epilepsy revenue in Europe and rest of world grew a combined 13% versus 2024, while U.S. epilepsy revenue grew 5% year over year. We expect continued profitable growth in this business supported by three key strategic levers. First, impactful clinical evidence leveraging the core VNS clinical study, which we presented at the American Epilepsy Society in the fourth quarter. The study has been well received and is reshaping the perception of VNS therapy effectiveness, prompting clinicians to reevaluate where VNS therapy fits within their treatment algorithm. Second innovation, including our connected care platform and Bluetooth-enabled generator, will remove barriers to access and improve both the patient experience and physician workflow. Ahmed will provide additional details on recent progress with our digital health platform and how we intend to leverage it as a foundational innovation. Finally, sustained commercial excellence, including reimbursement and market access initiatives, will continue to be a driver, as demonstrated by recently improved reimbursement in the U.S. Effective January 1, 2026, provider reimbursement for VNS therapy procedures for drug resistant epilepsy under Medicare increased significantly with hospital outpatient payments rising by approximately 48% for new patient implants and 47% for end of service procedures versus 2025 rates. This shift will improve hospital economics for VNS therapy, creating a more sustainable financial foundation for providers and paving the way for expanded patient access. As a reminder, there are more than 1 million DRE patients in the US, yet fewer than 10% receive advanced treatment. These changes significantly reduce a known barrier to procedure penetration as historical hospital rates for Medicare patients did not fully cover VNS therapy procedure costs. For the full year, 2026, we expect epilepsy revenue growth of five and a half to six and a half percent. This forecast incorporates mid single digit growth in the U.S. We continue to evaluate the positive impact of reimbursement on the U.S. business. It also assumes the Europe and rest of world regions will deliver a combined growth of high single digits for the year. In summary, our growth in 2025 was driven by healthy markets, the continued successful rollout of essence, market share gains in cardiopulmonary consumables, strong commercial execution in epilepsy, and pricing strategies. These drivers will continue to fuel growth in 2026, supported by sustained execution in cardiopulmonary and the combination of impactful clinical evidence and improved reimbursement dynamics in epilepsy that should support expanded patient access over time. As a result, we're guiding full year 2026 revenue growth between six and seven percent, which is consistent with the 2025 to 2028 framework detailed at our investor day. Alex will provide additional details on our 2026 guidance later in the call. With that, I'll turn the call over to Ahmed to discuss progress with our digital health platform and continued regulatory and clinical evidence momentum in OSA and difficult to treat depression.