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LivaNova(LIVN) - 2023 Q4 - Earnings Call Transcript
LIVNLivaNova(LIVN)2024-02-21 15:36
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Financial Data and Key Metrics - Cardiopulmonary revenue for the full year was 589million,growing18589 million, growing 18% year-over-year, with an expected growth of 6% to 7% for 2024 [1] - Adjusted operating income was 48 million in Q4 2023, compared to 47millioninQ42022,withamarginof1647 million in Q4 2022, with a margin of 16% versus 17% in the prior year [5] - Adjusted diluted earnings per share (EPS) was 0.87 in Q4 2023, up from 0.81inQ42022[5]−Cashbalanceatyear−end2023was0.81 in Q4 2022 [5] - Cash balance at year-end 2023 was 267 million, up from 214millionin2022,whiletotaldebtincreasedto214 million in 2022, while total debt increased to 587 million from 542million[26]−AdjustedfreecashflowforQ42023was542 million [26] - Adjusted free cash flow for Q4 2023 was 60 million, up from 31millionintheprioryear,drivenbyhigherincomeandimprovedworkingcapital[26]BusinessLinePerformance−CardiopulmonarysegmentrevenueinQ42023was31 million in the prior year, driven by higher income and improved working capital [26] Business Line Performance - Cardiopulmonary segment revenue in Q4 2023 was 162 million, a 17% increase year-over-year, driven by strong Essenz sales in Europe and the U.S. [7] - Heart-lung machine (HLM) revenue grew over 40% in Q4 2023, while oxygenator revenue grew in the mid-single digits, despite capacity constraints [7] - Epilepsy revenue increased 8% in Q4 2023 compared to Q4 2022, with 856 new patient implants (6% growth) and 1982 replacement implants (10% growth) [1] - ACS revenue was 10millioninQ42023,up510 million in Q4 2023, up 5% year-over-year, with full-year revenue of 40 million, growing 3% [8] - DTD revenue for Q4 2023 was 2million,withfull−yearrevenueof2 million, with full-year revenue of 7 million, and 2024 revenue expected to remain at 7million[8]MarketPerformance−U.S.epilepsyrevenuegrew87 million [8] Market Performance - U.S. epilepsy revenue grew 8% year-over-year in Q4 2023, with 3300 new patient implants for the full year, representing 7% growth [21] - Europe and rest of the world epilepsy revenue grew 7% year-over-year in Q4 2023, with full-year epilepsy revenue increasing 10% [21] - Foreign exchange had a favorable impact of 3 million (1% of revenue) in Q4 2023 [22] Strategic Direction and Industry Competition - The company is winding down the ACS segment, with a pretax non-cash impairment charge of 103millioninQ42023,andexpectsadditionalrestructuringchargesof103 million in Q4 2023, and expects additional restructuring charges of 15 million to 20millionin2024[2]−Thecompanyisreorganizingitsoperatingandreportingstructurefromthreetotwosegments:cardiopulmonaryandneuromodulation,effectiveQ12024[2]−Thecompanyisfocusingoncorebusinesses(cardiopulmonaryandneuromodulation)forgrowthandvaluecreation,withtheACSwind−downexpectedtopositivelycontributetoadjustedoperatingincomein2024[13]−Thecompanyisaddressingoxygenatorcapacityconstraints,withimprovementsexpectedtobenefitproductioninthesecondhalfof2024[39]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Thecompanyexpects2024revenuegrowthof420 million in 2024 [2] - The company is reorganizing its operating and reporting structure from three to two segments: cardiopulmonary and neuromodulation, effective Q1 2024 [2] - The company is focusing on core businesses (cardiopulmonary and neuromodulation) for growth and value creation, with the ACS wind-down expected to positively contribute to adjusted operating income in 2024 [13] - The company is addressing oxygenator capacity constraints, with improvements expected to benefit production in the second half of 2024 [39] Management Commentary on Operating Environment and Future Outlook - The company expects 2024 revenue growth of 4% to 5% on a constant currency basis, or 6% to 7% excluding the ACS business [37] - Adjusted operating income is expected to grow approximately 25% in 2024, with a 300 basis point improvement in adjusted operating income margin [106] - The company anticipates a full-year adjusted effective tax rate of 21% in 2024, with an unfavorable impact of 0.45 on EPS [88] - Adjusted free cash flow for 2024 is expected to be in the range of 95millionto95 million to 115 million, with capital spending forecasted at 60million[27]OtherImportantInformation−Thecompanyincurred60 million [27] Other Important Information - The company incurred 2.6 million in costs related to a cybersecurity incident in Q4 2023, primarily for external experts, legal counsel, and system restoration [36] - The company is awaiting a binding decision from the European Court of Justice regarding the SNIA litigation, with a decision expected in 2024 [70] Q&A Summary Question: Competitive situation in the oxygenator market and capacity expansion [30] - The company noted no significant changes in competition, with one smaller competitor dissipating and a major competitor yet to return to the market [28] - Capacity improvements are expected to benefit production in the second half of 2024 [39] Question: Guidance and earnings bridge for 2024 [32] - The ACS wind-down is expected to result in significant improvements in 2024, with full benefits realized in 2025 [33] - The company expects a 0.10EPSimpactfromtheACSwind−downanda0.10 EPS impact from the ACS wind-down and a 0.35 EPS impact from reduced R&D spend related to the heart failure program [37] Question: Oxygenator market share and stickiness [40] - The company estimates its market share has increased to the mid-30s, with half of its high-volume business being tender-based [41] Question: Tax rate and stock-based compensation [43] - The company expects a 21% adjusted effective tax rate in 2024, driven by jurisdictional profitability [43] - The company will follow up on the impact of stock-based compensation on the tax rate [99] Question: Cybersecurity incident impact on revenue [54] - The cybersecurity incident impacted oxygenator production, resulting in a loss of about one week of production, but the revenue impact was not material [57] Question: Neuromodulation segment growth and sustainability [58] - The company expects mid-single-digit growth in new patient implants and low-single-digit growth in replacements for 2024, with overall segment growth of 6% to 7% [64] Question: STRAP plan and Vlad's priorities [62] - The company will provide updates on the STRAP plan in the first half of 2024, with Vlad expected to bring forward new ideas and strategies [65] Question: Gross margin benefit from Essenz [68] - Essenz is expected to contribute to a 100 basis point improvement in gross margin in 2024 [63] Question: Depression study and OSA trial [97] - The company expects to receive 12-month follow-up data for the depression study in June 2024, with publication expected by late 2024 [8] - OSA trial enrollment is progressing, with 25 study sites recruiting patients [9] Question: Italian reserve and litigation timeline [114] - The company is awaiting a binding decision from the European Court of Justice in 2024, with a final decision from the Italian Supreme Court expected in 2025 [70] Question: CAPEX increase and investments [86] - The company is increasing CAPEX to $60 million in 2024, focusing on oxygenator capacity, IT infrastructure, and ERP system modernization [82][110]