Good day, ladies and gentlemen, and welcome to the LivaNova PLC third quarter 2026 earnings call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. As a reminder, this conference call is being recorded. I would now like to introduce you to our host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President of Investor Relations. Briana, please go ahead.
Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the third quarter of 2026. Joining me on today's call are Vladimir Makatsaria, our Chief Executive Officer and member of the Board of Directors, Alex Shvartsburg, our Chief Financial Officer, and Ahmet Tezel, our Chief Innovation Officer. Before we begin, I would like to remind you that discussions during this call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC, including today's press release that is available on our website. We do not undertake to update any forward-looking statement. Also, the discussions will include certain non-GAAP financial measures with respect to performance, including but not limited to revenue results, which will be stated on a constant currency basis.
Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website. We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool. You can find the presentation and the press release in the Investor section of our website under News, Events, and Presentations at investor.livanova.com. With that, I'll turn the call over to Vlad.
Thank you, Briana, and thank you everyone for joining us today. Welcome to LivaNova's conference call for the third quarter of 2026. LivaNova delivered another quarter of double-digit revenue growth with strength across all regions, driven by commercial execution and healthy demand for our cardiopulmonary and epilepsy technologies. The core businesses continue to fuel both current performance and disciplined investment, enabling us to further strengthen our existing franchises while advancing new growth opportunities such as obstructive sleep apnea, or OSA. As we prepare to enter this attractive high-growth, high-margin market, our team is focused on building a strong foundation for long-term success in OSA. Importantly, we're not building from the ground up. We're leveraging our Neuromodulation capabilities developed through our epilepsy business, including product development expertise, established supply chain infrastructure, a global footprint, and market access competencies.
To complement these existing strengths, we have also made key hires across the OSA commercial leadership team, adding targeted expertise as we prepare for commercialization. The strength of LivaNova's capabilities supports future market access for proximal hypoglossal nerve stimulation, or pHGNS. Recently, LivaNova contributed its robust clinical evidence to the CPT code application reviewed by the AMA editorial panel. Our OSPREY randomized control trial provided level 1 evidence to support this application. We are pleased with their decision to establish new category 1 codes that will include LivaNova's technology. Subject to finalization, the new codes are expected to take effect on January 1, 2028. We believe this decision is an important development that further bolsters our ability to achieve appropriate reimbursement. We are proud to have supported efforts to improve patient access to care and look forward to leveraging these new category codes, once effective, in the commercialization of our OSA technology.
With pHGNS, we believe we have a clear right to win, supported by rigorous clinical evidence, a differentiated technology designed for a broader and more complex patient population, and leading Neuromodulation capabilities across LivaNova. For the remainder of the call, I will discuss the third quarter results and provide updated top-line guidance for 2026. After my comments, Ahmet Tezel will discuss key innovation updates, and Alex Shvartsburg will then provide additional details on our results and updated 2026 guidance. I will wrap up with closing remarks before moving on to Q&A. Now turning to segment results. For the Cardiopulmonary segment, revenue was $225 million in the quarter, an increase of 11% versus the third quarter of 2025, led by double-digit growth in both Europe and the U.S. Heart-lung machine revenue grew low double digits in the quarter, marked by quarterly record Essenz placements and sustained favorable price premiums.
Cardiopulmonary consumables revenue, which encompasses all non-HLM products in our Cardiopulmonary portfolio, grew low double digits in the quarter. This was led by strength in oxygenators and perfusion tubing kits. Improvements in third-party component availability and internal manufacturing optimization drove significant year-over-year increases in oxygenator output, supporting strong performance year to date. Oxygenator market demand continues to exceed the industry's ability to supply, which represents a significant opportunity to expand our market position. As a reminder, our three key operational initiatives to capture this opportunity are optimizing processes across our supply chain network, adding a new oxygenator production line, and strengthening the reliability of critical component supply. The operational launch of the new dedicated oxygenator manufacturing line marks another key milestone in the execution of our strategy.
Together with the Thermo Fisher component agreement announced last quarter, represents significant progress across these three initiatives and positions us to drive double-digit capacity expansion in 2027. Strong performance across our leading product lines, combined with healthy underlying global demand and operational execution, reinforces our confidence in the durability of growth in the Cardiopulmonary business. As the market leader in HLM, with a global installed base of more than 10,000 systems, and Essenz representing only about 20% of that base today, we see a significant multi-year upgrade opportunity ahead. For the full year 2026, we now expect Cardiopulmonary revenue to grow 10.5%-11.5%, up from 9.5%-10.5% previously. We continue to expect Essenz to represent approximately 80% of annual HLM units placements in 2026, up from 55% in 2025. This forecast also assumes continued market share gains in consumables as we execute on our manufacturing expansion plans.
Turning to epilepsy. Revenue increased 11% versus the third quarter of 2025, with double-digit growth across all regions. U.S. epilepsy revenue increased 10% versus the prior year period, while epilepsy revenue in the Europe and rest of world regions increased a combined 14% year-over-year. Performance was driven by volume and favorable realized price, supported by impactful clinical evidence, improved reimbursement, and sustained commercial excellence. Similar to the prior quarter, improved realized price in the third quarter benefited from reduced volume discounting, in addition to our standard annual list price increase. The long-term clinical evidence from our CORE-VNS study is strengthening physician confidence, accelerating referrals, and will support earlier adoption of VNS Therapy in the patient care pathway. At the same time, improved U.S. reimbursement is translating into stronger provider economics and broader access, driving higher procedure volumes.
As a result, we are raising full year 2026 epilepsy revenue growth outlook to 8%-9%, up from 7%-8% previously. In summary, our third quarter performance reflects the strength of growth drivers across our portfolio, including the ongoing Essenz upgrade cycle and continued oxygenator market share gains in cardiopulmonary, as well as favorable U.S. reimbursement dynamics and growing clinical evidence supporting VNS Therapy in epilepsy. We expect these trends to continue supporting sustainable growth while positioning us to advance our OSA strategy. As a result, we are now guiding full year 2026 revenue growth between 9%-10%, up from 8%-9% previously. Alex will provide additional details on our 2026 guidance later in the call. With that, I will hand the call over to Ahmet to cover key innovation updates across the portfolio.
Thank you, Vlad. LivaNova's innovation engine continues to drive growth today while building the foundation for sustained long-term value creation. Starting with cardiopulmonary, we are excited to announce that the new dedicated manufacturing line for LivaNova's oxygenators is now live and operational. The new line will increase output for this critical product, where demand continues to outpace supply. Combined with the additional component supply unlocked from the Thermo Fisher agreement, we are accelerating production of this life-saving product to better serve our customers and patients and are eager to ramp up further. Turning to the next-generation oxygenator, we are now in the design verification and validation phase of product development. As a reminder, our next-generation product will have its own dedicated manufacturing line, separate from and incremental to the line supporting our current-generation product.
The next-gen oxygenator is designed to deliver best-in-class performance through enhanced gas transfer efficiency, low pressure drop, and strong platelet preservation, helping reduce blood trauma and supporting better patient outcomes. We believe these attributes represent important advancement in oxygenator technology, with launch still expected in 2028. In epilepsy, the journal Neuromodulation recently published the full 36-month results from CORE-VNS, the largest prospective, multinational, real-world study of VNS Therapy devices in people with drug-resistant epilepsy, or DRE. Across more than 60 sites in 16 countries and over 800 patients, the study showed a 76% median reduction in seizure frequency at three years, with 64% of participants achieving at least a 50% reduction and nearly half seeing a reduction of 80% or more. Benefits appeared as early as three months after implantation, were sustained through 36 months, and continued to improve over time.
The study also showed meaningful improvements beyond seizure reduction, including better quality of life, less use of rescue medication, and a 73% reduction in seizure-related hospital stays. This evidence reinforces the durability of VNS Therapy in managing DRE and continues to demonstrate the benefits of VNS Therapy as a less invasive treatment option with strong efficacy for patients. Additionally, the limited market release of our cloud-based clinician portal and application continues to progress well, with excellent clinician feedback and a high engagement from early users. Physicians have used this technology with more than 1,000 patients to date. The digital health platform is already delivering meaningful workflow and connectivity benefits for patients and clinicians while establishing the foundation for future capabilities, including remote titration enabled by our next-generation IPG platform. As a reminder, the next-generation IPG and digital health platform market release are both expected in 2027.
Turning to OSA, we continue to advance our next-generation platform, which adds digital features and utilizes our PolySync algorithm. This device is designed to support a strong competitive entry and a commercial launch. We are pleased with how design verification and validation have progressed. We are confident in the previously communicated timeline for PMA supplement submission and look forward to updating you once we have submitted. As we prepare to launch, we continue to strengthen the clinical evidence supporting pHGNS, highlighted by multiple presentations at the International Surgical Sleep Society, or ISSS, and American Academy of Otolaryngology meetings in October. Notably, a new subgroup analysis from the OSPREY randomized control trial earned first place poster honors at ISSS and demonstrated consistent clinically meaningful benefit across all patient subgroups evaluated, including those with severe OSA, elevated BMI, high hypoxic burden, and higher predicted risk of complete concentric collapse, or CCC.
Importantly, the versatility of our six-contact electrode architecture with our PolySync algorithm offers simultaneous contact stimulation to convert most initial non-responders into responders, increasing the cumulative AHI response rate from 65% to 85% and demonstrating the flexibility to customize therapy to patients with more complex needs. As a reminder, PolySync will be available for all patients at therapy initiation, starting with their first titration. Together, these findings reinforce the broad applicability of pHGNS, combining strong efficacy, therapy optimization flexibility, and the absence of a CCC contraindication. We believe this differentiated approach has the potential to address a broader patient population than currently available HGNS therapies. As we prepare for launch, physician feedback remains highly encouraging, with clinicians highlighting the potential for PolySync to further improve patient outcomes. We believe the growing body of evidence and continued innovation further strengthens LivaNova's competitive position in this large and underserved market.
Now turning to difficult-to-treat depression. We have submitted the 36-month RECOVER data to a peer-reviewed journal, which has also been shared with CMS. VNS Therapy for DTD continues to gain support from the clinical community, and the unmet need among these patients continues to drive our work. We believe VNS Therapy is a differentiated option for this severely ill population. We remain in active dialogue with CMS and will continue to keep investors updated on developments as appropriate. In summary, we are pleased with our progress across the portfolio. Together, these milestones underscore the depth of our innovation pipeline and the opportunity to continue raising the standard of care. With that, I will turn the call over to Alex to discuss additional details on the third quarter results and updated 2026 guidance.
Thanks, Ahmet. During my portion of the call, I will share a brief recap of the third quarter results and provide commentary on our updated full-year 2026 guidance, which reflects solid execution year to date and improved business outlook. Turning to results, third quarter revenue was $393 million, an increase of 10% versus the prior year. As a reminder, the prior year quarter benefited from a $3.1 million reduction to our reserve for the Italian MedTech payback measure. This was reflected in other revenue related to product sales of previously divested businesses. Foreign exchange in the quarter had a negligible year-over-year impact. Adjusted gross margin as a percent of net revenue was 69%, in line with prior year period. Adjusted SG&A expense for the third quarter was $136 million compared to $123 million in the third quarter of 2025.
SG&A as a percent of net revenue was 35%, compared to 34% in the third quarter of 2025. On a year-over-year basis, the increase was primarily driven by planned commercial and IT infrastructure investments. Adjusted R&D expense in the third quarter was $45 million, in line with the third quarter of 2025. R&D as a percentage of net revenue was 11%, compared to nearly 13% in the third quarter of 2025. The decrease as a percent of net revenue primarily reflects the timing of planned OSA R&D investments, with certain spending shifting from the third quarter of 2026 into the fourth quarter of 2026. Adjusted operating income was $92 million, compared to $80 million in the third quarter of 2025. Adjusted operating income margin was approximately 24%, compared to 23% in the third quarter of 2025. Compared to the prior year, the increase reflects higher revenue.
Adjusted effective tax rate for the quarter was 23%, up modestly from 22% in the prior year period, reflecting geographic mix of income. Adjusted diluted earnings per share was $1.23, compared to $1.11 in the third quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses. Moving to cash balance at September 30th, cash was $563 million, compared to $636 million at year-end 2025. Total debt at September 30th was $299 million, compared to $377 million at year-end 2025. The reduction in both cash and total debt was a result of the early repayment of the outstanding term facilities in the amount of $98 million, inclusive of accrued interest.
Adjusted free cash flow for the quarter was $56 million, compared to $62 million in the prior year period. The year-over-year decline reflects increased planned capital investments and higher working capital requirements associated with revenue growth. Capital spend in the first nine months of 2026 was $77 million, compared to $49 million in the prior year period. The year-over-year increase was driven by the next-generation oxygenator manufacturing scale-up, investments in the digital health platform, cardiopulmonary capacity expansion initiatives, as well as investments in IT infrastructure. Now turning to our updated 2026 guidance. As Vlad mentioned, based on performance to date, we are raising full-year 2026 revenue and adjusted earnings per share guidance. At the same time, we are maintaining adjusted free cash flow guidance. We now forecast 2026 revenue growth between 9% and 10% on a constant currency basis, up from 8% to 9% previously.
We continue to expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. Consistent with prior guidance, we estimate a net impact from tariffs of less than $5 million on the full-year adjusted operating income, inclusive of current and anticipated future tariffs. Full-year adjusted operating income margin is still expected to be in the range of 20%-21%. As a reminder, this outlook reflects increased investment in the fourth quarter to support OSA product development, cardiopulmonary capacity expansion initiatives, and next-generation oxygenator manufacturing scale-up, along with phasing of certain planned investments from the third quarter of 2026 into the fourth quarter of 2026. Adjusted effective tax rate is still forecasted at approximately 23%.
To reflect stronger operational performance, we raised EPS guidance $0.10 at midpoint and now project adjusted diluted earnings per share in the range of $4.40-$4.50. We continue to expect adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. The EPS range represents approximately 14% growth at midpoint relative to 2025. This range now reflects a shift in our assumed timing of the approximately $400 million SNIA payment from the third quarter of 2026 to the fourth quarter of 2026, resulting in a $0.03 benefit to EPS this year. We believe the amount reserved for SNIA remains our best estimate of the liability, and we have sufficient resources to satisfy the liability. Adjusted free cash flow is still expected to be in the range of $140 million-$160 million.
This range includes $135 million in capital spending, consistent with prior guidance. This level of investment remains aligned with the initiatives discussed throughout the year, including cardiopulmonary capacity expansion, next-generation oxygenator manufacturing scale-up, and investments in IT infrastructure to support the company's growth strategy. With the successful operational launch of our new oxygenator manufacturing line, we are seeing tangible returns on these investments, positioning us to support future growth and meet customer demand. In summary, our third quarter results underscored the strength of the business. Our updated guidance implies 2026 performance at or above the 2025-2028 financial framework outlined at Investor Day. With that, I'll turn the call back over to Vlad for his closing remarks.
Thank you, Alex. In closing, our third quarter results reflect the focus, dedication, and execution of teams across LivaNova. I want to thank our colleagues for their commitment to our patients, customers, and one another. We're encouraged by the opportunities ahead and remain confident in our ability to create long-term value. We continue to strengthen LivaNova's core businesses, expand the capabilities needed to serve customers more effectively, and invest in innovation that addresses unmet patient needs. With that, we're ready to open the call for questions.
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Adam Maeder with Piper Sandler. Your line is open. Please go ahead.
Hey, good morning. Thank you for taking the questions, and congrats on the nice print and broad-based results. Maybe to start, would like to spend a little bit of time on cardiopulmonary, specifically as it relates to next year, and was hoping you could talk about some of the key puts and takes, things like the new dedicated manufacturing line for oxies. How quickly could that potentially show up in numbers? Then maybe just remind us on timing for the new heater-cooler and air manager products and how you're thinking about impact to growth. Thanks.
Adam, good morning. Thank you for the question. Maybe before I go specifically to some of the things you asked about, I just want to step back and talk a little bit about overall cardiopulmonary performance over the past period. We've raised this year 350 basis points since the beginning of the year. This is now 15 consecutive quarters of double-digit growth for our cardiopulmonary business and six consecutive quarters of double-digit growth in disposables. We're very pleased with where we are. I mean, the other thing that we're really pleased with in our cardiopulmonary business is that the quality of growth is improving. That means that the growth is well-balanced across the portfolio within the cardiopulmonary business. Both coming from price, upgrade of Essenz, which continues to be a strong driver, and now significant growth coming from the disposables.
That is a little bit of a background. In terms of significant events that happened recently, number one is launch of new oxygenator line. It went very well. We are now live in production, and we will see impact in significant improvement in the output early next year. We're looking at double-digit growth improvement in output for 2027 versus 2026. That's number one. Number two, I just want to remind everybody that we are on track to launch a new oxygenator in 2028. That new generation oxygenator will be clinically differentiated from anything on the market today. Finally, the heater-cooler and air manager will continue to be on track in terms of development, and we're planning a phased launch. This is going to be governed by regulatory approvals across the world, and the first in line will be EMEA, or EU.
But I think the significant impact, or material impact in terms of revenue, will be beyond 2027, so starting in 2028.
Okay, perfect. That's great color, Vlad. Thanks for all that. And maybe for the follow-up, just one kind of more near-term focused question. It looks like, with the guidance raised, the implied Q4 outlook, at least on the top line, suggests maybe a little bit of a decel. Is there anything to call out there, or perhaps maybe just some conservatism? But wanted to ask about kind of implied Q4 guide on the top line. Thank you.
Hi, Adam. It's Alex. First of all, again, pleased with our performance on both businesses year to date, and our confidence in the year continues to increase. Despite the difficult comps in Q4, the underlying drivers of the business are strong. As we said in our prepared remarks, we continue to trend sort of at the upper end of our Investor Day targets. Our increased guide is really in line with our philosophy on prudent guidance, and our performance year to date and our expectations for Q4, this is more from an OpEx perspective, just enables us to invest from a position of strength. So, that's kind of the story on Q4, and again, really pleased with how the year is shaping up.
Thanks for the color, Alex.
Your next question comes from the line of Matt Taylor with Jefferies. Your line is open. Please go ahead.
Hey, good morning. This is Mike Sarcone on for Matt Taylor. Thanks for taking the question. I guess just to start, Vlad, you opened up the prepared commentary highlighting your excitement and confidence in the OSA market and your opportunity there. I guess, can you just kind of remind us around commercialization timelines and the size of the commercial organization that you think you're going to need to at least start addressing the market?
Yeah, so what we have planning to do is, our time zero is our regulatory submission for U.S. FDA. As I kind of mentioned in my remarks, we're very confident in the timelines that we communicated. Our confidence is continuing to increase on that. So we do not have a large buildup in 2027. We communicated that earlier. That's still the plan. The real increase in commercial investment starts in 2028, but we continue to plan a limited launch in 2027.
Okay, thanks for that. And I guess just one more follow-up on the OSA market. Just given where things stand today, do you have a rough sense or outlook for growth in the market today and how that might look in 2027?
Yeah, look, we continue. First of all, we are closely monitoring, obviously, everything that is happening in the market. We believe that the market remains very attractive space for us to compete, and that is driven by a number of things. Number one is, there is a significant unmet need from patient point of view. Up to 1 million patients discontinue CPAP therapy annually, and HGNS penetration within that population remains below 5%. That gives us still significant opportunity from patient point of view. While there are currently challenges and reimbursement uncertainty in the HGNS market, in the near term, we believe that those dynamics are going to improve, and the challenges and those dynamics are temporary. You already saw some of the positive news from new codes being established for 2028.
Finally, when we enter the market, as a reminder, we do not have contraindication for triple-C patients, and so by design, that is going to increase the market size when we enter the market. So, we still believe in the attractiveness of this market, both from growth point of view, but also the margin opportunity on our business. We have strong confidence in our ability to win in this marketplace.
Maybe I will just add one comment around the clinical differentiation. As Vlad said, we do not have a contraindication, which is about 25% of the patient population, so the market is growing, but we also have
a strong clinical differentiation through PolySync, where we have cumulatively 85% responder rates. So what that effectively translates into is today, one in three patients do not get a great outcome with HGNS, but with PolySync technology, we reduce that to one in seven. So the fundamentals of the therapy are also improving, which gives us that additional confidence that this is a good market for us.
Great. Thank you.
Your next question comes from the line of David Rescott with Baird. Your line is open. Please go ahead.
Great. Thanks for taking the questions here, and congrats on the really strong results. I appreciate the comments on U.S. cardio pulm already. I recall last quarter, when you talked about that kind of first half high single-digit growth, there was a thought that that's kind of the way we should be thinking about that in the second half, and obviously, you delivered something above that. When we think about what's baked into the guide for Q4, I feel like we typically think there's a stronger capital placement cycle maybe in the fourth quarter. Obviously, the comps are a little bit different versus Q3. You've got this oxygenator line that's now ramping. Maybe there's some level of increased contribution baked into Q4 as well.
Just trying to think through the pieces around some of the U.S. cardio pulm segments specifically on that typically stronger capital Q4, plus maybe some of the pieces on the expanding oxygenator side.
Hey, David. You are right. Our capital is a significant component of our growth, but just to remind you that we launched Essenz in Q4 of 2023. It has been a challenging comp for us for the last couple of years and will continue to be so in Q4. Consumables are going to play a larger part in our growth story in Q4. Again, I think our story around Essenz conversion continues to play out. We still expect for the full year Essenz to represent 80% of placements, up from about 55% last year, which is pretty strong. We are going to continue to benefit from the price mix effect, and our funnel continues to be strong going into 2027.
That is helpful. Maybe on the VNS business, the epilepsy business, it looks like again, that has been accelerating through the year, maybe 200 basis points or so in the U.S. this quarter. I am wondering if maybe you could unpack how that contribution of price has ramped through the year, specifically relative to Q2, whether or not there has been any underlying change in the de novo or replacement cycles when we think about the CORE-VNS data. As you look to 2027, 2028 with this next-gen product, it sounds like maybe some of these workflow improvements are a little bit better than what we had assumed. I am wondering if at all beyond maybe potential price contribution from that product as well, that maybe that is something that could pull through some additional utilization as well. Thank you.
David, thank you for this question. Let me start on overall growth drivers, and then I will turn over to Alex to talk about financial components this year. If you look at our epilepsy business, we have three tailwinds or three important drivers of growth. Number one is this CORE-VNS clinical data that is coming out, and recently we published, it was published, and the clinical evidence is being disseminated throughout the clinical community, is receiving very strong positive reviews from the clinical community. That is number one. Number two is, as you know, is this increase in Medicare reimbursement, approximately by 50% increase. That is helping with the economics of the providers, and again, very positive impact. The third one is more the future one.
As we launch new innovation with next-generation IPG and the digital health platform, which will enable remote titration, that is a kind of This has been a significant barrier for patients and caregivers, and unlocking that opportunity with remote titration is going to be a very important growth driver. There are kind of like two The clinical data and the reimbursement already happened this year, and then the innovation we expect becoming the third positive driver next year. Overall, again, we are very pleased with the momentum of the business, and then maybe now to Alex to kind of talk a little bit about components this year.
Yeah. We're seeing, consistent with what we saw in the first half of the year, we're seeing improvement in both volume and price. On volumes, we're seeing increase in new patient implants. Our funnel continues to be strong, and that's reading through. On the pricing, we still are seeing consistently seeing that our realized price is reading through at about 2x what we normally expect from the annual price increases, really driven by lower discounting. Both reimbursements and, as Vlad said, the clinical outcomes continue to increase access for patients and drive strong revenue, both from a volume and a realized price perspective.
Your next question comes from the line of Anthony Petrone with Mizuho. Your line is open. Please go ahead.
Thanks, and congratulations on a strong quarter here. Maybe one on oxygenators and then one on depression. On oxygenators, maybe, Vlad, can you kind of walk through the scale benefit that the company has built here? We have larger manufacturing presence. You have the Thermo Fisher agreement in place. How sustainable is that competitive advantage for oxygenators, and hence, what is the normalized growth rate of that business going forward now that you have that advantage? Then in terms of depression, maybe any updates you can share with respect to CMS discussions on potentially accepting a formal NCD review process. Just any updates you can provide there would be helpful. Thanks.
Anthony, good morning. Thank you for the question. I'll start with oxygenator, and then I'll turn it over to Ahmet to make comments on depression. Maybe a couple of points to start with. Number one, as a reminder, this is a very mature market, obviously growing in mid-single digits, and we were able to increase our market share from approximately 30% to approximately 40% over the last two years. We do expect this trend to continue, and the upside is going to come from three angles. Number one is commercial excellence. Number two is ability to scale our manufacturing output faster. Number three, from innovation. On the supply now, if I kind of go into the manufacturing scale-up. The market is still operating in the environment where the demand is outpacing supply, and we're still operating in a backlog.
There is still a short-term opportunity just by purely improving output to gain significant share. In our strategy, we have three important components. Number one is continuously improving our operations. This has been the driver of our output growth over the last couple of years, doing better with the current network that we have. The Thermo Fisher agreement was important because it unlocks this availability of critical component over the long term and gives us an ability to continue to grow market share in consistent manner over the next several years. Number three is our own ability to increase our manufacturing output. This launch of this new manufacturing line that is live now has been a very important milestone from that point of view.
I would say a combination of those three gives us confidence in double-digit improvement in output next year, and you will see that in our guide. We will be more precise in our guide when we guide next year.
Maybe on depression, one of the key developments is that CMS has been inquiring about the three-year data, the 36-month data, and we got that data middle of this year, submitted to a peer review journal, and we have shared the data with CMS. We are actually very excited about the data because the durability of the therapy is very strong, and that is not atypical with Neuromodulation. Generally, Neuromodulation, the longer you use the device, the better the therapy outcomes are. It was not a surprise to us, but having a validation was important. We are still in active dialogue with CMS. They are reviewing the data we submitted, and we will update investors as appropriate when and if we move to a formal submission.
Thank you.
Your next question comes from the line of Mike Matson with Needham. Your line is open. Please go ahead.
Yeah, thanks. Just want to ask one on epilepsy with regard to pricing. So understand kind of the drivers there, but looking beyond 2026, do you expect these tailwinds to remain in place for pricing? And then with the new IPG and digital platform coming next year, is that another opportunity to raise prices as well?
Yeah, so thanks for the question, Mike. Yeah, the realized price, as we've said throughout the year, we- When the reimbursement guidance improved, when we started renegotiating contracts with a number of accounts, which we were successful in doing, and really that resulted in reduction in discounting. We weren't able to capture all of the accounts, so there will be some residual effect going into 2027. So there will be some incremental realized price benefit going into next year. In terms of opportunities on the new product, yeah, we expect, because of the significant value proposition, we think that the product will be premium price. We're not disclosing what that is at this point, but we do believe there's an opportunity there.
Okay, got it. And then just in terms of the OSA device, from a manufacturing perspective, I assume you're going to have adequate capacity to meet any demand there, and that's not going to be a potential bottleneck?
Yeah. We have adequate capacity for the OSA launch and to scale the business. No issue there.
Okay, great. Thanks.
Your next question comes from the line of Brett Fishbin with KeyBanc Capital Markets. Your line is open. Please go ahead.
Hey, this is Will on for Brett. With respect to the new line, I was just wondering if you could parse out how additive that was to the quarter in terms of growth. Then given the fact that it is a new line, could you maybe just speak to any margin opportunities with that going forward?
Yeah. Will, before I answer your question, I just want to go back to Anthony's question real quick on DTD and just add to what Ahmet said. If you are interested to learn a little bit more, there was an important article that was featured in the American Journal of Psychiatry, and also an interview by Dr. Conway. It's in a monthly podcast. So, it gives a really nice flavor to the clinical data and how our key opinion leaders are viewing it. So, Anthony, just to add to your question. Will, on your point, what I can tell you about the new manufacturing line is that the launch of it's a complex process to launch a new manufacturing line.
I think the team has done a wonderful job executing it in a timely manner, and we start seeing production coming out of that new line. Because of the timing of the launch, we are building inventory still on that. So we won't see any impact on our business until next year. So that's number one. Look, in terms of margin, I mean, we've guided, and Alex, maybe you can comment there, but we've guided our goals in terms of margin improvement on our CP business. Obviously, launch of that line is a component of that strategy. This is the business where scale matters, and so having larger scale gives us an opportunity to continuously improve our margin.
Yeah, as Vlad said, we have invested in this new capital equipment to scale the business. Obviously, the more market share we're able to gain and drive higher volumes through this fixed cost base, it will have a positive effect on our margins.
Understood. Thank you very much.
Your next question comes from the line of Keith Hinton with Freedom Capital Markets. Your line is open. Please go ahead.
Great. I wanted to start off with a question on 2027, specifically around the margin puts and takes. When you did the Investor Day early last year, I think you talked about in the kind of 2027, 2028 timeframe, maintaining operating margins in the low 20s, and obviously a number of things have happened since then, some outperformance on margin this year, but also the new deals and the expanded CapEx and all those types of things. Just how should we be thinking about operating margin next year in terms of up, down, or flat versus 2026, and what are the most important sort of puts and takes we should be thinking about? Then I have a follow-up as well.
Hi, Keith. Our Investor Day financial framework continues to stay intact. Our long-range plan was comprised of two phases. The first phase was 2025 through 2028, and as we guided at that point in time, our operating margin will be at 20%-21%, or I should say, above 20% in the near term. So, that's our expectation as we look at the near-term outlook. We obviously have a big opportunity with the OSA launch next year. So possibly, I think we're, at this point in time, we're not ready to talk about 2027 in terms of guidance, but we are kind of aligned with our framework that we communicated at Investor Day.
Great. Thanks. Then just a follow-up on OSA, just kind of two questions here. Number one is, when should we expect to see the detailed PolySync sub-study data published in a journal? Then maybe just a broader question in terms of, the market leader has been around this space for a long time, and it's still a very under-penetrated market. Is it your view that kind of the market just needs additional competitors, additional commercial investment, or some of the advantages that you see with your product, do you see those as driving increased uptake as well?
Yeah. I will start, and then I will also ask Alex to add. The subgroup analysis was actually presented in ISSS, and it actually won the best poster award as well in that. What is really exciting is that we did not see differences in subgroups. The technology works homogeneously, despite your BMI and your comorbidities. That is the interesting part of it. What is really important for us is PolySync's ability to have a very high responder rate. I think earlier I alluded to it. Going from one in three patients do not have an ideal outcome to only one in seven, we believe is a fundamental change. In terms of your question around the market, we do believe the diagnosis of OSA is improving. GLP-1s are actually helping that. The technology is becoming more kind of mainstream.
The fact that we do not have a contraindication grows the market by 25% on day one. We feel very strong based on the clinical data, the technology differentiation, and the fact that diagnosis is improving in terms of how the market will continue to grow.
Yeah, I would just say, our confidence in this market continues to build. We think we have a compelling value proposition with our technology and the clinical evidence that Ahmet just talked about. Historically, this market has grown at a double-digit rate, and the kind of the current slowdown in the market growth, I think, is a temporary phenomenon driven largely by the confusion around coding and reimbursement. That will work itself out by the time we are out in the marketplace.
I will maybe add one more thing. In terms of the CMS CPT codes, we are very pleased on the panel's decision, and we did participate in the application. Actually, our RCT data, because we are the only RCT for FDA approval in the U.S., was utilized as the level 1 evidence for the CPT code. We also think that, once the reimbursement piece is more clear now with this recommendation of AMA starting January 2028, there is clarity for us in terms of reimbursement. We do believe that is also going to significantly help the market growth.
Great. Thank you.
We have reached the end of the Q&A session. I will now turn the call back to Vladimir Makatsaria for closing remarks.
Okay. Well, thank you very much, and thank you, everyone, for joining the call today. On behalf of the entire LivaNova team, we really appreciate your support and interest in LivaNova, and have a great day ahead.
This concludes today's call. Thank you for attending. You may now disconnect.