管理層發言
Good day, ladies and gentlemen, and welcome to LivaNova plc Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President of Investor Relations. Please go ahead.
Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the third quarter of 2025. 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; Ahmet Tezel, our Chief Innovation Officer; and Zach Glazier, Director of Investor Relations. 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 statements. 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 and organic 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 third quarter of 2025. In the quarter, LivaNova delivered 13% organic revenue growth versus the prior year, driven by continued momentum in the cardiopulmonary business and solid epilepsy performance across all regions. The ability to sustain strong organic growth, expand margins, and drive strong cash generation reflects the durable market leadership positions of our core businesses. The consistent results also speak to the strength of our execution and the productivity improvements we've embedded across the organization. These results also highlight LivaNova's unique ability to drive near-term performance while reinvesting in the core, advancing the obstructive sleep apnea program and maintaining upside optionality in difficult-to-treat depression. Together, these actions are aligned with our strategic priorities and position LivaNova well for the future.
We recently internally launched a new strategic framework alongside the unveiling of a refreshed logo and visual identity, which you may have noticed in today's earnings materials. This new strategic framework and branding reflect LivaNova's direction, momentum, and continued focus on growth and innovation. We look forward to discussing these strategic priorities, how we plan to build on our strong foundation, and how we will shape the future of LivaNova in more detail at our Investor Day next week on November 12. Now turning to segment results. For the Cardiopulmonary segment, revenue was $203 million in the quarter, an increase of 16% versus the third quarter of 2024. Heart-lung machine revenue grew over 20% versus the prior year period, driven by sequential acceleration in Essenz placements and sustained favorable price premiums. This includes a significant majority of Essenz placements in developed markets in the quarter.
In August, we initiated the commercial launch of Essenz in China, which is our second largest HLM market after the U.S. We've received positive early feedback from hospitals and clinicians, and we're pleased with the launch thus far. Given the length of the sales cycles for Essenz, we expect the rollout to be a more meaningful growth driver in 2026. Cardiopulmonary consumables revenue grew in the mid-teens, driven by market share gains, procedure growth, and price. Strong demand for Oxygenator continues to outpace the market's ability to supply. While our manufacturing capacity expansion plans are progressing well and remain on track, third-party component supply is a limiting factor for even more rapid expansion. Our team remains focused on working with suppliers to meet the production needs. We now expect cardiopulmonary revenue to grow 12.5% to 13.5% for the full year 2025, up from 12% to 13% previously.
This forecast assumes continued HLM growth and increased penetration in existing markets. We still expect Essenz to represent approximately 60% of annual HLM unit placements in 2025, up from 40% in 2024. This forecast also reflects robust market and share growth for consumables. Turning to epilepsy. Revenue increased 6% versus the third quarter of 2024, with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased a combined 12% versus the prior year period, while the U.S. epilepsy revenue increased 5% year-over-year. These results reflect strong commercial execution globally. During the quarter, we initiated commercial rollout activities to drive awareness of the CORE-VNS data among the epilepsy clinical community worldwide. While we're still in the early stages of commercial activities, initial feedback from the clinical community is encouraging. Building clinical evidence is a key component of our strategy in epilepsy, and the CORE-VNS data is expected to further strengthen our foundation and support future commercial and educational efforts.
For the full year 2025, we now expect epilepsy revenue growth of 5% to 6%, up from 4.5% to 5.5% previously. This forecast incorporates mid-single-digit growth in the U.S. and assumes the Europe and Rest of World regions will grow at combined low double digits for the year. This is consistent with prior guidance, although at the higher end of respective ranges. We continue to see momentum in the global epilepsy business across volume, price, and mix. In summary, due to the strong growth we saw in the quarter and continued momentum across all growth drivers, we are raising our overall organic revenue growth outlook by 50 basis points to between 9.5% and 10.5%. We continue to make progress on the obstructive sleep apnea and difficult-to-treat depression programs, and we look forward to providing updates at our Investor Day next week. With that, I'll turn the call over to Alex.
Thanks, Vlad. During my portion of the call, I'll share a brief recap of the third quarter results and provide commentary on our updated full year 2025 guidance, which reflects strong performance year-to-date and improving business outlook. Turning to results. Revenue in the quarter was $358 million, an increase of 11% on a constant currency basis and 13% on an organic basis versus the prior year. As a reminder, we took a $7 million provision for the Italian payback measure in the second quarter of 2024. Because of recent legislative developments, the company reduced its reserve for the payback matter by $3.8 million during the third quarter of 2025. Excluding these adjustments, organic growth was 11%. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $5 million or 1%. Adjusted gross margin as a percent of net revenue was 69%, generally in line with 70% in the third quarter of 2024.
This year-over-year decrease was driven by unfavorable currency changes, product mix, incremental investments related to oxygenator capacity expansion, and tariff impacts. This was partially offset by favorable pricing across segments and geographies. Adjusted SG&A expense for the third quarter was $123 million compared to $112 million in the third quarter of 2024. SG&A as a percent of net revenue was 34%, generally in line with 35% in the third quarter of 2024. The year-over-year decline as a percent of net revenue was driven by fixed cost leverage. Adjusted R&D expense in the third quarter was $45 million compared to $47 million in the third quarter of 2024. R&D as a percent of net revenue was 13%, down from 15% in the third quarter of 2024. The year-over-year decrease was driven by cost optimization of the DTD program as we pursue CMS coverage. Adjusted operating income was $80 million compared to $64 million in the third quarter of 2024.
Adjusted operating income margin was 23% compared to 20% in the third quarter of 2024. This increase was primarily driven by higher revenue, fixed cost leverage, and optimization of DTD program spend. Adjusted effective tax rate in the quarter was 22%, principally in line with the third quarter of 2024. Adjusted diluted earnings per share was $1.11 compared to $0.90 in the third quarter of 2024. The increase was primarily driven by adjusted operating income growth. We continue to make progress in generating cash. Our cash balance at September 30 was $646 million, up from $429 million at year-end 2024. This increase reflects improvements in operating cash flows and the release of $295 million of restricted cash following the SNIA litigation guarantee termination. Total debt at September 30 was $434 million compared to $628 million at year-end 2024. The reduction in total debt was a result of the $200 million early repayment of the term facilities.
Adjusted free cash flow in the first 9 months of 2025 was $130 million, up from $101 million in the prior year period. The year-over-year increase was primarily driven by stronger operating results and disciplined working capital management. Capital spend in the first 9 months of 2025 was $49 million compared to $37 million in the prior year period. The year-over-year increase was driven by IT investments and cardiopulmonary capacity expansion initiatives. Now turning to our updated 2025 guidance. As Vlad mentioned, based on performance to date, we're increasing full year 2025 revenue, adjusted earnings per share, and adjusted free cash flow guidance. We now forecast 2025 revenue growth between 8.5% and 9.5% on a constant currency basis and between 9.5% and 10.5% on an organic basis. We continue to expect the impact of foreign currency to be a tailwind of approximately 1%. We continue to forecast a full year adjusted effective tax rate of approximately 23%, which represents an increase of 200 basis points versus 2024.
To reflect stronger operational performance, we now project adjusted diluted earnings per share in the range of $3.80 to $3.90, with adjusted diluted weighted average shares outstanding to be approximately 55 million for the full year. This higher range is primarily driven by increased revenue expectations and productivity improvements. This $0.10 increase continues to reflect an investment in the Essenz printed circuit board conversion, as we discussed last quarter, which is expected to increase the cost of goods in the fourth quarter. As a reminder, the printed circuit board investment will support future advanced Essenz software updates. Adjusted free cash flow is now expected to be in the range of $160 million to $180 million, which is $20 million higher compared to our prior guide due to higher net income expectations and working capital improvements as well as lower capital spend. For the year, capital expenditures are now expected to be approximately $80 million, down from $95 million previously due to the cadence of capital projects.
I'd also like to call out that the guidance ranges shared today incorporate our best estimate of the potential impact of currently applicable tariffs. As previously discussed, we have a tariff mitigation plan in place that includes both a holistic assessment of our supply chain as well as potential pricing actions. Based on the assessment, LivaNova remains well positioned to manage the impact of tariffs. Consistent with our prior guidance, we estimate a tariff net impact of less than $5 million on adjusted operating income for the full year. The 2025 guidance range shared today fully incorporates the impact from currently applicable tariffs. We acknowledge this is a dynamic environment, and we continue to monitor it closely. In summary, we had another quarter of strong performance marked by double-digit organic revenue growth, which drove 250 basis points of operating margin expansion. This translates into a 23% increase in adjusted diluted earnings per share and a 32% improvement in adjusted free cash flow.
These results also underscore the impact of disciplined execution and productivity across the organization. Our updated 2025 guidance reflects the strength of our businesses and continued investment in the core and innovation pipeline. With that, I'll turn the call back over to Vlad.
Thank you, Alex. In closing, LivaNova delivered another quarter of strong performance, underscoring the durability of the core cardiopulmonary and epilepsy businesses as a strong foundation for the company. Our results this quarter also reflect disciplined execution, enhanced productivity, and operational excellence. In the third quarter, we continued to expand margins and generate cash while still investing in innovation priorities. At the same time, we continue to leverage our neuromodulation expertise to progress the obstructive sleep apnea and difficult-to-treat depression programs. These initiatives represent significant opportunities to address large patient populations with unmet needs. They position LivaNova for expansion into additional attractive markets where we have a clear right to win and can drive durable long-term growth. With a strong team and clear strategic priorities, we are confident in our ability to sustain momentum and create lasting value for patients, customers, and shareholders. We look forward to sharing our vision for the next chapter of LivaNova and the strategic priorities that will drive long-term growth and value creation in greater detail at our Investor Day next week on November 12. With that, we're ready to open the call for questions.
分析師問答
First question comes from Michael Polark with Wolfe Research.
I'm going to start with the fourth quarter release and what it suggests. If I do the simple math on earnings per share, it looks like $0.80 flat year-on-year. This seems extremely conservative compared to the year-to-date performance. It suggests a significant decrease in gross margin and operating margin year-on-year. So, Alex or Vlad, I hope you can provide more details on the factors contributing to the fourth quarter, and anything you are preparing for in your guidance that the market may not be considering. I heard about the PCBA conversion, which might be a significant part of the answer. It could also involve tariffs. Any additional context on the implied earnings outlook for the fourth quarter would be appreciated.
Mike, it's Alex. You're right. The investment in printed circuit boards is taking place in the fourth quarter. In my earlier statements, I mentioned a $0.10 impact, which is a significant factor in the expected softness for Q4. We previously discussed the PCBA investment as a way to support future strategic revenue growth through software and services. This was a planned investment, and we indicated it last quarter; it's indeed occurring in Q4.
I'll ask a follow-up on oxygenators. Obviously, the cardiopulmonary performance is impressive again. On the consumables side, I heard 2 things: just good volumes, good share take, good price. I heard good progress on your internal capacity expansions, but I heard caution again on kind of third-party component supply. So can you unpack for us a little more on the internal capacity investments, remind us how much you're adding there and when these projects are expected to complete on the third-party supply front, have things gotten tighter Q-over-Q, about the same Q-over-Q? And what's the path from your perspective for that piece to relieve as you roll into '26?
Yes, thank you for the question. Gaining market share in oxygenators has been a key factor in our growth and will continue to be so. Over the past two years, we have seen strong momentum in terms of share gains, supported by our efforts to expand manufacturing. Last year, we increased our capacity by about 10%, and this year, we are looking at a capacity expansion of nearly 15%. However, our total output for the year will fall below 10% due to a shortage of third-party components. We are actively collaborating with our suppliers to improve this situation and aim to finish the year on a strong note. For next year, we are adding another manufacturing line at LivaNova as part of an ongoing investment in capacity expansion. This will significantly enhance our manufacturing capability, and we are also working closely with our suppliers to ensure they can expand their capacities concurrently.
We now turn to Adam Maeder with Piper Sandler.
Congrats on a nice quarter. Two for me. The first one is on the Q4 implied guidance. Mike just asked about bottom line, but maybe I'll ask about the top line. I think the implied Q4 revenue growth suggests a growth deceleration. And when I look at the prior year comp, it looks easier. So maybe just square that for us. Is it largely conservatism? Or are there some other considerations that we should be aware of in the top line outlook for Q4?
Adam, look, our revenue guide for Q4 is prudent. The biggest item I would call out is the Q4 comps related to the HLM, right? We had a really big quarter last year. And so just kind of the compounding effect is causing this deceleration, if you will. But look, we're continuing to perform well and really pleased with an 8% growth for Q4. So I think we're in pretty good shape.
Okay. I appreciate the color there, Alex. And just for the second question, HLM, Q3, I think, marked your first quarter with Essenz in China. That's your second largest end market. And it looks like we did see Rest of World growth pick up a little bit. Can you just help us better understand the expectations for launch in the Chinese market? I heard there would be more of an impact in '26, but if you could just kind of flush that out for us a little bit more in terms of cadence of rollout? And then just remind us of the current installed base there and the opportunity for China, that would be helpful as well.
Thank you for your question. We launched commercially in China in August, which is about six months ahead of our internal target date. This is a positive indicator for us in the Chinese market, reflecting strong demand from both clinicians and regulators. The initial feedback from the clinical and hospital sectors has been very encouraging regarding the launch. The selling cycle for the equipment is fairly lengthy compared to disposables, which is why I mentioned that we anticipate the bulk of growth impact starting in 2026. As a reminder, last year, 40% of our global placements were Essenz, this year that figure is projected to be 60%, and next year we expect it to rise to 80%. China will play a significant role in this growth from 60% to 80%. During the Investor Day next week, I hope you can join us as we discuss the opportunities in China in more detail and outline our expectations following the launch.
We now turn to Matt Taylor with Jefferies.
Nice to see the neuro growth stabilizing here. I was wondering if you could just, at a high level, talk about the trajectory into next year for that business given we will start to see some of the roll-off of the COVID implant headwinds and you have these other helpers, including the new reimbursement for replacements and the DRE data. Could we see a pickup in that growth next year?
Thank you for the question. I’d like to break this down a bit. We will have two opportunities to share more detailed long-term projections for epilepsy and our expectations for 2026. The first is on Investor Day, November 12, and the second will be early next year for 2026. As for what we are currently noticing, there are two key points. First, we are seeing strong execution globally, which means we are continuing to enhance our commercial efforts, leading to consistent results worldwide. Second, we have released results from the CORE-VNS study, which is the largest real-world evidence study conducted so far. We are beginning to share these results within the clinical community, and the feedback has been very positive. I’ll ask Ahmet to add a few points about that in a moment. Additionally, we are very encouraged by the anticipated improvement in reimbursement starting January 1, moving from Level 4 to Level 5 for end service units, which enhances the economic viability for VNS patients over their lifetime. This is clearly a significant growth driver for us moving forward. We will also keep working on market access and reimbursement improvements for the NPIs. Ahmet, could you please share your thoughts on the CORE-VNS?
Sure. As Vlad stated, this was the largest study to date with VNS with 800 patients. And because it was large, it allowed us to do subgroup analysis because we had large sample sizes. And the outcomes kind of further validated the early and sustained reductions in seizure frequency across multiple seizure types, including the most severe and disabling seizures. For example, I'll just give you one data point. At 36 months, the analysis showed that the median seizure reduction was 80% for focal onset seizures. So we're still, as Vlad stated, in the middle of rolling the data out, but we're getting very, very strong feedback from physicians about the strength of the data.
Got you. Maybe I just ask one follow-up. I know you probably want to comment on the pipeline next week. But I did want to get an update on the process for depression. I think last quarter, you said it could be about a year before we see a decision. Is it now 6 to 9 months? Or is there anything new on timing or your confidence in getting coverage there?
So in terms of the process, yes, the fundamentals have not changed for us with regards to the timeline. So we submitted our draft application. CMS has given us some questions. We view that as a positive part of the process. We answered their questions, and then the government went into shutdown. So right now, because of that, there's a pause. As soon as the government opens, we will go back with the process. And the next step is to do our formal application. Now from that point on, there are no strict timelines. But as a reference, and it's just a reference, Medtronic just completed the renal denervation. And for them, the process took 11 months in total from the time of the formal application to having the reimbursement completed. So we are also hoping that the process for us will be within that kind of time frame of 1 year. So nothing has really changed for us. The only thing is this kind of a temporary pause with the government shutdown.
We now turn to Anthony Petrone with Mizuho.
Congrats here on the quarter. Maybe one quick one on Essenz and then a high-level question. Just maybe a little bit on the contribution from the China launch in the quarter and how that product cycle in China, Essenz specifically will sort of evolve here over the next 12 months? And then I'll have a quick high-level follow-up.
Anthony, in terms of China, for the quarter. We actually saw some early indications of kind of positive reception. We had some orders come into Q3. I think there was kind of the mad rush ahead of the Golden Week to get these orders in by certain distributors and hospitals. But it's still early on in the game. And as Vlad said, we're going to see most of the impact next year from that launch.
And then maybe just high level, as we head into Analyst Day, when you think about managing the top line growth algorithm with just your priorities at EBITDA, obviously, 2 new initiatives here, depression and sleep. Maybe just a little bit of a preview on how the company is prioritizing top line growth over EBITDA margin expansion and earnings. And congrats again, and look forward to seeing everyone next week.
We don't want to get ahead of today's discussion for Investor Day. Next week, we will connect our current execution to our financial ambitions for the long-range plan. We look forward to sharing the details of our long-term strategy and financial objectives on November 12.
And Anthony, I look forward to seeing you next week, and thank you for taking the time to join us.
We now turn to David Rescott with Baird.
Congrats on the quarter here. I wanted to follow up on some of the comments around this investment behind the CORE-VNS trial. More curious about how internally you're expecting to gauge what the benefits of that investment can be and over what period? I know there's some elevated reimbursement on the end of service potentially being a benefit for new centers opening up or maybe new centers adopting this therapy. I'm not sure there's been an update on the NPI reimbursement. But is this something that you'll see on the ground level as it relates to exploring new implants to just more centers onboarding VNS therapy? How are you thinking about gauging kind of the success of what CORE-VNS showed in the financials, I guess, of the company?
David, that's a very important question, and I appreciate you asking it. Approximately one-third of the epilepsy population is resistant to drugs. It takes about 10 to 15 years for a patient diagnosed with drug-resistant epilepsy to seek treatment. Across various clinical specialties, the treatment of drug-resistant epilepsy patients has one of the lowest penetration rates. There are several barriers, or drivers, that can help improve that penetration. You mentioned two of them. One is reimbursement and ensuring that hospitals gain a financial benefit from these procedures. We made significant progress in moving from Level 4 to Level 5 reimbursement and will continue to pursue Level 6 for the new procedures as well. Another strategic direction involves innovation—focusing on developing products and procedures that are less invasive and more clinically effective. The goal of innovation is to achieve minimally invasive and more effective clinical outcomes. The CORE-VNS study demonstrates that with less invasive procedures like VNS, we are beginning to see strong long-term results. This data point is crucial for the clinical community to enhance the adoption of the procedure. Now, I'll let Ahmet elaborate from a scientific perspective.
Yes. In terms of the investment, in terms of the data investment, the investment is mostly done. So from this point on, we're talking publications, advisory boards, and things like that, that are not substantial investments from an investment standpoint. I'll add 2 comments to what Vlad said. One, the data show that the earlier you start VNS therapy, the better clinical outcomes are. So I think that's an important learning of the study that we are going to ensure that our physician base understands. So that could kind of accelerate a little bit of utilization because earlier is the better. And as Vlad talked about, we're investing a lot in simplifying the workflow. And we also show with the CORE data that dosing and titration and getting that right is really, really important. So anything we can do to make the workflow easier and faster helps the end outcome. So I think those will be the 2 key points I will make. Earlier utilization of VNS is really important and impactful according to the CORE data, and dosing and titration is really impactful. So we're investing a lot in making that a lot easier for our physicians and patients.
And David, I'm going to keep promoting our Investor Day because I think it will be important to kind of take a look at a holistic strategy on how we continue to grow epilepsy. And this is obviously an important leg of that strategy. So I hope to see you there, and we will unpack a little bit more in terms of our holistic approach to driving durable growth in the epilepsy business.
Okay. That's helpful. Two, I guess, kind of clarification questions on some prior comments. First on the China rollout contribution in 2026. I heard you talk about the shift from the 60% to 80%. Is China the way or the reason that you get to the 80%? Or is potentially China an upside to getting to 80%? And then on the oxygenator manufacturing capacity, I heard that new manufacturing line next year, that will be a step change, I think you said on the impact. Just curious if you can qualify or quantify what your definition of step change is, and we'll see the team at the Analyst Day next week.
I’ll begin with the second point. We anticipate the new line will become operational in the latter half of the year. This is when we expect to see acceleration that goes beyond the ongoing improvements in our current network. While we won’t specify the exact increase in our capacity, it will exceed what we have achieved historically on an annual basis. Now, regarding the first point, China is a significant factor. There are two key drivers for the growth of HLM. The first driver is the improvement in placement penetration, as we aim to increase from 60% to 80% next year. China will play a major role in this upgrade. The second key factor, which has contributed significantly to our growth over recent quarters, including the third quarter, is our ability to maintain a strong price premium on Essenz compared to S5. This ability to sustain the price premium is a strong indicator of Essenz's value to the clinical community. One of our goals, as you mentioned, is to ensure we continue to maintain this price premium as we expand the rollout of Essenz globally.
We now turn to Mike Matson with Needham.
Can you provide an update on the oxygenator business? Are there any indications that competitors are increasing their production? How confident are you that demand will continue to be strong, especially regarding the procedural-driven aspect? If growth were to slow or demand were to decrease, would the additional capacity put any pressure on your margins, or is it manageable to scale down if necessary?
That's a great question. I'll address the second part first. We are expanding our capacity in a financially disciplined way, so demand fluctuations within a certain range will not negatively affect our financials. Regarding the first part of your question, we have experienced momentum in gaining market share over the last two years, increasing from the low 30s to the high 30s in terms of market share in the oxygenator market, which is very mature where such gains are uncommon. This increase is not due to competitive disruption, but rather the absence of investment and innovation from Medtronic and Terumo, along with their market exit. We will continue to gain share by improving our supply, and we plan to launch a new generation oxygenator that we will discuss at Investor Day. We view our share gains in the oxygenator market as part of a long-term strategy supported by a solid execution plan.
As for market growth, we are learning about the various factors driving procedure growth, which include an aging population and the increase in open-heart surgeries, as well as emerging markets with lower penetration in open-heart procedures. These markets are becoming a larger portion of our overall business. Additionally, the lack of diagnoses during COVID may have resulted in more advanced heart disease in patients, which could affect future market growth. Finally, we expect robust growth in valve procedures even as TAVI growth momentum begins to level off.
And Mike, I would just add the fact that the market is continuing to be a very robust market. We're still operating in a backorder situation. So the demand is outpacing the market's ability to supply. Right? So we're building capacity to address the demand that we're seeing. And as Vlad said, we're going to do this in a financially disciplined manner. And we need to build this capacity also in light of the fact that we're going to ultimately start converting to our next-generation oxygenator. So there needs to be that transition point.
Yes, that makes sense, especially with the new oxygenator coming. I have a quick question regarding the HLM side. With the PCB upgrade, how involved will the sales reps be in managing this with the customers? Could this potentially distract them from selling HLMs and oxygenators in the fourth quarter?
No. Yes, it's a good point. No, it's a service organization that will execute the upgrade. And then there will be no disruption for the sales organization.
We now turn to John McAulay with Stifel.
Just wanted to go back to the free cash flow we saw in the quarter. So conversion rates above 90% on a last 12-month basis, near $200 million in total. Just want to get a better sense. I know SNIA is still ongoing here. But is there anything that we can attribute maybe in the future to greater M&A capacity or other in terms of investments in the business that you're getting with this stronger free cash flow generation on the overall strategy?
Thank you for your question, John. Looking at our cash position, we are well placed to handle the SNIA payment, and I appreciate you highlighting our improved cash generation. This ultimately allows us to focus on strategic initiatives, with M&A being one of the options we will consider. It's crucial for us to keep enhancing our cash generation since that is essential for any company's success in driving cash flow.
Great. That's helpful. And a follow-up on the epilepsy business. You talked a lot about the CORE-VNS study so far and how that's contributing. Also just wanted to get a sense of what's going on the ground in terms of the team's commercial presence, the reps, CC teams. Just all these initiatives that you've put in place, how are they working to drive greater overall market penetration? And just what inning do you think we are in, in terms of seeing this number steadily increase?
John, I am very pleased with our performance in the epilepsy business this quarter and year-to-date. The commercial teams have executed exceptionally well, especially after the field safety notice situation we encountered this quarter. We are beginning to catch up with the deferred procedures we previously experienced. Our approach to increasing market penetration is multifaceted. As a market leader, we are focused on generating data and clinical evidence to support the therapy, and improvements in health economic reimbursement will aid us. This is part of our overall strategy for growth. We will discuss more about this during our Investor Day next week when we outline our long-range strategy.
We now turn to Matt Miksic with Barclays.
Congratulations on the quarter and the momentum. I wanted to follow up on one aspect of the upcoming drivers, specifically regarding DTD and OSA. Could you provide insight into what those investments entail? They seem like very different opportunities with unique challenges. How do you envision DTD contributing to your intermediate and long-term growth? Additionally, at a high level, when do you see OSA playing a role in your intermediate and long-term growth? I understand you may not want to dive into specifics right now.
Yes. Matt, thanks for the question. And it's a really good lead into the Investor Day. I think we will spend the majority of our time talking about our plans to launch OSA and then our progress with depression. So both from the strategy point of view, the value proposition point of view, but also potential financial impact. All of this will be unpacked on November 12.
Okay. Fair enough. In the next quarter, considering that you are already investing a significant amount in these programs, you mentioned the circuit board investments and the ramping up of PVA in the fourth quarter. Can you specify if you will be increasing the investment in Q4 from current levels or provide an update on what the quarterly spending looks like and how that is advancing ahead of the larger plan you will reveal next week?
Matt, thank you for your question. In the fourth quarter, we typically see an increase in spending. This quarter represents the largest portion of our operating expenses, including both selling, general, and administrative expenses as well as research and development. All of this is included in our full year guidance.
Understood. But no color, you're sort of safe to say you're sort of maintaining spending levels in those 2 programs or no significant change from Q3 to Q4. Is that fair? Or do you see a step-up that's not consistent with, as you point out, sort of the seasonal step-up in OpEx?
No, it's pretty consistent. There's no step-up in investments. And I think I'm trying to read into what you're alluding to, as Ahmet said, given the timelines for both DTD and OSA, there are no incremental investments in Q4 related to those programs.
And our final question today comes from David Roman with Goldman Sachs.
This is Jamie on for David. I hate to belabor the 4Q guidance question. But as we think about last year, a similar dynamic unfolded. You provided Q4 guidance that many of us perceived as conservative given the year-to-date trends, and all modeled ahead of your guidance. And then you ended up doing sort of exactly what you said you would do, and that created a lot of volatility early in 2025. How do you consider these dynamics in constructing the outlook for 4Q?
Jamie, look, we guide to a specific set of numbers for, obviously, full year is 1 quarter remaining. We're not expecting anyone to model kind of ahead of the numbers that we're calling. So I would just say, look, we're pleased with our results year-to-date, and our guide reflects kind of the balance to go in Q4. So I'd encourage you to adjust your models accordingly.
Okay. And I know you'll get into 2026 more next week. But if we lay out some of the headwinds, which would be incremental interest expense from the eventual payment of SNIA, annualization of tariffs, investment in OSA against some of the tailwinds, the China Essenz launch, PCBA upgrade completion, capacity for oxygenators, how do the headwinds and tailwinds balance each other going into next year?
Look, we're in the planning process at this stage, and there's many puts and takes at this point in time. I can talk to as many headwinds as tailwinds. So I would say we'll talk about our 2026 guidance in February.
This concludes our Q&A. I'll now hand back to Vladimir Makatsaria for any final remarks.
Okay. Well, thank you so much, and thank you, everyone, for joining us on this call today. And on behalf of all of us, we really appreciate your support and interest in LivaNova, and I hope to see you at our Investor Day on November 12. Thank you, and have a great day.
Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.