LivaNova PLC (LIVN) Q2 2026 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Second Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. I would now like to introduce you to your 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 second 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 the 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 our 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 press release in the Investors 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 second quarter of 2026. Before reviewing our strong quarterly performance, I would like to begin by recognizing something fundamental to LivaNova's long-term success. Exceptional people deliver strong results. Over the past several months, we have continued to strengthen our leadership team while also honoring leaders whose contributions helped shape the company we are today. I want to recognize Franco Poletti, who recently retired after more than 40 years with LivaNova. Franco has been instrumental in building our Cardiopulmonary business into a global leader with lasting contributions across innovation, operations and culture. On behalf of the entire company, thank you, Franco, for four decades of extraordinary leadership. It is my pleasure to share that Stefano Folli has joined LivaNova as President of our Cardiopulmonary business. Stefano joins our experienced Cardiopulmonary team after a distinguished career with Philips, where he most recently served as Executive Vice President, Global President, Ambulatory Monitoring & Diagnostics. He brings deep industry expertise and strong commitment to advancing our strategy for customers and patients worldwide. Over the past few months, Franco and Stefano have been working closely together on a smooth transition, ensuring our continued momentum into the next chapter of our Cardiopulmonary business. I'd also like to welcome Anne Liddy, our new Chief Legal Officer, who joins us from Hologic, where she most recently served as General Counsel. Anne is an accomplished global executive with extensive legal, compliance and business leadership experience. Her deep background in health care will be instrumental as we position the company for its next phase of growth. We look forward to her joining us later this month. For the remainder of the call, I will discuss our second quarter results and provide updated top line guidance for 2026. After my comments, Ahmet will discuss key innovation updates, and Alex will then provide additional details on our results and updated 2026 guidance. I will wrap up with closing remarks before moving to Q&A. We delivered a strong quarter of double-digit reported revenue growth with strength across all regions, driven by robust performance in our Cardiopulmonary and Epilepsy businesses. We are pleased to report record quarterly revenue and earnings per share on a dollar basis, while also continuing to expand margins and drive profitable growth. For the Cardiopulmonary segment, revenue was $222 million in the quarter, an increase of 10% versus the second quarter of 2025, led by strength in Europe. Heart-lung machine revenue grew in the mid-teens in the quarter, driven by an increase in Essenz placements both sequentially and year-over-year and sustained favorable price premiums. Cardiopulmonary consumables revenue encompasses all products in our Cardiopulmonary portfolio, excluding HLM. Consumables grew in the high single digits in the quarter, driven by low double-digit growth in oxygenators and perfusion tubing kits, partially offset by lower growth in autotransfusion systems and cannula. Improvements in third-party component availability, combined with internal manufacturing optimization, have driven meaningful year-over-year increases in oxygenator output, supporting our performance year-to-date. I'd now like to provide an update on our strategy to expand oxygenator output and continue gaining market share. Demand continues to exceed the market's ability to supply, and we believe this creates a significant opportunity to expand our market position. Our operational strategy to capitalize on that opportunity is built on three key components. First, over the past several years, we have gained share by increasing our output through internal manufacturing process improvements. Second, we have invested in expanding our internal manufacturing capacity with a new production line on track to go live in the second half of this year. Third, our strategy is to further increase long-term manufacturing output by partnering with suppliers to address critical component constraints, which have been the primary factor limiting faster market share expansion. Recently, we advanced that strategy by entering into a long-term agreement with Thermo Fisher Scientific, securing access to a critical oxygenator component. Together, our internal capacity expansion and this agreement position us to increase output, capture underserved demand and consistently supply our customers, all of which contribute to a meaningful competitive advantage. The Thermo Fisher agreement builds on our existing 2026 expansion plans. We expect its benefits to build over the medium to long term, further strengthening the growth outlook for our oxygenator business. For the full year 2026, we now expect Cardiopulmonary revenue to grow 9.5% to 10.5%, up from 8.5% to 9.5% previously. We continue to expect Essenz to represent approximately 80% of annual HLM unit placements in 2026, up from 55% in 2025. This forecast assumes continued market share gains in consumables as we execute on our manufacturing expansion plans. Turning to Epilepsy. Revenue increased 10% versus the second quarter of 2025. Epilepsy revenue in the Europe and Rest of World regions increased a combined 15% versus the prior year period, while U.S. Epilepsy revenue increased 8% year-over-year. Performance was driven by favorable realized price and volume, supported by impactful clinical evidence, improved reimbursement and sustained commercial excellence. Improved realized pricing in the second quarter was driven by reduced volume discounting in addition to our standard annual list price increase. We are encouraged by CMS' preliminary recommendation to maintain VNS Therapy new patient implants in the New Technology Ambulatory Payment Classification as well as the proposed additional increase in the end-of-service APC reimbursement in 2027. We believe this increase, if implemented, will be a positive development for patients and providers that expands access to care and supports long-term VNS Therapy growth. At the same time, the CORE data continue to drive meaningful changes in physician behavior. The growing body of real-world evidence is accelerating referrals, strengthening clinicians' confidence and supporting early adoption of VNS Therapy in the treatment pathway. CORE is not only strengthening the clinical value proposition of VNS Therapy, but also serving as an important driver of commercial momentum. The combination of improved reimbursement, expanding market access, a strengthening patient funnel and the growing influence of CORE gives us increasing confidence in the trajectory of the business. As a result, we are raising our full year 2026 Epilepsy revenue growth outlook to 7% to 8%, up from 6% to 7% previously. In summary, we delivered strong second quarter growth, driven by the Essenz upgrade cycle and market share gains in oxygenators and Cardiopulmonary as well as improved U.S. reimbursement and compelling clinical data in Epilepsy. Looking ahead, we expect these drivers to sustain through 2026 and beyond. As a result, we are now guiding full year 2026 revenue growth between 8% and 9%, up from 7% to 8% previously. This top line guidance implies 2026 performance at the high end of the 2025 to 2028 growth framework we outlined at Investor Day. Alex will provide additional details on our 2026 guidance later in the call. With that, I'll hand the call over to Ahmet to cover key innovation updates across the portfolio.

Thank you, Vlad. Innovation is fueling our growth today while positioning us for sustained long-term value creation. Starting with Cardiopulmonary, we're excited about the long-term agreement with Thermo Fisher and look forward to partnering with them. This agreement will supply a critical component for both our current oxygenator portfolio and our clinically differentiated next-generation oxygenator. Our next-generation 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 by further increasing the safety margins of the procedure. We believe these attributes represent a meaningful advancement in oxygenator technology and further reinforce our commitment to reliability and supply continuity. We are in the manufacturing scale-up phase with facility expansion and a new dedicated production line both underway. Importantly, this new line will operate separately from the lines currently used for our INSPIRE products and will not require any trade-off in manufacturing space or floor capacity. We continue to expect launch in 2028. In Epilepsy, the limited market release of our cloud-based clinician portal and application continues to progress well with excellent clinician feedback from early users. The U.S. sales force is working to expand adoption across the next wave of accounts ahead of our full launch. As a reminder, the financial impact from the portal is expected to be limited this year. The digital health platform is already delivering meaningful workflow and connectivity benefits for patients and clinicians while establishing the foundation for future capabilities. This includes remote titration with our next-generation IPG that we continue to expect to launch in 2027. More broadly, this is a strategic investment in connected care and Epilepsy is just the first step. Importantly, it also establishes a single shared cloud platform across the entire portfolio. That means the same digital infrastructure we're building for Epilepsy can be leveraged across OSA, depression and Cardiopulmonary, accelerating the cadence of our software and digital health innovation and supporting a connected ecosystem approach. We believe we are at the forefront in leveraging agentic AI in product development and cloud-connected platforms in the medtech space and look forward to better serving our patients and clinicians with this platform. Turning to OSA. We continue to advance our next-generation MRI-compatible system designed to support commercialization with digital features. Based on the current status of our program, we now expect to submit the PMA supplement between the second half of 2026 and the first half of 2027. The timing adjustment does not impact our long-term commercial opportunity. The $200 million to $400 million 2030 revenue target remains unchanged from what we outlined at Investor Day. Our differentiated clinical data supports our entry and competitive position in this underserved market. In June, we shared new data showing that the use of the PolySync algorithm increased the cumulative AHI response rate to approximately 85% in patients with moderate to severe OSA treated with our pHGNS technology. These results underscore the strength of our therapy in a challenging patient population, including those with higher BMI, more severe OSA and complete concentric collapse or CCC and highlight a meaningful opportunity to drive even better outcomes through innovation. As a reminder, PolySync builds on our differentiated pHGNS technology, which utilizes a six-contact electrode positioned on the proximal hypoglossal nerve to enable broader muscle recruitment and flexible therapy optimization. Importantly, PolySync demonstrated the ability to convert nonresponders into responders, further strengthening our competitive profile and expanding the potential addressable patient population. Feedback from our physicians has been overwhelmingly positive. During our recent advisory board discussions, clinicians highlighted the potential for PolySync to further improve patient outcomes. The original OSPREY data without PolySync delivered competitive clinical outcomes in line with the current HGNS alternatives. With PolySync, the number of nonresponders is significantly reduced to roughly one in seven patients compared to the current standard of care of approximately one in three. This represents a substantial improvement in successful clinical outcomes. This has the potential to expand penetration in a broader range of patients, which significantly strengthens our competitive positioning versus existing HGNS therapy. As we continue to generate clinical evidence and advance innovation, our objective remains clear: to improve outcomes for patients, enhance the experience for physicians and further differentiate our therapy in a large and underpenetrated market. Now turning to difficult-to-treat depression. We remain in active engagement and live dialogue with CMS. As part of our ongoing engagement efforts, our 36-month data from the RECOVER trial has been submitted to a preprint server in advance of the peer-reviewed publication. We expect the preprint will be available this month. The data further validates the long-term benefits of VNS Therapy. Patients in the active treatment arm continue to demonstrate sustained improvements through the three years, including ongoing benefits in depressive symptoms as well as durable gains in function and quality of life. Importantly, patients in the control arm experienced meaningful improvements after initiating active therapy, ultimately following a trajectory similar to that observed in the original treatment group. Taken together, these findings further strengthen the growing body of evidence supporting the durability and long-term impact of VNS Therapy for depression. We continue to believe VNS Therapy is a differentiated option for this patient population. We will continue to keep investors updated on material developments as appropriate. In summary, we're encouraged by our recent progress across the portfolio. Collectively, 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 our results and updated 2026 guidance.

Thanks, Ahmet. During my portion of the call, I'll share a brief recap of the second quarter results and provide commentary on our updated full year 2026 guidance, which reflects strong performance year-to-date and improved business outlook. Turning to results. Revenue in the quarter was $391 million, an increase of 9.8% 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 $3 million or 1%. Adjusted gross margin as a percent of net revenue was 71% compared to 69% in the second quarter of 2025. In the quarter, we received a $6 million net tariff benefit from previously paid IEEPA tariffs. The refund had a benefit of approximately 150 basis points on gross margin in the quarter. The benefit from the tariff refund and improved pricing were partially offset by unfavorable currency. We do not expect the IEEPA tariff refund benefit to occur in future periods. Adjusted SG&A expense for the second quarter was $137 million compared to $121 million in the second quarter of 2025. SG&A as a percent of net revenue was 35% as compared to 34% in the second quarter of 2025. On a year-over-year basis, the increase as a percent of net revenue was driven by planned IT infrastructure spend. Adjusted R&D expense in the second quarter was $50 million compared to $44 million in the second quarter of 2025, which reflects planned increased OSA R&D investment. R&D as a percentage of net revenue was 13%, in line with the prior year. Adjusted operating income was $91 million compared to $77 million in the second quarter of 2025. Adjusted operating income margin was 23% as compared to 22% in the second quarter of 2025. Compared to the prior year, the increase reflects higher revenue and the benefit of the tariff refund, partially offset by planned investments I referenced earlier. Adjusted diluted earnings per share was $1.26 compared to $1.05 in the second quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the Cardiopulmonary and Epilepsy businesses as well as a one-time tariff refund benefit. Adjusted diluted EPS benefited from $0.08 of tariff refunds year-over-year. Moving to our cash balance at June 30. Cash was $517 million compared to $636 million at year-end 2025. Total debt at June 30 was $293 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 of $98 million, inclusive of accrued interest. Adjusted free cash flow for the quarter was $46 million compared to $48 million in the prior year period. The modest year-over-year decline reflects increased capital spend and higher working capital requirements associated with revenue growth. Capital spend in the first half was $46 million compared to $26 million in the prior year period. The year-over-year increase was driven by Cardiopulmonary capacity expansion initiatives, the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure. Now turning to our updated 2026 guidance. As Vlad mentioned, based on performance to date, we're raising full year 2026 revenue and adjusted earnings per share guidance. At the same time, we are lowering adjusted free cash flow guidance to reflect strategic investments in innovation, IT infrastructure and Cardiopulmonary capacity expansion to support the company's growth strategy. We now forecast 2026 revenue growth between 8% and 9% on a constant currency basis, up from 7% to 8% previously. We continue to expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. Consistent with our prior guidance, we estimate a tariff net impact of less than $5 million on full year adjusted operating income, inclusive of current and anticipated future tariffs, excluding IEEPA-related tariffs. We continue to expect full year adjusted operating income margin to be in the range of 20% to 21%. Adjusted effective tax rate is still forecasted at approximately 23%. To reflect stronger operational performance, we now project adjusted diluted earnings per share in the range of $4.30 to $4.40 with adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. This EPS range represents approximately 11.5% growth at midpoint. The strength of our execution continues to provide flexibility in how we allocate capital, enabling us to raise our earnings outlook while increasing investments to support growth and long-term value creation. We're increasing our capital spending to $135 million from $120 million previously. The change primarily reflects increased capital investments to support Cardiopulmonary capacity expansion, the next-generation oxygenator manufacturing scale-up and IT infrastructure investments. That said, adjusted free cash flow is now expected to be in the range of $140 million to $160 million compared to our prior guidance of $160 million to $180 million. The decrease reflects higher CapEx as well as the funding associated with the Thermo Fisher agreement, partially offset by the tariff refund benefit and operational improvements. In summary, we're pleased with the record revenue and earnings achieved in the second quarter. Our updated 2026 guidance aligns with the 2025 to 2028 framework presented at our Investor Day and reflects top line performance at the high end of our targeted mid- to high single-digit revenue CAGR. With that, I'll turn the call back over to Vlad for his closing remarks.

Thank you, Alex. In closing, I want to reiterate how encouraged we are by the performance of our business. We delivered record quarterly revenue and earnings per share, raised our full year outlook on the top and bottom line and continue to execute against our strategic priorities. These results reflect the dedication of the global LivaNova team and our unwavering focus on improving outcomes for patients. Our focus on talent, execution and innovation will continue to drive value for all our key stakeholders. With that, we're ready to open the call for questions.

Your first question comes from the line of Matthew Taylor with Jefferies. We're encouraged by the performance of our business. We delivered record quarterly revenue and earnings per share, raised our full year outlook on the top and bottom line and continue to execute against our strategic priorities. These results reflect the dedication of the global LivaNova team and our unwavering focus on improving outcomes for patients. Our focus on talent, execution and innovation will continue to drive value for all our key stakeholders. With that, we're ready to open the call for questions.

This is Mike Sarcone on for Matt. I wanted to start on the Cardiopulmonary side and the Thermo Fisher partnership. Can you give us some background for how long that's been in the works? And now that you have that supply for that component, how does that affect your thinking for Cardiopulmonary growth going forward?

Mike, thank you for the question. To step back, if you look at our market share progression over the last couple of years, we're pleased with our progress. We moved market share in oxygenators from around 30% a couple of years ago to about 40% today. We believe we can continue to drive share gains through two channels. One is delivering innovation, including a new-generation oxygenator coming in the next couple of years. The second is expanding our manufacturing output. On manufacturing, our strategy has three components. First, improved processes within our current network have already driven increased output. Second, we are installing a new manufacturing line expected to go live in the second half of this year, which will have a material impact on output in 2027. Third, securing reliable critical component supply will increase long-term output and remove supply constraints as a governor on growth. We have signed the agreement with Thermo Fisher after working on it for some time. That agreement ensures, in the mid- to long-term, reliable supply of the critical component and removes a bottleneck from manufacturing output. From a business point of view, we have more confidence in our ability to gain share moving forward. From a public health point of view, this ensures patients will have products available for this important surgical procedure. We're very pleased with this partnership and Thermo Fisher has been a strong partner to date for our manufacturing work.

That's helpful. Second question on Epilepsy: you mentioned higher ASP due to reduced volume discounting and favorable reimbursement this year. Can you speak to your thoughts on pricing and how you'll use price as a lever for growth going forward?

This is another important area. Let me address both price and volume. We're pleased with the tailwinds in Epilepsy and the recent momentum. Two key drivers are the strong CORE-VNS clinical outcomes, which are accelerating referrals, strengthening clinician confidence and supporting early adoption of VNS Therapy into the treatment pathway, and the increased Medicare reimbursement effective in 2026. As a reminder, reimbursement increased nearly 50% for both new patients and end-of-service procedures versus 2025 rates. We're seeing improvements in both price and volume. On the price side, realized price in Q2 improved roughly twofold versus what we would normally expect from our annual price increases, driven by less discounting and contract renegotiations. On the volume side, we are seeing more new patient implants in existing accounts, driven by improved clinical data and better reimbursement, and we're also opening new accounts. Both reimbursement and strong clinical data will increase patient access to this procedure. Price and volume are both contributing to our improved growth momentum.

Your next question comes from the line of Adam Maeder with Piper Sandler.

Congrats on the quarter. I wanted to start on Cardiopulmonary. Global CP had a very solid quarter, but the U.S. was a little softer. Any one-timers in the quarter? Any changes to CapEx behavior from customers or a maturation of the Essenz rollout in the U.S.? Also, you mentioned an offset to growth from autotransfusion systems and cannula. Can you help us understand that dynamic and its impact?

Adam, our growth drivers remain intact. U.S. growth was in line with our forecast. The Essenz upgrade cycle continues and defensible drivers remain. From a consumables perspective, we continue to gain market share and pricing was a growth driver in the first half and we expect it moving forward. Regionally, we don't see outages; performance was consistent with our expectations. Regarding autotransfusion and cannula, they are parts of our consumables portfolio and grew at a slower pace than our oxygenator and HLM businesses. There were no glitches; just expected phasing of orders and we're on track with our plans.

Thanks. On OSA, the PolySync data at the SLEEP Meeting was encouraging. You now expect the PMA supplement submission between the second half of 2026 and the first half of 2027, a slight timing adjustment. What drove that change, and how should we think about potential ramifications or impact to revenue and operating expense?

Adam, we are in the final stages of product development. We now expect the PMA supplement submission between the second half of 2026 and the first half of 2027 versus our prior expectation of the second half of 2026. The updated timing reflects the work needed for final design verification and validation. This adjustment does not relate to efficacy or safety. We continue to be excited about the new design and its feature set. We hold high standards for patients and the company and want to uphold those standards in our development process, which is why we updated the timeline. This does not change our conviction for the OSA program or the long-term opportunity. OSA remains a large underserved market where we believe we have the right to win with our clinical outcomes, and PolySync strengthens that position. Given the strength of the data, our conviction has increased over the last several months in our ability to win in this market. On revenue, we continue to commit to the $200 million to $400 million 2030 target for OSA.

Your next question comes from the line of Michael Polark with Wolfe Research.

On oxygenators: given your updates on capacity expansion and the updated Cardiopulmonary guide, what's implied for growth in 2H? Is capacity super tight now such that 2H might be lighter on your ability to fill demand, or are you comfortable that the double-digit oxygenator growth trend can continue before the new capacity comes online next year?

Mike, we have a strong growth trajectory for the full year and the strong first-half performance gives us confidence for the full year. I wouldn't read anything into a deceleration in our forecast; we guide to the current opportunities and what we see today. Our operational improvements and manufacturing output gains remain on track.

Follow-up on cannula: there was a major recall from a competitor. Can you help us understand the cannula market dynamics and whether competitor disruption creates opportunity for you?

Cannula is a relatively small part of our portfolio. If there is a market void, we will step in and support the market as needed. It is an important part of cardiac procedures, so we want to be there for our customers when there is disruption.

Your next question comes from the line of David Rescott with Baird.

Congrats on the results. Two-part question on Epilepsy. Previously you talked about reducing volume-based discounting and saw realized price roughly double in the first half. Is that phasing process largely complete, or can that realized price improvement continue to expand through the year? Also, you mentioned new accounts coming online for VNS. Can you expand on what types of accounts these are relative to your core comprehensive Epilepsy base?

On pricing, contract renegotiations contributed to growth in the first half and were a big contributor. We expect that to continue for the balance of the year. Historically our normal inflationary price increase is 1% to 2%; in the first half, realized price nearly doubled. There are contracts we haven't captured in the window for this year, so residual renegotiations will continue into 2027 and should provide a tailwind for that cohort. On account activation, our commercial teams focused on driving penetration in existing accounts and opening accounts that had previously been closed due to economic challenges. We've seen success in the first half and expect it to continue in the second half.

On HLM: you previously expected Essenz to represent 80% of placements in 2026. The better-than-expected growth may imply benefits from price and stronger placements. Is that a fair characterization? As Essenz penetration increases toward nearly all placements in 2027, where are you in cumulative penetration and what should we expect for HLM growth as upgrade waves and pricing contributions normalize in 2027-plus?

David, we are confident in hitting 80% placement penetration this year and expect to reach 100% placements in 2027. There are still many previous-generation devices in the market and it will take several years to complete a full market upgrade. Holistically, our Cardiopulmonary growth has four drivers: the Essenz upgrade, market share gains in consumables, next-generation products including oxygenators, Air Manager and Heater-Cooler, and price improvements across the portfolio. Looking beyond 2027, oxygenator and consumables will play a larger role in portfolio growth. Oxygenators are a majority of our consumables business and we have two significant upcoming events: the launch of a clinically differentiated oxygenator in 2028 and continued manufacturing output improvements. These will contribute to acceleration of growth in oxygenators. Additionally, given our significant installed base of equipment—about 70% market share on equipment—we have opportunities for revenue through partial equipment upgrades, software upgrades and product launches like Heater-Cooler or Air Manager, which provide further growth avenues for HLM.

Your next question comes from the line of Anthony Petrone with Mizuho Group.

Congrats on the quarter. On depression: you have 36-month RECOVER data submitted for publication. Does CMS have the 36-month data for their consideration? Last quarter there were meetings that would decide what CMS needs to see. Anything new on submission to CMS and timing?

We have submitted the 36-month data to a journal and the preprint is available online on medRxiv. CMS requires data to be published before they will formally consider it, so they are aware the data is coming but will not take it as formal consideration until it's published. They have asked about it and we continue to engage closely with CMS. The 36-month data shows the treatment arm continues to improve at three years across symptoms, functionality and quality of life. In neuromodulation, longer treatment duration generally leads to better outcomes, which we observe in the treatment arm. The control arm, which was sham in the first year and active for the last two years, also shows meaningful benefit after initiating active therapy. The data is strong and we will include it in our submission. We will share material updates as appropriate.

On sleep: a competitor announced submitting for a Category I CPT code to the CPT Editorial Board. Are you part of that submission and is PolySync part of the effort? If a Category I code were secured, what would the impact be on hypoglossal nerve stimulation?

We continue to work with the societies on reimbursement. Our position hasn't changed: at launch we will use the prevalent CPT codes at that time. The procedures for the systems are similar and we are confident that whatever appropriate CPT code exists at launch, LivaNova will be able to use it.

Your next question comes from the line of Mike Matson with Needham.

A few questions on oxygenators. With the new oxygenator, will you produce both the new and prior generations at the same time? Will you sell them side by side with a tiered pricing strategy? Will you eventually phase out the old one or continue to offer both long term?

Our approach is to manage oxygenators as a portfolio. We expect to have both oxygenators on the market and will determine pricing strategy as we approach launch. We have not made a definitive decision about phasing out the previous generation; we'll observe market reactions and decide in the future. The focus is on getting the product to market by 2028. Preclinical studies show the new oxygenator outperforms others in blood performance metrics, which gives us confidence in a successful launch. For now, it will be a portfolio strategy.

On Cardiopulmonary: you mentioned Essenz will be 80% of placements this year and in some markets Essenz is already the only device being placed. In the U.S. is Essenz at 100% of placements, and is that contributing to slower growth in the U.S.?

Yes, in the U.S. we phased out the previous generation and are only placing Essenz in the U.S. and other developed markets. Essenz placements increased both sequentially and year-over-year and we are maintaining price premiums, including in the U.S. That has not caused slower growth; Essenz placements have supported our growth.

Your next question comes from the line of Brett Fishbin with KeyBanc.

On Neuromodulation and Epilepsy: you referenced a strengthening patient funnel. Can you expand on what you're seeing there? Is it fair to think underlying volume is increasing because of favorable reimbursement changes, and how should we read into growth going forward?

Volume is positively impacted by both the CORE-VNS clinical evidence and the reimbursement increase. CORE-VNS is the largest real-world evidence study to date for this therapy and the improved Medicare reimbursement has materially improved economics for providers. Our new patient funnel is at the strongest levels we've ever seen. This reflects increased procedures in current accounts and new account openings. We'll provide more detailed indicators after several more quarters of performance, but current leading indicators are very strong.

Follow-up on OSA: given the implied 0 to 6-month timing adjustment for PMA supplement submission, how does this impact your thinking on limited market release timing and eventual full market release timing?

We remain confident in the long-term opportunity. Timing shifts are not linear to reaching the 2030 target and we have commercial levers to drive the ramp. Our conviction in the opportunity remains strong.

Your next question comes from the line of Keith Hinton with Freedom Capital Markets.

Two quick questions on Epilepsy. First, are you seeing particular strength in certain subsegments of drug-resistant epilepsy and any updates on VNS penetration into the surgery-eligible population and the competitive landscape on device and pharma sides? Second, on ASP, can you talk about payer mix and whether CMS reimbursement increases are carrying through to commercial payers?

We're pleased with progress and continued momentum in the patient funnel. There's nothing specific to call out by subsegment at this time. Our new patient implant funnel is expected to remain a strength in the second half. Keep in mind we are lapping a prior year's field safety notice in the first half, so comps in the second half are tougher. Regarding payer mix, about 80% of our payer mix is government: roughly 40% Medicare and 40% Medicaid, with the remainder commercial. The Medicare reimbursement improvements are reading through and we expect some carryover to commercial payers, though it's still early to quantify.

We have reached the end of the Q&A session. I will now turn the call back to Vladimir Makatsaria for closing remarks.

Thank you very much, and thank you, everyone, for joining us today and for the thoughtful questions. On behalf of our team, we appreciate your support and interest in LivaNova. Have a great day ahead.

This concludes today's call. Thank you for attending. You may now disconnect.