Our next session here. Matt Taylor, the U.S. Medical Supplies and Devices Analyst here at Jefferies, and I'm joined by the management team from LivaNova, including Vlad McCarthy, CEO, and Phil Kowalczyk, the CSO, and Brianna Gotlin, who runs the Investor Relations Program. We'll have about half an hour for moderated Q&A with the team. I just want to thank everybody for your interest, and thanks for coming. To get started, we got a lot of things to unpack here. There's a lot going on. Why don't you just lay out the lay of the land on the fundamentals of the company and just talk about the core business first here. You've been in the seat for about a year or so. We'd love to hear your impressions about how things are going and how much you've been able to sort of execute through so far and what you're hoping to see now from this big pipeline that you have. Yeah. Thank you for the question. Before I go there, first of all, thank you for the opportunity to join you here for the invitation. We met in person. I think I was first week in the job. Thank you for sticking with us. It is special to be back here. Thank you. Thank you to all of you for your interest in LivaNova. Let me start with the fact that we are operating in very attractive markets. They are large, and they are growing. That is driven by the fact that cardiovascular and neurological diseases are world's top disease burdens. We operate in attractive markets as a consequence of that. Number two, we are leaders in our segments of the markets, which is cardiopulmonary and epilepsy market. We have a path to build on our leadership and continue with our leadership in those markets. Number three, we made significant progress toward getting into faster growth, high unmet need markets where we have the right to win. Today, for us, this is obstructive sleep apnea and difficult-to-treat depression. When you put this together, being operating in attractive markets, having a strong foundation with our core businesses and leadership positions, and having a path to areas of fast growth, that to me kind of summarizes our strategic portfolio path. Let me touch a little bit on your question on how we have progressed in our portfolio. First, and maybe where my energy was during the last year, is really to focus on building our culture, focused on growth and innovation, accelerating talent within LivaNova and bringing new capabilities into the organization. I am very proud where we are in terms of talent and our team. We made some significant progress on the core business. Our growth was double-digit in eight out of the last nine quarters. That was driven by the strength in our cardiopulmonary portfolio and with four growth drivers: healthy market growth. We have very strong pricing capability, and we are able to gain price momentum. We were gaining share in the disposable business driven by oxygenators. We had a very successful launch of a new heart and lung machine, Essence, that not only is given an upgrade in terms of pricing, but also, more importantly, gives significant benefit to our customers and patients. My confidence in the durability of growth of our cardiopulmonary business has increased during the year. That is basically driven by strong commercial execution, expansion of our manufacturing, and investments that were made in the innovation pipeline in the cardiopulmonary business. On the epilepsy front, this is a space where VNS and other treatment penetration of epilepsy patients is the penetration of procedures is very low. We have a significant task as a medtech industry or healthcare industry to treat more patients and do this better. Our focus is really on improving, accelerating patient path to treatment of drug-resistant epilepsy and to do it with a less invasive and more efficient way and with more clinical efficacy. We have significant opportunities ahead of us in epilepsy. In our new businesses, let's call it this way, on OSA, we made significant progress in terms of understanding the clinical data, very strong clinical data that came from OSPREY trial. We are in the process of getting market access approvals in the United States. We've submitted PMA to FDA, and we're awaiting their decision and are in the process of finalizing our commercial go-to-market model. Very strong progress on OSA. Finally, on difficult-to-treat depression, we had a couple of very important milestones that came out earlier this week. We have now 24 months' data that shows very strong improvement during the past year. We are in the process of submission of reimbursement requests to CMS and expect kind of normally it takes about a year to receive it. Again, good progress there. I think in summary, I'm confident in our core portfolio with epilepsy and cardiopulmonary businesses to continue with our growth momentum. At the same time, we've made some good progress on the new technologies that will help us accelerate entrance in the faster growth markets. Great. I want to double-click on a few of the newer things and talk a little bit more about the pipeline here and maybe come back to the core later. This week, you kind of hit go on the CMS process and have now submitted these manuscripts talking about different aspects of your data. I guess I'd love for you to unpack that a little bit and maybe talk about what you're excited about in the data. You also referenced sort of a year as an average timeline. What do you think the range of outcomes could be on the timing? Sure. I'll take that one. It's an exciting moment for the DTD program. In terms of is it on? Okay. In terms of you mentioned kind of the five publications in peer-reviewed journals, four that have been published today, the fifth that's been accepted, which was the impetus for beginning the reconsideration process with CMS. In addition to those journals, part of that reconsideration process will include a few really exciting elements of data. It's really around the durability. It's around the increased efficacy, and it's around the reduction in suicidality. On the durability side, what we saw was over 80% from who had an effect at 12 months maintained that effect at 24 months. If you look at other interventional therapies, ECT, TMS, or pharmacotherapies, none of them see that level of durability. As we talk to physicians, it is really an exciting part of the DTD story and one that will bring an important benefit to patients. In addition, we saw about a 10 percentage point increase in efficacy from 12 months to 24 months. Again, speaking to the long-term effect that VNS therapy can have on the disease. Finally, on suicidality, we saw over a 40% reduction in the active arm versus sham on the suicidality endpoint. What I would say there that was very important is that we saw the first part of the study where we looked at it, which was at three months, we saw a statistically significant difference between the two arms at three months, and then that endured through the 12-month endpoint. All three of those taken together, we believe, are a really compelling story for patients and for CMS as well. Maybe one final data point in terms of the overall package and the value to payers. We recently received a positive coverage decision from Highmark, which serves the Middle East for Blue Cross Blue Shield. I think it's another indication on the private side of interest in supporting this therapy for patients. Just on the CMS pathway, could you talk about what to expect in, I guess, a year as a benchmark? What is sort of the range of outcomes there in terms of timing? Also, what kind of differences could we see in the ultimate coverage? Yeah, sure. Sure. As Vlad mentioned, when we looked at the analogs, the analogs would suggest about a year. Not all of that is in our control. We've started the process. We're now engaging with the draft submission with CMS. We'll reach a point. The next step will be the final submission where it then enters into the CMS queue. I believe they have eight others right now in the queue. Ours is the only RCT in that queue. As we understand, they do not have to follow it in chronological order from submission and they really do prioritize based on level of unmet need and the impact that you can have to Medicare patients. We're hopeful that there might be some positive in terms of the timeline for when it's pulled out of the queue. They will then do their assessment, which based on the guidance on their website is about six months. There is a 30-day public review period and then a 60-day to the final decision. Those are the components of the timeline. There is some kind of variability in kind of where it could go. We're hopeful that there's upside to that year, but we'll see. In terms of the range of outcomes, there's likely three. One is that they decide that they are not going to cover it. Our hope and our belief based on the clinical data is that won't be the case. The second is that there will be a broad coverage decision in the population of TRD patients, which is 3 million patients in the U.S. The third is that it's a narrower subset that requires the failure of some other interventional therapies before us. Maybe just one point there is even in that most narrow subset of failure, you're still talking about 100,000 patients a year that get interventional therapy and about a 50% failure rate. We still see a very significant opportunity in front of us even in that narrow subgroup, but we'll see where we land. Of course, that's larger than epilepsy, which is also a great business for you. Even that outcome would be very good. Exactly. Maybe we could pivot and talk a little bit about sleep. It was great to see finally the data at 13 months and looks really strong, actually. I’d love for you to talk about some of the strategy there. I know you’ve said that you’re going to talk about this at Analyst Day more and your go-to-market. Maybe we could discuss now in the past, you’ve mentioned you’d consider a sale, you’d consider a partnership. What options are on the table? What could it look like if you went with it on your own? Yeah, sure. I'll take that one as well. Maybe to answer your kind of last question first, we're very confident in our ability to commercialize on our own. We see a very significant opportunity with a clinically differentiated device. That being said, we are open to exploring partnerships, and we're in the process of having conversations that would allow us the commercial channel and scale to accelerate the impact that we could have with patients. The fact that we have our 12-month data enables a different sort of conversation now. The opportunity is kind of being assessed along multiple scenarios. As part of that Q4 investor day, I think we plan to share the concrete scenario and path that we're choosing to move forward with. Overall, we're really excited about the opportunity, the level of unmet need, the size of the market, the growth that it presents, and the differentiation that we have. If you think about it from a technology standpoint, we have a six-electrode cuff placed on the proximal end of the nerve, which confers a number of different benefits. One, it's a faster procedure time. The median procedure time in our case was 72 minutes. In addition to that, what we've seen is the six-electrode cuff and the ability to stimulate different parts of both the tongue and the throat muscles allows us to treat a more complex patient population. As part of our trial, CCC patients or complete concentric collapse were enrolled. In our trial, it was over 40% of the patients in the trial were complete concentric collapse. The broader market is about 25%-30%. In the data that we saw, we saw parity between that subset of patients and the overall patient type. We believe that really creates a benefit for us not only in being able to address the patient that is currently contraindicated with the technology that is on the market today, but also it allows us to have a different care pathway because no longer do you have to introduce the DICE diagnostic in order to determine whether you are eligible for the procedure. We see real benefits to all patients, not just CCC patients in terms of the care pathway as well. When we put those benefits together, we view this as a very exciting part of the future of LivaNova's portfolio and one that we are excited to get through the PMA process and move forward. I guess just given the strength of the data and those advantages that you talked about, could you discuss how you size the market and how you see LivaNova fitting in there longer term? Yeah. I mean, what I'd say is I think we can share more details in terms of what that looks like. I'd say what's open to us is not only the addressable market today, which is over $1 billion growing double digits, but we see it as one where we address that and have potential to expand the market because of the complexity of the patients that we address. Great. Maybe I'll switch back to the core. You also had some new data on VNS in the core VNS study. I was hoping you could talk a little bit about that and how that data kind of speaks volumes and is different from some of the other data sets and what this means for VNS versus some of the alternative treatments. Sure. Thanks, Matt. Core VNS is our largest prospective VNS therapy study that LivaNova has done. Given its size, we were actually able to analyze subpopulations. That is really interesting. We can start with the focal seizures that we saw. With focal seizures with impaired awareness, we saw an 80% seizure reduction at 36 months. In children, it was even higher. It was 87%. In focal to bilateral, the median seizure reduction was 95% at 36 months. In children, it was actually 100%. This is really strong clinical data. This is supportive of our efforts to narrow the DRE treatment gap with really strong clinical evidence. That is one of our strategies. We also talked about the general tonic-clonic seizures. This is a really difficult patient population to treat. At baseline, these patients failed a median number of six anti-seizure medications, up to 20. They had about a median of four seizures per month. With that really sick patient population, at 12 months, the median seizure reduction was 74%. That increased to 77% at 24 months. Again, really strong efficacy seen there. Great. How do you think it could impact the results? Obviously, there's a good clinical message here. Can you talk about how you're going to use that to help to expand awareness, expand the market, and support your efforts commercially? Yeah. Again, what we're really focused on is narrowing that treatment gap for the drug-resistant epilepsy population. One of the factors that we talk about, among other things, is innovation, which is a big one. Market access is another one. Clinical evidence is another really important factor. That piece is really important. Not quite ready to quantify what that looks like within the business, but this is a very important part of our strategy going forward. Great. Maybe I'll turn back and ask a couple on cardiopulmonary, which we talked in the beginning about how it's been really strong with kind of multiple drivers here. It was great to see it again beating expectations in the first quarter and raise the guidance. Maybe talk about where we are in sort of the pathway for the HLM launch. Also on the Oxy side, which we didn't discuss as much before, you've been taking a lot of share and expanding capacity and could continue to make sort of a land grab there. I'd love to talk a little bit more about the momentum in the HLMs and the Oxys. Yeah. Thank you. I thank you, Matt. I talked about four growth drivers for cardiopulmonary business, price upgrade of new HLM, market share gains in oxygenators, and market growth. Gaining share in oxygenators and launch and upgrade to the new HLM machine are two of the biggest drivers. Let me start with Essence, which is the heart-lung machine. When we look at the global landscape, we have about 8,000 machines in terms of installed base. It is about 70% market share globally. Today, kind of the way I would think about it is the old machine is kind of like an old car without any technology in it. The new machine has a number of options that we can build into it. It is digitally enabled. It is connected. It has the ability to keep upgrading software. Ultimately, and more importantly, it delivers more value to perfusionists, cardiac surgeons, and patients. Last year, 40% of our placed machines in that year were Essence machines. The price difference between Essence and the old generation machine was about 2X. This year, our target is 60% placement penetration of Essence. So far, we were able to maintain high price premium. Thus, you saw really strong results in quarter one. I think next year, the goal is 80% placement penetration and after that, 100%. We have a really nice tailwind for the next three years in terms of growth. Our key focus then would be to make sure that we maintain the price differentiation with the old generation machine. One of the key milestones for us was approval that we received for Essence in China. It came about six months before our own internal expectation, which is really good news for us. In quarter three, we will have a commercial launch there. China is our second largest market from an installed base point of view. We think that is a very nice accelerator for our growth. Net-net for HLM, I think we will continue to see strong momentum this year. The tailwind for growth because of the upgrade cycle is going to be there for the next three years. That is on HLM. On oxygenator, a somewhat different story. Our starting point two years ago was about 30% market share. We're now closer to 40%. The reason for that is we were able to expand our manufacturing capacity as the total market kind of hit the manufacturing capacity limits. We increased our manufacturing output by 10% last year. The plan for this year is another 10%. We've made investments. Next year, we will go live with an additional manufacturing line of our own. That will give us some tailwind moving forward in terms of capacity. Beyond that, we are currently in development of a new generation, next generation oxygenator that is, from a clinical performance point of view, should be superior to anything on the market today. That kind of gives a nice sequence of key milestones and growth for the next few years on oxygenator. You asked me about kind of what's new, what's different. I mean, for me, my confidence level in the durability of our growth in cardiopulmonary business has significantly increased during this year. Maybe just touch on the competitive landscape there. We know Getinge announced that they're going to wind down that business over the course of the next year. There have been some struggles with the other competitors. Has anything changed there? Yeah. So on the oxygenator front, there are four main competitors. It's Medtronic, Terumo, Getinge, and us. We also saw the announcement from Getinge that they are exiting this market. The main impact of that is going to come next year. From Medtronic and Terumo, we don't see anything new in terms of activity. I think, yeah, we don't see anything new from either of those companies. Great. A couple of questions to just round out the discussion on kind of key areas that investors have been focused on. The first is I wanted you to just clarify this issue with SenTiva. I know there's going to be some remediation that's happening. Could you talk about how that could impact the second quarter and the rest of the year if there's any impact? Yeah, sure. So just as a reminder, on our first quarter call, we talked about the expectation of deferred procedures in the first half of the year related to this voluntary field safety notice. Just as a reminder, the field safety notification was related to a component issue that impacted 0.13% of generators worldwide. That being said, we were able to continue implanting the current generator. Because the FDA recently approved the updated generator, we expect to see physicians just deferring procedures until that updated generator is available. We said that updated generator will be available in the U.S. beginning in the midyear and other major geographies in the second half of the year. Because of that, and we said the impact in the first quarter was about $2 million. The second quarter, it is a reasonable assumption to assume that impact would be pretty similar. Going down the P&L, what you may see is the gross margin impact is a little bit more significant just due to product mix. Gross margin would likely come down a bit from a modeling perspective in the second quarter sequentially versus the first quarter and then look to improve throughout the year. You mentioned there was a $5 million tariff headwind. Could you talk about how that's evolved with the escalation and what you can do to mitigate it and just overall how tariffs are going to impact the P&L this year and next? Yeah. So we're not going to comment on any updates or changes just because it's a highly dynamic and changing environment. If it would be helpful just to talk about the $5 million impact that we factored into guidance and our manufacturing footprint, we can do that. From our supply chain, our analysis shows that there is relatively negligible impact on that. From a manufacturing footprint standpoint, we're really uniquely positioned because LivaNova manufactures its neuromodulation products in the United States. 80% of the corresponding revenue is also generated in the United States. On the cardiopulmonary side, our HLM products and the bulk of our consumables are manufactured outside of the U.S. in Germany and Italy. Two-thirds of the corresponding revenue is also generated outside of the U.S. We are uniquely positioned to manage tariffs due to our footprint. Okay, great. The last hot topic I wanted to talk about, we thought it was gone, but it came back a little bit, the SNIA litigation. Maybe you could just give us an update on sort of what's going on now with the Italian court and what's sort of the value at risk and how do you like your odds and when could we actually see this resolved? Great question. The update you're referring to is 8K that we put out a couple of weeks ago. Since that 8K, I would say that our position is unchanged. The $360 million liability that we booked in the first quarter, that maintains LivaNova's best estimate of the liability. There is no change to guidance based on this update, our accruals, or the liability. The ministry, which is the counterparty to LivaNova, they made an assertion. This is not a payment. It's not a demand for payment or a judgment. It's simply an assertion. It's part of the litigation process. To reiterate, the $360 million liability remains our best estimate at this time. We remain unable to allocate capital with greater flexibility. We're comfortable with our capital structure at this point. Great. Maybe that's a good point to kind of end on. Could you talk about capital allocation from here now that you've gotten a lot of the SNIA stuff behind you? That was a big constraint for a long time. How are you thinking about capital allocation, obviously, with all these things that you could invest in the business and the potential that you've talked about to add to the core? Seems like a lot going on, a lot of options. What are your key focus areas for allocation? No, thank you for that question. I think you're right. I think with having SNIA in the rearview mirror and having some of the really interesting innovation assets, it's very important that we have a very clear capital allocation strategy. We will lay out with much more detail during the investor day in quarter four. What I can tell you from our priority point of view is a little bit how I kind of built my story in the beginning. It starts with us continuing to win and sustain our core business. Specifically, we believe that our strength in epilepsy business unit, the value that it creates and met need in that space gives us kind of an opportunity to continue to invest and expand our portfolio in epilepsy and build a long-term winning business unit in this space. That's number one. Number two, we believe that, as I mean, Phil discussed, we believe that we have a very strong asset with OSA and launching it in the way that we will generate maximum value for patients and for our shareholders is very important. Number three, we have an option with difficult-to-treat depression. This is potentially a very attractive market with no other alternatives for significant patient population. We await the decision from CMS. That gives us then a platform to build a new business. Number four is we believe our superpower is neuromodulation and expanding to different diseases and different modalities with high-end med clinical need, high-growth markets, and the areas where we have the right to win with connection to neuromodulation. That would be our next priority. Great. Fantastic. I think that's a good place to end. Thanks so much for your time. Thanks, everybody, for your interest in LivaNova. Thank you, everybody. Thank you Matt.