LIVN - Earnings call transcript Q1 2019

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Operator

Good day, ladies and gentlemen, and welcome to the LivaNova PLC First Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background nose. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].

As a reminder, this conference call is being recorded. to host like Mr. today's now would introduce for your conference, I Dodds, of President Senior Development. Matthew Vice Corporate LivaNova's Please go ahead.

Matthew Dodds

of for Thank you, webcast first results and conference our quarter the Lisa. And discussing welcome LivaNova's to XXXX. call financial

Joining me McDonald, Executive Vice and Thad Officer; President Officer; are of our Financial Farina, our Chief Chief Huston, Melissa today's on call Damien our Investor Relations.

measures. results website. financial call release that begin, any that's Also, include you discussed that's company's found the can on that our including during to undertake actual this financial most remind website. not will could are would Factors the the be statements. to will press forward-looking to comparable directly differ like We Reconciliations I forward-looking release measures in the in Before GAAP most we and include materially statement. available update recent to SEC, to cause today's documents press discussions discussions our the today's available filings non-GAAP on do certain furnished

our tool. is be posted points This call. We have other today's of enhanced presentation presentation the summarizes website to an communication as material a and that used call the should complementary also to

website the investor.livanova.com. You Investor Events, & over presentation Damien. will call release to that, and of now our can I find at press under With Relations the in News section Presentations turn the

Damien McDonald

disappointed results, first plans our and clear, XXXX results. our and call. in are discuss conference quarter US in Neuromodulation to first Today, shortfall quarter the To quarter updated Welcome first will Matt. our be address outline Perceval the in we Thanks, our guidance. to sales we

years, last do. work to have transforming While LivaNova we in more significant have portfolio we over the made two progress

with my our detail cost to of impact. color explain sales are and business shortfall discussing in leaning and sales in countermeasure off provide call, you causes and quarter wrap and provide of to After our with turnover. first actions and moving already XXXX an the structure start during force unexpected Thad combination to on I'm we As announced we harder the going U.S. financials address Neuromodulation results preliminary revenue dynamics will detail the The to root by comments, actions will near-term will sales competitive Xth, before closing this results. I on I guidance. due April comments by XXXX several additional Q&A. the underway. up on implementing weakness on more to On factors, business revised Thad experienced including our Then a

impacted quarter. negatively cardiovascular In the addition, sales in business during toughness the Perceval

the of of both plan. saw the in we above as occurred All weakness U.S. Europe world rest and grew

first XXXX. Turning operational will of below now expectations. all Cardiovascular the showed million, our quarter Total on compared net sales quarter the the digits a the in Heart-lung by and quarter conversions cardiopulmonary in increase from in double of the XXXX growth grew SX to XXXX. $XXX placements. sales for to quarter, currency were Neuromodulation inclusion due X.X% up X.X% growth the driven million which sales X.X% of sales an quarter, first net of Cardiopulmonary ACS. quarter, in the of first first both constant basis. competitive stated up results $XXX were be were strong while and to Cardiovascular machines versus strength was

the $X.X were category the Canadian sales first from agreement quarter Canadian Our agreement of distribution distribution million due and located were the of rest the XXXX, that overall. of oxygenator declined cardiopulmonary. grew a of sales termination in to world In

quarter. posted another sales oxygenator solid impact, this Excluding

overall, declined of declines low-single Turning for the in to $XX U.S. heart were valves digits driven versus heart sales quarter XXXX. of the million in quarter, decline in XX.X% valves, by a Perceval the first

the we valves. the the believe the ACS sales in acquired not of transcatheter execution, growth April with see are of in strong first XXXX. Protek pleased all we're to greater product XX% growth business of representing in across sales We first traction quarter impact than that very believe is million, to lines, of to related And XXXX. excess force $X expansion especially gaining TandemLife quarter now Duo. U.S. versus issues continue last reflects We our year's

X.X% $XX turn and X.X% let's competitive In Neuromodulation. million, turnover. US, Now, to versus first sales pressures XXXX. Sales the quarter field were the up of by decreased driven

that Our we other shortfall therapies. to believe share First, to no have the leads subsequent us this implantable lost for analysis following we market evidence

Second, to have initial meaningfully trends timing the this in initial the filled. believe outpaced and was by new We we saw related historical as from patients prescriptions Epidiolex deviation enthusiasm implant. to a between patient written identification prescriptions

patterns our a programs to compensation force believe replicating our and Third, fourth, competitive have dynamics situation understanding normal at practices. We better customer recently and and while positioning we current have And quarter. sizeable than it teams quarter. slightly dynamics, designed market impact business up and two regions optimization, oversee only first US turnover hiring. the in higher step customer we surrounding to end the in led sales And best in purchasing retention formed competitive plans, the competitive trends, Neuromodulation territory on a had dedicated the of now was the reduction seen to a a and implemented and address turnover U.S. have of sales including

for in during the our resetting which confident update. XXXX, short-term run financial challenges, the While expectations we will are Thad are through we

Spain. of saw last sales increase the XX% is represented quarter growth and Germany adoption was with sales, of Turning based in now sales uptake our continues Europe EU to the in double-digit UK, which and Nordics, generator to of continued of U.S. strong quarter. XX% SenTiva, April. We in first adoption another launched strong generator adoption SenTiva, on

Russia. world Our region Middle performance strong rest driven by East, of great another delivered and the quarter China, Brazil in

engaged still quarter. first site or in high pipeline Finally, heart and their progress to have a failure the depression, Neuromodulation CRO make In are treatment-resistant third recruitment, both in and progress we the solid our implant TRD, continues making programs. profile good TRD, on expect

to TRD a and attract continue team TRD and commercial leaders, heart head trial addition VP. the build In of globally ANTHEM-HFrEF we senior our two program talent with failure, of continues our than recently including the While XX of our during pivotal to encouraging XX Annual College we in presented XX-month March. expectations US the faster long-term American Meeting our active data Cardiology at And sites. and over enroll

on culture We over an the growth financial in Thad the and overview turn prospects focus LivaNova. our to to developing now our we'll are confident and call continue for management talent strong I'll and of portfolio of Thad? results. execution,

Thad Huston

guidance. discuss in financials the Thank quarter you, detail our and to I'm greater provide first Damien. revised going XXXX

first and improvement of XXXX. a first was quarter the X.X% in first versus was in percentage first the first the HLMs by quarter by mix price. R&D as $XX Damien of growth versus Adjusted to and primarily in in was in net $XX the quarter driven Adjusted XXXX. XXXX. points net in XXXX, quarter offset million led The expense quarter growth of of of gross in sales first quarter growth XX.X% As quarter margin sales the XX.X% of a the R&D percent million as the compared lower was mentioned, margin was from up Neuromodulation. by XX.X%, XXX sales oxygenators, basis

to a Adjusted investments year, increase generation which SenTiva of in behind apnea our and was TMVR, As organization including declined we while million was expense Neuromodulation in versus overall TandemLife in The compared DTC the quarter a making commercial and basis quarter development SG&A drivers international up markets, quarter $XX income we of and epilepsy, next XXXX. of SG&A our first heart first the operations products, in lower-than-expected million previously sleep of first to and TRD, from operating R&D discussed, the are operating operations HLM, sales is the and investments reflects continuing campaign US strengthening due was Adjusted Adjusted lower continuing failure. ACS with XXX XX.X%, net clinical $XX points of increasing the margin of points to the XX.X%. for sales, our from million quarter compared growth along as XXX increasing impact in capabilities, of first the $XXX key strategic to in is R&D. trials $XX investments for the last results. percentage impact XXXX. sales in full million commercial basis expanding largely

effective result of a adjusted versus XX.X%, quarter improvement in ongoing the as was an rate in XXXX Our tax tax XX.X% quarter efforts. of first the

adjusted operations a diluted from $X.XX in compared Finally, continuing EPS the was to quarter year $X.XX ago.

$X operations Cash million. was was of Moving million, the for Capital restructuring operations, $XX the to excluding which was one-time integration our flat XXXX. flow cash quarter versus March cash XX, and flow $X from the quarter was payments flow, XXXX ended for quarter spending costs, first from million. for

million $XX at balance million, was XXXX. cash at XX, XXXX, from March XX, December up $XX Our

versus at $XXX Our million, was net no debt quarter change XXXX. end year-end

XXXX to guidance. Now turning

the million, now expecting guidance challenges, we year. new to the implants back are the our half revising believe $XXX for a a current In in quarter we improve we the to fall to consequently Neuromodulation a Overall, million. of range with to to million and buying $XX expected the impact of decline patient $XXX will primarily of quarter the disruption persist previously-mentioned and to first second saw into US Given are occur customer patterns. million we range in gradually then in in U.S. impact in the the financial Neuromodulation, quarter $XX XXXX. We expect

of growth $XX dynamics company basis. in X% overall of guidance the margin in while sales order XXXX In X% already positioning long-term current million order impact. full U.S. we that we've by to are currency designed to profitability from between revenue in plans impact constant $X and year in expected current on deal to OEM begun distribution forecasting in guidance be this or Neuromodulation to that Canada some that quarter sales company's and represented exiting address business rates In to Also our agreement negatively the market of XXXX. XXXX impacted a April If X%. advance sales of impacting TandemLife of the terms guidance, offset the prior improve the low growth, note our for closing exchange million one includes a remain unchanged, of are would

resources, back we our to the optimize reallocating undertaking US new resources epilepsy on towards business highest plans talent business redeploying our within to across-the-board, pipeline, Specifically, and this investment focus are growth. product to return opportunities to value expenses

added SG&A P&L. R&D of of margin projected now additional XX% Adjusted of to adjusted having to and the to be to be XX.X% range of range the XX.X% to XX% TRD of gross back in range. we the expect in be turning XX XX.X% In to an each the to XXXX, sales is with XXXX sales, to points in basis XX% range. rest the in Now adjusted

range. factors, of are XX% these operations to projecting in adjusted continuing XXXX result from XX% a the margin As we operating be to

XXXX a for rate tax is expected effective in adjusted XX% to to of XX%. Our be range

impact negative $XX diluted foreign negligible to to We be as to the continuing $X.XX per are in a $X from account to the from projecting of impact $X.XX share TRD. earnings range $X.XX includes our We currency, adjusted previously $X.XX, from count disclosed OEM share of operations well be a for assume which impact to $X.XX as to Canada, transition approximately million. in

range guidance, normally we $X.XX. quarterly are second forecast to of $X.XX provide While providing we don't quarter EPS

million, between from $XX Our be flow product $XXX adjusted range in to $XX million million. payments range of Capital is restructuring projected of payments depreciation million to product integration, $XX million litigation and integration, a million operations be for restructuring, of $XX is and are and expected in million. amortization range XXXX, million. in to to remediation to $XX The the excluding remediation be range spending cash the $XX $XXX expense to to and expected expected is and

for are our on we While guidance deliver in long-term opportunities XXXX, growth remain we highest our growth. lowering investing to focused

with back the for that, Damien So, final to comments. turn I'll call some

Damien McDonald

Thad. Thanks,

proud long-term I'm As are far. the built we have of so foundation to a team, build management we looking shareholder value.

our have pipeline At in LivaNova's gross with We to R&D capabilities. same CRM have been portfolio strengthen increase we our expand our with and our recent R&D coupled sale talent and transformed time, business, to the and acquisitions. able margins, internal of our the fuel investments portfolio

to sales expectations, U.S. challenges our our fell our structure. course-correct performing of our these lines business Perceval streamline of well short and urgency cost other have further and are we a and of Neuromodulation While many sense

our us commitments visible that our return declared am will updating of the forward focus not attention our to Although that, shareholder I will our aspirations. be and overnight, look efforts progress are and drive on confident you we delivering ready questions. to We to our value. for with And results Lisa, continued on

Operator

Thank you. [Operator Instructions].

of Raj from first Our Jefferies. the Denhoy line comes from question

is open. line Your

Damien McDonald

Raj. Hi,

Raj Denhoy

drug in you've why desire just just frame maybe again, described we this cut questions as far, the and their in so third recovery. of quarter of you've or think then try for recovery this deeper it by it? know recovery probably is sense I seen see the I guided to get we'll issue that Epidiolex how this a on second to morning. something But, quarter, for VNS very why fourth about So, think lot terms people's Good wanted to start there willingness that see here but you different and I trying you've from into a the XXXX? isn't to conservatively try line. we'll guess, the do Obviously, seems you confidence there. to a longer, going do

Damien McDonald

our preannounced a think sales things there's of into rise. I that Well, we've we dug since range

of shortfall. And our commercial pareto balance the in was really to related the the to issues related says XX% Epidiolex, and is customer what XX% the around do our First into that related drove think patterns. to buying this we change digging

So, saw in QX then into that disruption the a QX expecting little in and read we're then the back, being growth. the and to this second quarter to start bounce quarter stronger half we returning first second to

down broken pareto. the we've So,

from think on evaluation informed and that a we've customers think I think to other is the trial also us we're period six begun Epidiolex, going. And like that I think more we and thing I is understand to how period. nine-month the around

Raj Denhoy

side. XX% think were folks could you that execution physicians sales be you you turnover, That's quickly to commercial offer Okay. terms the of on I can how was how do helpful. those will lost? that something or of replaced Maybe guess, kind of in refill it point, you've the force before it

Damien McDonald

Yeah.

in we acceleration field, those really slight to alternative we've in the was had able people But meaningful the instances, of replaced retain look, candidates. number a in a two So, regions. many entertaining in first who were lot this turnover in were impact with And internal people of a We of offers. quarter.

have aspect force So, But stabilizing is to communication and this. that we've other of in key commercial this been the territory key. we're the focused I the last few messages, that's think on compensation, also the steps optimization, and think been the making taken start too into the sure I that execution positioning those all getting weeks sales

Raj Denhoy

last my broader a Okay. of could And maybe I for just for kind just question, ask one.

other stock things communication on perhaps I the sharp was kind think the pre-announcement in drove one of the the strategy. the of that reaction company's

visibility, couple there quarter, as also a why known least until wasn't tracking of and things of questions any all late I You had, very, I and deep in think, There's this the in there been weren't miss on the road, you meeting obviously, with much late, guess, very the about until the was just investors or happened communication just of wasn't said shortly you have quarter. couldn't the happen into going expected because that – you something were late before very indication business terms at to and that

Thad Huston

as were the Clearly, month fair Neuromod quarter's skewing for the Yeah, we in sales see the week. -- see our of by up Raj, cadence that end typically surprised the last pick towards the definitely point. a we And business. it's we didn't very

why a the and challenge the pre-announcement. that us. had occurred we results, And for the that But the as communicate, we really our started course, out as describing that of see point deviation the we we to so, where did back quarter we publicly and we trends when that of created time. efforts did end were we were in why, in at clarity that's sales And soon were towards on talking, that's

Raj Denhoy

last fall two in so, the the of much VNS or week revenue of how typically? quarter, weeks then does So,

Matthew Dodds

the We It's the last Matt. But quarter. for quarter, generally weeks. couple month, give won't for the of about XX% you last it's every in

Raj Denhoy

I'll fair. you. That's there. Okay. Thank it leave

Damien McDonald

too. Raj, Thanks,

Operator

Our next of Wise the Rick from line question comes from Stifel.

open. Your line is

Rick Wise

happening sort US doing sales. Perceval what weakness? Hi. Good side the is a on doing us on as Neuro there. of and I'm the Clearly, and morning. a not Can the about out you're clear you O-US. more little spelled great Perceval more Damien, what's You color, give detail little

us the of talk Just improvement assumed the around leadership cadence or made help what you've there through year you as and think drivers changes unfolds, and that. that the about maybe the

Damien McDonald

this leadership a and perception change think, we meaningful had I They've year. diagnosis, more, Yeah, The this with will we part. the And structure believe Right. the especially few for is around script, in put to clear And things. of do any in it's TAVR. really in last I new these of with three We think, them. a in last say, much QX to commercial us, said reasonably I on execution months. don't a low-risk our relates dug

around for think, as we as more daily What now. we're commercial is in execution, that procedure really change Valve-in-Valve plan would sales discipline were place to supporting. people as that better as the the force is we'll our are as starting sales plan well XXX in around better meaningful on execute well training, internal to execution many implementing the the, what XX-year really both accounts refer management and The not Rich be of call, that that there. data. team communication their just Our And I indication, a

Rick Wise

to Again, in imagine make as you think each does it And all could happen, that would no, back focused half loaded? that, we this Damien, can be if you're or, it's take do full quarter that now reflect again, just – these on a improvement sequentially year frame you helpful. you or things on

Damien McDonald

Yeah.

things, – start you getting I half. it start parts of traction the QX in new I in coupled penetration. building acquisition, few those account then then And stabilize efforts, two both quarters there's in you and will take to think accounts think the these time, it. and finding internal and with accounts, this. By read through you the a of second account There's the

Rick Wise

help Neuro, – your have forward? the to talked understand I back going what headwinds changed out you wonder of what novo gate side, trial? what what drugs can – the or the are you've you now assumed Epidiolex you going you've as breakdown about assuming and terms de to going trialing Damien, the on And of in in of assumed the in What Neuro us you just about maybe implants short-term. you neuro assumptions

Damien McDonald

looked input this XX-week big The really look, indication. a neurosurgeon, therapy, that's another is leader for said, like relatively key looks lot drug. neuroscience limited we thing and us expensive, opinion our this acute at an trial and The it's

begun this caught So, really What we've anything cannabis. And as enthusiasm probably that drugs think seen lot looks like four months. a time that understand off-guard the the implants. you that. the we is identification, funnel, enthusiasm to there's I in slowdown the the to as is our we've much maybe start by was past What in saw of the noise from really And anyone that of see people through to a nine-month things it, really are. pipeline Again, our were for know was we what for people this are six what six -- more ID was of by patient try robust. effects like program, to movement the of patient the and

do that's the and what our slightly timing ID from probably where that would through our off, conversion analyzing just implant. -- systems was to process or or methodology it And for it so,

Thad Huston

of the around Yes. phasing. Clearly, to more kind we US also, provide Rick, wanted clarity

we impact surprised full year, of half range to as on range we well. still the QX, but clearly, as were we provided Neuromod. back year a also QX the we in why million an that's go then, forecasted, And of million have $XX have U.S. for to we described in As a again $XX

Rick Wise

You us products through is from? help for to this it have just bar you the at to But side that incredibly the make than is a HLM, little Are conservative would be better And me. and realistic? as through in here? I can you make you in so high lot the SenTiva working Thanks would conservative thinking, level, business, maybe, think hope weren't one X.X, guidance the new think hard no, pipeline you And better what be be – Damien, think us much. of of come Right. hoping last trying do you might this things could Would to Tandem. better a astonished or, basic reset it it here. help this? Where better? your

Damien McDonald

an of So, a old mentor where is hope say this several would is us not of strategy.

US the to giving Our sales execution, resources them key activity here is more on the be focusing effective. force

messaging, that's penetration. came why our field and and we product acquisition back training the So, the account to

through here. from key to is identification patients Moving really implant

So, year to I This guidance. we've of think looks. is been estimate now. best in the our intention how our our prudent the plan And is work

Rick Wise

Thank much. you very

Operator

Piper O'Brien comes line question next Our Matthew from from the of Jaffray.

is open. line Your

Matthew O'Brien

Good question. morning. Thanks the for taking

from So, are think given and people most adjusted up what trying and business I'll for break guidance in the couple QX the as sense question. things, we shortfall I the a about here, a here, the think are to get

year? year leverage about growth the and then, The terms would spending we and core as to for as all this how first think we we here how a going late this the think business year be, the line? top half year second the XXXX of the unfolding do the potential on, So, obviously, of then into and we exit this year about business bottom business because, improving plus XXXX piece we with an and hopefully, do in get soft the that's base investment line into

Thad Huston

We're Yes. at and point. the is It's the Neuromod. Thanks get is revised how guidance. year line growth sight particularly of wanted in to why give on that's, position on, to XXXX the guidance that a we frankly, for more again, understand a as of provided not throughout business our closer, biggest which the provide U.S. in we we the But, question. impact and, as clearly, clear this better provide we'll Neuromod updates go projecting, we driver, a

also understand Epidiolex the dynamics and we've the field described. a need few to quarters, that we of impact both So, obviously,

Damien McDonald

our too structure terms what of indicated to changes going cost more prudent the there. P&L, we're in making is be we've be to in And

the pretty is So, program that, what I the Having lot a said transparent we that. about growth of think were R&D. we've and ringfenced

leading well, really, So, of question just the a – that we've We've got think previous on opportunity lot Rick with to with Delta got this come I for later talk to the in Perceval from pipeline. the Valve-in-Valve. program into year, ACS, back as about with the

think as a I of next for heading year, And it's well opens machine into SenTiva X.X. generation up opportunity us. as heart-lung that lot a then, next

So, we've our really ring-fenced the key near-term opportunities. we're and QX. And commercialization a very into big in still focus anticipating of for that our us well. is bringing And depression program progressing is start

idea us the core sure for So, make get stabilize the growing and is, base again. let's we the

the the in right of make cost Let's the middle decisions P&L.

sure Let's near-term our key playbook. make ringfences that's and it And growth drivers. the

Matthew O'Brien

Makes the this sheet year, year the of in to even offset terms sense. with get maybe lack later balance aggressive buying into Would next back you leverage of stock?

Thad Huston

Yeah.

XT and where we've think today, plans. allocation Clearly, also our one we will addressing priorities, at we at obviously, liability, to have always look balance but the are everything. looked we that's this capital and, our sheet I look at of

Matthew O'Brien

investment me be other Okay. there. sticking and again, aggressive really all question then, the the And your with trying to year, you're is, pipeline for this

three months in we you quarter. only may in XXXX as support you or investment, an through So, given point and three seen have heart look more into that the it after pipeline via I last towards the But in either Anything you transition you even beyond? update know be and XXXX gives all this whatever confidence, can lines us investment O-US. those on gave we're that people last or circulatory months existing year along TRD, here the mitrals, what failure

Damien McDonald

system We've very talked epilepsy these the The strong. and for that a think Neuromodulation few the I and particularly international, US much other been regions, isolated about growth and Europe really issues, and Look, has really LivaNova Yeah. we've business things. in Perceval.

The failure which progressing the of of So, by program, they're XXX positive the VITARIA, big be progress recently for we'd patients again, the in next I Delta the expectations is heart-lung the there submitting the end we really that's the and happy ahead with well. with point for reviewed really, the that monitor, now which next XXX generation that's team. And patients pump is mentioned, recruitment, functional We're ACS the name think on coming a encouraged generation is dive the around a We've machine randomized. point heart and device, making. Very that as program PMA. project is us.

well. a program, And So, with we're we're up we in team discipline the IRB negotiations can't recruiting sites. that TRD protocol, doing The that without that's really point. finishing progressing that has everything focus while to clinical have there. off through with We but parallel finalized CMS, begun go impressed the I'm and business implemented

pleased a think the of really I things So, there progress. we're that number are with

down on a XXXX. be tremendous to on they’ll the first The of team in have the cycle Lastly, two trial that made that. nail half to for And anchor progress of and Caisson, just to try then is about in to recruiting to the coming around it in potential They're testing the into wrap around on we've really really go designs. month the finalize identified expect or the going single next we back two here issue design.

we that's think bit I a operate things of list a So, continuing think of that well. are to

Matthew O'Brien

Got it, thank you.

Damien McDonald

Thanks, Cheers. Matt.

Operator

question of line Our from from Scott Bardo next Berenberg. comes the

is line open. Your

Scott Bardo

Yeah. questions. Thanks for my taking

has product. therapy, been addressable it to Epidiolex of surprising and I surprising such narrative that drug-resistant new called around which VNS, indication the the of VNS narrow So, even I penetration quite makes getting out market, where patients impact your material in a causes somewhat epilepsy the the for always that business, you've given think X% think opportunity US significant that on the is

mindset you or like, have you new your the in second would halt. if I a is, some understand here replacement a your Particularly understand to XX% is XX% have that grind want negative I you Neuromodulation what U.S. business quarter to in So, if now Neuromod, business, keeping that for business. the to with U.S. correctly, adds guidance fall highlighting regular a imply for patient

And half coming for the circle me going of with if VNS what wonder I I U.S. are particularly two square just one. That's penetration new sales help in why respect forms me understand and in have therapy your all you with So, are last opportunity the a really the on question no sudden mindset patients weeks this, the in that this to could follow-ups. of business? few the of sort

Damien McDonald

Okay.

So, a things. few

still neurologist, or the us, of see the funnel another Epidiolex. we for still for through us what can those patients like written And cannabis. You're of right. for in up on messed were And models difference move robust. and a between prescriptions of the is But in surprised with epileptics a process everything ENT enthusiasm a every people. of The the It's got again, yeah, numbers is patient coming or right, end-of-service the and just a our into neurosurgeon drug-resistant combination to an for And identification meaningful us number the The of There's you're slowdown patients new for low. lot implant panel number centers. – filled prescriptions is big year. a very new were you've relatively implants. penetration we

decision patients believe an about that are implant. we that their the delaying So, pool, in

of And I about of is series our a of drug, aggressive as back drug messages competitive whatever think or one of to have more VNS, working now, whatever. So, we've – mentioned get to I I which countermeasures benefits this again. as said, Epidiolex terms be we positioning, we that that start plus to got in the

got it in very yeah, implants. centers. of work patient It's number a to focused new so, is do. And we've And

Thad Huston

are of in prudent Yeah. going add, first affected as to kind through it at to at back of new at think temporarily. reduction all the I of a this I look would us to And the half that the look think and improve rest year. there's launch least of be patient new the the and that implants, the for half by to year drug gradually do it's the then, that we year, would essentially patients assume of about

of a it how over an kind been of kind time. understanding it. about that's so, improvement picturing and then we've And and And thinking dip

until being patterns -- NPI, understand kind was the there they kind was an on just then of that's on of have You on an there those also buying the amount impact purchased. an impact customer impact

Scott Bardo

highly And channel the stock. hospitals of part, your there a in this is just, or normalization that inventory no excess and has of been Understood. in you're confident stuffing

the no end confident is very market in really here? stock there's demand You're you're market, trends excess seeing this that

Damien McDonald

Yeah.

the as If caught quarter less levels patients, normal. didn't is And, month. IPGs see that on an you're the the customer pacemakers, We stim, buy cord customer demand. implanting that's the you And I account, again, this their talk how it's a par as buying what look buyers you've and need to market in hold few at historically, we based when what and a much patterns unit us say, impact about slow, spinal just the natural think last month. will to in seen that

Scott Bardo

Understood.

please. setting So not be cutting after months only to second question, few Clearly, it. great guidance a

You've investments decided pipeline. into stick with meaningful to your

you us performance, some you full TRD, So, could mitral, I give of when if the balance main of is please sense think the of actually how are failure, apnea, some frame, us that on for give to assets time with you investing would that the some given maybe these this investments sense, as the heart expect some help, having the And much like, sleep opportunities? projects, near-term materialize impact across you obvious P&L

Thad Huston

Right.

in R&D in investment our out, we this are pipeline. innovative maintain point continuing you guidance, our to as So,

all are We heart and R&D spend we on Clearly, that failure out. sleep of this clearly, roughly opportunities different pipeline. have time Caisson. failure, exciting TRD apnea And, kind So, TRD, come innovative think of some and half heart it's apnea, for really more further our Caisson, with clearly sleep with then actually near-term; then we with in with they and horizons.

the And is roughly is the think that at we roughly an versus to have when unique is lot basis on things makes one the so, spending, we're pipeline of we of cents and you that spend. that $X.XX it of But look $X.XX I our that cents a amount annual our of us innovative very $X.XX other choice per in we're spending companies number And on space. the in we're similar, pipeline. that item or making that a that

but could success, choices. and prudent investments clearly, believe that detail. things drive we we'll are those so, I these But, that the look investments, to more at long-term And going ultimately pipeline are balance these opportunities provide also all

Damien McDonald

the ACS of next-generation Polaris the for and is pipeline, product proportion then, SenTiva half on other program Delta a And machine, the spent organic the heart-lung X.X.

So, ago. again, as months projects the we've that XX strategic or that well as roughly internal programs kicked we strategic priorities talked the about, X, these off big

Thad Huston

obviously, and into a carry next excitement SenTiva will TandemLife us we and around generation and The really have next beyond. the that then, generation HLM XXXX Yeah.

Scott Bardo

I'm that decline. That's assuming XX% And, some this SG&A sorry, this ratio is to also then, just helpful related additional color. been on investments there's astonishing. SG&A quite lastly A

pipeline relates us as give of how your ratio much a could these sense So, assets you to of well? SG&A

Thad Huston

Yeah.

clearly, and investments campaign that particularly of into SG&A last reason as direct-to-consumer now of expansion, it's in moving our force as bringing been is as as really ACS up. well has doubled Neuromodulation, we well made portfolio rest And the we moved promotion strategic the year. the on TandemLife So, sales up part world have global we're

some So, we Clearly, choices and offset I our approach is say, stepped that and priority where investments make have as the on areas. we to would a portfolio. within other high our becomes up expense that one watermark, have XX%,

We're surgery cardiac reallocating So, in from we are optimizing many Neuromodulation. resources, expenses. to cases,

areas But and other R&D expense investments epilepsy. is at our downside. we programs help $X.XX from cutting some ringfencing is geographic We mitigate cuts. expansion, are support redeploying to the think, to this coming it's We're important. of of And we're these roughly guidance the in least

Scott Bardo

guys. in queue. jump I'll back Thanks, it. Got the

Damien McDonald

Cheers. Scott. Thanks,

Operator

of the UBS. comes from Matt Our next question from Taylor line

open. is Your line

Matthew Taylor

a inform that the to. drug with of how comparisons question those called comparisons you past Hi. any And or Epidiolex? color, and been what's that Could you launches us view Thanks taking qualitative do compare I here your happening can of to for follow-up you Epidiolex some dynamics just on out. morning. the cases the good question. prior ask with There's wanted in through from they launches this walk

Melissa Farina

last two-quarter Sure. was most of during launch which comparable we that saw launch impact in frame, Hey, patients. Matt. XXXX. It's [indiscernible] June be approximately And new would to time of Melissa. The a

to takes drug had of it quite similar adjust generalized we previously, as than to mentioned indication. do, We different lots prescription on longer that But to very it expect the scheduling. Epidiolex, a Epidiolex impact, was of receive because While the basis. frame significantly a time impact be of it's slightly percentage than other

Matthew Taylor

to is just any And you that could Okay. could some with this losing the sure losing reps, where give on better? if about gets more one-off that be might plans kind Neuromod, a talk And of that or And commercial the in change in make folks us the market bit you a what a regards was happened it then, out you disruption called that little you are you're together? event to? to color

Damien McDonald

Yeah.

was I confluence a of think events. it

Epidiolex at competitive You same the timing time had some hiring. the as

we're them is of our the of able proposition proposition have they compensation optimization, think tell is competitive and just beyond. Some think are explain said it. we quarter compensation. and that, that said offers go the Having And financially. implemented retain we're something goes GW as people, force part to at I already able did at territory a think we story. sales was or our were taking. positioning Pharma relooking of telling value make that Having to a step I changes to And them key which patient being to looking beyond think compelling number fairly we're a I and this and looking that for that, I how that story and at key and We're we

are sales us force going and readjust disruption. So, I help think all the commercial those of to things

timing do top how of Epidiolex. Melissa we I As of was said, again with, on where deal the with

Matthew Taylor

the lot Thanks a for Great. color.

Damien McDonald

Matt. Cheers,

Operator

Matson of Company. comes & the next Needham question from Mike Our from line

open. is line Your

Michael Matson

questions. on Good for morning. prior on with to Thad, up that comment can I your to basis. spending Is on a plans? maybe down dollar basis, start want guidance, guess, R&D taking so the and Thanks or my OpEx versus be expected you a just SG&A dollar

Thad Huston

So, due going and we're calling about of to out roughly $X.XX here. SG&A $X.XX sales EPS to EPS kind of is of down is be what that the mitigate impact shortfall roughly to clearly

that. of portion a covering we're So,

the are, I ring-fencing within We mentioned R&D as guidance earlier, our this point. programs at

at deeper there. do see can We look we will R&D optimize and further take the a spend what to

Michael Matson

it any Okay. And the efforts there? DTC it, going given in to maintain increase the Neuromodulation you to the you then, term? the Are shorter are changes business, in issues decrease planning it,

Thad Huston

but our better through. with part, are pull we the think, I for looking plans, most the what we're of kind continuing at, understanding

of increased patients number we've the funnel. the So, into

And pleased it's so, results, with we're still but early. the

other closely investments, a some things of results. and we have phasing down kind deeper we're the So, monitoring some that blowing of till understanding

Damien McDonald

part afterthought. our competitive VNS the And we're how at position process, versus as relooking of not as we and telling the thought mentioned, a why story a drugs an it plus and plays critical

Michael Matson

Sure. I'm previously, And Neuromodulation a I the given on was only margins it basis points with high XX margin products. guess, gross just from guidance, then, just the the little down surprised,

offsetting of So, some the somehow are or…? you impact

Thad Huston

Yes.

see to So, the really and that seen continue news we momentum is have good great in ACS.

Damien McDonald

ACS. In

Thad Huston

of also of On are overall. a SenTiva improve Yeah. as mix we business. also as also just seeing total percentage percentage Neuromod our the And ACS, a generally implants but

sales. we XX% of So, think could to XX% total reach that SenTiva generator

is regional up. mix So, price holding strong. is Overall,

still confident provided. So, we feel although that sales we down, that we normalized range took about

Michael Matson

Thanks a Okay, lot. great.

Damien McDonald

Mike. Cheers. Thanks,

Operator

Our of next the Mills from from question line comes Canaccord Jason Genuity.

Your line is open.

Jason Mills

taking and of but to help my Thad you go the my of I Look, some opportunity And into of climbing it out an to and isn't about TRE back too that of reps I of leaving. the Matt. Thanks the minds as going the a there. at to own are portraying hard pending dynamic, calculus these I'm I that Damien, the Hi, ask you're a us maybe questions. And in force. opportunistic questions time mind, going impact you specifically, far standpoint, through enough big Damien, understand for drivers sales wanted TRD. is look still from in it, to opportunity have some the have the is a Neuromodulation,

sort term? calculus like would something then, was or think of comp that seemed that the to So, why seems it it? these It the there it follow-up business question, a these in some or it why driver implies – reps a mind is are leaving. give like your And that reps situation, of are issue? end question leaving? us quarter truly you be surprising the help be a just Could of longer could as they related Is on near-term

Damien McDonald

of that on what And dried revenue their around leave come few I'll in they high part the did second reps a particularly us, profile Well, surprises significant first. quarter. reps. the and quarter amount up were with A exit in

the well purchasing as change from accounts. ordering, as patient the dynamic You their specific

whole issue hiring, but has in really And And up. is, amped definitive just competitive quarter, epilepsy, bigger the us, implantables. So, us. a issue in a not found more we've lot the landscape for the in for competitive that was

in And so, we again, few key saw and, an turnover uptick a regions.

really So, up. that those are ticked really, things for us the

and already do we compensation the dive territories changes what make We need the at optimization. are made to really levels into We've manager about in to aligned direct all to sales the need Do and the way to we and Now, some compensation regional people. supported? and do to need of the three it? area territory changes made

that's key thing. think So, I a

better we're be how or that can support. are think effective. things giving them were that where I and they more to resources And about resources a the could causing to had also those look go alternatives, We at better what job

So, and changes, of on do the one that's sets we've made other to we're the of the We've compensation work programs we leaning and on believe, progress. got messaging the great first key support that into.

Jason Mills

be the as place, that. you you've cadence a nine-month you talking just putting if talk year the the dynamics also sort of reasonable you through the impacting just Neuromodulation to the it against talk business the in that to the that precarious will as to second a with as organic Okay. sort of that to drug for you you'll then, of growth be modeling you marketplace. for six you're some think them given place questions. this comp, to the you And because things the for more comps you trialing pointed out? are of could is tick about U.S. And are year sort got actually year, the period of expect Neuromodulation Thanks in of like addition taking roll as and for about the of seems that, periods follow-up some of in the in these some pointed difficult Thanks tick about growth It still difficult the half have in trialing some second us general of out half in business the to through overlaying up? up could

Damien McDonald

reps Yeah. the That's [ph] of okay. you A few on to got things of number we're talking a all, very committed that force. sales the first of We've Look, about are talented patient bunch in if come people isn't guidance. who really the we messages entire have.

with the but opportunity, and messaging, is think work to still is So, see I think, we've stayed a tools we're and of that Compensation has sales continue going again. and I really one part have it, force people that key. to that them of that lots got

we why going is be people wanted look understand QX $XXX let $XX trying And to guidance the saying to that I $XXX were to to range. about where number, of unusual been QX also the million, in year we to prudent the what continue half given also again, QX which it's the very for $XX so, back the – was us, in going saying and it's largely we've think in the year. think, And million we've different full million we is that but about that we're we clear with, think to million

Thad Huston

me, QX with again, we the surprised think recognize in the market we've I results. to and

US the providing an the $XXX thinking $XXX get the effect. versus will million from $XX NPI to annual we're the $XX perspective look and of And about improvement Neuromod this baseline decline how of QX, at Epidiolex million but this to probably half a prior-year a it forecast provides showing million then, impact be the to we of for so, And back think that's we range you million as sales. is of what overall versus kind still how year,

Jason Mills

guys. back queue. in I'll you, Thank Okay. get

Damien McDonald

Thanks, Jason. Cheers.

Operator

of Bardo final Scott the Our today line comes Berenberg. question from from

Your is open. line

Scott Bardo

much follow-up. for very taking Thanks Yeah. the

valve almost the on discussion last been or and, a last has clearly, but the just performing, this the business quarters, just few so. not in So, years heart not XX

is valves convinced Perceval owner follow-on, valve mitral don't if right you portfolio? guess, Thank LivaNova I you the the structural a for I So, can new and structural have as in makes you And what the franchise? for question valve is that the have you. operate

Damien McDonald

are years. all, is different first. others. disease surgical and a state. that would let's group, cardiac the some we first of you've different that panels The Look, able Look, largely the but instances, a believe second yes, questions. Great entire it's answer where do In Scott. to is point, there got Hey, call call part point back different We've business largely I on We've valve been you some the We've transformed one the in make between to board. exited the across transcatheter. two the portfolio. the changes point down last the businesses, heart doubled

we've, transformation, progressed pipeline, them. this that think, We've later And year. mostly on we issues think, I which so, read this intend to through robust lastly, focused starting year has key next and really built fix to And going is, I really well. into

being business. Perceval One of those the

We're people us. strong wasn't was going the ever U.S. the Stabilizing are for are who international mechanical growing I in probably sales So, to surgical Europe. getting teams commercial parts world got clear while we've zero the valves in the in Perceval reps performing to very key I seeing I our do being think the see and what consider growth benchmark opportunity that head our number and towards a We've traditional portfolio And of that of and negating really brilliantly. of intention. a able performance. been execute part

the things the reimbursement got them, Japan, now about giving them to that commercializing indications on procedure Focusing the about, better in and data, ten-year resources better talk data, training, we've I Japan. talked the in

Thad Huston

the And Valve-in-Valve.

Damien McDonald

right. Valve-in-Valve, the And

our we years And two and the But the the too. portfolio, build transform tough So that's focus is we'll our last of to. the, history when part make decisions fix. this of need intention the pipeline, portfolio with that

Scott Bardo

growth year product. your in cycles. I've Neuromodulation here argued got we subdued that business, And, growth is to product imaginary haven't also are in pretty is where a last and of we've a aligned And always please. an one, introduction clearly, Understood. pretty

or can transient? into that growth give us revolution be curtain these or a you. of a the thinking you next Thank evolution with sorts how mind, bit So, X.X? Is should little that comfort we an SenTiva year impacts about that on to that lift are some

Damien McDonald

a An Well, XX-month significant near a or two I'm I that. long SenTiva exploit think of to things. opportunity. XX-month was the too believer cycle that isn't fully anywhere enough benefits

said and Having access to is think an and empowerment the able be able coming So, I communicate data them from data be the to with we And got the runway I are also with is the think, change. we've not really patients, think doing that, the to It's for got I Bluetooth And going going empower to clinic the to the necessarily ability to the big into when X.X capability the being them. talk of clinical that give patient you to still into have and think, being more that developing team the cloud. is product plenty impressive the going access SenTiva. is, more to and side, issue information powerful.

a there's believe innovation key It's a upside here. for major why So, our in investment is in we believe us. this opportunity digital we lot of And is that. really

Scott Bardo

it. Thanks much, very Damien. Got

Damien McDonald

Scott. you, Thank Brilliant.

Operator

We I'll remarks. turn presenters the have closing questions no for queue. call to the further in back

Damien McDonald

wanted the robust that the we numbers nor issues not we spoken focus sort We've was over print. to know to transforming was on company last Q print, years. about. we've to fix that Again, built us that been of wanted intend everyone. you, thank numbers Well, the a we you and the these it and pipeline two We've focused the

and questions, you behalf the look of your for whole thanks here. forward So, conversations with we team to those on Thanks.

Thad Huston

Thank you.

Operator

conference today's call. concludes This

disconnect. now may You

LivaNova (LIVN) 5 May 192019 Q1 Earnings call transcript