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01/09 19:54
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance with increased operating income, EPS, and cash balance, alongside reduced debt. Product developments, like epilepsy treatment data and Essenz launch in China, are promising. CMS proposal and APC upgrade suggest potential reimbursement boosts. Despite some management vagueness in Q&A, the overall sentiment is positive, supported by growth drivers in cardiopulmonary and neuromodulation businesses. Thus, the stock is likely to experience a positive movement.
Organic Revenue Growth 10% year-over-year growth driven by continued momentum in the cardiopulmonary business and solid neuromodulation performance across all regions. This reflects robust demand and disciplined execution across the portfolio.
Cardiopulmonary Segment Revenue $199 million in Q2 2025, a 13% increase compared to Q2 2024. Growth was driven by low double-digit increases in heart-lung machine revenue and oxygenators revenue, supported by procedure growth, market share gains, and pricing.
Epilepsy Revenue 6% year-over-year growth in Q2 2025. U.S. epilepsy revenue increased by 5%, while Europe and Rest of World regions combined grew by 9%. Growth was attributed to strong commercial execution, successful transition to the updated SenTiva generator, and recapturing previously delayed implants.
Adjusted Gross Margin 69% in Q2 2025, up from 68% in Q2 2024. The increase was driven by positive pricing, geographic mix, and the absence of a prior year provision for the Italian payback measure.
Adjusted Operating Income $77 million in Q2 2025, up from $67 million in Q2 2024. The increase was driven by higher revenue and optimization of DTD program spending.
Adjusted Diluted Earnings Per Share $1.05 in Q2 2025, compared to $0.93 in Q2 2024. The increase was primarily driven by adjusted operating income growth.
Cash Balance $594 million as of June 30, 2025, up from $429 million at year-end 2024. The increase reflects the reclassification of $295 million of restricted cash due to the termination of the collateral cash deposits associated with the SNIA litigation guarantee.
Total Debt $431 million as of June 30, 2025, compared to $628 million at year-end 2024. The reduction was due to a $200 million early repayment of term facilities.
Adjusted Free Cash Flow $68 million in the first half of 2025, up from $53 million in the prior year period. The increase was driven by stronger operating results and disciplined working capital management.
CORE-VNS study results: Announced long-term results showing clinically meaningful and durable results for VNS therapy in epilepsy, with significant seizure reductions (80% for focal onset seizures and 95% for focal to bilateral tonic-clonic seizures).
p-HGNS for sleep apnea: Progressing FDA submission for proximal hypoglossal nerve stimulation (p-HGNS), a new therapeutic modality for obstructive sleep apnea, targeting challenging patient populations.
Essenz launch in China: Planned launch of Essenz in China, the second largest market for heart-lung machines, in Q3 2025.
Epilepsy revenue growth: Epilepsy revenue increased 6% YoY, with strong growth in Europe and Rest of World regions (9%) and the U.S. (5%).
Cardiopulmonary revenue growth: Revenue increased 13% YoY, driven by heart-lung machines and oxygenators, with manufacturing capacity expansion underway.
Adjusted free cash flow: Increased to $68 million in H1 2025, up from $53 million in the prior year, driven by stronger operating results and disciplined working capital management.
CMS Medicare coverage for VNS therapy: Initiated process to seek national Medicare coverage for VNS therapy in treatment-resistant depression, supported by strong clinical evidence.
Revised revenue guidance: Increased 2025 revenue growth guidance to 9%-10% organic growth, reflecting strong performance and market demand.
Supply Chain Constraints: Strong demand for oxygenators is outpacing the market's ability to supply. Third-party supply is a limiting factor for rapid expansion, despite manufacturing capacity expansion plans progressing well.
Regulatory Approvals: Updated epilepsy generators are awaiting regulatory approvals in major geographies, which could delay distribution and impact revenue growth.
Tariff Impact: Potential tariffs could have a net impact of less than $5 million on adjusted operating income for the full year, though the environment remains uncertain.
Economic Uncertainty: The company acknowledges an uncertain environment, particularly regarding tariffs and their potential impact on operations.
Operational Costs: Increased investments in IT infrastructure, cardiopulmonary capacity expansion, and system modernization could strain financial resources.
Reimbursement Challenges: CMS reimbursement for VNS therapy in difficult-to-treat depression is still under reconsideration, which could delay broader adoption and revenue generation.
Competitive Pressures: The company faces competitive pressures in the cardiopulmonary and epilepsy markets, requiring sustained investment in innovation and market share retention.
Revenue Growth: The company has raised its overall organic growth outlook for 2025 to between 9% and 10%, up by 200 basis points. Cardiopulmonary revenues are expected to grow 12% to 13% for the full year 2025, up from 9% to 10% previously. Epilepsy revenue growth is now expected to be 4.5% to 5.5%, up from 4% to 5% previously.
Product Launches and Market Expansion: The company plans to launch the Essenz heart-lung machine in China in the third quarter of 2025, which is its second-largest market for HLM after the U.S. Essenz is expected to represent approximately 60% of annual HLM unit placements in 2025, up from 40% in 2024.
Medicare Reimbursement for Epilepsy: The company anticipates a proposed 48% increase in reimbursement for VNS therapy EOS procedures under Medicare, effective January 1, 2026, if finalized. This change would improve hospital economics and support greater adoption of VNS therapy.
Difficult-to-Treat Depression (DTD): The company is progressing with CMS to seek national Medicare coverage for VNS therapy in unipolar patients with treatment-resistant depression. The application is supported by strong clinical evidence, including 24-month outcomes demonstrating significant durability of VNS therapy.
Obstructive Sleep Apnea (OSA): The company is advancing its p-HGNS technology for OSA, with a modular PMA submission progressing with the FDA. A complete 12-month data set is expected later in 2025, highlighting the clinical potential of this technology.
Adjusted Earnings Per Share (EPS): The company has increased its adjusted diluted EPS guidance for 2025 to a range of $3.70 to $3.80, reflecting higher revenue expectations and favorable net interest expense.
Adjusted Free Cash Flow: The company has raised its adjusted free cash flow guidance for 2025 to a range of $140 million to $160 million, driven by higher income expectations and working capital improvements.
The selected topic was not discussed during the call.
The earnings call presents a positive outlook with raised guidance for revenue growth, EPS, and free cash flow. The Q&A section highlights strategic investments in capacity expansion and new product launches, despite some conservative Q4 guidance. The positive feedback on the Essenz launch in China and the anticipated Medicare reimbursement increase for epilepsy therapy further support a positive sentiment. Although management avoided some specifics, the overall sentiment is positive, considering the strategic initiatives and growth prospects.
The earnings call reveals strong financial performance with increased operating income, EPS, and cash balance, alongside reduced debt. Product developments, like epilepsy treatment data and Essenz launch in China, are promising. CMS proposal and APC upgrade suggest potential reimbursement boosts. Despite some management vagueness in Q&A, the overall sentiment is positive, supported by growth drivers in cardiopulmonary and neuromodulation businesses. Thus, the stock is likely to experience a positive movement.
The earnings report shows strong revenue growth both quarterly and annually, improved operating income, and significant free cash flow growth. However, the decrease in EPS due to a higher tax rate and increased debt from a convertible note offering are concerns. The Q&A highlighted optimism in new product launches and strategic innovations, although some execution issues were noted. Overall, the positive financial performance and promising product developments outweigh the negatives, suggesting a positive stock price movement.
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