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01/09 19:53
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Organic Revenue Growth 13% year-over-year increase, driven by momentum in the cardiopulmonary business and solid epilepsy performance across all regions.
Cardiopulmonary Segment Revenue $203 million, a 16% increase year-over-year, driven by over 20% growth in heart-lung machine revenue and mid-teens growth in cardiopulmonary consumables revenue. Reasons include sequential acceleration in Essenz placements, favorable price premiums, market share gains, and procedure growth.
Epilepsy Revenue 6% year-over-year increase, with 12% growth in Europe and Rest of World regions and 5% growth in the U.S. Reasons include strong commercial execution and initial feedback from CORE-VNS data.
Total Revenue $358 million, an 11% increase on a constant currency basis and 13% on an organic basis year-over-year. Reasons include strong performance in core segments and favorable foreign exchange impact of $5 million.
Adjusted Gross Margin 69%, down from 70% in the prior year. Reasons include unfavorable currency changes, product mix, investments in oxygenator capacity expansion, and tariff impacts, partially offset by favorable pricing.
Adjusted SG&A Expense $123 million, up from $112 million year-over-year. SG&A as a percentage of revenue decreased from 35% to 34%, driven by fixed cost leverage.
Adjusted R&D Expense $45 million, down from $47 million year-over-year. R&D as a percentage of revenue decreased from 15% to 13%, driven by cost optimization of the DTD program.
Adjusted Operating Income $80 million, up from $64 million year-over-year. Operating income margin increased from 20% to 23%, driven by higher revenue, fixed cost leverage, and DTD program optimization.
Adjusted Diluted Earnings Per Share $1.11, up from $0.90 year-over-year, driven by adjusted operating income growth.
Cash Balance $646 million as of September 30, up from $429 million at year-end 2024. Reasons include improvements in operating cash flows and release of $295 million of restricted cash.
Total Debt $434 million as of September 30, down from $628 million at year-end 2024. Reasons include $200 million early repayment of term facilities.
Adjusted Free Cash Flow $130 million for the first 9 months of 2025, up from $101 million year-over-year, driven by stronger operating results and disciplined working capital management.
Capital Spend $49 million for the first 9 months of 2025, up from $37 million year-over-year, driven by IT investments and cardiopulmonary capacity expansion initiatives.
Essenz Heart-Lung Machine: Revenue grew over 20% year-over-year, driven by sequential acceleration in placements and favorable price premiums. Commercial launch initiated in China, with positive early feedback.
Oxygenator: Strong demand continues to outpace supply. Manufacturing capacity expansion is on track, but third-party component supply remains a limiting factor.
China Market Expansion: Commercial launch of Essenz Heart-Lung Machine in China, the second-largest market after the U.S., with positive early feedback from hospitals and clinicians.
Revenue Growth: Achieved 13% organic revenue growth year-over-year, driven by cardiopulmonary and epilepsy segments.
Operational Efficiency: Expanded margins and improved cash generation. Adjusted operating income margin increased to 23% from 20% year-over-year.
Cost Optimization: Reduced R&D expenses as a percentage of revenue and optimized costs in the difficult-to-treat depression program.
Strategic Framework and Branding: Introduced a new strategic framework and refreshed logo to reflect growth and innovation focus.
Obstructive Sleep Apnea and Depression Programs: Continued progress in these programs, targeting large patient populations with unmet needs.
Supply Chain Constraints: Strong demand for Oxygenator continues to outpace the market's ability to supply. Third-party component supply is a limiting factor for more rapid expansion, despite progress in manufacturing capacity expansion plans.
Tariff Impacts: The company estimates a tariff net impact of less than $5 million on adjusted operating income for the full year. Tariffs remain a dynamic challenge, requiring ongoing monitoring and mitigation efforts.
Currency Fluctuations: Unfavorable currency changes negatively impacted adjusted gross margin as a percent of net revenue, contributing to a year-over-year decrease.
Regulatory and Legislative Risks: The company reduced its reserve for the Italian payback measure by $3.8 million due to recent legislative developments, indicating ongoing exposure to regulatory and legislative uncertainties.
Cost Pressures: Incremental investments related to oxygenator capacity expansion and the Essenz printed circuit board conversion are expected to increase costs, impacting margins in the short term.
Market Penetration Challenges: The commercial launch of Essenz in China is in its early stages, with meaningful growth expected only in 2026, highlighting the long sales cycles and gradual market penetration.
Cardiopulmonary Revenue Growth: Cardiopulmonary revenue is expected to grow 12.5% to 13.5% for the full year 2025, up from the previous guidance of 12% to 13%. This includes continued growth in Heart-Lung Machine (HLM) placements, with Essenz expected to represent approximately 60% of annual HLM unit placements in 2025, up from 40% in 2024. The forecast also reflects robust market and share growth for consumables.
Epilepsy Revenue Growth: Epilepsy revenue growth is now expected to be 5% to 6% for the full year 2025, up from the previous guidance of 4.5% to 5.5%. This includes mid-single-digit growth in the U.S. and low double-digit growth in Europe and Rest of World regions.
Overall Organic Revenue Growth: The overall organic revenue growth outlook for 2025 has been raised by 50 basis points to between 9.5% and 10.5%.
Adjusted Diluted Earnings Per Share: Adjusted diluted earnings per share for 2025 is now projected to be in the range of $3.80 to $3.90, reflecting increased revenue expectations and productivity improvements.
Adjusted Free Cash Flow: Adjusted free cash flow for 2025 is now expected to be in the range of $160 million to $180 million, which is $20 million higher than the prior guidance due to higher net income expectations, working capital improvements, and lower capital spend.
Capital Expenditures: Capital expenditures for 2025 are now expected to be approximately $80 million, down from $95 million previously, due to the cadence of capital projects.
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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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