LivaNova(LIVN) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved 11% organic revenue growth in 2024, marking the second consecutive year of double-digit organic growth [7] - Adjusted operating income grew by 41%, and adjusted diluted earnings per share increased by 21% [15] - Adjusted free cash flow for the full year was $163 million, up from$ 96 million in the prior year, representing a 70% growth [48] Business Line Data and Key Metrics Changes - Cardiopulmonary segment revenue was $182 million in Q4 2024, an increase of 11% year-over-year [17] - Epilepsy revenue increased by 1% in Q4 2024, with U.S. epilepsy revenue growing by 4% year-over-year [21][22] - For the full year, cardiopulmonary revenue was$ 684 million, growing 14%, while epilepsy revenue grew 7% [19][23] Market Data and Key Metrics Changes - The hypoglossal nerve stimulation market for obstructive sleep apnea (OSA) is expected to approach $2 billion by the end of the decade [9] - The company anticipates U.S. epilepsy revenue to grow 4% to 5% in 2025, with expectations for a return to high-single-digit growth in Europe and the rest of the world [24][25] Company Strategy and Development Direction - The company plans to increase investment in product development to ensure a competitive and differentiated product portfolio [9] - A focus on innovation and talent development is emphasized, with approximately 30% of director-level positions filled by new hires or internal promotions [12] - The company aims to sustain growth in core businesses while entering faster growth markets like OSA and difficult-to-treat depression [80] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the clinical data supporting OSA and the potential for significant market growth due to high unmet needs [81] - The company is optimistic about its ability to return the epilepsy business to growth, addressing execution issues that impacted performance [87] - The guidance for 2025 includes organic revenue growth between 6% and 7%, reflecting continued investment in innovation [50][51] Other Important Information - The company expects to submit a PMA for OSA in the first half of 2025, with a limited commercial launch anticipated thereafter [85] - The Italian Supreme Court is expected to rule on the SNIA litigation in the first half of 2025, but the company has not included potential impacts in its guidance [53][54] Q&A Session Summary Question: Can you help us understand the U.S. and EU cardiopulmonary performance in the quarter? - Management acknowledged a challenging comparison due to prior year growth but noted sequential growth in HLM placements and strong demand for consumables [64] Question: What is the impact of the launch of the new ECMO-related product? - The Specialty Cannulae business is expected to grow approximately 10%, primarily driven by the launch of ProtekDuo Plus [76] Question: How much are you spending to prepare for the OSA launch? - The company invested$ 27 million in 2024 for OSA and plans to invest an additional $8 million in 2025, shifting focus from clinical spend to product development [83] Question: What are the execution issues in the OUS epilepsy business? - Management identified personnel issues as isolated incidents and expressed confidence in returning to growth levels historically seen in the OUS business [87] Question: Can you clarify the capital allocation strategy? - The company is focusing on sustaining growth in core businesses while also investing in faster growth markets like OSA and DTD, with a declining R&D spend as a percentage of sales [129][133]