LivaNova PLC (LIVN) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook: strong cardiopulmonary growth and Essenz penetration are positives, but challenges in the HGNS market and uncertainties in the epilepsy business post-reimbursement change are concerning. The Middle East conflict's impact and management's vague responses add uncertainty. The overall revenue growth and adjusted income margin projections are stable, but the lack of guidance specifics and potential market risks balance the positives. Given these factors, the stock price is likely to remain neutral in the short term.
Key Financial Performance
Revenue Revenue in the quarter was $362 million, an increase of 11% on a constant currency basis versus the prior year. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $10 million or 3%. The growth was driven by strong performance in cardiopulmonary and epilepsy businesses.
Cardiopulmonary Segment Revenue Revenue was $209 million in the quarter, an increase of 14% versus the first quarter of 2025. Growth was driven by an increase in essence placements, sustained favorable price premiums, market share gains, procedure growth, and improved manufacturing output due to better third-party component availability.
Epilepsy Segment Revenue Revenue increased 8% versus the first quarter of 2025. Growth was driven by total implant growth, favorable realized price, improved reimbursement, and impactful clinical evidence. U.S. Medicare reimbursement for VNS Therapy procedures increased approximately 48% for new patient implants and 47% for end-of-service procedures compared to 2025 levels.
Adjusted Gross Margin Adjusted gross margin as a percent of net revenue was 68%, compared to 69% in the first quarter of 2025. Higher volumes and improved pricing were offset by unfavorable currency and product mix.
Adjusted SG&A Expense Adjusted SG&A expense for the first quarter was $129 million compared to $116 million in the first quarter of 2025. SG&A as a percent of net revenue was 36% compared to 37% in the first quarter of 2025. The reduction as a percent of net revenue was driven by fixed cost leverage.
Adjusted R&D Expense Adjusted R&D expense in the first quarter was $47 million compared to $38 million in the first quarter of 2025. R&D as a percentage of net revenue was 13% compared to 12% in the first quarter of 2025, with the year-over-year increase primarily reflecting planned investments in OSA.
Adjusted Operating Income Adjusted operating income was $71 million compared to $65 million in the first quarter of 2025. Adjusted operating income margin of 20% was generally in line with the prior year period, reflecting higher revenue and operating leverage, partially offset by increased OSA R&D investments and unfavorable foreign currency impacts.
Adjusted Effective Tax Rate Adjusted effective tax rate for the quarter was 23% compared to 24% in the prior year period, reflecting a modestly more favorable geographic mix of income.
Adjusted Diluted Earnings Per Share Adjusted diluted earnings per share was $0.98 compared to $0.88 in the first quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses.
Adjusted Free Cash Flow Adjusted free cash flow for the quarter was $4 million, compared to $20 million in the prior year period. The year-over-year decrease was primarily driven by increased capital spend and higher working capital requirements aligned with revenue growth.
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Operating Highlights
FDA approval for aura6000 system: LivaNova received U.S. FDA premarket approval for the aura6000 system for treating adult patients with moderate to severe obstructive sleep apnea (OSA). This is the first hypoglossal nerve stimulation device approved without a complete consent to collapse contraindication or warning.
OSPREY trial results: The 12-month results from the OSPREY randomized controlled trial were published, showing clinically meaningful responses and sustained improvements for OSA patients.
PolySync algorithm: PolySync, an advanced titration algorithm, demonstrated the ability to convert over 50% of nonresponders into responders in the OSPREY trial, with a cumulative responder rate surpassing 80%.
Expansion into OSA market: LivaNova plans to enter the OSA market in 2027, supported by FDA approval and clinical evidence. The market is seen as a high-growth, high-margin opportunity.
Cardiopulmonary segment growth: Revenue grew 14% in Q1 2026, driven by heart-lung machine placements and consumables. Full-year revenue growth is now expected at 8.5%-9.5%, up from 7%-8%.
Epilepsy segment growth: Revenue increased 8% in Q1 2026, supported by improved reimbursement and clinical evidence. Full-year growth is now expected at 6%-7%, up from 5.5%-6.5%.
Manufacturing expansion: LivaNova is increasing manufacturing output for cardiopulmonary consumables, with a new manufacturing line expected to go live in the second half of 2026.
Improved reimbursement for VNS Therapy: U.S. Medicare reimbursement for VNS Therapy procedures increased by approximately 47%-48%, improving hospital economics and patient access.
Focus on innovation: LivaNova is advancing its innovation pipeline, including next-generation oxygenators, cloud-based clinician portals for epilepsy, and the PolySync algorithm for OSA.
Digital health platform: A unified digital health platform is being developed to streamline care delivery and improve patient outcomes across the portfolio.
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Risk or Challenges
HGNS Market Challenges: Current ambiguity and reimbursement issues in the hypoglossal nerve stimulation (HGNS) market for obstructive sleep apnea (OSA) patients, which could impact market dynamics and adoption rates.
Supply Chain Constraints: Demand for oxygenators continues to outpace the market's ability to supply, despite improvements in third-party component availability. This could limit manufacturing output and revenue growth.
Middle East Conflict Impact: The ongoing conflict in the Middle East has led to higher shipping, logistics, and fuel costs, with an estimated $5 million impact on adjusted operating income for the full year.
Tariff Impacts: Tariffs are expected to have a net impact of less than $5 million on adjusted operating income, with no current assumption of a tariff refund benefit.
Regulatory and Reimbursement Risks: Uncertainty around CMS engagement and submission timing for VNS Therapy in difficult-to-treat depression (DTD) could delay market entry and revenue realization.
Increased Capital Spending: Higher capital expenditures for cardiopulmonary capacity expansion, next-generation oxygenator manufacturing, and IT infrastructure investments could strain cash flow.
Product Mix and Currency Effects: Unfavorable product mix and foreign currency impacts have offset higher volumes and improved pricing, affecting gross margins.
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Guidance & Outlook
Revenue Growth: For the full year 2026, LivaNova expects revenue growth between 7% and 8%, up from the previous guidance of 6% to 7%. This reflects strong performance in cardiopulmonary and epilepsy businesses.
Cardiopulmonary Segment: Revenue is expected to grow 8.5% to 9.5% in 2026, up from the previous forecast of 7% to 8%. This growth is driven by continued HLM growth, Essenz penetration globally, and manufacturing expansion plans. Manufacturing output is expected to increase by low double digits, with a new manufacturing line going live in the second half of the year.
Epilepsy Segment: Revenue growth is now expected to be 6% to 7% for 2026, up from the previous guidance of 5.5% to 6.5%. This is supported by improved reimbursement rates in the U.S., strong global acceptance of CORE-VNS, and reduced volume discounting.
Obstructive Sleep Apnea (OSA) Market: LivaNova plans to enter the OSA market in 2027 with the aura6000 system, which recently received FDA premarket approval. A next-generation MRI-compatible device is expected to launch in 2027, with a limited market release in the first half and a broader launch in the second half.
Innovation and Product Development: The company is advancing its innovation pipeline, including the development of a next-generation oxygenator and a cloud-based clinician portal for epilepsy. The next-gen oxygenator is in the manufacturing scale-up phase, and the clinician portal is planned for full market release in 2027.
Adjusted Earnings Per Share (EPS): Adjusted EPS for 2026 is projected to be in the range of $4.20 to $4.30, representing approximately 9% growth at the midpoint.
Adjusted Free Cash Flow: Adjusted free cash flow for 2026 is expected to be in the range of $160 million to $180 million, with $120 million allocated for capital spending, including investments in cardiopulmonary capacity expansion and IT infrastructure.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you expand on the changes in the epilepsy business post-reimbursement change and the commercial competitive landscape?
A:The CEO highlighted strong growth in the epilepsy business driven by improved reimbursement as of January 1 and dissemination of clinical data from the CORE-VNS study. Short-term improvements include price increases due to reduced volume discounts. Long-term trends include increased penetration of VNS procedures as economic barriers are removed. However, it is too early to determine long-term trends.
Q:What is the outlook for cardiopulmonary and oxygenator capacity expansion?
A:The CEO mentioned a low double-digit increase in oxygenator production output this year, with additional manufacturing lines opening in the second half of the year. The company aims to increase oxygenator capacity by 60% by 2030 and improve market share by 800 basis points. The CFO added that the company is working with third-party suppliers to expand capacity.
Q:What impact has the WisER program had on VNS Therapy?
A:The CFO stated that the WisER program has had no material impact so far. The company successfully managed several WisER submissions, all of which secured approval within 48 hours. Most Medicare patients undergoing VNS Therapy are enrolled in Medicare Advantage Plans, which already involve a prior authorization process.
Q:What is the strategy and timeline for the hypoglossal nerve OSA launch?
A:The CEO acknowledged challenges in the HGNS market but emphasized the large patient population and unmet clinical need. The company plans to launch in the back half of 2027, with reimbursement issues expected to be resolved by 2028. The company is confident in its reimbursement capabilities and plans to use prevailing codes at the time of launch.
Q:How is the Essenz launch progressing in China and its impact on HLM growth?
A:The CEO reported that the Essenz launch in China is progressing as planned, with the company maintaining market leadership. The company aims to grow Essenz penetration to 80% by 2026, up from 55% last year. High teens growth in HLM was driven by healthy volumes and recognition of clinical benefits, allowing for significant price upside.
Q:What is the impact of the Middle East conflict on the company’s operations?
A:The CFO stated that the Middle East represents approximately 4% of the company’s total revenue base. The company anticipates a $5 million or $0.07 EPS impact due to increased freight, logistics, and energy costs. The company continues to supply the market as best as possible.
Q:What is the competitive landscape for oxygenators?
A:The CEO noted that Getinge is exiting the space, with sales expected to decline significantly by 2026. Other competitors are not expanding capacity or investing in innovation. LivaNova is focused on both expanding current oxygenator output and developing a next-generation oxygenator with clinical differentiation.
Q:What is the status of the New Tech APC assignment for VNS for epilepsy?
A:The CFO stated that the company continues to work on obtaining a Level 6 reimbursement code but anticipates that the 1580 assignment will roll over into 2027.
Q:What is the update on new, existing, and prior VNS accounts?
A:The CEO mentioned that current users are showing improved pipelines for new patient implants (NPI) and reduced discounts. Accounts that stopped using VNS and potential new accounts will take time to reopen and restart procedures. The company is confident in future trends.
Q:What is the company’s view on competition in the generalized seizure market?
A:The company anticipates limited impact from competition in the generalized seizure market, as only about one-third of epilepsy patients are generalized, and less than 50% are generalized tonic-clonic (GTC) patients. The company does not expect any direct effect on reimbursement.
Q:What is the guidance for CP manufacturing capacity and third-party supplier improvements?
A:The CFO stated that guidance incorporates incremental improvements in consumable component supply. The company plans to rebuild inventory levels and has a second manufacturing line coming online in the second half of the year. Third-party supplier partnerships are expected to drive incremental output.
Q:What is the status of the DTD application with CMS?
A:The company is collaborating with CMS through a draft application and remains confident in the quality of its data, particularly the durability of treatment. The company will update once a formal application is submitted.
Q:What is the update on OSA launch investments and sales force hiring?
A:The CFO stated that the focus this year is on product development, with a limited commercial release planned for the first half of 2027 and a full launch in the second half. Sales force hiring will begin late this year or early next year. The company has appointed a leader for OSA to prepare the go-to-market strategy.
Q:What is the timeline and differentiation for the next-generation oxygenator?
A:The company is in late-stage development, with a launch planned for 2028. The next-generation oxygenator is expected to be superior or equal to the current market leader on 8 to 10 performance parameters. The company is currently focused on manufacturing scale-up.
Q:Review of Unclear Management Responses
A:Management avoided providing specific long-term trends for the epilepsy business post-reimbursement change, stating it was too early to determine. Additionally, they did not disclose exact units sold for HLM in various countries, and the impact of the Middle East conflict on revenue was only broadly estimated without detailed breakdowns. The company also did not provide specific timelines for achieving a Level 6 reimbursement code for VNS or detailed competitive responses in the generalized seizure market.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Ahmet
Annals Internal
FDA premarket
HGNS
Internal Medicine
LivaNova FDA
OSA market
OSPREY
PROs
PolySync
algorithm
approval aura
aura system
capability
care
clinician
component availability
control group
date
education
engagement
finding
framework
generation oxygenator
increase epilepsy
line end
manufacturing output
manufacturing scale
market release
milestone
nonresponders
portfolio
premarket approval
refund
responder
response improvement
sleepiness
system treatment
titration
treatment adult
LIVN Transcript
LivaNova PLC (LIVN) Q1 2026 Earnings Call Transcript
Unknown5-6
The earnings call presents a mixed outlook: strong cardiopulmonary growth and Essenz penetration are positives, but challenges in the HGNS market and uncertainties in the epilepsy business post-reimbursement change are concerning. The Middle East conflict's impact and management's vague responses add uncertainty. The overall revenue growth and adjusted income margin projections are stable, but the lack of guidance specifics and potential market risks balance the positives. Given these factors, the stock price is likely to remain neutral in the short term.
LivaNova PLC (LIVN) Q4 2025 Earnings Call Transcript
Positive2-25
The earnings call summary highlights increased guidance across multiple financial metrics, including revenue and EPS, alongside strategic growth in cardiopulmonary and epilepsy segments. The Q&A section reveals positive analyst sentiment and confidence in management's ability to execute on guidance, with no major risks identified. The company's proactive approach to reimbursement changes and product launches further supports a positive outlook. Despite conservative assumptions for 2026, the current guidance and market strategy suggest a likely positive stock price movement in the near term.
LivaNova PLC (LIVN) Presents at 44th Annual J.P. Morgan Healthcare Conference Transcript
Neutral1-14
LivaNova PLC (LIVN) Q3 2025 Earnings Call Transcript
Positive11-5
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.
LIVN Report
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