Maybe how they've, you know, how they're different from, I don't know, first half, middle of last year.
Yeah. Thank you, first of all, and good afternoon, everybody. Thank you for your interest in LivaNova. Matt, thank you for the opportunity to be here with you. Look, it's been one year for me in the role. I think 2024 was a year where we continued to build on our strengths and made some meaningful changes to position us better into the future. You know, first of all, I'm really proud of the strength of LivaNova in execution. 2024 was the second year in a row where we grew top line double digits on an organic basis. We expanded our margin and delivered very healthy cash flow. I think that sets us well, with a momentum into the future.
From the people point of view, it's been very rewarding to get into the organization that is inclusive, that is welcoming change. I think we've initiated as a cultural transformation of LivaNova to get our culture to more be in growth and innovation focus. One thing that I'm proud that we've done in 2024 is actually accelerated many talents that are legacy LivaNova talents. At the same time, we brought some of the leading external talents and leading professionals in med tech, especially in the area of innovation. Then third, which takes me to the innovation, you know, and this is one of the areas where we need to continuously improve.
We have some mixed history on both external and internal innovation, and we worked hard to upgrade our talent, our processes, our governance, to make sure that moving forward, our innovation agenda is designed and executed well. I think those three topics position us well for 2025 and beyond. When I think about our strategy and what will drive our future performance, it is really about, it is threefold. You know, one is continue to build sustainable performance in the core where we grow sales faster than the market and where we grow bottom line faster than top line, and build core as a strong foundation for our future. The second one is our expansion into obstructive sleep apnea and difficult-to-treat depression.
Very interesting spaces with high unmet clinical needs, but more importantly for LivaNova's, from LivaNova's performance, is, potential is that they take us to the markets of faster growth. Three, beyond OSA and DTD, we are actively looking at the areas of high unmet clinical needs, high growth markets, and where we try to win, moving forward. Again, shifting our portfolio to faster growth markets. Those are the three elements of our future value creation. You know, we continue to execute on those fronts.
Okay. So one of the things that, you know, maybe focusing on that first, that first core sustainable in the core. You know, what does that growth look like? As you, I think you started maybe this time last year thinking mid-single digits and, as you say, delivered double digits, started, maybe thinking about cardiopulmonary as a business that, that sort of might have been benefiting from some competitive issues or stocking problems, other competitors, you know, exiting the market, it turns out. And that now seems more sustainable in a high single digit or mid to high single digit range. So when you think of core, is that, is that mid-single with aspirations of mid to high, or is that a solid mid-single over time? How do you think about it as a part of the model?
Yeah. So we, so I, let me comment on twenty-five, and I think then we can talk beyond that. We've guided 6%-7% top line growth. I think that's a prudent guide. We have line of sight to upside opportunity, especially in cardiopulmonary business. That would come potentially from two areas. One is continued growth in heart-lung machines. And then two is continued share, continuous share gain in cardiopulmonary disposables. That's 2025. On the longer-term view, our aspiration does not change. You know, we want to be, in our core business, grow above market. What it would shape like, and how the components come together, we would have a discussion during our Investor Day in quarter four.
Okay. A better long-term view, sort of calibrating some of those things. Understood. All right. And then on, you know, I know we wanna make sure we leave a moment to get to the SNIA litigation since that's kinda coming up here. Your point about litigation, I mean, litigation, innovation, can't get it out of my, is, is those the two programs that you talked about, OSA and, and difficult-to-treat depression. I think one of the questions we get often is, is the different avenues of, of, of, commercializing OSA, you know, assuming that the data continues to fall in place. Maybe talk a bit about that, about the timing, about the preference likelihood, of, of which, you know, partnership sale, I guess, or go it alone, if I could describe it that way.
You want me to focus on OSA or?
Yeah, first. And then we'll get to DTD. Yeah.
Yeah. I'll start, and then you can build on that. Briana, please. I think it all starts with a significant unmet need. It is a fast-growing patient population. As a result of that, the market is growing fast. That creates an opportunity for us. We were very pleased with our clinical results at six months. What I can tell you is it was the only randomized clinical study. That's number one. The patient population that went into the study was very complex with high BMI, AHI, and ODI. As a result, what we saw is significant improvement in AHI and ODI. We can see very fast onset of response to treatment. That's number one.
Number two, we are not contraindicated from complete concentric collapse, which is 20%-25% of patient population, which gives access right away to this important patient population. Then, number three, we also believe that the architecture of our technology with fixed electrodes is differentiated and gives us potential to continue to improve clinical outcomes. Those are kind of the big benefits why we think this is a very valuable asset for patients, and for LivaNova. We are now in the, so two important milestones that are gonna come in quarter one, first half of the year. First is PMA submission to FDA. The second one, in May, we will announce the 12-month data.
Right.
That will inform then in a way, do we, it will give our potential partners for commercialization an opportunity to reflect on twelve-month data. And somewhere in the middle of the year, we will make a decision whether we commercialize this asset ourselves or use a commercial partner that already has commercial capability in either sleep channel or ENT channel.
Right. Okay. So, you know, before we get to DTD, I think, sometimes we think about these things. Okay. So you have an OSA, you know, neurostim kind of opportunity. You have a DTD opportunity. They're both interesting. They're both large. But, you know, I think there is an important distinction, which is that one is an established market. And so you talked about the high growth of the market. I mean, growth is great. Market growth is great, but just, just penetrating and growing into an existing market, without the, call it, market development burden, and, and other aspects that, that some of the early, early entry companies went through is, is, you know, just makes that a different opportunity than DTD.
Maybe, you know, with that in mind, you know, if, if that's a fair way to think about the two opportunities, you know, what's different about your approach to DTD than OSA?
You're right from the point of view that DTD would be a market development effort. It's interesting with some historic data from early 2000s where when this therapy first started to be discovered, the penetration of the procedure had a very fast onset. What, why DTD is very interesting is because there is a significantly difficult patient population. That patient population with difficult-to-treat depression is growing and becoming a significant burden on the society. There is no alternative treatment. That's number one. Number two is we already have strong capability in this area with our research and development, our manufacturing, because there's a lot of leverage with our current VNS device for epilepsy.
Right.
We have some strength in the commercial organization that was previously focused on executing the clinical study. I see this as a kind of a low-risk, high-impact opportunity for us, if CMS grants reimbursement.
Right. Okay. A way to, right, not have to invest quite so much, perhaps, it's a more focused call point, I would imagine.
Absolutely.
You know, don't have any competition. And it is a, it is a large unmet medical need. So there's all that. But just a slightly different, I think if I could say the go it alone for OSA, even though I think every negotiation of any partnership or any sale would require that you have a go it alone alternative, right? So you've gotta, you've gotta build that out. You've gotta be prepared to pursue that publicly. But that final answer, I think most investors would prefer you to find a suitable partner. Maybe talk about the way partnership might work or, you know, the kinds of partners you might engage with or.
Yeah. We are exploring this today already. Like I said, I think the final stages of this will have to be happening after the twelve-month data is out. We are looking at potential partnership with sleep companies that give us access to the subscriber, if you like, or to somebody who can channel the patients, or ENT companies, which then give us access to the operator, let's say, the implanter.
Yeah.
Those are two types of companies that we're exploring, and like I said, we should have an answer by the middle of the year.
Anything about the current, the incumbent leader in that market that makes one of those more challenging in terms of blocking up the distribution or clinicians or folks having to choose between you and the?
No, I think the market leader has done a formidable job developing this market. Obviously, we will be coming in, obviously capitalizing on some of the incredible work they've done. Again, we will deploy a different strategy, much more targeted, much more focused on our clinical outcomes. We would not need to reinvent the wheel in terms of direct-to-patient advertisement and this type of activity. It would be a much more focused effort to launch our OSA technology.
Does that focus mean, like, is it, I don't wanna read too much into this, but is it concentration on, on more challenging patients, you know, presenting that alternative to the clinical channel?
I would not go there yet, but I would say concentrated in the way that, well, first of all, right away you have access to complete concentric collapse patients.
Right.
That's one of the.
Which you don't currently.
Which are currently not. Secondly, we would focus on large sleep centers, high-volume centers, versus kind of going broadly. I think that is a first step. Those would be examples of kind of a very targeted approach.
Okay. I guess with a little over eight minutes left, we've gotta talk about the big elephant in the room, which is SNIA. After talking about it for a number of years, you know, we're kinda closing in on a decision. Maybe, you know, it's a serious issue. It's a significant issue. I think it's one that maybe a couple of years ago, investors were willing to think about later, given all the things that were happening at the time, but now we have to think about it now. Maybe talk a little bit about how you're framing it for investors.
Obviously, you're not gonna predict, you know, what the verdict is, but you can talk about the impact, and then kinda like where, you know, we can get into maybe some of the scenarios and how you manage the business, you know, in, you know, one scenario versus the other.
Sure. Let me just kinda frame the, the top line here, right? February 26th, you know, it was a hearing where both sides presented their kinda closing arguments. Basically, the Supreme Court is now in deliberation around the, the liability question and, and the quantum. You know, from a capital structure perspective, we've been dealing with this issue, as you noted, for a long time. We had a financing event. We have a term loan that we took, to a tune of $350 million. We have $300 million of restricted cash on the balance sheet to deal with the, the guarantee that we were required to put up in order to proceed with the appeals process.
We have another $300 million + on the balance sheet to deal with, you know, a potential liability. Remind you that, you know, this case goes back many, many years. Originally, when Sorin was sort of at the center of this, you know, they were found not liable for, you know, the damages. That has been our contention all along that, you know, we are not responsible for the environmental damages. We continue to, you know, proceed down that path. Like I said, I think, you know, there is a variety of outcomes here. We are still hoping for the best-case scenario, which is, you know, we are not liable. You know, we get to deploy our capital in a more productive way.
But, you know, when this issue came up back in 2021, the lower courts ruled against us. They ruled against us to a tune of EUR 454 million, roughly $500 million. That is the amount that we appealed. We obviously have enough capital to deal with that if, you know, if that is the ultimate ruling against LivaNova. You know, from a liquidity perspective, our balance sheet is in a good place. I have kind of tried to frame this for investors in terms of, like, what does this mean from our earnings power perspective? We have quantified this that if the ruling goes against us and it is to a tune of EUR 454 million, which was the lower court's ruling in the first place, the impact to the P&L is roughly $0.11 per quarter.
That's kinda the way I'm sort of boxing it in, if you will. Obviously, for obvious reasons, we're not, you know, we're not guiding to, you know, to the potential impact here. And, you know, we'll see what the outcome looks like in, possibly 60-90 days. We're coming up, sort of toward the end of the conclusion there.
Okay. The additional interest expense, kind of like having to hold and hold the debt that you raised to raise that cash and, but losing the cash, having to pay that out, assuming kind of worst case it happens quickly. I think that's a scenario everybody can kind of understand and look at. You know, in the other scenario, where it kind of goes more favorably, I guess, how does that change your, you know, because you'll get this question on day one, if that does go that way, like, what do you do now? What would you do differently in the back half?
Yeah, we would retire the Term Loan A. That's $350 million. It's obvious cash burn that goes along with that. That would be extremely useful for the company. That would be our sort of first order of business.
Great. Okay. Maybe a little more flexibility, the P&L and cash flows to pursue some of the things that we've.
That's right.
We've kinda talked about, so maybe, maybe you talked about innovation in, in terms of the two programs. You know, what, what can you do, are you doing? You mentioned some of the upside opportunities around cardiopulmonary. And I think, you know, they have to do with the level of sort of capacity build-out investment. What else can you do to drive a more sustainable mid to high single-digit growth rather than, rather than one that which I, I mean, I, I seen like consensus just a year ago that everyone thought, well, this is, this is cardiac surgery. So it's gonna kinda just slow to something lower than what, what innovation opportunities do you have to sustain a higher growth?
Yeah, I think on cardiopulmonary, again, the way I would look at it is in chapters. You know, chapter one is to continue to execute with excellence with what we have. Main growth is going to come from our ability to expand manufacturing capacity. From the end of 2023 to the end of 2026, we're looking at a 40% increase in the output. We believe that that's our opportunity to continue gaining share. The second chapter is, the second one in this chapter is continue to improve our placement of Essenz, at a significant price premium. That, I think, for the next two to three years gives us a very nice path for growth for the current portfolio. Chapter two is, you know, driving innovation in the core business. We are looking at a number of innovative technologies.
They are kind of mid-development. You know, one of them is next-generation oxygenator that is clinically more differentiated, versus anything on the market today. That is an example of internal innovation. We are looking at upgrade of other equipment outside of HLM, which will be another nice addition from the internal innovation. Then software innovation on HLM. Chapter three is looking outside of our current portfolio in the areas that are going faster, in terms of market growth, but also where we still have the right to win. We are constantly monitoring those areas.
Got it.
Those are kind of the three chapters of long-term growth in this business.
Okay. The first chapter being kinda CapEx, capacity-driven.
Yeah. Execution, internal innovation, external innovation.
There you go. That kind of accounts for the step-up in CapEx this year that you kind of start to leverage and benefit from in, I guess, 2026 and 2027.
Yeah.
Great. We're coming up on time here. Vlad, if there's anything that you'd like to kinda offer in terms of, you know, your thoughts going forward or things that we haven't talked about.
Briana, anything you wanna capture?
No, I think you covered everything.
Yeah, I think the one thing that we haven't, maybe we haven't touched on epilepsy as an opportunity to grow. And look, epilepsy is also a very interesting space, significant disease burden, a lot of unmet clinical need. And if you look at the procedure penetration, you know, there's a million patients just in the U.S., with drug-resistant epilepsy. And, you know, it's 10,000 procedures per year. There is a huge opportunity to improve the penetration. I think the formula to do that is, as we talked about, is driving better innovation, which we are, again, looking in, inside and outside. It's making sure that indication continues to expand, that reimbursement in this area continues to improve, and that we can execute our commercial organization with excellence. Those are kind of the chapters of driving growth in epilepsy.
We believe that there's still significant opportunities to grow this business moving forward.
Excellent. Thanks so much, Vlad, Alex, Briana, for joining us.
Matt, thank you.