Livanova PLC Aktie

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Third Quarter 2026 Earnings Call.

[Operator Instructions]

As a reminder, this conference call is being recorded. I would now like to introduce you to our host for today's conference, Ms. Brianna 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 third 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 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 discussion will include certain non-GAAP financial measures with respect to 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 this presentation and the 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, Brianna, and thank you, everyone, for joining us today. Welcome to LivaNova's conference call for the third quarter of 2026.

LivaNova delivered another quarter of double-digit revenue growth with strength across all regions, driven by commercial execution and healthy demand for our cardiopulmonary and epilepsy technologies.

The core businesses continue to fuel both current performance and disciplined investments, enabling us to further strengthen our existing franchises while advancing new growth opportunities such as obstructive sleep apnea or OSA.

As we're prepared to enter this attractive high-growth, high-margin market, our team is focused on building a strong foundation for long-term success in OSA.

Importantly, we're not building from the ground up. We're leveraging our neuromodulation capabilities developed through our epilepsy business, including product development expertise, established supply chain infrastructure, a global footprint, and market access competencies.

To complement this existing strength, we have also made key hires across the OSA commercial leadership team, adding targeted expertise as we prepare for commercialization.

The strength of LivaNova's capabilities supports future market access for proximal hypoglossal nerve stimulation or PHGNS.

Recently, LivaNova contributed its robust clinical evidence to the CPT code application reviewed by the AMA Editorial Panel. Our OSPREY randomized controlled trial provided Level 1 evidence to support this application.

We are pleased with the decision to establish new Category 1 codes that will include LivaNova's technology. Subject to finalization, the new codes are expected to take effect on January 1, 2028.

We believe this decision is an important development that further bolsters our ability to achieve appropriate reimbursement. We're proud to have supported efforts to improve patient access to care and look forward to leveraging these new category codes once effective in the commercialization of our OSA technology.

With PHGNS, we believe we have a clear right to win, supported by rigorous clinical evidence, a differentiated technology designed for a broader and more complex patient population, and leading neuromodulation capabilities across LivaNova.

For the remainder of the call, I will discuss the third quarter results and provide updated top-line guidance for 2026. After my comments, Ahmed 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 on to Q&A. Now turning to segment results.

For the Cardiopulmonary segment, revenue was $225 million in the quarter, an increase of 11% versus the third quarter of 2025, led by double-digit growth in both Europe and the U.S.

Heart-lung machine revenue grew low double digits in the quarter, marked by quarterly record Essenz placements and sustained favorable price premiums.

Cardiopulmonary consumables revenue, which encompasses all non-HLM products in our cardiopulmonary portfolio, grew low double digits in the quarter. This was led by strength in oxygenators and perfusion tubing kits.

Improvements in third-party component availability and internal manufacturing optimization drove significant year-over-year increases in oxygenator output, supporting strong performance year-to-date.

Oxygenator market demand continues to exceed the industry's ability to supply, which represents a significant opportunity to expand our market position.

As a reminder, our 3 key operational initiatives to capture this opportunity are optimizing processes across our supply chain network, adding a new oxygenator production line, and strengthening the reliability of critical component supply.

The operational launch of the new dedicated oxygenator manufacturing line marks another key milestone in the execution of our strategy.

Together with the Thermo Fisher component agreement announced last quarter, this represents significant progress across these 3 initiatives and positions us to drive double-digit capacity expansion in 2027.

Strong performance across our leading product lines, combined with healthy underlying global demand and operational execution, reinforces our confidence in the durability of growth in the cardiopulmonary business.

As the market leader in HLM with a global installed base of more than 10,000 systems and Essen representing only about 20% of that base today, we see a significant multiyear upgrade opportunity ahead.

For the full year 2026, we now expect cardiopulmonary revenue to grow 10.5% to 11.5%, up from 9.5% to 10.5% previously. We continue to expect Essen to represent approximately 80% of annual HLM unit placements in 2026, up from 55% in 2025.

This forecast also assumes continued market share gains in consumables as we execute on our manufacturing expansion plans.

Turning to epilepsy. Revenue increased 11% versus the third quarter of 2025, with double-digit growth across all regions. U.S. epilepsy revenue increased 10% versus the prior-year period, while epilepsy revenue in the Europe and Rest of World regions increased a combined 14% year-over-year.

Performance was driven by volume and favorable realized price, supported by impactful clinical evidence, improved reimbursement, and sustained commercial excellence.

Similar to the prior quarter, improved realized price in the third quarter benefited from reduced volume discounting in addition to our standard annual list price increase.

The long-term clinical evidence from our core VNS study is strengthening physician confidence, accelerating referrals, and will support earlier adoption of VNS therapy in the patient care pathway.

At the same time, improved U.S. reimbursement is translating into stronger provider economics and broader access, driving higher procedure volumes.

As a result, we are raising full-year 2026 epilepsy revenue growth outlook to 8% to 9%, up from 7% to 8% previously.

In summary, our third-quarter performance reflects the strength of growth drivers across our portfolio, including the ongoing Essenz upgrade cycle and continued oxygenator market share gains in cardiopulmonary, as well as favorable U.S. reimbursement dynamics and growing clinical evidence supporting VNS therapy in epilepsy.

We expect this trend to continue supporting sustainable growth while positioning us to advance our OSA strategy. As a result, we are now guiding full-year 2026 revenue growth between 9% and 10%, up from 8% to 9% previously.

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. LivaNova's innovation engine continues to drive growth today while building the foundation for sustained long-term value creation.

Starting with cardiopulmonary, we're excited to announce that the new dedicated manufacturing line for LivaNova's oxygenators is now live and operational.

The new line will increase output for this critical product where demand continues to outpace supply.

Combined with the additional component supply unlocked from the Thermo Fisher agreement, we are accelerating production of this life-saving product to better serve our customers and patients, and are eager to ramp up further.

Turning to the next-generation oxygenator. We are now in the design verification and validation phase of product development.

As a reminder, our next-generation product will have its own dedicated manufacturing line separate from and incremental to the line supporting our current-generation product.

The next-gen 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.

We believe these attributes represent an important advancement in oxygenator technology, with launch still expected in 2028.

In epilepsy, the Journal of Neuromodulation recently published the full 36-month results from CORE VNS, the largest prospective multinational real-world study of VNS therapy devices in people with drug-resistant epilepsy or DRE.

Across more than 60 sites in 16 countries and over 800 patients, the study showed a 76% median reduction in seizure frequency at 3 years, with 64% of participants achieving at least a 50% reduction and nearly half seeing a reduction of 80% or more.

Benefits appeared as early as 3 months after implantation, were sustained through 36 months, and continue to improve over time.

The study also showed meaningful improvements beyond seizure reduction, including better quality of life, less use of rescue medication, and a 73% reduction in seizure-related hospital stays.

This evidence reinforces the durability of VNS therapy in managing DRE and continues to demonstrate the benefits of VNS Therapy as a less invasive treatment option with strong efficacy for patients.

Additionally, the limited market release of our cloud-based clinician portal and application continues to progress well with excellent clinician feedback and high engagement from early users.

Physicians have used this technology with more than 1,000 patients to date.

The digital health platform is already delivering meaningful workflow and connectivity benefits for patients and clinicians while establishing the foundation for future capabilities, including remote titration enabled by our next-generation IPG platform.

As a reminder, the next-generation IPG and digital health platform market release are both expected in 2027.

Turning to OSA. We continue to advance our next-generation platform, which adds digital features and utilizes our policy algorithm. This device is designed to support a strong competitive entry and a commercial launch.

We are pleased with how design verification and validation have progressed. We are confident in the previously communicated timeline for PMA supplement submission and look forward to updating you once we have submitted.

As we prepare to launch, we continue to strengthen the clinical evidence supporting PHGNS, highlighted by multiple presentations at the International Surgical Sleep Society, or ISSS, and American Academy of Otolaryngology meetings in October.

Notably, a new subgroup analysis from the OSPREY randomized controlled trial earned first-place poster honors at ISS and demonstrated consistent clinically meaningful benefit across all patient subgroups evaluated, including those with severe OSA, elevated BMI, high hypoxic burden, and higher predictive risk of complete concentric collapse or CCC.

Importantly, the versatility of our 6-contact electrode architecture with our PolySync algorithm offers simultaneous contact simulation to convert most initial nonresponders into responders, increasing the cumulative AHI response rate from 65% to 85% and demonstrating the flexibility to customize therapy to patients with more complex needs.

As a reminder, PolySync will be available for all patients at therapy initiation, starting with their first titration.

Together, these findings reinforce the broad applicability of PHGNS, combining strong efficacy, therapy optimization flexibility, and the absence of a CCC contraindication.

We believe this differentiated approach has the potential to address a broader patient population than currently available HGNS therapies.

As we prepare for launch, physician feedback remains highly encouraging, with clinicians highlighting the potential for PolySync to further improve patient outcomes.

We believe the growing body of evidence and continued innovation further strengthens LivaNova's competitive position in this large and underserved market.

Now turning to difficult-to-treat depression. We have submitted the 36-month RECOVER data to a peer-reviewed journal, which has also been shared with CMS.

VNS Therapy for DTD continues to gain support from the clinical community, and the unmet need among these patients continues to drive our work.

We believe VNS therapy is a differentiated option for this severely ill population. We remain in active dialogue with CMS, and we'll continue to keep investors updated on developments as appropriate.

In summary, we are pleased with our progress across the portfolio. Together, 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 the third quarter results and updated 2026 guidance.

Thanks, Ahmet. 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 2026 guidance, which reflects solid execution year-to-date and improved business outlook.

Turning to results. Third quarter revenue was $393 million, an increase of 10% versus the prior year. As a reminder, the prior-year quarter benefited from a $3.1 million reduction to our reserve for the Italian med tech payback measure.

This was reflected in other revenue related to product sales of previously divested businesses. Foreign exchange in the quarter had a negligible year-over-year impact.

Adjusted gross margin as a percent of net revenue was 69%, in line with the prior-year period. Adjusted SG&A expense for the third quarter was $136 million compared to $123 million in the third quarter of 2025.

SG&A as a percent of net revenue was 35% compared to 34% in the third quarter of 2025. On a year-over-year basis, the increase was primarily driven by planned commercial and IT infrastructure investments.

Adjusted R&D expense in the third quarter was $45 million, in line with the third quarter of 2025. R&D as a percentage of net revenue was 11% compared to nearly 13% in the third quarter of 2025.

The decrease as a percent of net revenue primarily reflects the timing of planned OSA R&D investments, with certain spending shifting from the third quarter of 2026 into the fourth quarter of 2026.

Adjusted operating income was $92 million compared to $80 million in the third quarter of 2025. Adjusted operating income margin was approximately 24% compared to 23% in the third quarter of 2025.

Compared to the prior year, the increase reflects higher revenue. The adjusted effective tax rate for the quarter was 23%, up modestly from 22% in the prior-year period, reflecting the geographic mix of income.

Adjusted diluted earnings per share was $1.23 compared to $1.11 in the third quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses.

Moving to cash balance at September 30. Cash was $563 million compared to $636 million at year-end 2025. Total debt at September 30 was $299 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 in the amount of $98 million, inclusive of accrued interest.

Adjusted free cash flow for the quarter was $56 million compared to $62 million in the prior-year period.

The year-over-year decline reflects increased planned capital investments and higher working capital requirements associated with revenue growth.

Capital spend in the first 9 months of 2026 was $77 million compared to $49 million in the prior-year period.

The year-over-year increase was driven by the next-generation oxygenator manufacturing scale-up, investments in the digital health platform, cardiopulmonary capacity expansion initiatives, as well as investments in IT infrastructure.

Now turning to our updated 2026 guidance. As Vlad mentioned, based on performance to date, we are raising full-year 2026 revenue and adjusted earnings per share guidance.

At the same time, we're maintaining adjusted free cash flow guidance. We now forecast 2026 revenue growth between 9% and 10% on a constant currency basis, up from 8% to 9% previously.

We continue to expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. Consistent with prior guidance, we estimate a net impact from tariffs of less than $5 million on the full-year adjusted operating income, inclusive of current and anticipated future tariffs.

Full-year adjusted operating income margin is still expected to be in the range of 20% to 21%.

As a reminder, this outlook reflects increased investment in the fourth quarter to support OSA product development, cardiopulmonary capacity expansion initiatives, and next-generation oxygenator manufacturing scale-up, along with phasing of certain planned investments from the third quarter of 2026 into the fourth quarter of 2026.

Adjusted effective tax rate is still forecasted at approximately 23%. To reflect stronger operational performance, we raised EPS guidance by $0.10 at midpoint, and now project adjusted diluted earnings per share in the range of $4.40 to $4.50.

We continue to expect adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. This EPS range represents approximately 14% growth at midpoint relative to 2025.

This range now reflects a shift in our assumed timing of the approximately $400 million SNIA payment from the third quarter of 2026 to the fourth quarter of 2026, resulting in a $0.03 benefit to EPS this year.

We believe the amount reserved for SNIA remains our best estimate of the liability, and we have sufficient resources to satisfy the liability.

Adjusted free cash flow is still expected to be in the range of $140 million to $160 million. This range includes $135 million in capital spending, consistent with prior guidance.

This level of investment remains aligned with the initiatives discussed throughout the year, including cardiopulmonary capacity expansion, next-generation oxygenator manufacturing scale-up, and investments in IT infrastructure to support the company's growth strategy.

With the successful operational launch of our new oxygenator manufacturing line, we are seeing tangible returns on these investments, positioning us to support future growth and meet customer demand.

In summary, our third quarter results underscore the strength of the business. Our updated guidance implies 2026 performance at or above the 2025 to 2028 financial framework outlined at Investor Day.

With that, I'll turn the call back over to Vlad for his closing remarks.

Thank you, Alex. In closing, our third quarter results reflect the focus, dedication, and execution of teams across LivaNova.

I want to thank our colleagues for their commitment to our patients, customers, and one another. We're encouraged by the opportunities ahead and remain confident in our ability to create long-term value.

We continue to strengthen LivaNova's core businesses, expand the capabilities needed to serve customers more effectively, and invest in innovation that addresses unmet patient needs.

With that, we're ready to open the call for questions.

[Operator Instructions]

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

Congrats on the nice print and broad-based results. Maybe to start, I would like to spend a little bit of time on cardiopulmonary, specifically as it relates to next year.

And I was hoping you could talk about some of the key puts and takes, things like the new dedicated manufacturing line for oxies; how quickly could that potentially show up in numbers?

And then maybe just remind us of timing for the new heater cooler and air manager products and kind of how you're thinking about impact to growth?

Adam, thank you for the question. So maybe before I go specifically to some of the things you asked about, I just want to step back and talk a little bit about overall cardiopulmonary performance over the past period.

We raised this year 350 bps since the beginning of the year. This is now 15 consecutive quarters of double-digit growth for our cardiopulmonary business and 6 consecutive quarters of double-digit growth in disposables.

So we're very pleased with where we are. I mean, the other thing that we're really pleased with in our cardiopulmonary business is that the quality of growth is improving. And that means that the growth is well balanced across the portfolio within the cardiopulmonary business.

So, both coming from price, the upgrade of Essenz, which continues to be a strong driver, and now significant growth coming from disposables. So that is a little bit of a backtrack.

In terms of significant events that happened recently. Number one is the launch of a new oxygenator line. It went very well. So we are now live in production, and we will see a significant improvement in the output early next year.

We are looking at double-digit growth improvement in output for 2027 versus 2026. So that's number one. Number two, I just want to remind everybody that we are on track to launch a new oxygenator in 2028.

That new generation oxygenator will be clinically differentiated from anything on the market today. And then finally, the heater-cooler and air Manager will continue to be on track in terms of development, and we are planning a phased launch.

This is going to be governed by regulatory approvals across the world, and the first in line will be EMEA or EU.

But I think the significant impact, or material impact, in terms of revenue will be beyond 2027, so starting in 2028.

And maybe for the follow-up, just one kind of more near-term focus question. It looks like with the guidance raise, the implied Q4 outlook, at least on the top line, suggests maybe a little bit of a decel.

Is there anything to call out there, or perhaps maybe just some conservatism, but I wanted to ask about the implied 4Q guide on the top line.

Adam, it's Alex. So first of all, again, pleased with our performance on both businesses year-to-date. And our confidence in the year continues to increase.

Despite the difficult comps in Q4, the underlying drivers of the business are strong. As we said in our prepared remarks, we continue to trend at the upper end of our Investor Day targets.

Our increased guidance is really in line with our philosophy on prudent guidance. And our performance year-to-date and our expectations for Q4- this is more from an OpEx perspective- just enables us to invest from a position of strength.

So that's the story on Q4. And again, really pleased with how the year is shaping up.

Your next question comes from the line of Matt Taylor with Jefferies.

This is Mike Sarcone on for Matt Taylor. I guess just to start, Vlad, you opened up the prepared commentary highlighting your excitement and confidence in the OSA market and your opportunity there.

I guess, can you just kind of remind us about commercialization timelines and the size of the commercial organization that you think you're going to need to at least start addressing the market?

Yes. So what we are planning to do is that our time 0 is our regulatory submission for the U.S. FDA.

As I mentioned in my remarks, we're very confident in the timelines that we communicated. Our confidence is continuing to increase in that. So we do not have a large buildup in 2027.

We communicated that earlier. That's still the plan. The real increase in commercial investment starts in 2028, but we continue to plan a limited launch in 2027.

And I guess just one more follow-up on the OSA market. Just given where things stand today, do you have a rough sense or outlook for growth in the market today and how that might look in 2027?

Yes. Well, first of all, we are closely monitoring, obviously, everything that's happening in the market.

We believe that the market remains a very attractive space for us to compete. And that is driven by a number of things.

Number one is that there is a significant unmet need from a patient point of view: up to 1 million patients discontinue CPAP therapy annually, and HGNS penetration within that population remains below 5%.

So that gives us still significant opportunity from a patient point of view. While there are currently challenges and reimbursement uncertainty in the HGNS market, in the near term, we believe that these dynamics are going to improve, and the challenges and the dynamics are temporary.

And you already saw some of the positive news from new codes being established for 2028. And then finally, when we enter the market, as a reminder, we don't have contraindications for CCC patients.

So, by design, that is going to increase the market size when we enter the market. So we still believe in the attractiveness of this market, both from a growth point of view, but also the margin opportunity on our business, we have strong confidence in our ability to win in this marketplace.

And maybe I'll just add one comment around the clinical differentiation. As Vlad said, we do not have a contraindication, which is about 25% of the patient population. So the market is growing.

But we also have a strong clinical differentiation through PolySync where we have cumulatively 85% responder rate. So what that effectively translates into is that today, 1 in 3 patients do not get a great outcome with HGNS, but with PolySync technology, we reduced that to 1 in 7.

So the fundamentals of the therapy are also improving, which gives us that additional confidence that this is a good market for us.

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

Congrats on the really strong results. I appreciate the comments on U.S. cardiopulm already.

I recall last quarter when you talked about that first-half high single-digit growth; there's a thought that that's kind of the way we should be thinking about that in the second half. And obviously, you delivered something above that.

So when we think about what's baked into the guide for Q4, I feel like we typically think there's a stronger capital placement cycle maybe in the fourth quarter.

Obviously, the comps are a little bit different versus Q3. You've got this oxygen air line that's now ramping. Maybe there's some level of increased contribution baked into Q4 as well.

But just trying to think through the pieces around some of the U.S. Cardiopulm segments, specifically on that typically stronger capital Q4, plus maybe some of the pieces on the expanding oxygenaire side.

David, yes, you're right. So our capital is a significant component of our growth. But just to remind you, we launched Essenz in Q4 of 2023.

So it's been a challenging comp for us for the last couple of years and will continue to be so in Q4. So consumables are going to play a larger part in our growth story in Q4.

Again, I think our story around Essenz conversion continues to play out. Still expect for the full year, Essenz to represent 80% of placements, up from about 55% last year, which is pretty strong.

So we're going to continue to benefit from the price/mix effect. And our funnel continues to be strong going into 2027.

And maybe on the VNS business, the epilepsy business, it looks like, again, that's been accelerating through the year, maybe 200 basis points or so in the U.S. this quarter.

So wondering if maybe you could unpack how that contribution of price has ramped through the year, specifically relative to Q2, whether or not there has been any underlying change in the de novo or replacement cycles when we think about the core VNS data.

Then, as you look to 2027, 2028 with this next-gen product, it sounds like maybe some of these workflow improvements are a little bit better than what we had assumed.

And wondering if, at all, beyond maybe potential price contribution from that product as well, that maybe that's something that could pull through some additional utilization as well.

Yes. David, thank you for this question. Let me start on overall growth drivers, and then I'll turn it over to Alex to talk about financial components this year.

So if you look at our epilepsy business, we have 3 tailwinds, or 3 important drivers of growth.

Number one is the VNS clinical data that is coming out, and recently it was published and the clinical evidence is being disseminated throughout the clinical community is receiving very strong positive reviews from the clinical community. And so that's number one.

Number two is, as you know, this increase in Medicare reimbursement, approximately a 50% increase. So that's helping with the economics of the providers and, again, a very positive impact.

Then the third one is more the future one. So as we launch new innovation with next-generation IPG and the digital health platform, which will enable remote titration, this has been a significant barrier for patients and caregivers, and unlocking that opportunity with remote titration is going to be a very important growth driver.

So the clinical data and the reimbursement already happened this year, and then the innovation, we expect it to become the third positive driver next year.

So overall, again, we're very pleased with the momentum of the business. And then maybe now to Alex to talk a little bit about components this year.

Yes. So, consistent with what we saw in the first half of the year, we're seeing improvement in both volume and price.

On volumes, we're seeing an increase in new patient implants. Our funnel continues to be strong, and that's reading through. On the pricing, we still are seeing consistently seeing that our realized price is reading through at about 2x what we normally expect from the annual price increases really driven by lower discounting.

So both reimbursements and, as I said, the clinical outcomes continue to increase access for patients and drive strong revenue, both from a volume and a realized price perspective.

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

Congratulations on a strong quarter here. Maybe one on oxygenators and then one on depression.

On oxygenators, maybe, Vlad, can you walk through the scale benefit that the company has built here? We have a larger manufacturing presence. You have the Thermo Fisher agreement in place.

How sustainable is that competitive advantage for oxygenators? And hence, what is the normalized growth rate of that business going forward now that you have that advantage?

And then in terms of depression, maybe any updates you can share with respect to CMS discussions on potentially accepting a formal NCD review process? Just any updates you can provide there would be helpful.

Anthony, thank you for the question. So I'll start with oxygenator, and then I'll turn it over to Ahmet to make comments on depression.

So maybe a couple of points to start with. Number one, as a reminder, I mean, this is a very mature market, obviously growing in mid-single digits.

We were able to increase our market share from approximately 30% to approximately 40% over the last 2 years. And so we do expect this trend to continue. And the upside is going to come from 3 angles.

Number one is commercial excellence. Number two is the ability to scale our manufacturing output faster, and number three is innovation.

So on the supply side, now if I go into the manufacturing scale-up, the market is still operating in the environment where the demand is outpacing supply, and we're still operating in a backlog.

And so there's still a short-term opportunity just by purely improving output to gain significant share. In our strategy, we have 3 important components.

Number one is just continuously improving our operations. And so this has been the driver of our output growth over the last couple of years. So, doing better with the current network that we have.

Thermo Fisher agreement was important because it unlocks the availability of critical components over the long term and gives us the ability to continue to grow market share in a consistent manner over the next several years.

And number three is our own ability to increase our manufacturing output. And so this launch of this new manufacturing line that is live now has been a very important milestone from that point of view.

So I would say a combination of those 3 gives us confidence in double-digit improvement in output next year, and we will be more precise in our guidance when we guide next year.

Maybe on depression, one of the key developments is that CMS has been inquiring about the 3-year data, the 36-month data. And we got that data in the middle of this year, submitted to a peer-reviewed journal, and we have shared the data with CMS.

We're actually very excited about the data because the durability of the therapy is very strong. And that's not atypical with neuromodulation. Generally, with neuromodulation, the longer you use the device, the better the therapy outcomes are.

So it was not a surprise to us, but having a validation was important. So we are still in active dialogue with CMS. They are reviewing the data we submitted, and we will update investors as appropriate when and if we move to a formal submission.

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

So I just want to ask one question on epilepsy with regard to pricing. So I understand the drivers there. But looking beyond '26, do you expect these tailwinds to remain in place for pricing?

Then with the new IPG and digital platform coming next year, is that another opportunity to raise prices as well?

Yes. So thanks for the question, Mike. Yes, the realized price, as we said throughout the year, when the reimbursement guidance improved, we started renegotiating contracts with a number of accounts, which we were successful in doing, and that really resulted in a reduction in discounting.

We weren't able to capture all of the accounts. So there will be some residual effect going into 2027. So there will be some incremental realized price benefit going into next year.

In terms of opportunities on the new product, yes, because of the significant value proposition, we think that the product will be premium priced. We're not disclosing what that is at this point, but we do believe there's an opportunity there.

And then just in terms of the OSA device from a manufacturing perspective, I assume you're going to have adequate capacity to meet any demand there, and that's not going to be a potential bottleneck.

Yes. We have adequate capacity for the OSA launch and to scale the business. So no issue there.

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

This is Will on for Brett. With respect to the new line, I was just wondering if you could parse out how additive that was to the quarter in terms of growth.

And then, given the fact that it is a new line, could you maybe just speak to any margin opportunities with that going forward?

Yes. Will, before I answer your question, I just want to go back to Anthony's question real quick on DTD and just add to what Ahmet said.

If you are interested in learning a little bit more, there was an important article that was featured in the American Journal of Psychiatry and also an interview by Dr. Conway; it's in a monthly podcast.

So it gives a really nice flavor to the clinical data and how our key opinion leaders are viewing it. So, Anthony, just to add to your question. And then, Will, on your point, what I can tell you about the new manufacturing line is obviously, it's a complex process to launch a new manufacturing line.

I think the team has done a wonderful job executing it in a timely manner, and we are starting to see production coming out of that new line.

Because of the timing of the launch, we are still building inventory on that. So we won't see any impact on our business until next year. So that's number one.

And look, in terms of margin, I mean, we've guided, and Alex, maybe you can comment there, but we've guided our goals in terms of margin improvement on our CP business. Obviously, the launch of that line is a component of that strategy.

This is the business where scale matters. And so having larger scale gives us an opportunity to continuously improve our margin.

Yes. As Vlad said, we have invested in this new capital equipment to scale the business. So obviously, the more market share we're able to gain and drive higher volumes through this fixed cost base, it will have a positive effect on our margins.

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

I wanted to start off with some questions on 2027, specifically around the margin puts and takes.

So when you did the Investor Day early last year, I think you talked about, in the 2027, 2028 time frame, maintaining operating margins in the low 20s.

Obviously, a number of things have happened since then: some outperformance on margin this year, but also the new deals and the expanded CapEx and all those types of things. So just how should we be thinking about operating margin next year in terms of up, down, or flat versus '26?

And what are the most important puts and takes we should be thinking about? And then I have a follow-up as well.

Keith, so look, our Investor Day financial framework continues to stay intact.

Our long-range plan was comprised of 2 phases. The first phase was '25 through '28. And as we guided at that point in time, our operating margin will be at 20% to 21%, or I should say, above 20% in the near term.

So that's our expectation as we look at the near-term outlook; we obviously have a big opportunity with the OSA launch next year.

So possibly, I think we're at this point in time, we're not ready to talk about 2027 in terms of guidance, but we are aligned with our framework that we communicated at Investor Day.

And then just a follow-up on OSA, just 2 questions here. Number one is: when should we expect to see the detailed substudy data published in the journal?

And then maybe just a broader question in terms of the market leader has been around this space for a long time, and it's still a very underpenetrated market.

So is it your view that the market just needs additional competitors, additional commercial investment? Or are some of the advantages that you see with your product, do you see those as driving increased uptake as well?

Yes. So I'll start, and then I'll also ask Alex to add. So the subgroup analysis was actually presented in ISSS, and it actually won the best poster award as well in that.

What is really exciting is that we did not see differences in subgroups. So the technology works homogeneously despite your BMI and your comorbidity. So that's the interesting part of it.

What is really important for us is PolySync's ability to have a very high responder rate. I think earlier, I alluded to it. Going from 1 in 3 patients not having an ideal outcome to only 1 in 7, we believe, is a fundamental change.

In terms of your question around the market, we do believe the diagnosis of OSA is improving. GLP-1s are actually helping that. The technology is becoming more mainstream.

The fact that we don't have a contraindication grows the market by 25% on day 1. So we feel very strong based on the clinical data, the technology differentiation, and the fact that diagnosis is improving in terms of how the market will continue to grow.

I would just say our confidence in this market continues to build. We think we have a compelling value proposition with our technology and the clinical evidence that Ahmet just talked about.

Historically, this market has grown at a double-digit rate. And the current slowdown in the market growth, I think, is a temporary phenomenon driven largely by the confusion around coding and reimbursement, but that will work itself out by the time we're out in the marketplace.

And maybe add one more thing. In terms of the CMS CPT codes, we are very pleased with the panel's decision, and we did participate in the application.

Actually, our RCT data, because we are the only RCT for FDA approval in the United States, was utilized as the Level 1 evidence for the CPT code. So we also think that once the reimbursement piece is clearer now with this recommendation of AMA starting January 2028, there's clarity for us in terms of reimbursement.

We do believe that's also going to significantly help the market growth.

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

Okay. Well, thank you very much, and thank you, everyone, for joining the call today. And on behalf of the entire LivaNova team, we really appreciate your support and interest in LivaNova, and have a great day ahead.

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

Perfect. I think we'll get going here. First, just an administrative thing, there is a disclaimer on the Morgan Stanley website. So please make sure to go look at that. I'm very happy to welcome back the LivaNova team to the stage here. We have Vlad, Alex and Phil to talk about all aspects of the business.

So maybe to start us off, you can just ground us a little bit for those who are newer to the story about LivaNova today and where you all are headed.

First of all, thank you for the opportunity to join you and thank you all for joining this morning and for your interest in LivaNova.

So for those of you new to the story, LivaNova is a global medtech company. We have nearly 50 years of experience in some of the market-leading portfolios. Today, we have our core business, which is our cardiopulmonary business, that it's a portfolio that is used during open heart surgery, heart-lung machines, oxygenators and other disposable technologies that help this life-saving surgeries possible.

On the other side, we have -- that business is -- has about 70% market share globally on the equipment side and about 40% market share on the disposable side. On the epilepsy front, which is the second part of our core portfolio, it's neuromodulation technology used for treatment of drug-resistant epilepsy, and there were more than -- or nearly 200,000 patients that have been treated with this technology and also it's a market-leading technology in this space.

At the same time, we are expanding our portfolio into high unmet need areas from a patient point of view, areas of potentially higher growth and market size and areas where we have the right to win. And the next shift of our expansion comes in obstructive sleep apnea, where we have clinically differentiated technology. And then potentially, we are looking at expansion in difficult-to-depression with a similar neuromodulation technology, and that is pending CMS approval.

So that is a little bit about our portfolio. And then in terms of kind of the recent news, we had a number of tailwinds across our businesses. On epilepsy, both new patient and replacement procedures received nearly 50% improvement in reimbursement earlier this year.

At the same time, there's a new clinical data that came out on treatment of drug-resistant elicit neuromodulation that shows significant improvement versus the previous clinical studies that we have. So that's another step forward. On the oxygenator front, we've -- one of the barriers to growth in the market has been supply chain. So the market -- the demand has been growing faster than the ability of the market to supply and we had a major improvement in our supply with a long-term agreement we signed with Thermo Fisher to unlock mid- and long-term supply opportunities.

And then finally, on obstructive sleep apnea, -- we've completed our clinical trial and this new technology that we call PolySync. It's a titration algorithm that delivered 85% responder rate with patients with sleep apnea, which is significantly higher than the current incumbent

Great. I mean, those are a lot of different growth vectors. And over the last few quarters, if we just look at the performance versus your weighted average market growth rate, you've significantly outpaced that. How would you contextualize the outperformance and the drivers of the outperformance and also kind of the sustainability of that?

Yes. Thank you for that question. I mean I think we focus on 3 things in terms of kind of improving our performance. Number one is on talent. I strongly believe that any great organization start with great talent and good teams drive good performance. And so we've focused a lot on building a strong culture, bringing great new talent.

So over the last 2.5 years, about 45% of our direct and above team are new in the role, coming either from external hires or internal promotions. So that's number 1 factor. Number 2 is execution. On the execution front, we were able to grow faster than the market. And I mean, the main contributors of that were our developing competitive momentum in the business, improving our supply chain. And so execution has been a huge focus area.

And then finally, innovation. We have significantly upgraded our skills in R&D and the external innovation and renewed our innovation portfolio, both in the core businesses where we have a few new product launches coming up as well as getting into new categories, sleep apnea is an example of that. So people execution and innovation have been improving our growth performance.

Okay. Why don't we unpack it a little bit more and starting off on the cardiopulmonary side? You've continued to gain share in the oxygenators market, while having a leading position in the heart-lung machine market. What's your current assessment of market dynamics and the competitive landscape?

Sure. So the 2 things that we see in our cardiopulmonary business that is helping our growth. One is the market itself is growing with a healthy mid-single-digit growth. And it's an improvement from historic low single-digit growth market. And that is driven by aging population.

It is driven by the fact that patients that have undergone some minimally invasive procedures are coming back in open heart surgery. So we see that this mid-single-digit market growth will remain and be sustainable. Number 2 is we are gaining share in that market. And the drivers of the share gain came from 2 areas.

One is the launch of new heart-lung machine that we had a couple of years ago. And then number 2 is our ability to gain share in oxygenators. And so over the last 2 years, we went from 30% to 40% share in oxygenators that was supported by improved supply chain. And like I said, we recently signed a long-term agreement with Thermo Fisher that kind of removes supply as a governor of our growth moving forward.

Yes. And potentially allows you to further the gain growth over time. Okay, perfect. I mean I think that the growth of the U.S. cardiopulmonary business last quarter got decent amount of attention for being uneven. Can you talk about the sustainability of growth in the business and how people should really think about that on a go-forward basis?

So I think the performance in the U.S. specifically for second quarter was 2% in cardiopulmonary business. It's not reflective of the durability of growth in our cardiopulmonary business. As you know, we've now guided that business from 9.5% to 10.5%. It's an improvement of 250 bps of growth since where we started the year and what makes me confident in our sustainable growth in cardiopulmonary businesses, it comes from a number of different levers.

So one is upgrade from old to new heart-lung machine. The other one is the share gains in our oxygenator business. The third one is our ability to continuously improve our pricing and number 4 is a launch of new technologies, for example, heater-cooler and air manager and that kind of module parts of every heart-lung machine and starting in 2027, we will be launching those upgraded version. So growth is coming from a number of different factors, and the quality of that growth gives me confidence of its sustainability.

Okay. Great. And you touched on a little bit of the pipeline within CP, but just to double click on it. As you think about those next generation of products, what are the clinical benefits? And how do you expect them to support the continued growth within CP?

Yes, sure. Thank you. So it's an exciting pipeline for us in CP, and it's one that I think, is unique in the marketplace. First, I'd start with oxygenators. So Vlad described the supply dynamic and the share gains that we've had over the last few years. On the back of that, we'll be launching a clinically differentiated product in 2028.

There's a number of different clinical parameters that a perfusionist cares about in our preclinical testing we meet or exceed every one of those. And so for example, whether it's pressure drop or blood platelet preservation, what we see is strong outperformance that can translate to better clinical outcomes for the perfusionist whether it's infection rates, bleeding, et cetera.

And so really exciting to be able to introduce that into the market in '28, and we expect that will continue to drive those share gains for us. As we talked about and Vlad mentioned briefly on the capital HLM side, there's a number -- when we initially launched Essenz we launched it with a legacy modular component. So two of them being heater-cooler and air manager.

We've since been developing next-generation versions of those products, and we expect them to launch in 2027, and that will be at approximately 2x ASP from the legacy products. And so the launch of those, as we go to upgrade around the world will be a driver of the durability of the cardiopulmonary growth over time.

Okay. Great. I mean maybe we'll switch gears and talk about epilepsy. VNS remains underpenetrated. How is the improved reimbursement and core changing behavior in the market? And what does the next generation device add to that growth algorithm?

Yes sure. You mentioned the underpenetration in epilepsy. And I think it's important to put that into context. So there's about 3 million people in the U.S. that live with epilepsy, about 2 million of them take drugs and it manages them well. 1 million don't, and they're classified as drug-resistant epilepsy.

Within those 1 million in the U.S. of prevalence, less than 15,000 a year get some sort of advanced therapy. So that prevalence is growing. And so there's a real underpenetration right now of these advanced therapies in addressing the market. And our goal is to reach more patients and to reach them sooner in the care pathway.

Because right now, the average patient takes 15 years from being classified as drug-resistant to actually getting to an advanced therapy. And that's why we're really excited about the tailwinds that you mentioned. The first is around reimbursement. So at the beginning of this year, we received about a 50% increase, both on our new patients for epilepsy as well as for the battery replacements. We call that EOS. And that's removing what had historically been a financial headwind into the decision of whether or not to implant a VNS therapy in the treatment of epilepsy. So we've been seeing some good signals in our business, already around kind of the growth of our patient pipeline that's being driven by that reimbursement piece.

Secondly, core VNS, it's the largest real-world study, 16 countries. Over 600 patients globally that demonstrates the efficacy of VNS and it really represented a step change from what may be the historical perception of VNS therapy was to kind of today in the reality of what physicians and patients are experiencing.

So 77% median seizure reduction. And this is really starting to reshape how patients are thinking about VNS within their algorithm of treating patients, both from recommending it as well as where in the care pathway. So both of those are, I think, really exciting dynamics that's going to help that underpenetration.

And then maybe lastly, next year, we have our first product launch in almost a decade in the epilepsy business. And this is a Bluetooth-enabled connected product that's going to allow for remote titration. And that's really important because if you look at your average epilepsy patient, this is somebody that, on average, drives 40 miles to get care.

And in the first year after implant can -- has to go back to the physician's office up to 12x. And a lot of times, they can't drive or in the case of a pediatric patient, the burden on the adult caregiver. And so this is removing a very significant burden on a potential new patient as they think about making that decision to get a VNS therapy. So all of those we expect to really drive kind of the future of the business.

That's great. That's very helpful qualitative color. Turning into a quantitative impact. If I just look at the guidance for the business, you all improved to increase it to 7% to 8%, up from 6% to 7%, which is also a step up, I'd say, from the mid-single-digit profile share at Investor Day. How do you guys think about the drivers of that guidance increase?

Well, historically, we've been very prudent in terms of the way we guide for the year. We guide to what we see in the business. Vlad mentioned some of the tailwinds around reimbursement and the traction we've seen with the clinical evidence.

So the initial sort of impact of the reimbursement change has manifested itself in terms of our realized price. So we saw that coming through in the first half of the year. We expect that to continue in the back half of the year. We feel confident in that component of growth.

The next element is new patient implants. And what we've seen is our new patient funnel has continued to improve. It's -- that's kind of the leading indicator. We need to see that converted into implants. We're starting to see traction on that. And that gives us greater confidence in our ability to drive growth through that segment of the business.

And then the third element is our end of service or replacement business. That's a historically kind of a low single-digit growth part of our epilepsy business. That's been performing according to plan and is a solid kind of annuity stream value stream for us. So all in all, new patient growth as well as the pricing elements gave us confidence to increase our guidance for the year.

And then finally, I would just say -- our international business, our OUS business has performed extremely well in the first half of the year. We see that continuing in the second half. All those things combined is the reason we took guidance up -- and we will continue to watch it and hopefully overachieve as we move along.

That's very helpful. And maybe I'll just switch to OSA now. How are you currently thinking about the market? And why will you be clinically differentiated when you do go to market?

Yes. OSA is a really exciting opportunity for us and is one that really lives into the strategy that Vlad laid out, which is using the strength of our core businesses, both from a financial standpoint as well as from a capability standpoint to get into new high-growth, high unmet need markets.

And this is a great example of that. In the U.S., you have up to 1 million patients a year that are following off CPAP. And right now, the penetration of hypoglossal nerve stim in that group is less than 5%. So massive need and opportunity in that market for OSA.

And so the question is, how do we win? And it really starts with the clinical differentiation that results from the architecture and the technology itself. So what we bring to the space is a 6 electrode cost that's placed on the proximal end of the nerve that allows for control of all of the major muscle groups in the airway.

And the result of that is a few things. One, what we demonstrated in our pivotal trial was that we are able to address the most complex patients. higher BMI, higher AHI. And it's that architecture that allows for the ability to address that. Secondly, we're not contraindicated for CCC or complete concentric collapse. And this is about 1/3 of the patients in the obstructive sleep apnea market that have this currently with the incumbent, they are screened out.

Our technology is going to allow to treat those patients as well. And so as we think about kind of the ability to control all those muscle airways, it really does allow you to address a group that is currently being underserved in the market. And then finally, that 6 electrode architecture allows us to really do a lot more in terms of the way we titrate, how much power we put in, the combination of electrodes and it really makes it a solution that's more tailored to the anatomy of a patient.

And the result of that, that we saw in our PolySync data was an 85% cumulative responder rate, which is well above the clinical trial data that's been put out by both the incumbent and the other competitor today. And if you think about it, the big -- the challenge in penetration in any neuromod technology is that decision to get surgery.

And if you have a 65% responder rate, when a surgeon is going to talk to a patient. He says, "Well, we have a 1 in 3 chance that you're not going to have a great clinical response to this device." That's a very different conversation if it's an 85% response rate. So that conversation is now you have a 6 in 7 chance of having a great clinical response that can benefit you. And we believe that's going to drive a very different view of HGNS technology in the treatment of sleep apnea.

Okay. That's very helpful. Maybe give me an update on the latest of your commercial device, PMA supplement submission so folks can think about timing appropriately there.

Well, so our timing is as we laid out that we expect to submit the supplement between the second half of this year and the first half of next year. So very much tracking to that schedule. That then leads into a commercial launch sometime in 2027, with kind of the meaningful ramp starting really in 2028.

Okay. Perfect. Maybe we'll go through the financials and Alex, I'll stick with you. You raised full year guidance again after a strong first half of the year. We heard a little bit about your thought process on the epilepsy side. But if you could just generally talk about what's improved and what the sources of upside were versus conservatism that you had built in, in the first half of the year, that would be helpful.

Yes. So I'll start off with the cardiopulmonary business. We went into the year kind of with 2 questions in mind, just continued upgrade cycle on the HLM where we see the same type of price mix effect that where we've seen in -- over the last 2 years. That's playing out and gives us more confidence going into the second half of the year.

In terms of our supply chain and our ability to drive output through our manufacturing network, we had questions around our ability to continue to improve manufacturing output and we have been successful in doing that in the first half of the year, we expect to continue that in the second half of the year as well. With epilepsy, again, the reimbursement improvements and the traction we've seen with the core clinical data, we wanted to see that starting to read through in terms of new patient implants the reduction in discounts in terms of our pricing there.

All of that is playing out as we expected, again, giving us confidence to take guidance up for the full year. If you look at our sort of first half, second half growth profiles, it's a comp story, right? So last year, particularly in epilepsy, first half of the year, we were dealing with a field safety notice. We -- that played out with a strong recovery in the second half of the year. So the comps for us this year become tougher in the second half.

So all in all, we're confident in how the year is playing out. Again, our objective is always to deliver on the strength of our business and hopefully overachieve our targets.

Okay. Great. And maybe to wrap up, as you think about kind of the focus and the strategic capital priorities for LivaNova over the next 2 years, how are you thinking about reinvestment in the business versus M&A?

Yes. So as we laid out our capital allocation priorities in our investor -- during our Investor Day, top priority for us is to continue to reinvest in the core business. It's the clearest path for us to value creation. We have 2 strong franchises that will continue to perform well, and we want to continue to ensure their sustainability of growth and margin expansion in those businesses.

Second is our investments in OSA, entering an exciting category that has the potential to transform the growth for LivaNova. We're going to invest in that. So we're going to -- we kind of drew the line in terms of margin expansion at, say, 20%, but the core businesses will continue to expand margins. We'll reinvest that into OSA to stand up an exciting new business for us, accelerating our growth profile into mid- to long-term and then hopefully, there's a depression story that plays out in the near term as well.

The third kind of the last priority for us is tuck-in M&A. It is -- we feel it's an important tool for us as we build on the strength of our core businesses. So high thresholds in terms of strategic fit and financial fit for us. We don't need M&A to grow and to continue to create value for the business, but it is an important tool that we see as part of our portfolio play. So those are kind of the 3 key elements of our capital allocation priorities.

And how should investors think about the free cash flow conversion target that you all laid out of reaching 80% by 2028 given the investment you guys are making in the business this year, particularly on the CapEx side?

Yes. CapEx has been elevated for us starting last year and into this year. We see that continuing into the following year. It's largely been consumed by our capacity expansion initiatives in cardiopulmonary. That's been kind of the top consumer of CapEx.

Second, we are investing in our new ERP system that's coming online gradually. It's a phased approach for us. That will continue into next year. So we'll be fully implemented by 2028. And then the third element of our CapEx priority has been in our digital platform, which is kind of the foundation to digitize the rest -- our entire portfolio.

We're starting off with epilepsy, but obviously has -- we have the ability to leverage that platform across OSA and even into cardiopulmonary. So those will sort of peak over the next 12, 18 months and then will start to normalize as we go into kind of the latter parts of our LRP. And then we see that cash conversion really accelerating.

Okay. Very helpful. Vlad, maybe I'll turn it to you for some closing remarks as we wrap up here.

No, I think -- thank you for the question. I mean if you look at LivaNova, and maybe I'll finish where I started. It's a good combination of well-performing core business in cardiopulmonary and epilepsy that creates the sustainable foundation for expansion of margin, generating cash.

We are very focused on making sure that our growth in those businesses is sustainable and that we can reinvest at then and to get into new categories in faster growth markets and OSA is our next chapter of growth. And if you look at the business kind of mid- to long term, the entrance in the OSA and the strength in our core will reshape our portfolio to be in a faster growth kind of category, both on the top and bottom line.

Okay. Wonderful. Well, thank you for taking the time.

Thank you.

Thanks for having us.

Have a great day, everybody.

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Second Quarter 2026 Earnings Call. [Operator Instructions] 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 4 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 CP 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, combined with 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 in both a sequential and year-over-year basis 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 3 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 units 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 Tech 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 through 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 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 6-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 just roughly 1 in 7 patients compared to the current standard of care of approximately 1 in 3. 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 preprint list 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 3 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 onetime 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.

[Operator Instructions] Your first question comes from the line of Matthew Taylor with Jefferies.

This is Mike Sarcone on for Matt. I guess just wanted to start off on the CP side and the Thermo Fisher partnership. Can you maybe just 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 CP growth kind of going forward?

Yes. Matt (sic) [ Mike ], thank you for the question. So maybe just to step back and if you look at our market share progression over the last couple of years, we're very pleased with our progress. We moved market share in oxygenators from around 30% a couple of years ago to about 40% today. And we believe that we can continue to drive the share gain kind of via 2 channels.

One is delivering innovation. So we have a new generation oxygenator coming up in the next couple of years. And then we are continuing to expand -- the second one is that we continue to expand our manufacturing output. So -- and then if you then zoom in on the manufacturing output, if you look at our strategy there, we have 3 key components there. So one is improved processes within our current network. And that has driven the improvement in our manufacturing output to date.

So then the second one is we are installing a new manufacturing line, and that is expecting to go live in the second half of this year. And this will have material impact on increase of output in 2027. And then the third one is this securing reliable critical component supply kind of -- which will lead to increased output long term and basically removes supply constraint as a governor of growth.

So that being said, so we've signed an agreement with Thermo Fisher. We've been working on it for some time. And that agreement basically ensures that mid- to long term, we will have reliable supply of the critical component and kind of completely remove the bottleneck from manufacturing output. I think, obviously, from the business point of view, we have more confidence in our ability to gain share moving forward. But I think more importantly is this is a life-saving nonelective procedure.

And from a public health point of view, this just ensures that patients will have products available for this very important surgical procedure. So I think that's, I think from a public health point of view, it's a critical step forward as well. So in summary, we're very pleased with this partnership and already Thermo Fisher have been a really fantastic partner to date for our manufacturing work.

That's helpful. And then just second question, I'll switch over to Epilepsy. You talked about higher ASP due to reduced volume discounting. I know you've been benefiting from more favorable reimbursement this year. I guess, can you speak to your thoughts on pricing and how you'll use that as a lever for growth going forward?

Yes. Thank you. This is obviously another very important area. Again, let me step back and maybe I'll talk both price and volume. So we we're pleased with the tailwinds in the Epilepsy business and the recent momentum in the business. And there are kind of 2 key drivers that are impacting this recent momentum.

So one is the strong CORE-VNS clinical outcomes, which are accelerating referrals, they're strengthening clinician confidence in the procedure and they are supporting early adoption of VNS Therapy into the treatment pathway. And then the second one is this increased Medicare reimbursement as of 2026. So as a reminder, it was nearly 50% increase in both new patients and end-of-service procedures versus 2025 rate. And so we're seeing the improvements in both price and volume.

On the price side and with respect to -- it's connected to the reimbursement. But in Q2, we saw realized price improve roughly twofold versus what we would normally expect from our annual price increases. And that's basically driven by less discounting. On the volume side, we're seeing an increase in NPI in existing accounts. And that's -- again, that's driven by the improved clinical data that we saw in CORE-VNS study. But also the improved reimbursement has given us ability to open new accounts.

So we see some new account activation as well. So I mean, both reimbursement and the strong clinical data, I mean, ultimately will increase access to patients to this procedure. But again, I think 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 CP. Global CP had a very solid quarter. U.S. was maybe a little bit softer. So I wanted to ask about that segment in particular. Any one-timers in the quarter? Any changes to kind of CapEx behavior from customers or just kind of like a general maturation of the Essenz rollout in that region? And then I also heard you mention lower -- there's an offset to growth from the autotransfusion systems and cannula. So I would love to kind of understand that dynamic and kind of the impact that it had. And then I have a follow-up.

Adam, yes, look, our growth drivers remain firmly intact. The U.S. growth was very much in line with our forecast. The drivers continue as we've seen and Vlad has mentioned. So the Essenz upgrade cycle continues. From a consumables perspective, we continue to gain market share and price continues to be a growth driver.

It was in the first half, and we expect to see that moving forward. So from a regional perspective, we don't see any outages there. I think it was kind of planned along with our expectations. With regard to your question on the other components, yes, autotransfusion, cannula are the other elements of our consumables portfolio and perhaps grew -- they grew slow -- at a slower pace than our oxygenator business and our HLM business. But there's nothing -- there's no glitches there either just expected sort of phasing of orders, and we're right on track with our plans.

Okay. Perfect. And then if I could flip to OSA. Obviously, very encouraging data regarding PolySync at the SLEEP Meeting earlier this summer. But actually wanted to ask a little bit just around kind of time lines. I think you talked about the submission of the PMA supplement for the second-gen technology in the back half of this year or first half '27. We just -- it feels like maybe a slight wiggle there. So maybe just kind of what's driving that? And how do we think about any kind of potential ramifications or impact to revenue and even OpEx spend?

Thank you. This is Ahmet. So we are in the final stages of product development. And now we expect the PMA supplement submission to be between the second half of '26 and the first half of 2027 versus our prior expectation of second half of this year.

Now our updated timing reflects the work we need to do for the final design verification and validation process. But I want to be very clear, the updated time line does not relate to efficacy or safety of the device. We continue to be very excited about the new design and its feature sets. Now we do have high standards for our patients and the company, and we want to uphold those in our development process, and that's why we updated the time line.

But this really doesn't change the conviction we have for our OSA program and the opportunity we have long term. OSA for us still remains a large underserved market where we believe we have the right to win with our clinical outcomes, and we believe we will set a new standard of care for HGNS therapy with the PolySync technology. And given the strength of that data, given the strength of PolySync, our conviction actually increased over the last several months in our ability to win in this market. And you asked about revenue. We continue to commit to the $200 million to $400 million 2030 target in terms of our revenue with OSA.

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

Oxygenator question. I hear all the updates on capacity expansion. Appreciate that. As I look at the updated Cardiopulmonary guide, what's implied for growth in the second half, 7%-ish in 3Q, 4Q after low doubles in the first half. So I want to understand, is there something about the oxy supply-demand situation such that capacity is super tight right now and 2H might be a little lighter on your ability to fill and that's what's reflected in this slower guidance? Or no, you're comfortable that this kind of double-digit oxygenator growth trend has a chance to continue before the new capacity comes online next year? I just want to understand the timing a little bit better.

Mike, so from an oxy perspective, we have a strong growth trajectory for the full year. And obviously, part of the reason we've increased our guidance this quarter is because of the strong performance we saw in the first half, which gives us confidence that we'll be able to deliver for the full year.

I wouldn't read anything into the deceleration of our forecast there. I think it's in line with our philosophy to continue to guide to what we see today and the opportunities in front of us. So we feel confident in the portfolio. All of the improvements that we're making in terms of our operational gains and manufacturing output continue right on track.

As a follow-up, I have a question on cannula as well. There was news last week or earlier this of a major recall from what I think is one of your major competitors in that category. But my feel for cannula category is not super great. So I'm just wondering if you could help us understand those underlying market dynamics and whether a competitor disruption is a good guy for you or no, that's not something we should look forward to.

Mike, it's a relatively small part of our portfolio. Obviously, we're going to step in and support the market as needed. It is an important part of all cardiac procedures. So we want to be there for our customers when there is a market void.

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

Great. Congrats on the results here. I want to ask maybe a 2-part question on the Epilepsy side. I think you previously had talked about this volume-based discounting, removing that kind of phasing through the year. And I think the comment was pricing is twice as much as what you historically have seen. So I guess, is it fair -- trying to get a sense for where you are in that phasing process, meaning would it be fair to assume that, that 2x normal pricing contribution rate can continue to expand through the year? Or you're primarily through that at this point?

And then I think you also mentioned that there's definitely some new accounts coming online for VNS. And just wondering if you could expand a little bit maybe on what some of those types of accounts look like relative to that core comprehensive Epilepsy base you've had in the past?

Yes, so on pricing, we saw the contract renegotiations that contributed to the growth in the first half. That was a big contributor to growth, and we expect that to continue for the balance of the year. As Vlad mentioned, our realized price, our normal inflationary price increase is 1% to 2% historically, we saw our realized price nearly double in the first half of the year, and we expect that to continue.

There are contracts that we haven't been able to capture those renegotiations in the window for this year. So those will be residual renegotiations that will continue into 2027 and should provide a tailwind for that cohort of accounts. With regard to account activation, as we said earlier in the year, our teams, our commercial team was focused on driving penetration in our existing accounts in terms of driving new patient implant volumes, opening accounts that have previously closed due to economic challenges. We're seeing that read through. There's been some success in the first half, and we expect that to continue in the second half as well.

Okay. That's helpful. Maybe on the HLM side, I think the commentary for Essenz to represent 80% of sales or placements in 2026 has been fairly consistent, not only this year, but I think you had outlined that in the prior year as well. And this better-than-expected growth maybe implies that you're seeing the benefits from price, but sales or underlying placements are doing better than expected. I guess, is that a fair way to characterize it?

And when you think about that Essenz as a percentage of placements expanding maybe closer to nearly all sales in the 2027 time frame, can you give us, I guess, a state of affairs on where you are in that cumulative penetration level and the potential upgrades that are out there and how you would expect that growth in the HLM bucket to maybe trend as you get past those conversions or contribution on the pricing side in the '27-plus time frame?

Thank you, David. So from -- let me start with HLM first. So to your question, we are confident in our ability to get to 80% this year in terms of placement penetration. And then as we said, we expect in 2027 to get to 100% of placement penetration. However, there's still many S5s or previous generation devices in the market, and it will take us a few years to get to a kind of full market upgrade. So this will continue over the next few years.

But if I step back for a second and just look holistically at the CP business, we have 4 key drivers of our growth. One is the Essenz upgrade. The second one is market share gains in consumables. The third one is kind of next-generation products. So this would include oxygenators, Air Manager, Heater-Cooler as kind of key products that are coming up to the market relatively soon.

And then we have price improvements across the portfolio. And so as we look into kind of beyond 2027, you will see a shift in the composition of growth where oxygenator and consumables will play a bigger part in the growth of the portfolio. And that is, I mean, first of all, it's majority of our business. And second, we have 2 major events coming. One is the launch of new oxygenator that is clinically differentiated versus anything on the market today, and that's coming in 2028. And then on top of that, all of our efforts to improve output on the manufacturing side. So those 2 will contribute to acceleration of growth in oxygenators.

So kind of when I look at the holistic portfolio, it gives me confidence because we have multiple growth drivers there. And the last thing I'll say on HLM specifically, because we have such a significant fleet out there of the equipment, we have 70% market share approximately on equipment, it gives us an opportunity to drive additional revenue through partial equipment upgrade, through software upgrade, through launch of, like I said, Heater-Cooler for example, or Air Manager, that gives us kind of this additional opportunity to drive growth in HLM itself.

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

Congrats on another clean print here. Maybe one on depression and one on fleet. You have the 36-month data from RECOVER, I guess, getting ready to be submitted for publication. Just want to -- does CMS have the 36-month data for their consideration? Last quarter, you announced I think there was going to be a couple of meetings in the post 1Q time frame, and that would decide on what the submission has to look like and maybe it would give you more color on timing. So anything more substance on the 36-month data being submitted to CMS and timing? And I'll have a quick follow-up on sleep.

Sure. So we just submitted the publication for review on a journal. But it is available online in a website. It's a preprint website called medRxiv. So the rules for CMS is that your data needs to be published before they would consider it. So that is why they are aware that this data is coming and they actually asked about it to us, but they will not take it as a formal consideration until the data is published.

But as I mentioned, you can actually see it online now, it's available. Now why we're excited about that data is that it shows that at 3 years, the treatment arm continues to get better. So from symptoms, functionality, quality of life. In -- as you know, in Neuromodulation, the longer the treatment is, the better the outcomes are, and we see this with our treatment arm at 3 years. So that's very exciting. And also the control arm, which was a sham arm in the first 1 year, but is now active for the last 2 years, also shows in line with what we expected that those patients are also seeing very positive benefit from the treatment.

So the data is very strong. We're very excited. CMS has asked us about this data, but they will not formally consider until it's published. So it will be part of our submission. We continue to engage with CMS very closely. We continue to have active dialogue with them. They are still asking us questions about the data, including this one, the 3-year arm study. So we are progressing. And I think if there's any material update, we will certainly share it.

Helpful. And then on sleep, a competitor out there earlier this week announced that they're submitting for a Category 1 CPT code to the CPT Editorial Board. You now have the PolySync data out there. Are you part of that submission? Is PolySync part of that effort? And if the CPT Cat 1 code were secured, I mean, how -- what do you think the impact would be just on the backdrop in hypoglossal nerve stimulation in sleep?

Yes. I mean we're still continuing to work with the societies in terms of how we're going to get the reimbursement. And our position hasn't changed. At the time of launch, whatever are the prevalent CPT codes, that are the ones that we're going to use. In terms of the actual procedure, the 2 systems are similar, and that is why we have the confidence that whatever is the appropriate CPT code at that time, LivaNova will be able to use it.

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

So just a few questions on the oxygenator business. So with the new oxygenator that you're developing, it sounds like you're going to be kind of producing that at the same time as the prior generation. Are you going to be selling them kind of side by side? And will there be sort of like a tiered strategy where the new ones got a price premium? And will you eventually phase out the old one? Or will you continue to offer both of them over the longer term?

Yes. So our current approach is that we will have both oxygenators on the market, and we will manage it as a portfolio. We are working right now on our pricing strategy. And in terms of your question, will we phase out the previous generation? We haven't made that decision yet. We want to see how the market reacts to it, and it's -- we'll have opportunity to decide to make that decision in the future.

Right now, the focus is getting into the market by 2028. And the key thing when we said it is differentiated, what we've seen in the preclinical studies is that from the performance and how it impacts blood performance, it is significantly better than anything on the market today. And that gives us confidence in the ability to launch it successfully. But it will be a portfolio strategy.

Okay. Got it. And then just in Cardiopulmonary, I know you already addressed the slower growth in the U.S., but I was just wondering with Essenz, I think you said it's going to be 80% of your heart-lung machine sales this year or units this year. So I would assume it's higher than that in the U.S. So is it already at 100% in the U.S.? And is that part of the reason that you're seeing a bit slower growth there?

Yes, you're correct. In the U.S., we phased out the previous generation. So we're only placing Essenz in the U.S. and then some other developed markets around the world as well.

Okay. And I mean, is that causing growth to be -- is that a factor for the slower growth or not?

No. I mean, so far, Essenz placement increased both sequentially and year-on-year basis. and we're able to maintain price premiums as well, and that applies to the U.S.

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

Neuromodulation segment. Maybe starting with Epilepsy. I think you used the phrase strengthening patient funnel at one point in the prepared remarks. I was hoping you could just expand a little bit on what you're seeing there, if it's fair to think underlying volume is increasing because of the favorable reimbursement changes and then like how we should read into growth going forward?

I -- so let me start by saying that the volume is positively impacted by both the clinical evidence that we saw in the CORE-VNS study. As a reminder, it's the largest real-world evidence study to date in -- with epilepsy treatment with medical devices. And then the second one is the reimbursement increase. So both reimbursement and clinical data are impacting volumes positively.

I can tell you that our patients -- new patient funnel is at the strongest levels it's ever been. And it's coming both from an increase of procedures in the current accounts, but also opening new accounts.

And I promise that we will give more color and data to the market with time. But at this point, we want to have a couple of more quarters behind us, so we see more evidence on the market performance, and then we will give a little bit more flavor to the lagging indicators. But the leading indicators right now are very strong.

All right. Fair enough. And then second question, just a follow-up on the OSA update. It's clearly reiterating the long-term revenue guidance. But just curious how you think about launch timing given the implied like 0 to 6-month delay, 3 months being the midpoint. Like how does that impact your thoughts on the limited market release timing and then eventually full market release timing?

We're -- look, we're still confident in the long-term opportunity here. Obviously, the timing is not linear in terms of how you get to our 2030 revenue target of $200 million to $400 million. We have commercial levers that we could pull to drive the ramp. So we're still bullish on the opportunity here. And yes, I think that overall, it's -- our confidence is still strong with OSA.

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

Great. Just 2 quick questions on Epilepsy. Starting off with -- if you could just speak a little bit to if you're seeing particular strength in certain subsegments of DRE and kind of any updates on the penetration of VNS into the surgery-eligible population and kind of the competitive landscape on both the device side as well as the pharma side? And then I have a follow-up.

Keith, this is Alex. So look, we're pleased with our progress to date. The momentum that we continue to build in our patient funnel is continuing. And in terms of any specific segment, there's really nothing to comment there. Our strong results in the first half expected to continue in terms of our new patient implant funnel in the second half. But I just want to remind everyone that we did have -- we're lapping prior year's field safety notice in the first half of the year. So we do expect a tougher comp in the second half. But as far as our trajectory with the new patient funnel, I think it continues to be a strength for us.

Great. And then just on the ASP side, can you talk a little bit about payer mix within Epilepsy and whether you're seeing the benefit from the increase in CMS reimbursement? Are you seeing that carried over into the commercial segment as well?

So the CMS reimbursement improvements are reading through. So about 80% of our payer mix is government payers, so about 40% Medicare, 40% Medicaid. The rest is commercial payers. So we do expect the reimbursement improvements to read through on the commercial side, but I think it's still too early.

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. And on behalf of our team, we appreciate your support and interest in LivaNova, and have a great day ahead.

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

Hello, and welcome to the Annual Meeting of Shareholders of LivaNova PLC. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Bill Kozy, Chair of the Board of LivaNova. Mr. Kozy, the floor is yours.

Hello, and welcome to all attending LivaNova's Annual General Meeting. I'm Bill Kozy, and it is my pleasure to be speaking on behalf of the Board of Directors of LivaNova.

This meeting is being conducted virtually to facilitate shareholder participation regardless of location. This meeting is a live audiocast, and you may raise questions by typing your remarks in the designated box on your screen using the Q&A tab. Please submit any questions as soon as possible. We will address pertinent questions at the end of the meeting before the polls close. Please note that a copy of the agenda and the rules of conduct are located on the meeting screen. The company's Secretary has confirmed that the quorum requirements have been met.

It is now just after 3:00 p.m. in London, and I'm pleased to declare LivaNova's 2026 Annual General Meeting formally open. I will start by introducing the other members of the Board of Directors. We have Ms. Stacy Enxing Seng, Mr. Francesco Bianchi, Dr. Sharon O'Kane, Ms. Brooke Story, Ms. Susan Podlogar, Mr. Todd Schermerhorn, Mr. Peter Wilver, Mr. Donald Zurbay and Mr. Vladimir Makatsaria, who also serves as Chief Executive Officer.

Before we proceed, I would like to take a moment to recognize Dr. Sharon O'Kane, who is not standing for reelection this year. On behalf of the Board, I want to thank Sharon for her years of dedicated service and valuable contributions to LivaNova. We're deeply grateful for her leadership and commitment, and we certainly wish her all the best in the future.

It is my pleasure to also introduce the following company officers. We have our Company Secretary, Ms. Sarah Mohr; and our Chief Financial Officer, Mr. Alex Shvartsburg.

We are also joined today by representatives of PricewaterhouseCoopers LLP, LivaNova's independent registered public accounting firm in the United States, or PwC U.S. and representatives from our U.K. statutory auditors, PricewaterhouseCoopers LLP or PwC U.K. The representatives will be available for questions during the Q&A portion of the meeting.

Computershare, our transfer agent and registrar is acting as scrutineer for the voting today and is being represented by Ms. Jennifer McNaughton. I will turn it over now to Sarah Mohr to discuss the voting procedures.

Thank you, Bill. Notice of this meeting, the company's proxy statement the company's most recent U.S. annual report on Form 10-K and the company's U.K. annual report and accounts, which we refer to as our U.K. annual report for the year ended December 31, 2025, were posted and in some cases, mailed to shareholders of the company on April 29, 2026. Accordingly, requisite notice of the meeting has been given.

Based on the scrutineer's preliminary report of the approximately 55 million ordinary shares entitled to vote at the meeting, approximately 51 million ordinary shares, representing 93% of all voting rights of all the shareholders entitled to vote, voted as of the date prior to the meeting.

The final results of the vote, including the proxy votes on each of the resolutions will be published on our website and reported on a Form 8-K with the U.S. Securities and Exchange Commission after today's meeting. I now give the floor back to Bill Kozy, who will present the resolutions.

There are 10 resolutions, with resolution #1 comprising separate resolutions for the election of each of the proposed directors. Resolution #5 is a special resolution requiring approval of at least 75% of the votes cast to be passed. All other resolutions are ordinary resolutions requiring approval by a simple majority of the votes cast to be passed.

The full text for each resolution is set out in the notice of the meeting and all are described in detail in the proxy materials.

In accordance with the Board of Directors, I propose the following resolutions for approval.

Resolution 1 is to elect by separate resolution, each of the 11 directors listed in the proxy statement for term expiring at the AGM to be held in 2027.

Resolution 2 is to approve on an advisory basis, LivaNova's compensation of its named executive officers as set out in the proxy statement.

Resolution 3 is to ratify the appointment of PwC U.S. as the company's independent registered public accounting firm for 2026.

Resolution 4 is to authorize the directors to allot shares and other equity securities up to an aggregate nominal amount of GBP 10,985,296, representing approximately 20% of the company's existing issued share capital.

Resolution 5 is to grant the directors the power to disapply preemption rights for the allotment of equity securities or sale of treasury shares for cash up to an aggregate nominal amount of GBP 10,985,296, representing approximately 20% of the company's existing issued share capital.

Resolution 6 is to approve the forms of share repurchase contracts and approved counterparties included in the proxy statement and to authorize the company to enter into a share repurchase contract with any of the approved counterparties.

Resolution 7 is to approve on an advisory basis, the U.K. directors' remuneration report in the form set out in the company's U.K. annual report for the year ended December 31, 2025.

Resolution 8 is to receive and adopt the company's audited U.K. statutory accounts for the year ended December 31, 2025.

Resolution 9 is to reappoint PwC U.K. as the company's U.K. statutory auditor for 2026.

Resolution 10 is to authorize the directors and/or the Audit and Compliance Committee of the company to determine the remuneration of PwC U.K.

For those who have not already voted, please use the Vote tab to vote for, against or abstain on each resolution. You may vote either now or once you've had an opportunity to consider the ensuing Q&A. As a reminder, voting will close at the end of the meeting.

I would now like to open the floor to any questions. Please send your questions using the Q&A tab. Sarah, have we received any questions?

No, we have not received any questions. So back to you.

Thank you to all for your participation in our meeting. I will now declare the meeting closed.

This concludes the meeting. You may now disconnect.

Good morning. We'll go ahead and get started here. I want to welcome everyone to kick off of the Goldman Sachs 2025 Healthcare Conference last year in Miami. I am [Technical Difficulty] a variety of reasons, but very excited to host the management [Technical Difficulty] the entire team here. Vlad Makatsaria, Chief Executive Officer; Alex Shvartsburg, Chief Financial Officer; and Philip Kowalczyk, Chief Strategy & Corporate Development Officer. So clearly, a great opportunity here to cover a wide spectrum of topics.

[Operator Instructions] Maybe I'll start kind of zoom out a little bit and then zoom in. I think there are a lot of details that people would like to get into here. But we're kind of 6 months into -- a little more than 6 months from having issued your LRP back in November.

Maybe just give us some reflections on how things have gone relative to your expectations, what has -- that what you had anticipated and where are some of the areas that you...

So first of all, good morning, and David, thank you for the opportunity to be here, and thank you, everybody, for joining this early morning.

So to answer your question, maybe for those of you who are newer to the story, just to recap to what we said during the Investor Day, LivaNova has 2 core businesses that have been leading in their markets for about 50 years. One of those businesses is cardiopulmonary, the other one is epilepsy. And the first chapter of our strategy is really to reinvest back into our core businesses to make sure that it is sustainable that for years to come, it continues to drive above-market growth.

At the same time, we use the strength of our foundation of our core businesses to get into the areas of high unmet clinical need, high growth and in the markets where we have the right to win. So in our case, it's neuromodulation and in our case, our next chapter is in obstructive sleep apnea. And then we have an optionality to have an additional opportunity with the difficulty depression.

And I think when we execute the strategy, it puts us in the markets that are not just bigger and faster growing, but also have very attractive financial profile, and it creates an opportunity for us to sustain accelerated growth, both on the top and bottom line. So that's kind of in a nutshell is our strategy.

Now I was asked the question during the Investor Day, what are some of the upside to the plan that we put together. And I actually named 2 upsides. One is getting reimbursement on improvement on new patients for VNS Therapy for treatment of drug-resistant epilepsy. And the second one was our ability to scale manufacturing of oxygenators faster. And actually, both of this came through in a very positive manner.

So as of January 1, there was almost 50% -- nearly 50% improvement on reimbursement on new patients for epilepsy, removing the economic barrier to penetration of VNS procedures. And then -- so that gives a very positive tailwind for us. And then secondly, we have gained significant confidence in our ability to manufacture faster in terms of oxygenators. So we've gained share from about 30% about 2.5 years ago to 40% today.

We put additional 8 points of growth in our strategic plan. But today, we see that we are actually able to scale our manufacturing significantly faster, and that's mainly driven by 2 factors: our own expansion of capacity, but also our partners that are providing components to us are doing an incredible job in terms of scaling up. So both of the upsides have played positively so far, and we continue to execute on our strategy.

Good segue [Technical Difficulty] around you think about growth. not a lot of companies in market [Technical Difficulty] around actually accelerate performance of the [Technical Difficulty] past couple of years. So maybe you could just give us some perspective on how you think your market growth is evolving, what's driving that? And then what is enabling you to continue to outgrow these markets where you are effectively the category?

Yes. No, thank you for how you frame this question. So on the market front, unfortunately, from a patient point of view, I'm saying fortunately from the business point of view, but these are very significant markets both. If you look at cardiovascular disease is #1 disease burden in the world, neurological disorder is #2.

So the markets are large. They're growing fast, especially on the neurological side, it's a huge patient population, and it's a very under-researched space. So there's a huge opportunity for growth. So we believe from the market point of view, there is significant unmet need, and that is going to drive innovation and that is going to drive market -- continuous market growth.

From the second part of the question, I think there are maybe 2 dimensions about how we drive growth. One is on the what and the other one is on the house. So on the what, we are fortunate to have a portfolio that have multiple drivers of growth. So if you look at our growth, it's coming from multiple angles. And that gives us this high quality and high kind of confidence in sustaining that growth.

So first of all, geographically, it's well balanced across different parts of the world. Secondly, from the portfolio point of view, the growth is driven by price. So we've taken price in a healthy way. The growth is driven by market share gains in oxygenators, and we see that we can continue to do that in a sustained manner. The growth is coming from upgrade cycle on our Essenz heart-lung machine.

The growth is coming from improving low penetration of VNS procedures in epilepsy. So we've got multiple kind of engines to drive growth, and that gives us confidence in sustainability of growth. And the second one, and that's probably the more important one is any great organization starts with great people. And we're very focused on bringing in top talent from across the world. We are very focused on developing our own talent.

So I'll give you an example. In the last 2.5 years, we've changed about half of our director and above leaders, both from bringing people from outside, but also promoting folks from the inside and shout out to our recent leaders who joined. We just announced that we have a new Chief Legal Counsel -- Chief Legal Officer, who is coming from Anne Liddy, who is coming from Hologic.

And we also announced a succession where our legendary leader of cardiopulmonary business has been in the business for 42 years. And this is before some of you are born. He started at LivaNova and he is retiring this summer, and we're bringing in Stefano Folli. He's coming from a long-term career at Philips, so great leaders. So that's on the leadership front.

And then on culture, we are trying to drive the environment where people can flourish. And I'll give you a little point of maybe context. One of our cultural imperatives is called empowered accountability, where we empower the folks across the organization to make decisions to drive results. And with that empowerment comes accountability. And so we have kind of the entire company owning the results, working together. And we see this. And so we measure the engagement of the organization every year.

And we see significant improvement in the engagement and the inspiration of the organization. And today, we're among the benchmarks in med tech industry in terms of how the organization is inspired and engaged to move forward.

And I have one more strategy question and then dive into the businesses here. Maybe if you think about just capital allocation, since the analyst meeting, med tech valuations, I guess, except for yours have kind of collapsed. But you've had -- one of your big pipeline opportunities, OSA, appears to be a market that every data point appears to be worse than the prior one. So how do you think about continuing to invest in the OSA program versus potentially taking that capital and investing in some external opportunity?

Well, let me start off by saying our capital allocation strategy hasn't changed since Investor Day. Our clearest line of sight to value creation continues to be our core, as Vlad mentioned. So we're going to continue to invest in that. OSA was #2, possibly DTD down the road.

And thirdly, we said we'll use tuck-in acquisitions as a way to improve value creation. So from that -- from our strategy perspective, our -- the opportunity is still the same, and we're going to continue to focus on those 3 areas.

Phil, maybe you want to mention on how we feel about OSA at this point.

Yes. I think part of your question there is the conviction on OSA. And in our mind, this is still an incredibly attractive market, significant underpenetration. 1 in 5 patients today are diagnosed. What we're seeing with GLP-1s, with wearables is that number is actually going up. So the funnel of these OSA patients is getting bigger. In addition, there's questions around GLP-1s for what that does for a patient.

And we're seeing that people who engage on GLP-1s are actually more likely data to go to an advanced therapy outside of that. So we're seeing the top of the funnel grow. I think some of the headwinds that the incumbent is experiencing today, we see as transient. Obviously, the reimbursement and coding issue is one that's a complication that is not an ideal scenario today. But as we enter the market and we're able to partner and onboard accounts and be able to work with accounts to be able to appropriately code, we feel like it's overcomeable.

So overall, we believe we have a differentiated technology with strong clinical results, and the market is going to continue to grow. And so we're well positioned to succeed long term.

Okay. Maybe we'll come back to that. But we start on the neuromodulation business. You talked a little bit about 2 of the upsides that you had contemplated at the LRP being price in new patients on VNS. So maybe we sort of start with just remind people what went into effect January 1, how you thought about it in your guidance and what you've seen play out here?

So going into Investor Day, we knew that we were going to receive improved reimbursement on the replacement segment of VNS. As Vlad said, we anticipated some favorable benefits from new patients didn't know at that point in time. As of January 1, new patient implant segment received improved reimbursement nearly 50%, right? That went into effect.

So we're seeing the benefits of that reimbursement read through. In the first quarter, our realized price was nearly double what we normally get on kind of the normal inflationary increases, 1% to 2% a year. We expect to see that continue throughout the balance of the year. There are certain accounts that we kind of missed the window of renegotiation with them, and so we'll see the residual effect next year.

And this is purely unrealized price. This is not where we went and took extra price on ASPs.

We went back to these accounts and basically, they claim economic disadvantage in the past. We've renegotiated volume-based discounts and rebates with them. So that's what we're seeing read through.

Okay. So a realized price instead of being 1%, 2% being [Technical Difficulty] and that's a combination of entering new contracts but also going back to existing ones where you had rebates in place so you raised the price, the net price still had this increase. So what percentage of the accounts were you not able to get to?

Large majority, we were able to get to. But like I said, I think we'll see some residual effect next year.

One of the things that we've been trying to better understand on this, is there an incremental volume...

Let me maybe build on what Alex said. But just to build on what Alex said, think about -- so what I've started with is epilepsy treatment with VNS is relatively underpenetrated. One of the barriers to that penetration was the economic barrier. So think about it, an average patient has 4 replacements in their lifetime. So you can say that a provider now gained $40,000 per patient based on that math. So that is a significant removal of a barrier. So that's number one.

On the volume front, so in addition to the reimbursement improvement, we also have a clinical outcome coming from this real-life evidence study called VNS. And in that study, basically, what it shows is while the least invasive procedure, VNS shows comparable results to more invasive procedures. So the value proposition has significantly changed.

And it is now -- VNS has now taken a very different place in the treatment algorithm of epileptologists. So there's a combination of 2 tailwinds. One is on the reimbursement, the other one is in clinical data. And together, we anticipate that the volume is going to increase.

Now we are taking a position that we want to take a couple of few quarters of evidence of what is happening before we go to the market and talk about it just to see that -- I mean, we obviously have seen leading indicators, but we want to see some evidence of lagging indicators before we go and we talk about it. So this is a topic that we will be transparent about that we will explain how and why volume is moving.

And what are some of those leading indicators that you're seeing?

Well, so one is the price opportunity that we're renegotiating contracts. The other one is the pipeline of new patients has been the strongest we've ever had. And the third one, and again, it's more anecdotal, but -- so I'll give an example. There was a scientific meeting of 150 top epileptologists in the world that came together to look at the core data. And the first view on the data was like it's too good to be true.

And then after the meeting, about half of them came to us with a request to independently present the scientific data at different meetings. I mean that gives me confidence that the scientific community is embracing the data. And so it's a very good leading indicator for us. So we are counting on both price and volume. Exactly how it's going to play out and what is our view on the future, we're going to reserve a little bit our opinion to kind of [ lagging ].

And besides economics being one of the barriers, what are some of the other barriers still needed to knock down? And where are you?

I mean the other big one outside of economics was this clinical perception risk. So the data from the approval trial decades ago showed a much lower median seizure reduction than we're seeing in the core data. So 76% median seizure reduction is the data that Vlad was quoting there. And so there's a perception.

And the reason that data has improved, it hasn't just improved because we ran a different study. It improved because the technology has evolved over time. We have AutoStim features. We have better programming algorithms, et cetera. And so this is kind of capturing the latest of what VNS is.

Now VNS has been around for 30 years. So it's going to take some time to engage with the clinician community and change the perception or bring the perception up to date, I guess. But that is kind of the other big barrier. And once we get that, we [indiscernible] good.

And before moving on to CP, maybe we just sort of talk about the emerging drug pipeline in epilepsy. I think people have -- some have long memories for headwinds and short memories for tailwinds.

So if you go back to everyone has the 2019 example sitting in their head. I know there are some differences today, but maybe just sort of talk through how you're framing the potential around drug competition? And maybe what are some of the things you're doing internally to educate sales force and get people ready to respond to potential competition.

Yes. I mean, as Vlad touched on in the beginning here, this is an incredibly underpenetrated market where patients have long and arduous care pathway journeys to try to get to the right therapy. And so as a leading company in the states of epilepsy, we welcome all new therapies that can bring kind of relief to patients and good solutions, but kind of start there.

Beyond that, as we look at the data of the new drug or as we kind of study drug, we don't expect a material change. to the number of patients that are drug-resistant epilepsy that could benefit from VNS therapy. It has been about 1/3 for the last few decades in terms of the number of patients that are drug resistant, which is defined as failing 2 or more drugs. And we expect that number to kind of stay consistent.

Now to your question around what are we doing, the reality is we have a lot of positives to focus on with our sales force right now, training them on how to disseminate the core data, training them on how to partner around reimbursement. So a focus for our sales organization is not to sell against the drugs, but rather to sell the value proposition, which we believe will still be a very important solution in the care pathway for us.

And why wouldn't we see trialing of -- there are 2 novel agents coming to market from Biohaven and like why wouldn't we see a year of disruption as those drugs come to market as we did in 2019?

You likely will see some trialing of the drug. The reality is we expect that to happen much earlier in the care pathway because that's where the largest TAM is for these companies. So we don't really see it as a competition to DRE. We also have to remember one of the nice things of our epilepsy business is the U.S. NPI percentage is actually only about 20% of the overall epilepsy business, right? And so the vast majority is in other areas that are relevant to the trial.

But it was interesting because when I just started with LivaNova, I was educating myself and I went to the top clinicians and asked a similar question about different drugs. And the interesting answer is what I was told by clinicians and since the beginning of drugs to treat epilepsy, this ratio of 2/3 of drug treatment versus 1/3 of drug resistant, that ratio has not really changed over time.

What has changed are the side effects of the drugs and they significantly improved. So from the safety point of view, it's got better. So it doesn't mean that this is not going to change moving forward, but historically, it really did not change the way.

Got it. Okay. I want to see there are any questions in the audience before I move on to -- Okay. It's early.

So maybe on CP, I think the way -- start with Essenz, certainly has evolved. I think originally, we all thought about Essenz is okay, just it's an upgrade, upgrade comes and goes. and the business cycle is back to more normalized growth. But I think one of the things you've talked about now is software enhancements, future upgrades.

Maybe just sort of contextualize how the Essenz launch has evolved and how you're thinking about sort of runway of growth durability versus when you had originally kind of started down the process.

Yes. So Essenz is our heart-lung machine. It has -- it's a piece of equipment, kind of a central piece of equipment in the OR during the open heart surgical procedures. It has about 70% market share globally. And the first generation was called S5, it's been on the market for 17 years. So if you think about a normal kind of upgrade cycle of equipment, should be kind of 7 to 10 years. So it's way kind of delayed and late in terms of which gives us an opportunity to upgrade faster.

So I kind of think about Essenz as a modern automobile that comes with a base option and then you can have different optionalities built to it versus the old version is like you get a car that has no power steering, nothing else, and that's the only way you can kind of drive it. When we launched Essenz, we counted on kind of the naked, the no option version of it is about 30% price premium to the older version. However, fully loaded optionality is almost double price. And what we saw over the -- since this period since we launched it is physicians and perfusionists see incredible value -- clinical value proposition from this option.

And so far, majority of machines that have been ordered have been ordered with full optionality. And so as we increase the placement penetration of Essenz, that gives us significant price/mix upside and that drives double-digit growth, not just for machines, but for the entire cardiopulmonary business. And that upgrade cycle is going to continue through [Technical Difficulty] the placement fleet will be Essenz.

Now on top of that, we have an opportunity, obviously, to gain market share because of the machine itself, but also we have a huge -- several thousand machines placed there. And so it gives us an opportunity to improve the benchmark in terms of how we service it, benchmark in terms of how we upgrade and software and make the machine smarter and instead of kind of follow what the perfusionist does, ultimately actually advising perfusionist on what to do and then becoming kind of this digital center of the ecosystem in the cardiopulmonary -- in the cardiovascular operating room.

So the idea is to use the large fleet and the strength we have in this business to continue to upgrade each machine. And also, each machine has some additional pieces of equipment, heater, cooler, air manager that are kind of part of the machine, and those are still old versions. So we have an opportunity to upgrade those as well.

So I see this as an opportunity for us to continue to drive growth. And obviously, also by being such a leader in the equipment side, it also gives us an opportunity to get into the OR and drive market share improvements in disposables.

And maybe talk about oxygenators, I mean, you've been a great run for the past couple of years. You're sitting at about 40% share. Where are you on manufacturing? If you -- how much market share could you manufacture today? 40% could be what if you had sufficient -- if you...

It's a great question.

And then what will that be in a year?

So there are 2 drivers of share gain. One is our ability to manufacture fast. Everything we manufacture, we don't know where the list is from that point of view. But we are gaining market share. And from the manufacturing point of view, think about it in 3 stages. The first stage is doing what we're doing, but just better. So improving manufacturing process. And that's what drove improvements over the last few years.

The second one is that in the second half of this year, our additional manufacturing line goes live. And then the third stage is really a long-term approach where we are continue to build our own manufacturing capacity and partnering with our suppliers in order to be able to supply majority of the market. So with 40% market share today, in the strat plan, we said we will improve our output by 60% and gain additional 800 bps of share. However, we see -- what we see today gives us even more confidence in the ability to gain more share.

I believe that today, our cap is at 60% market share when we -- in terms of manufacturing. But if we execute what we think we can do, this will be increased. And the second lever of share gain is new product introduction. So we've said in 2028, we will launch a new oxygenator that is clinically differentiated and it's significantly better from the performance point of view versus anything on the market today. So that is going to be another tailwind for us in terms of share gain.

And are you seeing anything from the competitors?

We are not taking this for granted, and we are monitoring closely what the competitors are doing. So I mean there's nothing new from the point of view that some of them are leaving the market. So you saw that. And some of the others are kind of doing what they're doing, but they're not increasing their manufacturing capacity, neither they innovate in the space.

So this is one of the markets where scale matters. So the more market share we gain, the broader scale of our manufacturing is, I don't want to kind of say in an arrogant way, but it's easier for us to compete.

Two last topics I want to make sure that we cover. TRD, where are we on -- any updates on reimbursement? What are you expecting in timing? And as you're waiting for this, like what are the things that you're doing? Are you doing anything internally you kind of find the pump or perhaps...

So we are in talks and very close partnership with CMS. It's a very collaborative process where they've co-invested with us in the clinical trial. We are working very closely with them on next steps, educating each other on the clinical outcomes of the study. So it's a close partnership with CMS, and we will obviously update everybody when there are some material news that are coming out of this. So that's first.

Internally, we have a team that focuses on the private pay market. And that team is also thinking about the strategy and looking at different scenarios of what the indication for reimbursement will be potentially. And so yes, we are not -- we're thinking about different scenarios and then how we will address it if it comes to us.

Any latest views on timing?

I cannot speculate on timing just because it's now it's kind of -- it's out of our hands a little bit.

Do they give you much of a heads up or you find out when we find out?

They don't give us heads up on timing, but we are -- it's -- we're not disconnected. It's a very connected closely kind of tied relationship in the way that how we are working on the clinical data and the potential consequences.

We will announce when we do file, we'll announce that.

Okay. When you file for the request for the NCD.

Yes.

Okay. And should we look at other NCDs like you look at the early TAVR NCD, it was about a year from when they submitted their request to when the NCD was open. Is that a good benchmark to use?

So unlike FDA, CMS doesn't have exact time lines in the process. You're right, a year is about the average, I think. And one of the latest examples was with Medtronic with [indiscernible] generation. That was, I believe, 9 months?

9 months.

Okay. Maybe we can close on margins. One of the things that I think had positively surprised investors at the Analyst Meeting was your ability to sort of retain margins while investing in OSA and someone I think, had asked you prior to the meeting.

So are they going to torch the P&L to invest in OSA, which obviously is not how you contextualize things. Maybe where -- talk just about kind of the puts and takes that allows you to have confidence that you're investing sufficiently against the OSA opportunity while also being able to continue to 20% margins short term and then obviously, you have the longer...

Yes. So remember, we took us a while to get to 20% operating margin. So that was an important metric for us as a company. We drew the line at continuing to deliver at least 20% operating margin as we continue to invest in OSA. Today, we're largely investing in product development to get to commercialization next year, we'll have a limited commercial release in the first half and a full commercial release in the second half.

We're going to continue to maintain that floor of minimally at 20%. We think it's a disciplined way to run the company. So we're going to focus on continuing to drive margin expansion in our core business and fund OSA in tandem. So that's what we should expect.

And everything is OSA on track from a PMA supplement perspective?

Yes. We expect to file a PMA supplement in the second half of this year. That would get us to an approval sometime in the first half, which will enable us to do a limited commercial release. And then we'll follow several months later with a full commercial release.

And then how -- the last question on just the P&L topic is something that I know it tends to -- you set out these plans to invest and hire people. You don't hire people, you beat numbers, which is good in the short term, but it comes because the pace -- and then you talk about things about timing of OpEx and everyone thinks you're being conservative.

Like where are you in that cycle? Like have you hit your OSA investment milestones? How are you seeing the different trade-offs play out?

Yes. We have -- I think if you look at our first half, right, we were just about slightly below the 20% threshold. It's the timing of revenue relative to OpEx, right? So typically, our first half is lighter sales, second half usually, I think it's something like 48%, 52% historically from a phasing perspective.

And our OpEx was heavier, and we expect it to be heavier in the first half and sort of kind of level off for the second half of the year. So that's where we expect to see the margin pick up, and we'll deliver on our commitments.

Maybe from a team perspective, we have Lucile Blaise, who's the leader. She's built out a core kind of leadership team. We started to engage. We'll have a much more significant presence at Sleep this year now that we do have an approved product, even though it's not the commercialized product. And then the hiring plans will start to scale up as we get closer.

Excellent. Well, it's a good place to wrap up. We're out of time here. I want to thank you again for kicking off the conference and your time and looking forward to updates in July.

Thanks for having us.

Thank you, everybody.

Good day, ladies and gentlemen, and welcome to the LivaNova PLC First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would 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 first 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 first quarter of 2026.

In the quarter, LivaNova delivered 11% revenue growth with strength across all regions, driven by durable performance in our cardiopulmonary and epilepsy businesses. Our core businesses continue to serve as both the drivers of current performance and enablers of disciplined investments in innovation. We expect these investments to fuel the long-term durability of our core performance as well as expansion into high-growth, high-margin markets to build a more sustainable financial profile for value creation over time.

One such market is obstructive sleep apnea. We continue to view the OSA market as attractive, up to 1 million patients drop out of CPAP treatment annually and the AG&S penetration into that population is less than 5%, which creates a significant opportunity. We recognize that there are current challenges in the HGNS market, but view the current dynamic and ambiguity and reimbursement as temporary and the long-term effect of GLP-1s on the market as net positive.

With [ PHS ], we have a clear right to win supported by rigorous clinical evidence and differentiated technology designed for broader and more complex patient population and leading neuromodulation capabilities across LivaNova. We recently achieved key regulatory and clinical milestones establishing a strong foundation for our planned entry into the OSA market next year.

The first of these milestones occurred in March when LivaNova received U.S. FDA premarket approval for the aura6000 system for the treatment of adult patients with moderate to severe OSA. Notably, this is the first and only hypoglossal nerve stimulation device approved by the FDA without a complete consent to collapse, counterindication or warning.

The second important OSA milestone is on the clinical evidence front, where the full 12 months results from our OSPREY randomized controlled trial were recently published in the Annals of Internal Medicine, demonstrating clinically meaningful responses and sustained improvements over time. Ahmet will share additional details later in the call on how we're leveraging these milestones to advance our OSA program.

For the remainder of the call, I will discuss our first quarter segment results and provide updated top line guidance for 2026. After my comments, Ahmet will discuss key innovation updates including recent regulatory and clinical progress. Alex will then provide additional details on our results and updated 2026 guidance. I will wrap up with closing remarks before moving on to Q&A.

Now turning to segment results. For the cardiopulmonary segment, revenue was $209 million in the quarter. an increase of 14% versus the first quarter of 2025. Heart-lung machine revenue grew in the high teens in the quarter, driven by an increase in essence placements on both a sequential and year-over-year basis and sustained favorable price premiums. The results for the quarter also included a modest benefit from the recapture of Essenz placements and tenders that were previously deferred from the fourth quarter of 2025.

The performance was otherwise driven by underlying demand and the associated favorable price/mix effect. Cardiopulmonary consumables revenue grew in the mid-teens in the quarter, driven by the market share gains, procedure growth and price. While demand for oxygenators continues to outpace the market's ability to supply, improvements in the third-party component availability has enabled us to increase our manufacturing output.

For the full year 2026, we now expect cardiopulmonary revenue to grow 8.5% to 9.5%, up from 7% to 8% previously. Our forecast reflects continued HLM growth as we drive Essenz penetration globally. We still expect Essenz to represent approximately 80% of annual HLM unit placement in 2026, up from 55% in 2025. This forecast assumes continued market share gains in consumables as we execute on our manufacturing expansion plans.

Within this guidance, we expect our full year manufacturing output to increase by low double digits, driven by new manufacturing line scheduled to go live in the second half of the year. This represents a significant acceleration versus 2025 levels. Additionally, we continue to work with third-party suppliers to increase component availability, which could enable additional oxygenator output growth beyond current assumptions.

Turning to epilepsy. Revenue increased 8% versus the first quarter of 2025 with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased the combined 12% versus the prior year period. While U.S. epilepsy revenue increased 7% year-over-year. Performance was driven by total implant growth and favorable realized price, supported by impactful clinical evidence, improved reimbursement and sustained commercial excellence.

Consistent with what we have shared previously, the results from our core VNS study have been well received by key opinion leaders and have become an important component of our commercial engagement and education efforts. In recent conversations in our inaugural VNS Forum, which brought together approximately 150 clinicians.

Participants shared that the data is reshaping their perception of the effectiveness of VNS Therapy for epilepsy. They also indicated that the findings support broader adoption as they reevaluate their therapy's role within their treatment algorithms. Notably, over 50 leading experts have requested permission to independently present the data.

Effective January 1, 2026, U.S. Medicare reimbursement for VNS therapy procedures in drug-resistant epilepsy increased meaningfully with hospital outpatient payments rising approximately 48% for new patient implants and 47% for end-of-service procedures compared to 2025 levels. These U.S. reimbursement changes improve hospital economics for VNS therapy, creating a more sustainable model for providers and supporting expanded patient access.

In the U.S., there are approximately 1 million DRE patients, yet fewer than 10% receive advanced treatment. The updated reimbursement rate reduced a known barrier to procedure penetration as historic Medicare rates did not fully cover VNS therapy procedure costs. As a result, we saw improved realized pricing in the first quarter, driven by less volume discounting as well as our normal annual list price increase.

For the full year 2026, we now expect epilepsy revenue growth of 6% to 7% up from 5.5% to 6.5% previously. This forecast is driven by improved growth rates in the U.S., Europe and the rest of world. The improved outlook is supported by strong global acceptance of core VNS as well as both reduced volume discounting and the strengthening of the patient funnel in the U.S. driven by improved reimbursement.

In summary, LivaNova's first quarter growth was driven by healthy markets, continued success of the Essenz upgrade cycle, share gains in cardiopulmonary consumables and strong epilepsy commercial execution. We expect this driver to sustain through 2026, supported by continued execution in cardiopulmonary and the combination of compelling clinical evidence and improved reimbursement dynamics in epilepsy, which should expand patient access over time.

As a result, we are now guiding full year 2026 revenue growth between 7% and 8%, up from 6% to 7% previously. This top line guidance implies 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 the strong momentum across our innovation agenda, including recent clinical, regulatory and digital advances across our portfolio.

Thank you, Vlad. Innovation is central to LivaNova's next chapter of growth both fueling the pipeline while strengthening our core businesses. Starting with OSA. As Vlad mentioned, LivaNova recently received FDA premarket approval for the aura6000 000 system for the treatment of adult patients with moderate to severe sleep apnea. This is a transformative milestone both for the company and for patients who continue to face significant unmet needs.

Importantly, FDA approval enables broader compliant engagement with clinicians through promotion, training and education and essential step to building awareness and supporting appropriate utilization over time. In parallel, we're advancing the development of a next-generation system designed to further benefit patients and support commercialization.

We continue to expect to submit a PMA supplement for the commercial MRI compatible device in the second half of 2026. This would support a limited market release in the first half of '27, followed by a broader commercial launch in the second half of 2027, consistent with the time line outlined at Investor Day. Our pHGNS Therapy was rigorously evaluated for safety and effectiveness in the OSPREY randomized controlled trial with 12-month results recently published in the Annals of Internal Medicine.

The study demonstrated clinically significant responses and sustained improvements over time. Notably, OSPREY is the first and only randomized controlled trial in the HGNS space, bringing gold standard scientific rigor to the field. Moreover, it is the only HGNS study to evaluate several patient-reported outcomes or PROs making the findings more comprehensive than prior pivotal FDA trials. OSPREY patients in the treatment cohort showed significant improvements in PROs, including the Epworth Sleepiness Scale, which measures daytime sleepiness and functional outcomes of sleep questionnaire, which assess the impact of fatigue on daily activities.

Collectively, OSPREY's data show that for patients with moderate to severe OSA, treatment led to meaningful improvements, not only in objective of disease severity, but also in daytime sleepiness and other PROs that matter most to patients and clinicians.

As previously disclosed, OSPREY did not exclude patients with complete concentric collapse with approximately 45% of the participants considered high risk. The study enrolled a challenging patient population with higher baseline AHI and BMI compared to other pivotal U.S. trials yet achieved comparable responder rates.

We are proud to bring the option of pHGNS to more patients as the first and only FDA-approved HGNS therapy without CCC-related contraindication or warning and without a pre-implantation drug-induced sleep endoscopy requirements. In addition, our PolySync evaluation is progressing. PolySync is our advanced titration algorithm that fully utilizes the 6 electrode architecture of the PHS costs, enabling greater selectivity and patient-specific optimization of therapy.

PolySync demonstrated ability to convert nonresponders into responders, both strengthens our competitive positioning versus existing HGNS therapy and has the potential to expand penetration in a broader range of patients. We're excited to share the complete PolySync results at the upcoming [ SLEEP ] conference in June. To date, our findings indicate that PolySync will convert over 50% of OSPREY nonresponders into responders.

For context, our study originally included roughly 100 patients who are randomized into treatment and control groups and monitored until the 7-month primary end point. At that point, patients in the control group also began receiving therapy. Following the 13-month endpoint, we extended the opportunity to all nonresponders regardless of their original assignment to participate with PolySync.

This approach led to a cumulative responder rate suppressing 80% across the entire OSPREY trial population. These results underscore the significant impact politic may have in improving outcomes within this patient group. As a reminder, PolySync will be available at launch enabling patients to benefit from the advanced algorithm starting with their initial titration. We continue to view OSA as a compelling derisked opportunity grounded in differentiated technology and clinical evidence as well as our established neuromodulation capabilities.

Now turning to difficult-to-treat depression. We continue to believe VNS therapy is a differentiated option for this markedly ill patient population. While we remain in active engagement with CMS, we won't speculate on exact submission timing. We remain excited by the DTTD opportunity, and we'll continue to keep investors updated on material development as appropriate.

In epilepsy, during the first quarter, we initiated a limited market release of our cloud-based clinician portal and application. As a reminder, this rollout is intended to validate workflows and deepen clinician engagement. The financial impact is expected to be limited this year. A full market release is planned for 2027 alongside the launch of our next-generation Bluetooth-enabled generator.

This multiyear innovation road map is expected to streamline care delivery through remote titration, real-time access to patient insights and more digitally connected care pathways that remove barriers to access. At LivaNova, we have developed a unified digital health platform for our entire portfolio, allowing for a consistent technology user experience and data strategy across our different business units.

For example, in epilepsy, the cloud-based clinician portal and app will enable capabilities such as remote titration. Lastly, innovation within our CP consumables portfolio continues to advance. For our next-generation oxygenator with the design finalized, we are now in the manufacturing scale-up phase of product development.

In summary, we are encouraged by our recent progress across the portfolio, including regulatory and clinical evidence momentum in OSA and DTV. The rollout of our connected care platform in epilepsy and the advancement of the [indiscernible] program. 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.

Thanks, Ahmet. During my portion of the call, I'll share a brief recap of the first 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 $362 million, an increase of 11% on a constant currency basis versus the prior year. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $10 million or 3%. Adjusted gross margin as a percent of net revenue was 68% and compared to 69% in the first quarter of 2025. Higher volumes and improved pricing were offset by unfavorable currency and product mix.

Adjusted SG&A expense for the first quarter was $129 million compared to $116 million in the first quarter of 2025. SG&A as a percent of net revenue was 36% as compared to 37% in the first quarter of 2025. On a year-over-year basis, the reduction as a percent of net revenue was driven by fixed cost leverage.

Adjusted R&D expense in the first quarter was $47 million compared to $38 million in the first quarter of 2025. R&D as a percentage of net revenue was 13% compared to 12% in the first quarter of 2025 with the year-over-year increase primarily reflecting planned investments in OSA.

Adjusted operating income was $71 million compared to $65 million in the first quarter of 2025. Adjusted operating income margin of 20% was generally in line with the prior year period, reflecting higher revenue and operating leverage, partially offset by increased OSA R&D investments and unfavorable foreign currency impacts.

Adjusted effective tax rate for the quarter was 23% compared to 24% in the prior year period, reflecting a modestly more favorable geographic mix of income. Adjusted diluted earnings per share was $0.98 compared to $0.88 in the first quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses.

Moving to our cash balance at March 31. Cash was $540 million compared to $636 million at year-end 2025. Total debt at March 31 was $288 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 $4 million, compared to $20 million in the prior year period. The year-over-year decrease was primarily driven by increased capital spend and higher working capital requirements aligned with revenue growth. As a reminder, the first quarter results are disproportionately low, relative to our guidance due to the payout of the 2025 accrued short-term incentive bonuses.

Capital spend was $14 million in the first quarter compared to $11 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 increasing full year 2026 revenue and adjusted earnings per share while maintaining adjusted free cash flow guidance. We now forecast 2026 revenue growth between 7% and 8% on a constant currency basis, up from 6% to 7% 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 adjusted operating income for the full year. At this point, we are not assuming a tariff refund benefit. However, we are working through the government's refund process. We believe LivaNova remains well positioned to manage the impact of tariffs.

With respect to the conflict in the Middle East, we have incorporated an estimated full year impact of approximately $5 million on adjusted operating income, primarily related to higher shipping, logistics and fuel costs. As with tariffs, the situation remains dynamic, and we continue to monitor developments closely.

Despite this impact, 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 $4.20 to $4.30, with adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. This EPS range represents approximately 9% growth at midpoint.

Adjusted free cash flow is still expected to be in the range of $160 million to $180 million. This range includes $120 million in capital spending, a $40 million increase versus the prior year. This level of investment is consistent with our Q1 initiatives supporting cardiopulmonary capacity expansion and the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure.

In summary, we delivered strong first quarter with double-digit revenue growth, positioning us well for the balance of 2026. 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.

We continue to target annual adjusted operating margins above 20% with EPS growth roughly in line with revenue. Our adjusted free cash flow trajectory supports achieving 80% conversion by 2028. This outlook reflects healthy core business execution and continued disciplined investment, consistent with our capital allocation framework. With that, I'll turn the call back over to Vlad.

Thank you, Alex. In closing, LivaNova's strong operating model continues to generate durable growth, fueling both our performance today and our ability to invest for tomorrow. We also made important progress in OSA this quarter, achieving key regulatory and clinical milestones that position us well for entry into this high-growth, high-margin market.

I want to thank our colleagues around the world for their focus and dedication to improving outcomes for patients and serving our customers. With a strong team and clear strategic priorities, LivaNova is well positioned for continued momentum in 2026 and beyond. With that, we are ready to open this call for questions.

[Operator Instructions]. First question comes from Rick Wise with Stifel.

It really is great to see such an excellent quarter across the board, very impressive, well done. And just to start off, maybe you could apply or wherever you want to expand on your very encouraging comments on what seems like a change a new world for -- or the beginning of a new world for the epilepsy business post the reimbursement change?

I mean you know it was going to be important. It seems like it really is important, but talk to us about your commercial competitive life post this and this evident pickup in terms of selling operating, contracting and how we think about the business going forward? I mean it's hard not to believe you're being -- I mean, I know it's early, but that you're not being very conservative and talk about the guidance and the outlook there.

Yes. Rick, great to hear your voice, and thank you for the question. So I'll maybe start a little bit broader to say what I'm really pleased about in terms of our performance is with the quality of our growth. If I look at it geographically, we have healthy growth across all regions across the world.

If I look at it from the business growth drivers, kind of all the cylinders were firing. We continue to see really strong momentum in the upgrade of Essenz. We are accelerating in terms of share gain on oxygenators, and we see strong growth in our epilepsy business driven by 2 factors. One is improved reimbursement as of January 1 and 2, the dissemination of the clinical data that was an outcome of the Core VNS study.

And now if I focus on the epilepsy front, what we expect from those 2 factors is #1 is improvement in price, and that is a short-term improvement. It's driven by the fact that we are reducing some of the volume discounts that we've given in the past. And so you kind of see that uplift in price right away.

Secondly, we see an opportunity for improved penetration of VNS procedures in epilepsy, basically, the volume increase of procedures, and that is going to be driven by this changing algorithm within practice of current epileptologists that are doing already VNS procedures and potentially opening new centers that will do BNS procedures because now the economic barrier has been removed. So it's too early to kind of tell you what the long-term trends are. And as we continue to build our experience in this new world, we will update the investors on the progress.

Rick, I'll just add more -- a little bit more color. With the majority of the pricing changes took effect in -- on January 1. So due to the timing of the reimbursement update in '25, pricing for many of the accounts was already established for 2026. So our team will identify kind of a new tranche of customers for '27. So that will -- that element will continue.

We've seen traction in new and expanded and reopened accounts to date. So in the first half, the teams are focused on reengaging with our [ HCP ] customers and really demand generation. So the volume-driven assumptions, including new expanded and reopen accounts are expected to materialize in the second half.

Got you. And just as a second question, trying to cardiopulmonary. I mean strong consumable quarter up mid-teens. You've bumped up the '26 guidance continued [ HLM ] growth and as always, over the last several years, you're indicating you're continuing to work with third-party suppliers to expand oxygenator capacity.

I don't know. It just sounds to me like again here just the short-term and longer-term implications of improving third-party component supply and manufacturing ramp. I don't know it just sounds better than you -- it seems better than I expected and your tone sounds more confident. Just where are we? And I mean, is there a sudden inflection or more dramatic expansion in supply ahead in the not-too-distant future? Just where are we in this whole process now? Thanks so much.

Thank you, Rick. Yes, this is a critical priority for us to continue to drive our growth. We're very pleased with our recent progress in manufacturing output. And it comes from both improvements within LivaNova and improvements with third-party suppliers. One, as we said in the opening remarks, we're guiding to a low double-digit increase in output of oxygenated production this year. We have very important milestones coming in the second half of the year where we are opening additional manufacturing line within LivaNova to expand our manufacturing capacity and output even further.

So it's been a positive experience for us. This is probably a source of -- like we said during the Investor Day of additional growth for LivaNova. But I think also, if I step back and talk about the market share dynamics. Over the last couple of years, we were able to improve market share from approximately 30% to approximately 40%.

You don't see that very often in such a mature market. But we continue to build our strategy to use market share is a key growth lever. And so what we've guided during the Investor Day is that we will increase oxygenator capacity by 60% by 2030 and improve market share further by 800 basis points. So our work on manufacturing of for this kind of focus to execute versus the share gain.

We now turn to David Rescott with Baird.

Congrats on the strong start to the year here. Maybe from us starting on the VNS bucket, I appreciate the comments you provided on that already, and it certainly sounds like the commentary specifically around, I guess, the core data and market interest or health was more constructive maybe than we've heard in prior quarters.

I know you've talked in the past about some of this limited impact maybe from [ Wiser ]. I know there's others that have seen that impact out there. So just curious, if at all, in the quarter, you saw anything there? And if so, would it be fair to assume that maybe the delta versus the reported results at all could be entirely driven by price? Or you're starting to maybe see some of these benefit from utilization as early as Q1 so far?

David, so let me address the [ Wiser ] question. So in the subset that we track, [ were ] any patients that have been denied access to VNS therapy. Early indications suggest that the program has had no material impact on us so far. And as we continue -- we'll continue to monitor the pilots that are ongoing across the 6 states.

I'll just say one other thing kind of an anecdote. We successfully managed several wiser submissions to date and all of which have secured approval within a 48-hour window. So just kind of at the highest level, we're not seeing much impact. And then finally, as a reminder, the majority of our Medicare patients who undergo VNS therapy are enrolled in Medicare Advantage Plan. So as such, we're very familiar and already subject to the prior process. So again, we don't see much of an made.

Okay. Perfect. Maybe on hypoglossal nerve OSA that the longer-term strategy there? I mean it sounds like maybe at this point, 2028 is period of time at which reimbursement maybe is fully ironed out. I know the prior goals have been for a launch at some point maybe back half of 2027.

So curious around how you're thinking about not only the evidence generation and development of that strategy in 2026. But as you get into 2027, if at all, some of those reimbursement headwinds or overhangs will say that maybe don't get fixed until 2028, influence at all how you're thinking about more of this intermediate-term rollout.

David, thank you for the question. I think maybe I'll start by saying that, I mean, we will follow and recognize that there are currently some challenges in the HGNS market. However, we view that current dynamic is temporary. And we still believe that the market is very attractive, and this is driven by large patient population, high unmet clinical need.

And at the same time, we believe that we have the right to win with both our clinical and technological differentiation that we've discussed during the Investor Day and other engagement. So our view on the market has not changed, and we're learning as we are preparing for launch on how to deal with some of the challenges that we believe are mainly driven by the coding and reimbursement. And then maybe I'll turn it over to Ahmet to talk a little bit broader on our market access.

Yes. I mean, we continue our efforts that we will use the prevailing codes at the time of the launch. And with the incumbent removal of the sensor, the 2 technologies in terms of reimbursement are very similar. So we are confident that by the time we're in the market the reimbursement issue will be settled a little bit more, and we will continue to work with AMA and other societies to ensure that we are doing this in a collaborative way.

And one last thing I would say is that I do believe it is a strength of LivaNova, the reimbursement piece. I think we've demonstrated that with VNS. We have a very strong team that really understands this. So we will continue to work with that team and ensure that we pursue the appropriate codes at the time of launch.

We now turn to Adam Maeder with Piper Sandler.

Congrats on a nice start to the year. Two for me. I wanted to start on [ HLM ] and a really good quarter for that product line, broad-based performance by geography. Maybe you can just expand on what went well in the quarter, and then also double-click on China specifically. Curious to kind of understand how the Essenz launch is going in that geography. And as we think about China and FY '26, maybe contextualize that against the revised CP guidance? And then I had a follow-up on the Middle East.

Okay. Adam, great to hear your voice. Actually, I was in China with a team earlier this year. We have a very good organization there, a great leader, and the business is doing very well. So the launch of HLM is progressing well in the first quarter. It's progressing as planned. we're the market leader there, and we continue to be very optimistic about that market for us.

And in terms of [ HMM ] performance, while we don't disclose exact units sold in various countries, I'd tell you that we plan to grow Essenz penetration to 80% in 2025 as a percent of all units placed -- in 2026, sorry, up from 55% last year and China is going to play a significant role in that increase. So that's on China.

And then broader on [ HLM ], we're pleased with the high teens growth in the quarter. We continue to see the success in the upgrade cycle. And what's great to see is it's -- this growth is actually driven by healthy volumes, both sequential and year-on-year basis. And secondly, I would say that -- it's good to see that customers are recognizing the clinical benefit of operating a machine that is fully loaded with optionality -- and as a consequence of that, we are able to maintain significant price upside versus the previous version. So this kind of -- this clinical value proposition gives me good confidence into the future that we will be able to maintain that price upside.

Yes. Okay. That's very helpful, Vlad. I appreciate the color. And for the follow-up, Alex, I heard the commentary in the prepared remarks on Middle East. I think you said $5 million adverse impact on adjusted operating income from shipping and fuel costs. Hopefully, I heard that correct. Any color from a revenue standpoint in terms of how you're thinking about the conflict? Which of the businesses are impacted? And maybe just help us better understand kind of how you arrived at those assumptions?

Yes. So from a revenue perspective, Adam, Middle East is -- represents approximately 4% of our total revenue base. So not a significant impact. Look, we operate in segments that are essential for patients around the globe. And so we're going to continue to supply the market as best we can.

In terms of the impact on EPS, we dialed in approximately $5 million or $0.07 EPS impact. It's really related to the increases we anticipate in terms of freight, logistics and energy costs. So to no one's surprise, and that's -- those are the challenges that all companies are seeing at this point in time. So we thought it was prudent to include that in our guidance. And I think, overall, I think we're really in a good position relatively speaking, in terms of managing through this Middle East conflict.

Our next question comes from Michael Polark with Wolfe Research.

A follow-up question on oxygenators, I'm curious what you're seeing on the competitive landscape regarding capacity. I hear your comments loud and clear. It sounds like pedal to metal on increasing production volume. Do you think you're alone in making those investments? Or do you see evidence that competitors are trying to catch up to?

We see a couple of things from the competitive landscape, and this is obviously, this is our view on it. Number one, we observed [indiscernible] that's continuing to exit from this space. They recently commented that they expect sales to decline from $27 million in 2025 to approximately $5 million in 2026. And majority of that will come from consumables, but as well as heater coolers and HLM. So that's one side.

The second one is we don't see any kind of capacity expansion or investment in innovation in the space from other competitors in the space. And at this point, we are focused on not just on expanding output of current oxygenators, we're also focused on innovation, and we believe that the next-generation oxygenator will be clinically differentiated from anything on the market today.

Helpful. For a follow-up, I'm interested in the comment on the [ New Tech APC ] assignment for VNS for [ epilepsy 1580], as we head into the summer rulemaking season, what's your base case that the code stays in that 50 assignment? Or do you think the chances of Level 6 creation are elevated this year?

Mike, yes. So look, our market access team continues to work on getting to a Level 6 reimbursement code, we're going to continue into next year. We do -- as far as our assumptions go at this point, we anticipate that the 1580 will roll over into 2027.

We now turn to Anthony Petrone with Mizuho.

Congrats on the quarter here. Maybe 2 parts on epilepsy. Last quarter, you kind of called out new accounts that were not performing VNS as a potential upside driver existing accounts that can -- where you can go deeper and then prior accounts that were using VNS that stepped away from it, potentially they can come back in.

So -- maybe just an update on those 3 buckets, how you see that trending throughout the remainder of the year. And I'll throw the follow-up in here. Just on the generalized seizure front potentially you have some competition coming in later this year. Just how do you think about the general seizure landscape potentially with 2 neuromodulation players in it?

Yes. Anthony. And I'll start with your first part of the question and then turn to Ahmet to comment on the clinical side. On the first one, is you bucketed this kind of 3 type of customers. So the current users, and I think that's where we'll start seeing an impact right away. Both in terms of -- in some accounts, potentially on reduction of discounts and in some accounts, we're already starting to see an improved pipeline for [indiscernible].

And that is due to the fact that obviously, one is the discount side, but the other side is that clinicians are starting to see VNS as a more effective therapy and changing the kind of the place of the therapy in the algorithm of their treatment. So that is already -- we start seeing good leading indicators of this happening.

For the accounts that were that stopped doing VNS historically and potential new accounts. This is going to take some time, obviously, because it will take the accounts to set up some time to reopen and restart the procedure. So we are still confident that this is going to be a trend -- but that will be something that we will see in the future

Yes. In terms of the generalized indication, we are anticipating in the second half that FDA will make a decision. Just to remind the scale of it, only about 1/3 of epilepsy patients are generalized, 2/3 are focal and in there, less than 50% are GTC patients. So we anticipate that the impact would be very limited. And we do not anticipate any direct effect to reimbursement when we utilize patients with generalized indication as we can do today.

We now turn to Matt Taylor with Jefferies.

This is Mike Sarcone on for Matt. Just wanted to start with a clarification on what's baked in to guide on the CP side. I think you talked about increasing your manufacturing capacity low double digits going live in second half '26. But then you also mentioned you're continuing to work with third-party suppliers to improve component availability. Do you think you could frame how those conversations are going? And to the extent they're successful, what does that mean in terms of upside to guide this year?

So our updated guidance incorporates incremental improvements in the consumable component supply. So we've seen some of that read through in Q1, and we continue to work with our suppliers. In fact, we see that potentially could be -- could drive some incremental output as upside relative to our current assumptions. The market demand continues to outpace supply. And we're still operating in the back order situation.

So as we improve component supply from third-party partners, we would like to see kind of a rebuild of some inventory levels because we're still kind of operating hand to mouth, and that's something that we're looking to improve. So we're going to continue to improve our own capacity throughout the year. We have a second line coming online in the second half of this year. And we're going to continue to partner with third-party suppliers to improve component supply. So that's what's dialed into our guide.

Got it. And then just on DTD, you mentioned you're in active engagement with CMS. Would love any more color there on how you feel about those conversations and just an update on your level of confidence that we could get this over the finish line?

Yes. I mean, as you recall, we chose a very collaborative approach in the submission with CMS rather than directly submitting, we wanted to engage with them through a dress application. We continue to collaborate very well with the agency. We're looking forward to our next meeting.

In terms of our confidence, I think our confidence lays behind the quality of the data, particularly the durability of treatment. As you recall, at 2 years, it's over 80% of the patients maintain their treatment versus today, if there's any standard of care, it is [indiscernible] therapy where patients lose their efficacy about 50% at 1 year. So our confidence has not changed. We are continuing to collaborate well with the agency, and we will definitely update once we have a formal application.

Our next question comes from Mike Matson with Needham & Company.

Yes. So just with regard to the OSA launch and the investments in terms of sales force hiring and things like that, can you maybe give us an update on where things stand with that? It seems like you called out, if I remember correctly, called out an impact to R&D, but in the quarter, R&D expense, but I didn't hear anything in terms of like sales and marketing. When do you expect to hire -- start hiring salespeople and any other kind of investments you need to make there?

Mike. So our focus this year is squarely on product development and getting the next-gen device ready for launch in 2027. We expect a limited commercial release in the first half of '27 and a full launch in the second half of '27. So as far as our investments this year still continue to focus largely on R&D with maybe some small portion on market developments as we move -- as we progress towards launch. We'll start hiring reps probably late this year, early next year as we get ready for a full market release in the second half?

Yes. Maybe just one comment. We're very pleased with the fact that [indiscernible] with our leader in OSA chose LivaNova, she joined the company and as a leader, she is now forming the leadership team, the go-to-market strategy and in the question that you asked on the commercial team that obviously will be started to get executed in 2027, but all the preparation work has been done now.

Okay. Got it. And then I heard you also call out some impact from spending on the ramp-up on the next-generation oxygenators. So can you just remind us on the timing on that and kind of how it will compare to the current offering and how it will be sort of phased in? Will it be more of an immediate switch over or more of a gradual change like we've seen with Essenz?

Yes. In terms of the development, we're in the late-stage development. I think what we -- and what I mean by that is that we have a completed design we are now doing the manufacturing scale up. And we do anticipate that the product will launch in 2028 to oxygenator. That was the question, right?

Yes.

So in terms of its capabilities, there's about 8 to 10 different parameters that perfusion is care about in the performance of an oxygenator, and we believe our next gen is superior equal to -- on all those parameters superior or equal to than the market leader product that we have with our Inspire oxygenators in the market. So we're very excited about it, and we continue to do the late-stage manufacturing scale-up.

That's all the time we have for questions. I'll hand back to Vladimir Makatsaria for any final remarks.

Well, thank you, everybody, for your engagement with LivaNova for joining us today and on behalf of the entire team, we really appreciate your support and interest in the company. 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.

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Emily, and I will be coordinating your call today. [Operator Instructions] As a remainder this conference call is being recorded.

I would 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 fourth quarter and full year 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 discussion 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 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 Fourth Quarter and Full Year of 2025. 2025 was a year of strong performance for LivaNova. We delivered double-digit revenue growth, meaningful adjusted operating margin expansion and robust cash generation, reflecting strong execution across our cardiopulmonary and epilepsy businesses. 2025 marked LivaNova's fifth consecutive year of double-digit EPS growth, and third consecutive year of double-digit organic revenue growth.

Importantly, we also continue to advance our long-term strategy and made progress towards the financial targets outlined at our November Investor Day. Our core businesses provide a durable foundation of growth, profitability and cash generation, which enables disciplined investment in innovation to drive our next chapter, entering high-growth, high-margin markets to build a more profitable, more sustainable financial profile over time. The first stage of that next chapter is obstructive sleep apnea, where we have a clear right to win based on rigorous clinical evidence, a differentiated technology designed to treat a broader range of telling patients and our existing neuromodulation capabilities.

At the same time, we continue to preserve outside optionality in difficult-to-treat depression, pending a CMS reimbursement decision, and we remain focused on advancing that work required to reach clarity there. As we execute the strategy, our goal is to transform LivaNova into a best-in-class MedTech company for the long term. Over time, entering higher-growth markets like OSA, will shift LivaNova's overall weighted average market growth upward and position the company for sustained acceleration. Our approach, leverages, our competitive advantages and is grounded in disciplined capital allocation and focused execution.

We have also been deliberate in strengthening the capabilities required to execute the strategy, including our innovation engine, our digital platform investments, and targeted leadership and talent upgrades across the organization. Consistent with that focus, we recently appointed [ Lucile Blaze ] as Global Head of Commercialization for obstructive sleep apnea, further strengthening our leadership team as we prepare to scale the opportunity. Lucile brings a strong track record in creating new sleep therapy pathways, improving patients' access to care and building high-performing teams.

I'd like to welcome Lucile to LivaNova and look forward to her leadership in advancing our OSA program. For the remainder of the call, I will discuss our fourth quarter and full year 2025 segment results and provide top line guidance for 2026. After my comments, Ahmet will discuss key innovation updates including recent clinical and regulatory progress. Alex will then provide additional details on our results and 2026 guidance. I will wrap up with closing remarks, before moving on to Q&A.

Now turning to segment results. For the cardiopulmonary segment, revenue was $207 million in the quarter, an increase of 10% versus the fourth quarter of 2024. Cardiopulmonary revenue for the full year was $785 million and grew 13%. The heart-lung machine revenue grew in the mid-single digits in the quarter, driven by an increase in Essenz placements and sustained favorable price premiums. Some planned Essenz placements and activity for the quarter shifted into 2026, moderating the fourth quarter contribution. As a point of reference, Essenz represented approximately 55% of our annual HLM units placed in 2025. HLM growth remains strong with full year revenue growing in the mid-teens.

Cardiopulmonary consumables revenue grew in the mid-teens in the quarter, driven by market share gains, procedure growth and price. Strong demand oxygenators continues to outpace the market's ability to supply. Our manufacturing capacity expansion plans are progressing well and remain on track. And we continue to partner with third-party suppliers to increase component supply for even more rapid expansion. For the full year, consumables revenue grew in the low teens. Looking ahead, our growth strategy in cardiopulmonary is driven by 3 levers as we outlined at Investor Day.

First, continued market share gains in consumables, enabled by capacity expansion and enhanced by our next-generation oxygenator with an estimated launch in 2028. Second, the continued upgrade cycle of Essenz where we expect approximately 80% of our new heart-lung machine placements to be Essenz by the end of 2026. And third, recurring revenue streams via software, hardware and service attachments, leveraging the breadth of our HLM installed base.

For the full year 2026, we expect cardiopulmonary revenue to grow 7% to 8%. Our forecast incorporates continued HLM growth as we drive Essenz penetration globally. It also reflects strong demand for consumables and expanded manufacturing capacity. Turning to epilepsy. Revenue increased 9% versus the fourth quarter of 2024, with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased the combined 17% versus the prior year period, while U.S. epilepsy revenue increased 8% year-over-year. These results reflects strong commercial execution globally.

For the full year, epilepsy revenue grew 6%, with strength across all regions. Epilepsy revenue in Europe and Rest of World grew a combined 13% versus 2024, while U.S. epilepsy revenue grew 5% year-over-year. We expect continued profitable growth in this business, supported by 3 key strategic levers: first, impactful clinical evidence, leveraging the core VMS clinical study which we presented at the American Epilepsy Society in the fourth quarter. The study has been well received and is reshaping the perception of VNS therapy effectiveness, prompting clinicians to reevaluate where VNS therapy fits within their treatment algorithm.

Second, innovation, including our Connected Care platform and Bluetooth-enabled generator will remove barriers to access and improve both the patient experience and physician workflow. Ahmet will provide additional details on recent progress with our digital health platform and how we intend to leverage it as a foundational innovation. Finally, sustained commercial excellence, including reimbursement and market access initiatives will continue to be a driver as demonstrated by recently improved reimbursement in the U.S.

Effective January 1, 2026, provide reimbursement for VNS therapy procedures for drug-resistant epilepsy under Medicare increased significantly. With hospital outpatient payments rising by approximately 48% for new patient implants and 47% for end-of-service procedures versus 2025 rates. This shift will improve hospital economics for VNS therapy, creating a more sustainable financial foundation for providers and paving the way for expanded patient access. As a reminder, there are more than 1 million DRE patients in the U.S., yet fewer than 10% receive advanced treatment. These changes significantly reduce a known barrier to procedure penetration as historical hospital rates for Medicaid patients did not fully cover VNS therapy procedure costs.

For the full year 2026, we expect epilepsy revenue growth of 5.5% to 6.5%. This forecast incorporates mid-single-digit growth in the U.S. We continue to evaluate the positive impact of reimbursement on the U.S. business. It also assumes the Europe and Rest of World regions will deliver a combined growth of high single digits for the year.

In summary, our growth in 2025 was driven by healthy markets, the continued successful rollout of Essenz, market share gains in cardiopulmonary consumables, strong commercial execution in epilepsy and pricing strategies. These drivers will continue to fuel growth in 2026, supported by sustained execution in cardiopulmonary and the combination of impactful clinical evidence and improved reimbursement dynamics in epilepsy that should support expanded patient access over time. As a result, we're guiding full year 2026 revenue growth between 6% and 7%, which is consistent with the 2025 to 2028 framework detailed at our Investor Day. Alex will provide additional details on our 2026 guidance later in the call.

With that, I'll turn the call over to Ahmet to discuss progress with our digital health platform and continued regulatory and clinical evidence momentum in OSA and difficult-to-treat depression.

Thank you, Vlad. Innovation remains a key driver of value creation for LivaNova, both by strengthening our core businesses and by enabling our next chapter of growth. Starting in epilepsy, we recently received FDA approval for our cloud-based digital health platform. This approval establishes the foundation for our connected care road map and enables the initial rollout of our cloud-based clinician portal. At Investor Day, we also described a multiyear innovation road map in epilepsy. Starting with the clinician portal, followed by a Bluetooth-enabled generator that integrates patient and clinician applications. The goal is to streamline workflows that includes remote titration provide immediate access to patient insight and enable more digitally connected care pathways that remove barriers to access.

Consistent with this road map, we expect a limited market rollout of the clinician portal in 2026, primarily focused on workflow validation and clinical engagement with limited financial impact. A full market release is planned for 2027, alongside the launch of our next-generation Bluetooth-enabled implantable past generator. More broadly, this is a strategic investment in Connected Care and epilepsy is 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 over time. accelerating the cadence of our software and digital health innovations and supporting a connected ecosystem approach.

To be more specific for cardiopulmonary these same capabilities can also support more connected workflows and data-driven insights as we continue to build around Essenz. This includes a pipeline of hardware and software upgrades designed to improve workflow and outcomes. Our innovation efforts in cardiopulmonary consumables also continue to progress. We recently completed a design freeze for our next-generation oxygenator and will now move towards manufacturing scale up.

Turning to obstructive sleep apnea, our modular PMA submission continues to progress with the FDA, and our timing expectations have not changed. We continue to expect PMA approval for the clinical trial device in the first half of this year. followed by a PMA supplement for the commercial MRI-compatible device. This supports a limited market release of the MRI compatible device in the first half of 2027. We followed by a broader commercial launch in the second half of that year.

We continue to view OSA as a very compelling derisked opportunity grounded in differentiated technology and clinical evidence as well as our established neuromodulation capabilities. On the critical evidence front, we expect a full 12-month data set from the OSPREY trial to be published imminently. Osprey is the first and only randomized controlled trial in the HE&S space, bringing gold standard scientific rigor to the field. As previously disclosed, patients with the complete concentric collapse or CCC were not excluded from OSPREY, and approximately 45% of participants were high risk for this condition. OSPREY also enrolled a challenging patient population with higher baseline AHI and BMI compared to other pivotal U.S. trials.

Yes, the responder rates were comparable to these studies even though other cities scream the more difficult-to-treat patients out. This is reflected in their FDA labels as contraindications or warnings. Additionally, our policy evaluation continues to progress. As a reminder, policy is our advanced titration algorithm designed to fully leverage the 6 electrode architecture of our PHS cost, which was not done in OSPREY. It enables multi-contact activation for greater nerve and muscle selectivity, optimizing therapy for each patient. [indiscernible] demonstrated the ability to convert nonresponders into responders, both strengthens our competitive positioning versus existing [indiscernible] therapies and has the potential to expand the penetration by bringing neurostimulation to a broader range of patients.

We look forward to sharing the full [ POLYSINC ] results at the SLEEP conference in June, but are confident we will be able to convert at least half of the nonresponders into responders using the polysync algorithm. As a reminder, we intend to make polysync immediately available during our commercial launch to ensure all of our patients have access to advanced algorithm at their initial titration. This will not be used as a follow-up for nonresponders. We will optimize therapy for polysync for all patients from the start.

Now turning to difficult-to-treat depression. In January, the recovered durability manuscript was published in the International Journal of Neuropsychopharmacology. The durability profile of the VNS therapy is central to why we believe it is a differentiated option in its markedly ill patient population, where therapies can often get patients better for a short time, but cannot keep patients better over time. Recover demonstrated that after 24 months, more than 80% of patients maintain clinically meaningful improvements across symptoms, daily function and quality of life.

With respect to CMS, we remain in active contact with the agency, and we're working toward our next meeting with them. We view this as an important step towards submitting our reconsideration package, which remains a top priority. Given current scheduling uncertainty, we won't speculate on the exact submission timing at this stage. In summary, we're encouraged by our progress from advancing our connected care foundation across our portfolio to continued regulatory and clinical evidence momentum in OSA and DTV. We look forward to providing future updates as milestones are achieved.

With that, I will turn the call over to Alex.

Thanks, Ahmet. During my portion of the call, I'll share a brief recap of the fourth quarter results and provide commentary on 2026 guidance.

Turning to results. Revenue in the quarter was $361 million, an increase of 9.5% on a constant currency and organic basis versus the prior year. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $9 million or 3%. Adjusted gross margin as a percent of net revenue was 68% in line with the fourth quarter of 2024. Favorable product mix and pricing across segments and geographies were offset by unfavorable currency changes and tariff impacts.

Adjusted SG&A expense for the fourth quarter was $131 million compared to $122 million in the fourth quarter of 2024. SG&A as a percent of net revenue was 36%, down from 38% in the fourth 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 fourth quarter was $49 million compared to $40 million in the fourth quarter of 2024. R&D as a percent of net revenue was 14% up from 13% in the fourth quarter of 2024. The year-over-year increase was driven by OSA and core product development investments.

Adjusted operating income was $64 million compared to $56 million in the fourth quarter of 2024. Adjusted operating income margin was 18%, as compared to 17% in the fourth quarter of 2024. The increase was primarily driven by revenue growth and operating leverage from fixed costs, partially offset by investments in cardiopulmonary oxygenator capacity expansion as well as higher R&D spend in both OSA and the core. Adjusted effective tax rate in the quarter was 24%, up from 20% in the fourth quarter of 2024. The increase was related to changes in geographic mix and the roll off of certain tax attributes that have contributed to our historically low effective tax rate.

Adjusted diluted earnings per share was $0.86 compared to $0.81 in the fourth quarter of 2024. The increase was primarily driven by adjusted operating income, reflecting strong revenue growth in both the epilepsy and cardiopulmonary businesses as well as effective cost management. Additionally, Q4 2025 included approximately $0.04 of favorable impact versus prior guidance assumptions related to cardiopulmonary investments, primarily due to timing of the [indiscernible] printed circuit board conversion, where the related costs have been rephased over the rollout period. Importantly, the printed circuit board conversion program remains on track and is reflected in our 2026 guidance assumptions that I'll cover in a moment.

Moving to our cash balance at December 31. Cash was $636 million up from $429 million at year-end 2024. The increase reflects improvements in operating cash flows, and the release of $295 million of restricted cash following the neo litigation guarantee termination. Total debt at December 31 was $377 million compared to $628 million at year-end 2024. The reduction in total debt was a result of the $200 million early repayment of a portion of the term facilities as well as the $58 million repayment of the 2025 convertible notes.

On January 8, we fully repaid the outstanding term facilities through an early payment of $98 million, inclusive of accrued interest. Adjusted free cash flow for the quarter was $53 million as compared to $62 million in the prior year period. The year-over-year decrease was driven by increased capital spend. Adjusted free cash flow for the full year of 2025 was $183 million, up from $163 million in the prior year period. The year-over-year increase was primarily driven by stronger operating results and working capital improvements. Capital spend was $81 million in 2025 compared to $47 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 2026 guidance. We forecast 2026 revenue growth between 6% and 7% on a constant currency basis. We expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. We estimate full year adjusted operating income margin between 20% and 21%. Adjusted effective tax rate is forecasted at approximately 23%. We project adjusted diluted earnings per share in the range of $4.15 to $4.25, with adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year.

The CPS range represents approximately 8% growth at midpoint. This range also incorporates the assumption of a third quarter [indiscernible] payment of approximately $400 million, representing a $0.06 unfavorable impact to EPS due to lower interest income. On January 30, the Court of Appeal set the next new hearing date for June 2026 to allow the parties to discuss possible out-of-court resolution of the matter. We believe the amount reserved for [indiscernible] remains our best estimate, and we have sufficient resources to satisfy the liability.

Adjusted free cash flow is expected to be in the range of $160 million to $180 million. This range includes $120 million in capital spending, roughly a $40 million increase versus the prior year. This increase supports cardiopulmonary capacity expansion initiatives and the next-generation oxygenator manufacturing scale-up as well as investments in the IT infrastructure.

I'd also like to call out that the guidance ranges shared today incorporate our best estimate of the impact of currently applicable tariffs. We estimate a tariff net impact of less than $5 million on adjusted operating income for the full year. We acknowledge this is a dynamic environment, including the recent U.S. Supreme Court ruling and we continue to monitor it closely. Nonetheless, we believe LivaNova remains well positioned to manage the impact of tariffs.

In summary, 2025 was a year of strong performance, reflecting the dedication of our global team, resulting in double-digit organic revenue growth and 150 basis points of adjusted operating margin expansion. This translates into a 15% increase in adjusted diluted earnings per share and a 13% improvement in adjusted free cash flow. Our 2026 guidance is consistent with the 2025 to 2028 framework detailed at our Investor Day, which targets a mid- to high single-digit revenue CAGR, annual adjusted operating margin above 20%, and EPS growing roughly in line with revenue. It reflects durable, healthy core business performance and continued disciplined investment in both the core and innovation pipeline aligned with our capital allocation framework.

With that, I'll turn the call back over to Vlad.

Thank you, Alex. In closing, our 2025 results demonstrate the durability of our core cardiopulmonary and epilepsy businesses, which continue to provide a strong foundation for the company. We delivered double-digit revenue growth, expanded operating margins and improved cash generation, while investing in key innovation priorities. In 2026, we will continue to advance the long-term strategy outlined at our recent Investor Day. Throughout the year, we expect to achieve a number of key milestones including the manufacturing scale-up of our next-generation oxygenator in cardiopulmonary, the launch of our digital health platform in epilepsy, PMA approval for our clinical trial device in OSA, followed by PMA supplement submission for the MRI compatible system and the formal submission of reimbursement consideration to CMS in difficult-to-treat depression.

I want to thank our colleagues around the world for their focus and dedication to serving our customers and improving outcomes for patients. We have the right team, the right strategy, and I'm confident in LivaNova's path forward and our ability to deliver sustained value for shareholders as we look ahead.

With that, we are ready to open the call to questions.

[Operator Instructions] The first question today comes from Adam Maeder with Piper Sandler.

Congrats on a nice 2025 campaign. Two for me. The first one on cardiopulmonary. So you have the guidance of 7% to 8% growth for FY '26. Can you help us think about how you're thinking about oxys versus HLM growth in '26? And then you did signal some HLM tender shifted from Q4 into '26. Maybe just flesh that out for us in more detail and which regions? And if possible, could you quantify that? And then I have a follow-up.

Adam. Yes, so we expect the same growth drivers in '26 that we saw last year. So one, [indiscernible] upgrades; two, market share gains in consumables; and, three price. So as far as the components of the guide, the [indiscernible] upgrades are going to drive approximately a double-digit growth which means that the market share gains will continue into the year. So we'll have good growth on consumables as well. Given the timing of the year, we consistent with kind of the typical guidance philosophy that we have, we've made some prudent assumptions around our outlook. We've assumed a moderation in the price premium for [indiscernible] as well as conservative on the oxygenator output, given the third-party supply constraints that we've experienced in 2025.

And Alex, any color on the shifting of the tenders from Q4 to '26?

First of all, we're going to fully recapture those in the first quarter, it wasn't -- it wasn't super material in terms of the shift. So it's fully incorporated into our full year guide.

The next question comes from David Rescott with Baird.

Great. Congrats on the strong end to the year here. I wanted to ask maybe first on the epilepsy business and what's baked into the guide for the year? It looks like the outlook that you have laid out for this year is higher than the epilepsy guidance you initially laid out in 2025. So curious if at all, there is anything with comps there? Or if it's fair to read into maybe some incremental tailwinds coming in from the elevated reimbursement front? And if so, when you think about the potential either pricing or contracting tailwinds that could be there or utilization benefits through the year, how should we be thinking about kind of the pieces that you've baked into this epilepsy look for '26?

David, thank you for the question. I'll start, and then I'll turn it over to Alex and Ahmet because they are important components in that. And just to remind everybody, our epilepsy -- in our epilepsy business, the procedure penetration is still significantly low. And there were a number of barriers to this penetration. And then we have significant tailwinds that happened in early this year and last year in terms of removing those barriers. So the first one is reimbursement improvement close to 50% on both new patient implants and replacement implants. And then the second one is the poor VNS study results, clinical results that were published and received very strong support from the clinical community. So while maybe this is early to measure the impact, those strategically, those drivers will be lasting levers to continue growth and durability of growth in epilepsy business. And so maybe Alex can address reimbursement and Ahmet can address the clinical side.

Sure. So as Vlad said, we're excited about the tailwinds with both the core VNS as well as the increased Medicare reimbursement. What we've baked into the guide is price will be a short-term contributor to growth. Now as Vlad said, driving increased penetration will take some time. So we're changing physician behavior and reactivating closed accounts, and that just doesn't happen overnight. So we're being kind of prudent at this point given those assumptions.

We ended '25 with strong results. And we're confident we can continue building on that momentum, but also means that we have a difficult comp in the second half of 2026. The other thing I just want to remind everybody that 2/3 of the U.S. epilepsy revenue comes from replacement implants. So this provides us with a durable, profitable recurring revenue stream, but it also means that increased growth in new patient volume has less of an impact on the overall epilepsy growth rate in'26.

Yes. And maybe I'll just give a quick summary of the core study. So this was the largest global prospective study for VNS up to today, and it was with 800 patients in 60 sites over 16 countries. And the study demonstrated that VNS therapy delivers early durable and meaningful seizure reduction and freedom in both children and adults that have drug-resistant epilepsy. Just to give you kind of a few key points. The study demonstrated that the seizure frequency across multiple seizure types, including the most severe and disabling seizures significantly reduced.

For example, at 36 months, the seizure reduction was 80% for patients with [indiscernible] seizures. And there was an 84% reduction in [indiscernible], which is a sudden death that occurs with epilepsy patients. So we're extremely excited about the data, and we continue to roll it out in conferences and through publications.

So David, I think in summary, the combination of 2 factors give us more confidence in the durability of our growth in epilepsy.

Okay. Maybe just on this Wiser program that I think may have an impact on the VNS business, maybe it doesn't. But I know we've heard some other companies call out some of the denials in the Medicare patient populations so far in 2026. Wondering, if at all, you could comment on the exposure there or if there's any risk in your mind around denials in this patient population?

David, in the cohorts that we've been tracking, we haven't seen any denials, so virtually no impact. What I will say is that a significant portion of our Medicare patients are -- fall under the Medicare Advantage plan. So that requires a prior authorization anyway. So nothing really changes dramatically for our business.

Next question comes from Michael Polark with Wolfe Research.

A follow-up on HLM on the tender timing. I didn't hear countries or geographies, I'm imagining Europe, maybe China. So can you be more specific on where that timing slipped? And if it is in China, your fresh perspective on the [indiscernible] opportunity as it launch in China.

Yes. So Mike, good to hear from you. So on the first part of the question, like Alex said, the shift in some placements was immaterial and will be fully captured, majority of it in Q1 of this year and then maybe potentially some in Q2. Regarding China, our launch is going as planned. We continue to be very optimistic about that market. And just a reminder, China is our second largest market in terms of placed units. We are the market leader there, and our current win rate in China is above 80%.

And to give you a little bit of flavor on the launch, we had the product approved in the first half of the year. We had a commercial launch in the second half of the year, given the timing of capital sales cycle, the first placement actually was in November. And maybe just this gives you a little bit of a flavor that 2025 was the year of launch and preparation and launch and '26 will be the first year of significant impact. We see the funnel of new placements and we're very confident in our ability to be successful with this launch in China. And as a reminder, [indiscernible] in terms of percent placements of all HLM is going from approximately 55% last year to approximately 80% this year, and a big driver of this will be coming from China.

If I can follow up on U.S. epilepsy. On the end of service business, with the reimbursement increase, can you remind us how long the window is to get a replacement? I'm imagining it's 12 months. I think I see evidence to device alerts that much in advance. And so could there be a dynamic here where centers are motivated to do more replacements, pull it forward, if you will, given the change in financial incentives?

Look, when we originally thought about the reimbursement change and -- that was late last year. We always thought of the improvement in reimbursement for end of service is kind of -- it will actually support the penetration of new patient implants. We kind of looked at it as a the overall financial viability of VNS therapy at the hospital level was challenged in the past. So we always saw it as an opportunity to drive actually penetration with new patients as opposed to promoting a step-up in end of service. So we still think of it as in a similar fashion that this is a new patient implant opportunity and expanding penetration across all of our account universe is what we're focused on.

Our next question comes from Brett Fishbin with KeyBanc Capital Markets.

Just wanted to follow up on the epilepsy reimburse topic. Over the past couple of months, CMS actually removed the [ HC&S ] procedures from joining your current 65, 68 code, which impacts multiple product areas. So I was curious how you guys are viewing this decision and potentially touch on some of the trade-offs around protecting the DNS reimbursement change versus any changes in economics as it pertains to the HC&S opportunity down the road?

Brett, this is Ahmet. Maybe I'll start by summarizing what happened so that everyone on the call has the same information. So just as a reminder, with H&S the previous generation device of the incumbent was in a different code than VNS. And when they moved into the latest generation, temporarily, they started utilizing the VNS code for [indiscernible] as well. And consistent with the recent statement by CMS, we believe that the code for VNS therapy for epilesy should be separate and not shared with reimbursement codes for HE&S or OSA.

So as we prepare for our launch. We will continue to work with the relevant medical societies to have the most appropriate [indiscernible] code. And at the time of our launch, we'll utilize the most prevailing calls at that time. And because the features and the procedure of our technology for [indiscernible] is similar to the incumbent, we don't see any risk of being able to use the prevailing calls at that time. And finally, related to your question, we continue to advocate and actively pursue a Level 6 APC classifications for new patients with VNS. And as I said, we believe VNS and VNS therapy epilepsy and I say or should be separate codes.

All right. Super helpful. And then maybe a second question. I know it's a little bit early, but just curious if you could touch on any very early days feedback and taat you've heard from customers at the CEC or other facility level just regarding these changes. I'm wondering if you've heard any specific anecdotes about changes in philosophy as it pertains to budgeting or supporting these procedures at the provider level?

I can answer this. So kind of our early read is when we said we were going to focus on -- the commercial teams will focus on the following. So first and foremost, trying to reopen accounts that have closed for us. And we're seeing some green shoots there that we're pleased with. Expanding penetration in existing accounts is 2. And the third is going back and renegotiating our volume-based discounts. And that's where I think where we're seeing some of the early progress, probably more so than on the penetration side. So we expect kind of an outsized impact on price relative to volume.

Our next question comes from Anthony Petrone with Mizuho Group.

Thank you, and good morning, everyone. Congrats on a strong question on RECOVER and 1 on R&D spend. And when we think on [indiscernible] and depression, I know timing is still up for debate. But if we look ahead and take a glass half-full approach, assuming that we get favorable coverage. I'm wondering from the company's perspective, is favorable coverage now Level 6 coding that in depression, we should expect that to code to Level and i.e., payout $45,000 or so on an outpatient basis versus what we estimate is a $25,000 device input cost or should we assume that still Level 5 coding at $30,000 to $35,000 is still a best-case outcome? And I have 1 quick question on R&D spend.

I'll just comment on the code piece and then ask Alex to comment on the pricing piece. So we anticipate that depression would be the same code as VNS Therapy. So where whatever the VNS Therapy code is today, it will be the same code. But as I said in the previous question, we are continuously advocating and actively pursuing a Level 6 APC classification for VNS Therapy. So if epilepsy moves in there, depression will be together with it.

I'd just say it's too early to comment on our ASPs given that we're still awaiting the reimbursement decision from CMS.

Helpful. And then just R&D spend, Alex, it ticked up a little bit in the 4Q. I'm just wondering what the complexion was there? Was that recover manuscripts, was it setting up sleep apnea, something else that we're not seeing, device redesign? And is the fourth quarter level for R&D sort of the new run rate?

So I'll just speak to R&D in general as it relates to 2026. So we're largely maintaining our R&D investment in the core for '26. Obviously, we're wanting to continue to advance innovation and that's what's going to fuel the sustainable growth for both epilepsy and CP. As far as focus in '26 in epilepsy, we're prioritizing the development of our next-generation Bluetooth enabled [indiscernible] which we intend to launch in 2027. In CP, we're investing in the next-gen oxygenator and additional HLM hardware enhancements to strengthen our market leadership.

The next-gen [indiscernible], again, is expected to launch in '27, '28. This year, we're increasing our investment in OSA product development. The investment is focused on our next-generation device which will be the product that we launch into the market in the second half of '27. Just as a reminder, our goal is to continue to drive adjusted operating margins above 20% annually, despite the fact that we're ramping investments in the OSA business. And so our '26 guidance is very much in line with our -- with the targets we set.

The next question comes from Mike Matson with Needham & Co.

Yes. So just with where things currently stand with the OSA [indiscernible] reimbursement assuming nothing changes there going into '27 when you go into your full launch, what does that mean for that launch in that business for LivaNova. Does it limit you somehow? Or can it still be equally successful if reimbursement doesn't improve?

I mean I'm just going to comment on the reimbursement piece. We're very comfortable with the current coding that CMS guided towards. It will still be very meaningful growth opportunity for us. So we're -- our excitement around the OSA space hasn't changed at all. We believe we have a differentiated technology with a very interesting and differentiated clinical outcomes. And we believe this is a disease state that has unmet needs. It's underdiagnosed. The growth for the patient population is there. So nothing has changed for us since the Investor Day that we communicated around our excitement.

Okay. Got it. And then just another one on sleep apnea. So I think at the Investor Day, you'd spoken about making some investments in 2026. Can you maybe talk about what you're doing this year to set the stage there? Are you going to start hiring reps? And then how much have you baked into the kind of OpEx guidance to account for those investments?

Yes. I mean -- this is Ahmet again. I'll give a broad kind of answer to that. So -- on the R&D side, we have multiple key deliverables. One, we need to continue and finalize the [indiscernible] clinical piece we're spending time and energy there. We are still actively working in getting our clinical trial device approved. Nothing has changed there. We expect that in the first half of this year, and we are actively working on our commercial launch device, which is the MRI compatible version, which will be submitted after we have the FDA approval of the clinical trial version.

So those are the kind of the key R&D pieces where we're spending time and energy. We are going to invest in our commercial organization, but it's fairly limited. In 2026, the broader expansion of the commercial capabilities is more so in '27 onwards. As we kind of discussed during the Investor Day, again, nothing has changed compared to what we shared in November.

Our next question comes from [ John McColley ] with Stifel.

Just want to follow up on the earlier guidance questions we heard the last 3 years by math, you grew double digits this year. You're saying 6% to 7%, albeit it's in line with the Investor Day guidance, just want to be very clear that there's not a negative shift in dynamics that's reflected there, whether it be tougher comps or being later in the [indiscernible] upgrade cycle. Is this truly just conservative positioning as you start the year?

No, there's no -- John, thank you for the question. There is no negative dynamics. We are consistent with our guidance philosophy that we've had in the past years. And I was asked the question during the Investor Day, what are the biggest levers to the upside from our plan. And I think they remain the same. We have to see how the reimbursement improvement and the clinical data impacts our epilepsy business. And on the cardiopulmonary side, Alex noted that we are continuing to gain market share in our oxygenator business and our ability to scale manufacturing faster will be an additional level of growth.

And I would just add to that, in terms of our guidance, we assumed a kind of a moderation in the price premium on [indiscernible] relative to the premiums we've realized in 2025. And the other, I would say, conservative assumption is on the oxygenator output, right, given the third-party component supply constraints that we've been working through those are kind of the 2 elements that have sort of moderated our assumptions going into '26.

Switching gears to epilepsy. If I recall, something like 40% of your patient population is covered by Medicaid, you correct that number is off. But my understanding is that the reimbursement there for a decent portion of states has to be adjusted at the state level. Could you just give us an update on where you are in terms of Medicaid reimbursement changes and where you might expect to be by the end of the year?

Yes. So I mean, -- the way to think about this is Medicaid is essentially going to follow Medicare. So while it's going to take some time to work through the individual state situations, we assume that ultimately, Medicaid will get to the same level of reimburse.

Thank you. Those are all the questions we have in for today. And so I'll turn the call back over to Vladimir Makatsaria for closing remarks.

Well, thank you, everyone, for joining the call today, and thank you for your continued support and interest in LivaNova, and have a good day ahead. Bye-bye.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.

Welcome, everyone. I'm Blade Jacobson with the JPMorgan Investment Banking team. Very happy to announce our next session with LivaNova. We're going to have the CEO, Vladimir Makatsaria, presenting today. And then after, we'll be joined by Alex Shvartsburg for the Q&A session. So I'll leave it to them.

Thank you, Blade. And it's two difficult last names to pronounce, and you did a great job. So good afternoon, everyone. Great to see you. Thank you for joining us today. I'm Vladimir Makatsaria, CEO of LivaNova. And today, we prepared some brief overview of LivaNova for you, highlighting some information that we presented at our Investor Day back in November. And at the same time, I also want to discuss some of the events that occurred after that, and that includes improvement in reimbursement in our Epilepsy business. It includes presentation of CORE-VNS data at the American Epilepsy Society, and it also includes publication of manuscript covering durability data for the RECOVER study in difficult-to-treat depression. .

So before we begin, I just want to make -- remind everybody that we will be making forward-looking statements, and we will also be -- some of the information will include certain non-GAAP financial measures. And then for more information, please refer to our presentation.

So for those of you newer to LivaNova story, let me give you a quick snapshot. So LivaNova is a global medtech company that has generated around $1.3 billion in revenue in the last 12 months as of September of last year, with nearly 5 decades of experience in market and market-leading positions in the areas that we serve. So our Cardiopulmonary business provides heart-lung machines, oxygenators and other technologies that make life-sustaining open heart surgery possible. And today, over 70% of all open heart procedures around the world use our technologies.

Our Epilepsy business delivers neuromodulation therapy for patients with drug-resistant epilepsy, using small implantable device that stimulates vagus nerve to help control seizures in the instances when medication itself -- by itself is not enough. And VNS therapy has already transformed lives of more than 175,000 epilepsy patients around the world.

Then we use the similar technology for neuromodulation to enter the obstructive sleep apnea market with proximal hypoglossal nerve stimulation or what we call PHGNS. We're poised to deliver rapid growth as we scale this new business with a differentiated technology. And then finally, we have an upside opportunity using similar VNS therapy as we do in epilepsy, but to treat difficult-to-treat depression. And this is gated by CMS reimbursement decision, which we're currently in the process of.

So over the past 11 quarters, we've made some strong progress on our financial performance. We delivered 10% organic revenue growth, 17% EPS growth and generated over $400 million in adjusted free cash flow. And in order to achieve these results, the company has undergone significant strategic evolution as well as an evolution in our culture. And so from 2019 to 2022, LivaNova reshaped its portfolio. We made deliberate choice to divest or exit several low-growth cardiovascular assets and to refocus our investments on a set of promising early-stage portfolio opportunities. This shift in strategy also led to a transition period that slowed down the pace of our innovation in the core businesses.

In recent years, we've refocused on core innovation, and on the areas we have a clear right to win. As part of this refocus, in 2024, we completed the wind down of heart failure program and the advanced circulatory support business. These actions allowed us to -- these actions reflect our commitment to regularly review our portfolio and optimize it. And they allowed us to reallocate financial resources, leadership attention and operational capacity back onto our core businesses. This renewed focus combined with targeted strategic investments, key talent upgrades and improvements in operational excellence has led to a recent track record that we are very proud of. And so as we continue to invest in the core and we also leverage our neuromodulation expertise to commercialize obstructive sleep apnea while preserving an upside opportunity to enter difficult-to-treat depression market, this serves as a foundation for our next chapter.

So how do we get there? The leadership position in our epilepsy and cardiopulmonary businesses give us a strong foundation that provides durable growth, market expansion and consistent cash generation, allowing us to invest in our future. So this enables us to grow our leadership position in our core. And at the same time, allows us to invest in a transformative pipeline and enter high-growth markets with attractive margin profiles. Over time, these programs will shift LivaNova's overall weighted average market growth upward, positioning us for sustained acceleration.

So what does this look like in more detail? So today, we have leadership in Epilepsy and Cardiopulmonary businesses, 2 attractive markets that currently grow at mid-single digit. Our strategy is anchored in winning in those core markets to sustain above-market growth while also entering high-growth segments grounded and clear right to them. Our core, while unique in terms of customers and patients we serve, has something in common. And that's a significant unmet need and an opportunity for innovation.

So let's start with epilepsy. It's a $700 million market today. It's significantly underpenetrated. And so that gives us a good opportunity for growth. And given low penetration for nondrug therapies and significant delays in the care pathway to get to advanced treatment options. So fewer than 1 out of 10 eligible drug-resistant epilepsy patient today receives nonpharma therapy each year. And that is kind of -- that's when I was talking about underpenetration.

In cardiopulmonary, it's over $2 billion market today. and it did experience accelerated growth in terms of procedures over the last few years. So pricing is historical low single-digit run rate due to aging population, increasing surgical complexity and also expanding global access, namely emerging markets are playing a bigger part of the overall global pie today. This underlying procedure growth, combined with price increases, has led to a durable mid-single-digit market growth in Cardiopulmonary business. And this market has well-defined unmet need around better perfusion outcomes, data and insights to inform clinical decision-making and consistent and reliable product supply.

Next phase for LivaNova strategy is entrance into high-growth obstructive sleep apnea market. The neuromodulation market for OSA has rapidly grown to reach $1 billion, and we expect that the double-digit growth of the market will sustain moving forward. This growth will be driven by increased awareness and rates of diagnosis for OSA as well as increased penetration of neuromodulation solutions.

Today, less than 10% of patients who fail first-line OSA therapies receive an implant. This market has remained underpenetrated in large due to the limitation of current availability of technologies when it comes to treating difficult patients. Our ability to treat more challenging patients, such as those with higher BMI, more severe OSA and other constraints like complete concentric collapse will differentiate us in the market.

So beyond OSA, we have significant upside potential, like I said, in our difficult-to-treat depression program. VNS and depression holds significant promise to address critical unmet need around lack of durable and efficient solutions for the most severe depressed patients. Receiving a positive coverage decision from CMS would unlock another $1 billion-plus market growth opportunity -- market opportunity.

We have the right to win in this high growth neuromod markets due to the competencies developed by our Epilepsy business. We can use these capabilities to both accelerate growth and shorten path to profitability. For example, neuromodulation product development expertise, supply chains, global footprint, market access capabilities are well developed in LivaNova. Long term, LivaNova has the capabilities to expand into additional attractive neuromodulation and perfusion adjacencies with a strategy ground in our right to win and unique ability to create value.

So let me double-click on the core businesses first, starting with cardiopulmonary. So cardiac surgery remains gold standard for treating the world's most critical cardiac diseases. And as a market leader, we play a central role in delivering those life-saving solutions to patients around the world. We're competing in a $2 billion market with leading position in nearly every category of this market.

Our growth has been based on 3 drivers. The first one is gaining share in oxygenator market. Today, we -- over the last 2 years, we've increased our market share from low 30s to now high 30s in terms of percent share and our plans moving forward call for additional 800 bps share gains over the horizon of the strat plan. The second growth driver is upgrade on equipment and Essenz is our new heart-lung machine. And so upgrade from old generation to new generation machine is leading to -- is one of our key growth drivers. And then finally, it's using the large installed base of heart-lung machines around the world. Like I said, we have over 70% market share globally to generate continuous revenue and this includes things like services and software upgrades.

In our Epilepsy business, we are the market leader in today's $700 million neuromodulation market to treat drug-resistant epilepsy. We expect to continue profitable growth in this business, supported by 3 key levers. The first one is impactful clinical evidence. We recently published real-world evidence study called CORE-VNS that shows significant improvement in the results versus our pivotal study years ago and that makes this minimally invasive therapeutic option very attractive for patients.

Second one is innovation. Our connected care platform and Bluetooth-enabled generator removing barriers to access and improving both patient experience and physician workflow. So we will have a cadence of new products coming to the market in the space.

And then finally, it's sustained commercial excellence, including reimbursement and market access, where we recently have a very tangible example as effective January 1 of this year, provider reimbursement for VNS therapy procedures under Medicare increased significantly, close to 50% for both new patients and replacement batteries. So we expect that this shift will improve hospital economics and help increase procedure volumes and drive improved penetration in this space.

Next is our entrance in sleep apnea market. Our 2 core businesses enable us to invest behind this big driver of growth acceleration, obstructive sleep apnea. So for patients who fail CPAP, durable second-line options are limited. Many do not qualify for HGNS, particular patients with complete concentric collapse who represent nearly 1/3 of the OSA population. We believe that this unmet need creates a compelling opportunity for differentiated second-line neuromodulation option.

Let's turn to how we will enter the space with a proximal hypoglossal nerve stimulation and the differentiated therapy designed to provide more complete control over the tongue and airway. PHGNS leverage LivaNova in-house neuromodulation expertise across R&D, manufacturing and commercialization. Our approach enables treatment of a broader, more challenging patient population, including 30% of OSA patients with complete concentric collapse through a simple procedure, a 15-year battery and a future path to remote titration.

The OSPREY study trial demonstrated the strength of our 6 electrodes proximal nerve architecture, which enables access to additional airway muscles, affecting the tongue and airways. CCC patients were not excluded and approximately 45% of all participants of the trial were high-risk, yet responder rates were comparable to pivotal studies that screened this CCC patients out.

Building on OSPREY differentiated results, we advanced our titration algorithm called PolySync, a proprietary technology that fully leverages 6 electrodes to optimize therapy for each patient. In a follow-up evaluation of prior nonresponders, 8 out of 10 patients converted to responders, underscoring PolySync potential to unlock unmatched efficacy and broaden market penetration. This clinical differentiation drives our confidence and informs our commercialization strategy, lead with science, target the right physicians and scale efficiently using our proven neuromodulation infrastructure.

And then finally, difficult-to-treat depression. While DTD is excluded from our company's long-term financial projections given the pending CMS coverage reconsideration, it represents a significant upside opportunity. For every 1% penetration of the patient cohort identified as strong candidates for VNS therapy, we would expect $400 million to $500 million in revenue from U.S. alone. If CMS grants coverage, we have the ability to control pace and scale to support a commercial launch. Our pursuit of CMS coverage is based on the strong clinical results from the RECOVER trial.

The RECOVER study was the biggest of its kind involving the most severe depressed patients ever studied. It was co-sponsored by CMS through their CED program. The study provided compelling evidence of clinically meaningful and very importantly, sustained benefit. The RECOVER durability manuscript was recently published, demonstrating this unprecedented durability in this markedly ill patient population.

So let's talk about financials and how these pieces come together in the results through 2030. So Cardiopulmonary business, we expect mid- to high single-digit revenue growth. And moving to CP P&L, we forecast adjusted operating income margin expansion by more than 300 basis points. In Epilepsy, we project maintaining a mid-single-digit revenue CAGR, and we're confident that we can expand adjusted operating income margin by 200 basis points.

OSA will accelerate our growth and profitability in the long run. Our full commercial launch will take place in the second half of 2027. We will invest in building the necessary commercial infrastructure and new products over the next several years to ensure success in this space. We expect to rapidly scale OSA revenue to between $200 million and $400 million, achieving a gross margin of -- in excess of 80% and adjusted operating margin of 25% plus by 2030.

We are also modeling an OSA breakeven P&L by 2029. And although DTD is not reflected in our long-range plan, pending CMS coverage reconsideration, it represents a significant upside optionality. We recognize that delivering on this 5-year plan requires milestone-based investment strategy in the near term, aligned with market conditions.

So let's step back and look what this means for the total enterprise. As you can see, there are essentially 2 phases in our strategy. Phase 1 reflects 2025 to 2028, where the core business continues to drive mid- to high single-digit revenue CAGR and margin expansion while we invest into scaling the OSA business. During this time, we are committed to maintaining our annual adjusted operating margin above 20%. We also forecast EPS growth in line with revenue growth.

The second phase captures 2028 through 2030. And during this phase, we expect OSA to begin to contribute meaningfully to enterprise margin expansion. As I stated, we expect OSA P&L to break even in 2029 and deliver a robust 25%-plus operating margin by 2030. This results in a compelling financial profile over a long-term plan. From 2025 to 2030, we expect to deliver high single-digit plus revenue CAGR, exiting with adjusted operating income margin in the high 20s. This model translates into a low double-digit to mid-teens EPS CAGR.

In short, we're using the strength of our core to enter the higher growth, higher margin business while capitalizing on our neuromodulation capabilities. This strategy doesn't just deliver strong financial outcomes by 2030, it sets a foundation for us for sustainable, diversified growth and margin expansion into the future.

We communicated this long-range plan at our Investor Day on November 12. And since then, we had a couple of positive updates that I mentioned that further increased our already strong confidence in achieving our commitments. So as a result, these include increased reimbursement by CMS to our Epilepsy business, positive reception of CORE-VNS study results and recent publication on durability data for difficult-to-treat depression patients.

So in closing, a few words, I'd like to say that I'm deeply confident in LivaNova's path forward. We're well positioned to -- for transformative growth and sustained value creation for our shareholders. We have the right team, we have the right strategy, and we have discipline to execute effectively. Our Cardiopulmonary and Epilepsy businesses together provide a stable, profitable foundation with mid-single digit or better growth and attractive margin profile. Our entry into OSA is derisked, backed by compelling data and differentiated technology that addresses significant unmet needs and increase in our portfolio growth. And our DTD program, which is not included in our targets, represents a pure upside. DTD would be a natural extension of our neuromodulation platform and a potential game changer pending favorable CMS reimbursement decision. So I thank you for your time, and look forward to continued conversation.

And with that, I'd like to invite Alex Shvartsburg to join me on the stage, and Blade will lead us in a Q&A.

Thank you, Vlad. Very exciting. So for you both, I want to start on the sleep apnea side. It seems like that's a very important driver of acceleration in the back half of the financial plan. Can you walk us through some of the key elements of the commercialization strategy and how you plan to drive adoption there?

Yes. So our focus over the last couple of years was on generating clinical evidence and then on engineering in terms of building the right product. We're now in the process of getting -- receiving FDA approval for our OSA device. Now moving forward, our focus now is shifting or adding our commercialization efforts. We recently broaden to LivaNova, Lucile Blaise, who is a very experienced leader in the sleep space to lead our OSA commercialization efforts.

And this effort will consist of 2 stages. First, it will be a trial stage where we will focus on key opinion leaders, key centers. We did a study with about 150 physicians and 97% of physicians in that study were positive about trying out our new device. And we believe that now with more compelling clinical evidence and with more compelling and simplified procedure, we will get very good traction right away. And then the second stage will be full launch, obviously, when we will deploy a broader sales force and continue to focus on commercialization, scientific publications, market access efforts and accelerate adoption of this procedure.

Very good. So the early PolySync results were pretty compelling to algorithm. Could this be a true game changer for patient outcomes? And when should we expect to see that full data?

Yes, it's a great question. And if you were to ask me about what was the one most exciting point of our Investor Day that we came as in terms of news, that was PolySync data. So our -- so the main endpoint in the OSPREY study was responder rate. And our responder rate in that study was 65%. So we've learned from that data that was used in titration of -- during this trial and we applied that data to fully utilize our -- architecture of our technology, namely 6 electrodes that we have in our device. And using this new algorithm, what we've done is we brought in -- so we opened it up for 35 patients that were nonresponders in the trial, 25 of them agreed to come back and get retitrated. And what we announced at Investor Day, at that point, we had 10 patients in that group, 8 out of 10 became responders. So 8 out of 10 nonresponders that came in for retitration became responders. And those are the most difficult patients in the trial.

So we've -- since then, we continue to bring in more patients. We haven't made the results public yet, but we will, and we will continue to study this. And when we launch our OSA device, we will launch it with PolySync titration methodology. And I believe that this is from a clinical point of view, it's a complete game changer.

Great. And on OSA as well, just turning on the financial side, we can probably get Alex involved, too, is you laid out a plan for OSA breakeven by 2029, deliver kind of operating margins of 25% plus that following year, and you're committed to the overall company having an operating margin above 20% throughout the forecast. So just digging into that a little bit -- and you're also investing during that time. So just digging into that a little bit, how do you plan to kind of execute that profile and also with competitors in the space?

Yes. So let me maybe start, Alex, and I'll turn to you. So there are 2 dimensions in this. One is growth dimension. And we believe that clinical differentiation, the results that I talked about and at the same time, the fact that we're going to expand the market to CCC patients, which is roughly 1/3 of all the patients that are currently not treated today with HGNS. So that will help us accelerate growth. And then there's kind of, I would say, cost side of it, right?

So within LivaNova, we currently have all the capabilities that will help us launch. So we're not launching a new company, we're launching a product with the infrastructure that already exists. And I'm talking about manufacturing capability, R&D capability, market access capability. So that -- those platforms that already exist in LivaNova to help other neuromodulation technologies, we can utilize them to maximize our path to profitability.

Alex?

I would just add, I think Vlad said it well. Obviously, OSA has tremendous synergies with our Epilepsy business. We have built a substantial infrastructure and capability, again, in manufacturing, R&D, innovation, commercial operations, health economics and market access. These are all capabilities that exist today at LivaNova. Those are significant synergies in terms of cost synergies that accelerate our time to value. So I'm super excited about OSA because it gives us an opportunity to drive substantial growth at a high gross margin profile and get significant leverage in the middle of the P&L.

Great. So switching gears a little bit on the topic of financial discipline. Can you walk us through the priorities for capital allocation and what we should expect there?

Absolutely. So we talked about this at Investor Day. We have a high conviction in our core business in epilepsy and CP and that is our first priority in terms of our capital allocation. We believe in those businesses will continue to grow, as Vlad just described. There's tremendous growth potential and margin expansion opportunity there, and we're going to continue to invest behind innovation. We're going to continue to invest in infrastructure such as IT as well as our manufacturing capabilities to drive growth.

Second, OSA is top of the list in terms of our capital allocation priority. We will invest behind OSA and standing up a commercial channel while leveraging the capabilities that I just described. And then thirdly, we see tuck-in M&A as a third priority for us. It is a -- M&A is certainly part of our toolkit, and we are absolutely ready and open to move decisively into tuck-in opportunities. It is not a critical priority, but we view it as a tool set to continue to drive growth and margin expansion in our business.

All right. Great. And so I want to touch on epilepsy as well. You highlighted the positive news from CMS regarding the reimbursement of VNS therapy for DRE, the drug-resistant epilepsy. How should we be thinking about the impact to your business in 2026 in the coming years of the financial plan?

So maybe -- so I'll start with -- during the Investor Day, we've guided to mid-single-digit growth in our Epilepsy business. I was asked the question, what is the biggest upside to that business, and I did say that improved reimbursement would be potential upside to it. So the reimbursement changes that you're talking about happened on the new products, on new patients happened after the Investor Day.

So just to give a perspective, what happened over the last few months, we saw the decisions to improve reimbursement of replacement battery from Level 4 to Level 5, it's close to 50% improvement in reimbursement. And then we saw improvement in reimbursement on new patients from Level 5 to new product category, which is also close to 50% improvement. Now you really see in medtech market, 50% price reimbursement improvements on technologies that have been for a long term in the market. So we see this as a very positive sign for providers.

Average patient has full replacement over their lifetime. And so if you look at economic impact on providers, it's about $40,000 additional for each epilepsy patients. So it's a significant improvement in terms of economic viability for those providers who are doing VNS procedures for epilepsy. We're in the process of assessing what this means from our growth perspective. And we will -- as we learn about this, we will communicate the news to the market. But one thing is clear for me that this is -- was a driver, was a barrier to higher penetration because historically, this was -- VNS procedures for epilepsy was economically nonviable. So the hospitals were losing money on these procedures. So now it becomes a viable economic procedures that should drive procedure penetration moving forward.

And we're essentially addressing 3 kind of tactics in the near term. The first one is trying to drive expanded penetration in accounts we already have strong relationships with. So just continuing to drive expansion of implants. Second is going after accounts that have essentially exited VNS practice because of the economics, the unfavorable economics. So that's number two. And number three is given the unfavorable economics over time with hospitals, we've had to offer volume-based discounts to enable them to continue their practice. And so now we're going back and we'll be renegotiating those contracts again. So it presents a big opportunity for our commercial team to drive excellence in extending penetration in this category.

Okay. Yes. And I also want to touch on the strong real-world evidence from CORE-VNS you presented at the American Epilepsy Society. How is core changing behavior in the market? And how do you think about the financial impact it will have as well?

Yes. So one barrier to penetration we talked about was reimbursement. The other barrier for improved penetration is the fact that there's a perception in the medical community and some data supported it that higher efficacy from a clinical point of view is delivered by more invasive solutions for treatment of epilepsy. And ultimately, where science is going, the goal is to create less invasive solution with higher efficacy. And this is a very important space because patients don't want devices inside their brain. And so this is kind of a very important direction for us from a science point of view.

And what CORE-VNS -- this was the biggest real-world evidence study that we had. Basically, the data shows that a few things that the results today with the kind of new device that we have on the market are significantly better and comparable to the clinical evidence from more invasive therapies. That's number one. And then second is that the results get better with time. So the more you have effect of VNS therapy, the better the results get. So we're very excited that we received very positive first reaction from the scientific community on this, and we will continue to educate medical community and patients on data from CORE-VNS study.

So we're coming up on time here. I just want to -- probably the last one, I just want to talk about depression. Where do things stand with CMS? And what's your latest expectations for submitting a formal NCD?

It's a great question. So first of all, I'm going to step back and say, it's 1.2 million patients in the U.S. alone that they do not have an effective solution for treatment. And we believe that, that population of patients could benefit from VNS therapy. And so if CMS reimbursement is granted, we would be the first technology to address unmet needs in this patient population. So I'm very excited from the clinical point of view on this.

We are in discussions with CMS. We chose to be very collaborative with them. And so we are working with getting their feedback on what the reimbursement request statement should be like. And so they are now reviewing it with the clinical community. And we expect over the next few weeks, we expect to receive final feedback from them on what our request should look like. And after that, we will submit a formal request for reconsideration.

Great. Well, it's a pleasure to have LivaNova at the conference this year, and thank you very much, Vlad and Alex.

Thanks, Blade.

Thank you, Blade. Thank you for great questions. Thank you, everybody.

Welcome, everyone. It's great to see so many familiar faces around the room. I'm Briana Gotlin, and I have the pleasure of leading the Investor Relations team at LivaNova. On behalf of the entire team, we are thrilled to have you join us today. This is the right moment to gather our investor and analyst community together to introduce the next phase of LivaNova's journey, and we have a great program for you.

Our executive leadership team will share our strategic road map and long-range financial outlook. And we have several members of our team here today conducting a product showcase for you to get more familiar with the products and therapies that LivaNova offers. But before we begin, a few housekeeping items to cover.

During today's event, we'll be making forward-looking statements, and it's possible that actual results will differ from our expectations. For more information, please refer to our Investor Day presentation. Additionally, the discussions will include certain non-GAAP financial measures such as organic revenue, adjusted operating margin, adjusted EPS, adjusted free cash flow, amongst others. For reconciliation or for more information regarding the use of non-GAAP financial measures, please refer to our presentation.

And finally, our agenda. As you can see, we have a wonderful program for you today. We'll hear from leaders across the company, and we'll cover all business units and programs. We'll take a brief 15-minute break about halfway through. And during that time, I'd encourage you to stop by the product showcase in the [indiscernible]. We will have time for Q&A at the conclusion of the prepared remarks, and we expect the event to conclude around 1:00 p.m. You'll be able to ask questions both in the room and online through our webcast platform. The product showcase will remain open for about 1 after -- for about 1 hour after the conclusion of the formal Q&A.

The slides from today will be posted at the end of the program and a replay of the event will be available within 24 hours on our website. I also want to say thank you to everyone who contributed to the event today. So many colleagues across LivaNova have worked together to make this event happen. It really highlights the comradery and collaboration that define our organization. We'll play a short video clip to introduce you to our new LivaNova identity as previewed on our earnings call last week, and then we'll welcome our CEO, Vlad Makatsaria to the stage. Please silence your phones and computer notifications at this time.

And without further ado, let's get started.

[Presentation]

LivaNova is built on a strong foundation, and we are on the verge of unlocking a truly transformative growth. Good morning, everyone, and it's great to be here with you in person in this room, and welcome to all of you joining us online. I'm Vlad Makatsaria, CEO of LivaNova, and I'm thrilled to be here today.

It's an exciting time for LivaNova. I'm proud of what we've achieved over the last couple of years. I'm energized by the opportunities ahead, and I'm confident in our ability to execute. I believe that by the end of today, you will share that confidence. Here's what you can expect from us over the next 5 years.

Our long-range plan delivers steady revenue growth in the core with acceleration in obstructive sleep apnea. In cardiopulmonary, we are the market leader, and we will continue to grow faster than the market. This growth will be driven by continued Essenz replacement cycle and market share gains in consumables, as well as upcoming launch of our new generation oxygenator.

In epilepsy, where the market is significantly underpenetrated, we expect reliable profitable growth supported by strong clinical evidence, commercial execution and accelerating innovation. And in OSA we are poised to deliver rapid growth as we scale this derisked and differentiated business. In difficult-to-treat depression, or DTD, we have potential upside to our plan gated by the CMS reimbursement decision. Bottom line with disciplined capital allocation, Livanova is well positioned to deliver long-term value to our patients, our customers, our colleagues around the world and, of course, our shareholders.

And my confidence in delivering on this plan comes from the quality of our leaders, who demand accountability and who have nurtured a can-do attitude and culture at every level everywhere we work. This team is in the room today and I'm proud and honored to be part of this team. It brings some distinctive key strengths to LivaNova.

First, it's new. It's fresh, energized unafraid to challenge status quo. Second, it brings deep expertise, and it's a good blend of external leaders coming from some of the top names in [ the tech ] industry, alongside with internally developed talent who know our customers, our products and markets inside and out. And third, it's a team that works exceptionally well together. And even in a short period of time, we've built strong trust, alignment and our recent successes are a direct reflection of that.

So today, you will hear from some of them. Phil, our Chief Strategy and Corporate Development Officer will take you deeper into our portfolio strategy. Franco, who leads our cardiopulmonary business and Steph, our leader of epilepsy will show how market leadership, commercial execution and innovation are driving growth. And then Amit, our Chief Innovation Officer, will take you through the transformational opportunity ahead of us in obstructive sleep apnea. He will share some incredible new clinical data that has never been shared before. He will also talk about our upside that we preserve in difficult-to-treat depression. And finally, Alex, our CFO, will outline how we expect to sustain strong financial profile going forward.

But before I turn it over to the team, I wanted to share my story. And despite joining as a CEO only 18 months ago, my connection to LivaNova is actually much longer and deeper. And about 30 years ago, when I was just starting my career as a sales rep in cardiovascular business at Johnson & Johnson, I was in an operating room watching surgeons fight for the life of a newborn, just hours old born with congenital heart defect. And as the surgeons rebuild her tiny heart vessels aided by devices that maintain blood flow and oxygenation, while her heart was still -- I was in the room. Those devices were early generations of the cardiopulmonary products LivaNova provides today. And I actually stayed in touch with the family of that girl ever since. And every Christmas, we still get a card and that baby is now a healthy woman on with children of her own.

And so for me, on the story, it's not -- it's a reminder of why I do what I do. Why all of us do what we do. To give people not just more time, but a chance for a full and joyful life. And so to embody this purpose, we recently unveiled LivaNova's new vision. Changing the trajectory of lives for a new day. It's not just about treating conditions. It's about setting patients on a new path for their future. So what is LivaNova? Who are we? And for those of you newer to the story, let me give a quick snapshot of that.

LivaNova is a global medical technology company with nearly 5 decades of market-leading positions in the areas that we serve. Our cardiopulmonary business provides the heart-lung machines, oxygenators and other technologies that make life sustaining open heart surgery possible. Today, our cardiopulmonary portfolio supports more than 70% of all open heart procedures performed worldwide. It's a remarkable scale and impact.

Our epilepsy business delivers neuromodulation therapy using -- for patients with drug-resistant epilepsy using small implantable devices that stimulate the [ vagus ] nerve to help control seizures when medications alone aren't enough. VNS Therapy has transformed lives of more than 175,000 patients and their loved ones. And many of these patients benefit from the therapy throughout their lives. Our impact is global and that diversity drives a balanced revenue performance, both across businesses and geographically. And behind all of that are more than 3,000 colleagues around the world, around 100 countries across the world united by the purpose to deliver innovation, reliable solutions that change life.

And over the past 11 quarters, we have made some strong progress in our financial performance, our execution, innovation and talent. We delivered 10% organic growth on revenue side and 17% adjusted EPS growth. We generated approximately $400 million adjusted free cash flow. Now on the operational side, we've expanded oxygenator manufacturing capacity by nearly 25% over the last 3 years, and that allowed us to grow our market share in disposables.

We also successfully launched Essenz, our new generation heart and lung machine, a major milestone that strengthen our technology leadership and has transformed the growth profile of our cardiopulmonary business. We concluded our 3-year CORE VNS study, the largest real-world evidence study in neuromodulation for epilepsy, demonstrating the strength of VNS Therapy across different seizure types. And on the innovation front, we achieved critical milestones with our PMA submission of a truly differentiated proximal [ hypoglossal ] nerve stimulation technology for the treatment of obstructive sleep apnea.

Finally, from the talent perspective, we've strengthened our organization by changing more than 40% of direct and above leaders across the team, bringing top external expertise and promoting internally. These achievements demonstrate our ability to deliver results across every part of the business. And while today's focus is on showcasing LivaNova, our vision, our leadership and our execution road map for the next 5 years, it's also important to understand what are we building on.

And so from 2019 through 2022, LivaNova reshaped this portfolio. We made deliberate choice to divest or exit some low growth cardiovascular assets, and to refocus our investments on a set of promising early-stage portfolio opportunities. That shift in strategy led to a transition period that slowed down the pace of our core innovation efforts. In recent years, we refocused on the core innovation and on the areas where we have a clear right to win. So let's talk about that.

As part of this refocus, in 2024, we completed a wind down of the heart failure program and advanced [ circulatory ] support business. These actions reflect our commitment to regular review and optimize our portfolio, and they allowed us to reallocate financial resources, leadership attention and operational capacity back into our core businesses. This renewed focus, combined with targeted strategic investments, talent upgrades, improvements in operational excellence has led to a recent track record of results that we're all very proud of.

Now this is the foundation for our next chapter. And as we continue to reinvest in the core, we're also leveraging our neuromodulation expertise to commercialize OSA, while preserving the upside to enter the DTD market. As a team, we're building the company with an accelerated and sustainable trajectory of top line and EPS growth. We're doing this by expanding our leadership in the core while getting into bigger, higher growth and more profitable markets.

The leadership position we hold in both epilepsy and cardiopulmonary gives us a strong foundation, one that provides predictable growth and consistent cash generation. This sustainable top line growth and margin expansion, we're driving in those two businesses, enables us to invest in a couple of important ways.

First, it allows us to maintain and grow our leadership in our core markets. This means investment in supply capacity, innovation, international expansion and clinical evidence generation. At the same time, this strength allows us to invest in our transformational pipeline, the higher growth, more profitable markets like OSA and DTD. Over time, these programs will shift LivaNova's overall weighted average market growth upward positioning us for sustained acceleration.

By growing this by grounding this high-growth innovation investments in markets and products where we already have a clear right to win, and where we can leverage our existing capabilities, we are creating a self-reinforcing flywheel. It's a flywheel that builds on our strengths, enables us to establish new markets and leading positions in those markets. It accelerates our ability to deliver meaningful value to patients, providers, to our colleagues around the world and ultimately to our shareholders.

So what does that mean from a financial perspective? Over the next 5 years, we will achieve high single-digit plus revenue growth with acceleration in latter part of the plan. Over the next 3 years, we will continue to drive our leadership in the core and invest behind OSA in a responsible manner. During this time, we are committed to maintain an annual operating income margin above 20%. And as OSA scales, this will accelerate to reach high 20s by 2030. This results in a low double-digit to mid-teens EPS CAGR through 2030 with an acceleration in latter part of the plan.

But let me be very, very clear. Our destination is not 2030. We're transforming the profile of LivaNova to a benchmark [indiscernible] company for long term. And so now -- before I turn this over to Phil, I want to take a moment to introduce him. I've had the privilege of working with Phil in Asia, in U.S. and everywhere in between.

Phil has had a tremendously successful career in strategy and business development across Johnson & Johnson. He's a strategist. He's a builder, and he is a great teammate. And now as our Chief Strategy and Corporate Development Officer, he is helping guide LivaNova's future. So please join me in welcoming Phil on the stage.

Thanks, Vlad. So let's take a look at our portfolio strategy and how we are well positioned to achieve the long-term outlook that Vlad shared. Our strategy starts with where we play. Today, LivaNova has leadership positions in two attractive markets that currently grow at mid-single digits. Our strategy is anchored in winning in those markets to sustain above-market growth, while also entering higher-growth segments grounded in a clear right to win.

Our core, while unique in terms of the customers and patients they serve has something in common. High unmet needs with significant opportunity for innovation. Let's start with epilepsy. A $700 million market today with additional growth potential given the low penetration of therapies and significant delays in the care pathway to get to advanced treatment options. In fact, the current penetration of advanced therapies in drug-resistant patients is only 10%. And the average patient despite being drug-resistant after failing 2 medications currently takes 15 years and 6 failed medications before getting to an advanced therapy.

Demonstrating better clinical outcomes, launching innovation that removes barriers in the care pathway and being proactive in monitoring the landscape of external technologies that could tuck in to our existing infrastructure are all levers for LivaNova to address these critical unmet needs and accelerate market growth. In cardiopulmonary, our over $2 billion global market has well-defined unmet needs of products. Investment in manufacturing capacity, product innovation like our next-generation oxygenator and software-based upgrades to our ENCE platform will allow us to address these unmet needs and continue to grow our market-leading position.

The next phase in the LivaNova strategy will be our entrance into the high-growth obstructive sleep apnea market. The neuromodulation market for OSA has rapidly grown to reach $1 billion, and we expect double-digit growth to sustain over the long term. This growth will be driven by increased awareness and rates of diagnosis for OSA as well as increased penetration of neuromodulation solutions. Today, less than 10% of patients who fail first-line OSA therapies receive an implant. The market has remained underpenetrated in large part due to the limitations of currently available technologies when it comes to treating difficult patients. Our ability to treat more challenging patients, such as those with higher BMI, more severe OSA and other physiologic constraints like complete concentric collapse will differentiate us in this market.

Beyond OSA, we also have significant upside potential with our difficult-to-treat depression program. VNS in depression holds promise to address critical unmet needs around the lack of a more durable and efficacious solution in the most severe patients. Receiving a positive coverage decision from CNS would unlock another $1 billion-plus high-growth addressable market. Longer term, LivaNova has the capabilities to expand into additional attractive neuromodulation and perfusion adjacencies with a strategy grounded in our right to win and a unique ability to create value. So let's double-click on our right to win in these higher-growth markets like OSA and accelerate growth and shorten the path to profitability.

Our product development expertise in implantable pulse generators and lead design, a shared cloud platform to enable digital and remote capabilities and the clinical and regulatory expertise for Class III implantable medical devices our unique innovation differentiators for LivaNova. Our expertise in neuromodulation supply chains will enhance our profitability and reliability through know-how and scale. Our global footprint with strong commercial operations and OR support functions will be leveraged to ensure the successful launch and scaling of both OSA and potentially DTD.

Our depth of experience in creating referral pathways between distinct medical call points, like neurologists and neurosurgeons in epilepsy will allow for accelerated market growth. And finally, the market access capabilities to ensure coverage and achieve sufficient reimbursement for implantable neuromod technologies are critical to maximize value creation. And as we expand the portfolio and accelerate our growth, the strength of our innovation engine will play a critical role.

Over the last 2 years, we have completely overhauled LivaNova innovation process, governance, operating model and talent perspective. These changes include hiring 15 new senior leaders into the innovation community, creating a core team model that ensures clear project level accountability and establishing a distinct technical governance that is separate from the business governance in order to enhance the level of scientific rigor in our innovation decision-making. Given the life cycle of med tech innovation, we will see much of this value of these changes in the robust pipeline of future launches. That being said, we have seen some early proof points of the results of these changes.

Let's take AI. We are at the forefront of med tech in deploying agentic AI in product development, using artificial intelligence to write much of the code for our next-generation VNS. This has a dramatic impact on both the speed and efficiency of our development process. We have also established a single shared cloud platform across the entire portfolio. This allows us to advance our data strategy and increase our innovation cadence of software and digital health solutions.

The output of these changes is transformational. We will launch 7 products over the next 3 years and dramatically improve our freshness index, which is the innovation metric we use to determine the percent of sales coming from products launched in the last 5 years. We will exceed 40% by 2030, which positions us as a benchmark innovator compared to our medtech peers. And we will do all this while maintaining a high single-digit to low double-digit investment in innovation as a percent of revenue.

In addition to internal innovation, we see inorganic innovation as a complementary approach for the long-term health of LivaNova. Over the last year, we have focused on evolving the capability. Learning from past outcomes and benchmarking against industry standards, we have made changes in the governance, processes, role clarity and talent of not only the corporate development function, but of all of the functions involved in assessing external opportunities. Our broader focus on culture, that Vlad described, will also impact our ability to make both make the right choices and integrate effectively.

Our disciplined corporate development approach will balance both strategic fit and financial return, and evaluates opportunities against 4 main criteria. Each prospect must align with our prioritized strategic objectives, address significant unmet needs for key stakeholders, leverage internal competencies and our right to win, and generate attractive risk-adjusted returns. All of this is done within the context of our [indiscernible] LivaNova capital allocation framework, which Alex will describe later this morning.

So what is our road map over the next few years to enable this strategy? Our first priority is to maximize our core businesses to ensure the durability of our leadership positions, continued cash generation and provide a stable platform to enable investment. Key priorities include advancing product development and enabling key launches, expanding manufacturing capacity to match demand and investing to sustain commercial excellence. We'll also be assessing tuck-in M&A that will reinforce our leadership in our core businesses. These investments in the core will allow us to retain our market-leading positions and deliver organic mid-single-digit plus growth on the top line.

Our second priority is to enter the obstructive sleep apnea market with our differentiated proximal hypoglossal nerve stimulation device. We have submitted our PMA and await FDA approval while we continue to develop innovative product features and publish clinical evidence supporting the differentiation of this novel therapy. The introduction of the fast-growing OSA business will meaningfully contribute to sales by 2030, thereby raising our enterprise growth to high single digits or better.

Our final priority is reaching clarity with our difficult-to-treat depression program. We have initiated the process for reconsideration and continue to advance our efforts with CMS. By doing so, we maintain the option for a second transformative growth business that would leverage our existing depression infrastructure, as well as our strong capabilities across neuromodulation. Given the unique competitive positioning of the asset, we will be able to control how we scale and invest alongside of growth. We believe that expanding our neuromodulation portfolio will create significant long-term value for LivaNova shareholders and further accelerate growth by 2030.

So what I hope to leave you with is that, one, LivaNova is in attractive markets today with a path to enter additional high-growth markets with significant unmet need. Two, our leading capabilities in neuromod give us a right to win in these high-growth segments. Three, we are building a strong innovation engine, both internal and external, that will be a key enabler for our future growth trajectory. And four, we have a clear path to transform the growth profile of LivaNova.

So this strategy all starts with a strong foundation in our core businesses. And I can't think of a leader that better embodies the depth of expertise we have in our core than Franco [ Piletti ]. His customer [indiscernible], market insights and cross-functional expertise are what sets him apart. With over 40 years of experience inside our business, he started as a product development engineer and rose all the way up to President of our cardiopulmonary business. It's my pleasure to welcome Franco to the stage.

Thank you very much. Well, good morning, everyone. It's a pleasure to be here with you today. I'm proud today to share how our cardiopulmonary segment is uniquely positioned to continue a growth trajectory while delivering durable value for our shareholders.

Well, we are the clear market leader in the cardiopulmonary segment. We believe that cardiac surgery remains the gold standard for treating the world's most critical cardiac disease. As the market leader, we play an essential and established role in delivering these life-saving therapies to patients everywhere.

Second, we have some notable growth driver across our portfolio that will enable sustained above-market performance. The adoption of our new [indiscernible] machine, Essenz across the globe, as the standard of care. Market share gains in our consumables used to support cardiopulmonary [indiscernible] procedure. And the new revenue stream in order software and service to leverage the breadth of our global installed base.

Third, due to our scale, we have the ability to maintain our recent track record of delivering operating leverage, margin expansion and increased cash generation. Now let me spend a few words about what is cardiopulmonary pass. Maybe some of you may know people who underwent cardiac surgery. For those new to the space, let me explain what does it mean.

Cardiopulmonary pass is a life-saving perfusion technique. The temporary takes over the function of the heart and lungs during cardiac surgery. Well, this is essential for surgeons to perform complex procedures like coronary artery bypass grafting, surgical [indiscernible] valve repair and replacement, and also congenital [ artifacts ] repair. The procedure will allow the surgeon to operate in a still heart and utilize sensing and cooling to ensure patients have before, during and after the case. But even more important, it keeps the patient alive during surgery, supplying oxygen and removing carbon dioxide from the body tissues and from the organs.

Well, more than 5,000 hospitals around the globe performed on pump cardiac surgery on about 1.5 million patients a year. Again, more than 14,000 installed heart-lung machine enabled this life-saving procedure. And the number is only growing.

In the recent years, the global cardiopulmonary market has experienced an accelerated growth, surpassing its historical low single-digit run rate. This growth is driven by a few key factors. First, the global population is getting older. As the population ages, the prevalence of cardiovascular disease continue to rise, leading to sustained growth in cardiac procedure.

Second, patient complexity is increasing, higher rates of comorbidities and [ concomitant ] result in increased demand for surgical approach that require cardiopulmonary bypass. It's important to note that cardiac procedure post TAVR implant -- TAVR stands for [indiscernible] replacement, are increasing rapidly, including surgical replacement of at the initial TAVR valve.

Finally, global access to cardiopulmonary bypass is expanding. This is driven by improving [ LTR ] access and expansion of cardiac care infrastructure in developing markets. This is driving greater procedure growth. This underlying procedural growth combined with price increases led to a durable mid-single-digit growth cardiopulmonary market.

Now LivaNova is the leader in the cardiopumoly market because of our 50 years -- more than 50 years legacy of innovation. We have consistently upgraded our portfolio, improving the practices of perfusion and elevating patient care. The strength of our customer-focused organization around the globe is another important ingredient. Even our customer value our consistency and reliability in supporting this critical procedure.

While other manufacturers have deemphasized their focus in serving this market, LivaNova has remained committed and in doing so, have earned the trust of our customers. Due to this market leadership and scale, we are a very well-diversified geographic and product mix in our business. We derive revenue relatively equally across the U.S., Europe and rest of the world region. We have 4 key product segments, each of which has been driving our recent growth and market outperformance. And the results speak by themselves. For 11 straight quarters, we have delivered double-digit revenue growth.

Well, double clicking on our portfolio, we are a leading position in nearly every single major cardiopulmonary [ bypass ] segment. Recent year, we have continued to increase our market share in heart-lung machine and in consumables, driven by the successful launch of Essenz around the world, including the most recent launch in China, but also with market share gains in consumable. We were able to respond to the higher market demand that outpaced our competitor ability to supply. The result is, over the last 2 years, we've become the leading supplier of this critical component.

In [indiscernible], we have a strong leadership position in the cardiac segment. This is our focus. And our focus again is on driving therapy adoption in the emerging market will allow the continued share gains. In [indiscernible], we have a smaller footprint, but a very well-differentiated portfolio with our specialty care. As we register our full portfolio of [indiscernible] globally, we have the opportunity to continue the growth.

So what can you expect from LivaNova cardiopulmonary in the next 5 years? Our strategy is anchored on 3 major pillars of growth. First is consumable share gains. We will achieve it through oxygenator capacity and innovation. We are focused on expanding our oxygenator supply, targeting a step change improvement in 2026 and sustained growth through 2030. We also anticipate the launch of our next-generation oxygenator by 2028, providing us an opportunity to further differentiate LivaNova in the category. The impact will be share gains of approximately 800 basis points by 2030.

Second is to continue the Essenz of [indiscernible] cycle. Driving Essenz market penetration is the cornerstone of our long-term strategy. It's a multiyear conversion, which provides a recurring revenue stream due to our large installed base. So far, the [ great cycle ] in the developed market has exceeded our expectations. Additionally, we are seeing early success after our August launch in China.

The final pillar is leveraging of our installed base of Essenz to generate additional recurring revenues. We will introduce new hardware components, like a [ newer manager ], [indiscernible] by 2026. The new software and algorithms will improve outcomes and workflow, all of which will continue to drive above-market growth. These pillars will strengthen our market leadership and deliver superior value to our stakeholders. In doing so, we will deliver mid- to high single-digit revenue growth with higher gross margin, and a significant increase in our profitability.

Well, I would like to share more detail on each of this pillar of our strategy. Our first key growth pillar is investment in our [ CPB ] cardiopulmonary consumable, primarily represented by oxygenator, driven by a commitment to innovation and operational excellence, our strategy for oxygenator growth is anchored on both capacity expansion and innovation. Beginning '25, we initiated a significant investment with the addition of a new manufacturing line dedicated to inspire our flagship adult oxygenator. By the end of 2030, we will expand our capacity by 60%. This expansion marked the first step in a multiyear plan that will culminate with the addition of a new manufacturing line to produce our state-of-the-art oxygenator in 2028.

The next gen oxy will be differentiated through best-in-class performance, thanks to [indiscernible] capability, very low blood resistance and solid platter preservation to reduce [ block ] trauma to the patient. You may visit our product showcase to view the prototype directly. We expect this best-in-class product to drive an ASP premium due to the innovation and improved clinical benefit.

While we are forecasting an 800 basis point increase in share gains, due to these investments, we will have the capacity to get over 60% of the total global oxygenator market by 2030. Before I get to the next pillar of our strategy, I want to take a moment to introduce the Essenz perfusion system and why this is a critical part of our cardiac suite and the key driver of value for the company.

[Presentation]

Well, the video brings the Essenz system to life, and you can see the value it creates for our customer. As I mentioned, we expect 100% of our new heart-lung machine sales to be essence by the end of '27. This will continue to drive cardiopulmonary revenue growth over the next couple of years, as we increased the mix of Essenz placement from 60% in '25 this year, to 80% next year and finally, 100% in 2027. We are mindful that this dynamic creates tough year-over-year comparables and we will not capture the same level of price mix effect. As such, we project HLM growth of double digit in '26 and mid-single-digit '27. Nonetheless, we will also have opportunities to improve margin with initiatives that support customizable version of Essenz for more price-sensitive market.

Finally, our strategy is focused on our ongoing hardware and software releases and adoption of new algorithms, which will complete our vision of a total perfusion solution. We have the partner of choice to perfusionist. Well, today, we sell product. We sell heart-lung machine, oxygenators, [indiscernible], autotransfusion. Over the next few years, we are planning to enhance our Essenz system with major order upgrades with the introduction in 2026 for both next-generation [indiscernible] manager, which is a system to balance gas mixture in the oxygenator during the case. And the next-generation liter cooler, which is a device that control the body temperature again during the case. This new technology fall naturally into the footprint of our large installed base of an Essenz heart-lung machine.

In addition to the [ order ] upgrades in the next 3 years, we will also have clinical software release with algorithms integrated to improve functionality for our customer inpatient outcome. In the future, we will deliver a total perfusion solution that is even more holistic and interconnected offering for our customers. A solution built around the core Essenz platform will integrate advanced software and hardware, enabling clinicians to achieve more predictable and superior patient outcome. It's a modular design, enables the hospital to unlock clinical and economic value through target upgrades such as automation, enhanced monitoring and enablement of qualitative analytics.

Additionally, we are incorporating perfusion algorithm, for example, the [indiscernible] that will reduce postoperative complication for patients. Well, increasing hardware and software attachment through our large HLM installed base will help increase the recurring revenue mix of our business. This will also enable pull-through sales from incremental [indiscernible] consumable and service.

Now from a financial perspective, the cardiopulmonary business is leveraging on its global installed base, robust pipeline and technological ecosystem centered on Essenz platform to drive profitable growth and margin expansion. We will drive mid- to high single-digit revenue growth, which is higher than the underlying market. We are focusing strategic investment in manufacturing capacity for oxygenator. The launch of the next-generation products that are designed to meet evolving market demand and reinforce our ability to increase our market share.

We will expand gross margin by more than 100 basis points through cost initiatives, pricing optimization and growth of service and software offerings. We will expand adjusted operating margin by over 300 basis points by 2030. Again, we will launch 4 new products over the next 3 years, which will drive a cardiopulmonary freshness index of approximately 20% by 2030.

Now in summary, I would like you to remind a few points. The first one is that we are market leader in the cardiopulmory segment. We believe that cardiac surgery remains the choice, the best choice for cater disease treatment and this position will help us to achieve our objectives. Second, we have 3 notable growth drivers across our portfolio that will enable sustainable market performance. Adoption of our new heart-lung machine Essenz, market share gains in our consumables, and new revenue stream in hardware, software and service that leverage the breadth of our installed base. Last due to our scale, we have the ability to maintain our recent track record of delivering operating leverage, margin expansion and increased cash generation.

Now thank you very much for your attention. There's [indiscernible] who spent more than 4 decades in this industry and with this company, I've never been more excited about the future of cardiopulmonary pulmonary business as I am now.

Before closing, I would like to introduce my colleague, Steph Bolton, who will discuss our tremendous opportunity in epilepsy. Steph has over 20 years' experience in the field of epilepsy. She has spent nearly a decade at LivaNova in a variety of regional and global commercial roles, driving collaboration and operational excellence. Please welcome, Steph.

Well, hello, everybody, and welcome. It's a real privilege to be with you today to share how our epilepsy business is both performing and also positioned to deliver not only clinically meaningful impact, but scalable growth and sustainable financial value. So let's start with the epilepsy summary.

Drug-resistant epilepsy patients face significant unmet medical need that corresponds to a large and growing but highly underpenetrated market opportunity. So what do we do? Well, we provide a life-changing therapy for patients that is both effective and long established as the least invasive option for patients with DRE. And LivaNova is very well positioned, having built a strong product and global commercial foundation over 30 years as the leading company in drug-resistant epilepsy. And today, I'll walk you through our drivers for growth, our latest strong real-world evidence, and our market access initiatives as well as our exciting innovation agenda. All built on a foundation of disciplined execution and scale with industry-leading profitability.

So if you take two things away from this slide, take away the fact that there is a high unmet need and we have several levers for growth. So let's first start with the definition of DRE.

The reality is that over 10 million people worldwide live with DRE. And if we look at the pie chart, we can see the drug-resistant epilepsy are patients who continue to have seizures, despite trying at least 2 appropriate and well-tolerated anticision medication. And this definition reflects decades of research showing that once 2 drugs fail, the chance of achieving seizure control with additional medications is very low. And despite the introduction of many new drug therapies over the past several decades, roughly 1/3 of patients still live with drug-resistant epilepsy. And this unmet need has left over 10 million people globally living with drug-resistant epilepsy. Over 1 million right here in the United States, more than 2 million in Europe, and significantly more around the globe.

And not only is the number of people living with drug-resistant epilepsy significant, the untreated population continues to grow each year. Globally, nearly 900,000 new patients are diagnosed with DRE annually, yet fewer than 10%, around 50,000, receive advanced treatment. And this gap underscores a profound unmet need and a major opportunity to make meaningful impact.

And in 2025, the drug-resistant neuromod market is 700 million. And we are over 80% of this. And over the next 5 years, we expect significant market innovation to challenge this treatment gap and drive market growth. We'll see earlier, more accurate diagnosis with tools that enable early detection, wearable seizure monitoring devices that provide continuous insight for early intervention. We'll see expanded personalized treatment options and biomarkers that will enable a tailored treatment plan. And we expect to see access improve globally. Telemedicine services, providing expert consultations remotely will improve access for patients, especially underserved areas.

And lastly, we expect to see a transformation of public perception. Awareness campaigns that will continue to shift the public view and reduce stigma and empower patients to seek treatment. And all of these factors will tip the risk-benefit balance and drive adoption towards advanced therapies. And we will lead this charge with our Bluetooth device and our digital health platform, and I'll come to that later in the presentation.

Now the unmet needs really show up in the care pathway with many studies highlighting an average time to advance treatment is more than 15 years and more than 6 antiseizure medications. And these delays in care have significant consequences from risk in injury, a reduced treatment effectiveness and an increased mortality by 2x. And the outcome of these unmet needs is a highly underserved patient population with only 1 in 10 globally ever receiving a nonpharma therapy to address their drug-resistant epilepsy.

So just for imagine for a second, you're the patient. You've had 15 years of trying one medication after another, and yet you're still continuing to struggle with seizures. You can't drive. You have to rely on others to make it across town or perhaps even another city, the treatment. Or maybe you're a parent of a child with DRE, taking multiple days of work in order to manage that chronic neurological condition. It's tough. There's no surprise that there's a gap in here.

So let's hear from Dr. Hidalgo. She is the pediatric neurosurgeon from NYU on the realities of the care pathway and how VNS Therapy fits into her pathway.

[Presentation]

So you heard from Dr. [ Hildalgo ] in terms of how VNS fits into her treatment paradigm. But let's discuss in more detail how the therapy is uniquely positioned to address the market unmet need. So VNS is a simple outpatient procedure with an implanted pulse generator in the chest and a lead that's placed outside of the brain. And VNS harnesses the body's own neural communication pathways to reduce seizure activity through the [indiscernible] network. And this network effect is widespread modulating multiple brain regions, which makes it an obvious modality for treating conditions of the brain.

So what does this unique value proposition mean for patients? Well, firstly, VNS significantly reduces seizure frequency and severity. And for some patients, provide seizure freedom. And our latest and largest real-world evidence study shows that VNS delivers over 75% median reduction across all seizure types. And in addition to seizure benefits, VNS demonstrates significant quality of life for both patients and caregivers, including cognition improvement, mood, alertness. And this powerful effectiveness is paired with a low-risk profile. A simple extracranial procedure offers these life-changing results. And whilst the procedures may offer similar outcomes, they require an invasive procedure. And this compelling value proposition really resonates with patients, 94% of them wished they've known about VNS sooner.

Now we, as a company, have achieved a huge amount over the last 3 decades. VNS Therapy is the most widely utilized treatment for DRE across the globe. We are the largest global leader with the largest commercial team purely dedicated to improving the lives of patients with drug-resistant epilepsy. And for more than 30 years, VNS Therapy has been a trusted partner for physicians and a proven treatment option for patients living with DRE. And we've transformed the lives of over 175,000 patients across 80 countries, many of whom receive a lifetime of care through our replacement cycles. And as the leader with the largest commercial field force in drug-resistant epilepsy, we are committed to delivering solutions to address this unmet need. And our global scale positions us very well to explore additional options for patients living with DRE as tuck-ins to our current portfolio.

So what does the business look like today? We are entering the next 5 years from a solid position of strength. Our epilepsy revenue is around 80% in the U.S. and 20% O.U.S, driven by markets already offering strong patient access, higher DRE awareness and advanced care infrastructure. Globally, our procedural mix is around 40% new patients and 60% replacements. And this procedural risk and geographical mix offers both durable growth and strong profitability through new patient adoption and continuity of care for those patients already benefiting from VNS Therapy.

So given the contribution of replacements, I want to take a moment to discuss replacement rates. Approximately 70% of our patients currently receive a replacement implant when their initial battery reaches end of service. And we've seen this rate steadily improve over recent years. Replacement rates then significantly increase the patients on their second, third and subsequent generators. So what does this mean for replacement volumes?

Our latest model shows that they have stabilized and are growing after the temporary [ COVID ] dip. So turning to the future. We will deliver value by leveraging 3 key pillars. First, compelling clinical evidence second, innovation; and third, commercial execution. Firstly, by sharing our latest and most comprehensive evidence on VNS therapy, we aim to drive greater adoption, empowering clinicians to prescribe and patients to choose VNS Therapy earlier and more frequently. Our publication and education initiatives around the core data in '26 are expected to shift perceptions and drive further VNS adoption.

Secondly, we'll launch meaningful innovation starting with a new digital health platform, delivering greater convenience and deeper insights into a patient's disease journey. And we expect more patients and clinicians to opt for our Bluetooth-enabled IPG that enables remote programming. And this innovation will ultimately improve patient outcomes and physician experience with VNS Therapy.

And finally, we'll execute with commercial excellence, expanding market access and reimbursement for VNS Therapy globally and increasing the rate of reimplantation for those already receiving therapy. We'll drive professional awareness and also patient awareness experience. So over the next 5 years, we expect our plans to deliver mid-single-digit revenue, low single-digit global replacement implants and mid- to high single-digit global new patient implants. And with the remainder of the growth coming from price increases and a positive mix shift towards our Bluetooth-enabled IPG towards the latter part of our long-range plan. Additionally, we expect over 200 basis points of operating margin expansion. Now let's explore each of these pillars in more detail.

Our clinical evidence has evolved tremendously over the last 30 years. With our new Core VNS study, we are redefining a new reference point for outcomes for VNS. We've harnessed a closed-loop heart rate biomarker to deliver more timely responsive therapy. And we've introduced features like day and night programming to personalize therapy and gain deeper insights into optimizing stimulation parameters and dosing. And all these advancements have led to the superior outcomes seen in our recently published large real-world data set, core VNS, with nearly 800 patients over 16 countries in more than 60 sites. So why does this matter?

Well, this contemporary evidence is really reshaping the perceptions of VNS effectiveness. And it's prompting many clinicians to reevaluate where VNS fits within their treatment algorithm and consider using it earlier. So let's hear from Dr. [indiscernible] who is the CEO of the Global Epilepsy Center and was our PI for our Core VNS study.

[Presentation]

And you can really see the passion that Professor [ Sen ] has around the data for core and the potential that it has to change the outcomes for patients suffering with DRE. He also touches on access, which is a center point to our second lever for growth, which is innovation. So in 2026, we will launch our clinician portal, and this will allow [ HCPs ] to access all of their patient information and practice dynamics from our state-of-the-art cloud-based platform, streamlining workflows and gaining immediate access to existing patient insights. And in 2027, we will launch our next-generation device, our Bluetooth pulse generator that will seamlessly integrate between our patient and caregiver app and our clinician portal, removing a known barrier to care, which is enabling remote programming, with clinicians able to deliver care in the comfort of a patient's own home. This is a real game changer for the many patients who need support with their care. And this will reduce the in-person commitment, making life easier for patients and caregivers, and I am truly excited about the impact that it will have.

Next, we will empower patients through a patient companion app and provide personalized therapy control, monitoring and key alerts for key events that happen, particularly at night when the risk is higher. And finally, in the long term, our goal is to increase the positive impact and the value of more personalized therapy through further biomarker data aggregation, with potential application in areas such as seizure forecasting. And this road map will deliver more value for VNS patients in three ways.

Firstly, it will improve access and enable more patients to move beyond drugs towards VNS Therapy. Second, it will simplify the patient pathway enabling data-driven decision-making for therapy adjustments in the comfort of the patient's own home. And lastly, it will deliver improved outcomes so that each patient gets the VNS therapy sooner.

And the last component of our innovation strategy is external innovation. And as the company with the largest channel and scale in the epilepsy space, we will evaluate tuck-in M&A opportunities for promising technologies that will help address the treatment gap.

There is a significant unmet need in the space, many of which we can address through our organic patient pipeline. That being said, we recognize that we cannot address all these needs just with VNS. And given our leading commercial channel, we have the opportunity to bring new external innovation, and have more impact on patients and create additional value for shareholders.

So I've been here for almost 15 years. and I am truly energized. We have the right team in place focused on the right commercial initiatives. Firstly, our commercial resources are strategically organized. Our key account managers focus on our comprehensive epilepsy centers, whilst our territory managers engage with the broader community to facilitate referrals. And those of you that have followed us for a while will appreciate the evolution of our channel approach, being appropriately sized for efficiency and focus, this channel is a platform for potentially onboarding therapeutic solutions in epilepsy.

Partnership programs with leading epilepsy centers such as Project Dream, help hospitals streamline their epilepsy care pathways, identifying bottlenecks and improving access. And second, we've upped our capabilities and our relentless focus, expanding global access to VNS. And we welcome CMS' decision to move replacement procedures to the Level 5 APC code, potentially increasing reimbursement by 48%. And you might ask, this is great steps of what's the impact?

So this will fundamentally improve the hospital economics over the lifetime of care. Remember, 70% of our cases in the U.S. at EOS. So I believe that this will have a positive impact on overall penetration. And we're still actively pursuing Level 6 APC classification for new patient implants. And beyond the U.S., we're investing to improve access in many countries in the APAC and Latin American regions.

And lastly, we continue to invest in both professional education and patient groups to ensure that all DRE patients know their treatment options. And physicians are aware of the latest evidence supporting VNS Therapy. And we expect these efforts to drive further adoption of therapy with new patients, but also ensuring that those already benefiting from VNS Therapy get access to our latest innovation.

So in terms of how these initiatives are driving financial value. The epilepsy business will deliver consistent, profitable growth over the next 5 years. We expect to deliver mid-single-digit revenue growth, maintaining our attractive gross margins and expanding income margins over time. And through prudent and targeted R&D investments we expect to achieve a 60% freshness index by 2030, paving the way for future digital health products that serve as the basis for further growth and to help patients lead better lives.

So as a wrap-up for LivaNova epilepsy, we have a proven therapy that will deliver sustainable growth in a market with significant unmet medical need. And with several levers for growth, we will continue to provide industry-leading profitability whilst reinvesting in innovation to sustain future growth. Let me leave you with this. We believe in the future of this market and our unique position within it, and the significant benefit that we can have for patients and treating physicians. Thank you.

And with that, I'm going to hand the stage to Dr. Amit [indiscernible] He brings experience from the innovation community having led the previously largest R&D organization in med tech [indiscernible]. And his impact here at LivaNova is already felt and his passion for innovation is infectious. And I'm incredibly privileged to call him a colleague. [ Amit ], come on up.

Next, I would like to provide an update on our strategy for difficult-to-treat depression, or DTD. We are now actively engaging with CMS as they move towards a decision based on RECOVER trial results. And as a reminder, the RECOVER trial was codeveloped with, and co-funded by CMS, under the coverage with evidence to [ Upland program ].

In May, we initiated the process with CMS to seek national Medicare coverage for VNS Therapy. As we wait for the outcome from CMS, we wanted to give you an overview of why VNS Therapy remains a differentiated treatment option for DTD. I will also share some brief thoughts on how a positive CMS decision could impact our financial outlook.

DTD is aligned with our core neuromod capabilities. And as a strategic upside, it is not embedded within the guidance we're providing today. Today, I will talk about 3 topics. First, the unmet need, then findings from the RECOVERY trial and finally, upcoming actions with CMS.

Now to start our DTD discussion, we must start with the broader concept of major depressive disorder, or MDD. MDD is a mood disorder characterized by persistent sadness and loss of interest, and it affects about 34 million adults in the U.S. alone. Roughly 1 out of every 3 people with MDD qualify as DTD because they do not respond to medications. They don't achieve a response. The response isn't sustained, or the treatment isn't well tolerated. This is termed difficult-to-treat depression, also known as treatment-resistant depression, or TRD.

Due to this failure of standard treatments, DTD patients continue to have significant challenges that results with high unmet medical needs. Among this population, goals of treatment shift from remission to striving for best possible symptom control, reducing relapse and optimizing psychosocial functioning. Patients with DTD face severe illness, poor quality of life and high risk of death, highlighting the urgent need for better treatments. They often struggle with serious health issues like anxiety, personality disorders, or suicidal thoughts. The severity of their condition is a burden on the health system. These patients are twice as likely to be hospitalized, have more outpatient visits, and use a lot more medication.

DTD is also a financial burden. Patients with DTD account for an uneven share of 40% of the total annual cost of MDD in the U.S. To give you some context, as why treating DTD is so challenging, I'm going to share some data with you. In the early 2000s, the National Institute of Mental Health sponsored a landmark study called the [ STAR D ] study. It was a very large study, including over 4,000 out patients with MDD who are steady to understand how well antidepressive treatments worked in real-world settings. 63% of patients didn't respond to the first medication. The study show that treating depression usually takes several steps.

As you can see from this figure, each extra drug treatment lowered the chance of being a responder. Even after 4 treatment attempts, 33% of patients still didn't respond. These patients are the ones that qualify as difficult to treat depression. Additionally, as patients with -- through these steps, both medication intolerance and relapse rates increased. The study is a proof that DTD patients do not achieve response, or remission, they do not sustain a response or remission, and they do not tolerate the treatments that they're prescribed. The concept of that, [ STAR D ] study introduced that patients can get better, but they cannot stay better. The study documented the response rates of each treatment offset.

The second column shows the same patients when they were observed at 12 months a much smaller percentage of these patients remain well. For example, if you look at the top row, 37% of patients responded to the first drug. But out of those patients, only 70% of them retain the benefit at 12 months. That means that at the end of 12 months, about 26% was still a responder. So 1 in 3 initially responded, but 1 in 4 was still a responder at 12 months.

So even for patients who respond to treatment, long-term benefit is uncommon. Pharmaceuticals offer only about 1 in 4 chance of sustained improvement. Further evidence of this lack of sustained benefit can be seen with ECT, or electroconvulsive therapy. And ECT remains the gold standard intervention for patients with DTD. Even there, 50% of patients experienced relapse within 1 year, meaning that even for the gold standard, patients may get better but they do not stay better. By the time patients do not respond to 4 or 5 treatments, they often seek the care of interventional psychiatrists.

Other than VNS for this group of patients, there are 3 primary interventional treatments prescribed by interventional psychiatrists. The treatments are TMS, which is transcranial magnetic stimulation, ECT and SPRAVATO, which is esketamine. I would like to take a minute to describe these 3 options. And then we will discuss VNS.

TMS is a noninvasive treatment that uses magnets to stimulate the brain. It has few side effects, but requires up to 30 sessions over 6 weeks, and up to 60% of patients relapsed within 6 months. ECT sends electric current through the brain to cause a seizure. It works well for severe cases, but isn't long lasting. Half of the patients relapsed within 6 months. It can also cause memory loss and needs general anesthesia, usually done in a hospital over 6 to 12 sessions.

[indiscernible] is a fast-acting nasal spray treatment but it can cause the association, making people feel detached or dreaming. Patients need to be monitored for 2 hours after each dose. It starts with twice with treatments then shifts to once every 2 weeks. Relapse rates are similar to TMS and ECT.

In aggregate, these 3 current interventional therapies are received by more than 100,000 patients per year in this fast-growing segment despite short-term benefits, high relapse rates and burdensome administration. As I mentioned, current treatments for difficult-to-treat depression often fail to keep patients well long term. Clinicians and patients want solutions that can provide consistent relief over several years. Treatments like that could reduce the need for continuous treatments and improve long-term quality of life. And in this context, [ vagus ] nerve stimulation has been generating renewed interest from psychiatrists. And unlike some fast-acting treatments that fade quickly, VNS offers sustained improvement over years. Studies show that Vans offers lasting symptom relief, improves daily life and is generally very well tolerated.

So now let's talk about the most recent study on VNS Therapy. The RECOVER study is the biggest of its kind involving the most severely depressed patients ever studied. It was cosponsored by CMS through their CED program. While the primary endpoint of the RECOVER trial did not reach statistical significance, the data revealed that the treatment arm performed as expected in this severely ill population.

As I will discuss, 3 facts drove our decision to pursue reimbursement. First, the compelling evidence of clinically meaningful and equally important sustained benefits. Second, the favorable safety and tolerability profile. And finally, the large unmet need with no real alternatives for this population. Over the past year, we've published 7 manuscripts documenting critical data and how it may benefit patients with difficult-to-treat depression. There are 4 key takeaways from the RECOVER study that I would like to share with you.

First, the patient population was severely ill. In fact, the average baseline depression score based on the matters trading scale was the highest ever for a randomized controlled trial. These patients had already failed 13 different treatment options on average, and 70% of them had already tried at least one interventional therapy. 40% of the patients in the study attempted suicide at least once in their lives.

Second, the primary end point for symptom reduction was improvement in [ MADRS ] score at 12 months. As I noted earlier, while the endpoint didn't achieve statistical significance due to a greater-than-expected placebo response, there were clear signals of clinically meaningful benefit, especially in how long patients experienced partial response defined as 30% improvement.

Third, RECOVER also measured patient psychosocial function in several rating scales. VNS was superior to control in terms of improvement of quality of life. The differences observed were both statistically significant and clinically meaningful.

And the fourth key finding from the RECOVER trial was that VNS therapy kept patients well over time. After 24 months, more than 80% of patients maintained improvements in symptoms, daily function and quality of life compared to 50% with ECT at 1 year. VNS shows the strongest long-term results ever seen in difficult-to-treat depression.

Beyond clinical evidence, we have also seen validation from payers, [ High Mark ], a leading Blue Cross Blue Shield plan recently began covering VNS under defined criteria. We believe this decision reflects both the strong clinical value of VNS and the economic burden DTD places on the health care system.

If we now look at the size of the market, there are approximately 34 million adults in the U.S. who suffer from major depressive disorder. Of these, about 1/3 of the treated patients, or 4.6 million, can be characterized as DTD patients since they have failed 4 or more depression treatments. This includes interventional therapies and is aligned with the inclusion criteria for both the RECOVER trial and our FDA label. Based on our market research, we believe approximately 1.2 million of these patients would be strong candidates for VNS Therapy. And for every 1% penetration into that cohort, we would expect $400 million to $500 million in revenue from U.S. alone.

Due to the ongoing CMS process, we have not included any DTD benefit in the financial targets we're discussing today. And we also acknowledge that the criteria of coverage isn't finalized with CMS. Regardless, as these numbers outlined, DTD represents significant potential upside for LivaNova. With its unique durability of benefit, VNS could become the new standard of care for DTD creating a meaningful revenue opportunity in a large and underpenetrated market. This category has significant unmet need. And if CMS grants coverage, we see a credible path to building a business with sizable revenue base.

As for the CMS process, we remain on track with the time line we have discussed this year. CMS has reviewed the initial data and asked follow-up questions which we have answered in preparation for a formal request. The time line is flexible, but once the formal request is submitted, CMS will review it, then released a draft decision for a 30-day public comment period. After that, they will publish a final decision within 60 days, and coverage will begin right away. While we don't know when CMS will make their final decision, we believe this time line provides a rough outline of the major upcoming milestones.

If successful with CMS and coverage is granted, LivaNova would be well positioned due to our existing capabilities to both accelerate growth and limit dilution. Let me walk you through those capabilities now.

First, we already have a small commercial infrastructure established for DTD. The sales and marketing team has been in place since the inception of RECOVER study, even though we have scaled it down while we focused our efforts on CMS submission. They were focused on recruiting patients into the study and they continue to work with physicians on the appeals process for patients with private insurance who are identified as good candidates for VNS.

Second, we can control the level and rate of investment related to launch. We will have to further scale to target interventional psychiatrists and to educate the broader medical community. We believe that we can do this over time as these patients' needs are substantially unmet by less effective, less durable alternatives in the market today.

Third, this opportunity allows for a very targeted launch. We will specifically target interventional psychiatrists, starting with the participating recovery centers, as well as other high-volume interventional psychiatry centers. These centers are also concentrated in geographies across the U.S. Should we get the green light from CMS, this will be a focused payer-driven adoption curve and not a broad speculative rollout.

Lastly, due to our core capabilities with the epilepsy business, a scaled DTT launch will be able to recognize organizational synergies and accelerate growth. While there will be a dedicated sales organization, functions such as commercial operations, R&D, market access and other infrastructure will be shared with epilepsy, negating the need to build additional new capabilities.

Importantly, our existing capabilities also gives us confidence in building a scaled durable DTD business with a large revenue base. Our neuromodulation expertise proven manufacturing capabilities and established commercial infrastructure provide a strong foundation for success. They position us to move quickly and efficiently if CMS grants coverage. And taken together, DTD is not just a theoretical upside. We have a credible path to a business with significant revenue potential and attractive margins at scale.

To quickly review some key points from DTD. There is a large and growing unmet need in the treatment of patients with difficult-to-treat depression. Many therapies can get patients better for a short time, but they often cannot keep patients better. Our vision is to be the durable therapy of choice in combination with the pharmaceuticals, as VNS has meaningful benefits towards symptoms, daily function and quality of life. Pending successful outcomes from our CMS submission we have an ability to scale our current DTD commercial capabilities and directly utilize R&D and manufacturing footprint of our epilepsy business generating significant cost synergies.

While this is not embedded in today's long-range financial targets, DTD is a strategic extension of our Neuromod platform and will create meaningful value if CMS coverage is secured. This is a focused risk gated effort in an area where LivaNova has clinical learnings, deep neuromodulation expertise and platform leverage. Thank you for your attention. Now that's all for depression.

We're going to go into a break and then I'm going to come back and talk to you guys about obstructive sleep apnea. And I think our break is about 15 minutes. Thank you.

We're going to take a 20-minute break. So be back here promptly in 20 minutes, please. We'll have a countdown clock. Thank you.

[Break]

Okay, everyone. We're about to get started with [ Amit ] [indiscernible], and he's going to talk to us more about OSA.

Well, thank you, whoever initiated that. Thank you. Good morning again. Obstructive sleep apnea, or OSA, affects 10% of the adult population and unfortunately, 1 in 10 people in this room. That's about 23 million adults in the U.S. experiencing 40 or more breathing interruptions lightly. Today, I would like to walk you through our strategy on OSA and why we believe this represents a compelling and derisked opportunity for LivaNova.

Before I talk about how Livanova plans to seize this opportunity, I want to start with a little bit of a background. OSA is recognized as the most prevalent sleep-related disorder. It is characterized by recurrent episodes of complete, or partial upper airway obstruction. This results in diminished, or even absent breathing during sleep. The disease is widespread and poses a substantial economic health burden.

Currently, only about 20% of individuals with OSA receive a diagnosis. And this is improving as awareness increases and the use of GLP-1s enables more diagnosis. Unmanaged OSA is associated with significant complications, everything from hypertension to heart disease, to COPD and asthma. First-line therapies such as [ CPAP ] do benefit about 2/3 of patients despite its efficacy CPAP therapy does present challenges. These could include discomfort and disruption to sleep, which in return results with up to 50% of patients stopping CPAP after a period of time. Among patients who do not respond to first-line therapies approximately 1/3 have access to only a limited range of treatment options, with less than 10% receiving [indiscernible] nerve stimulation.

The limited adoption of this approach is attributed to factors such as high BMI, disease severity and the presence of complete concentric collapse, or CCC. These barriers underscore a considerable unmet need within this medical area. This sizable and expanding patient population requires more comprehensive and effective therapeutic solutions. Given these market dynamics, the demand for effective second-line therapies will only increase over the next decade. And in the coming slides, I will outline how we are providing a differentiated value by giving patients and physicians a distinct alternative.

So let's look at the market and the current penetration of [ hypoglossal ] nerve stimulation. Out of about 23 million Americans with moderate to severe OSA, 80% are undiagnosed. And of the 5 million who are diagnosed, they usually start with CPAP as first-line therapy. However, many patients cannot tolerate CPAP due to discomfort, machine noise, anxiety or issues with portability. In the past, these patients had few alternatives beyond oral appliances or positional therapy. With the emergence of GLP-1 as another first-line therapy, the role of CPAP will most certainly evolve, and I will address this in coming slides.

If we focus on the role of [ HE&S ] over the past decade, only 100,000, or less than 5% of eligible patients, have received this therapy. Given these low penetration rates, there's a large pool of moderate to severe OSA patients who are in need of alternative therapies.

Now if we focus on the right side of the slide, key growth drivers for the [ HGNSOSA ] market include rising awareness and diagnosis, persistent CPAP noniderenc and obesity epidemic. And the final one is the aging population. These are all acting as strong positive catalysts. This will sustain annual growth rates in the high teens as the market expands from its current size of about [ $1 billion ].

When we look at the [ CARE ] pathway, many patients with moderate to severe OSA go undiagnosed due to lack of awareness, denial, or fear of treatment such as spending a night in a sleep lab or using CPAP. Those who are diagnosed usually start with CPAP, but up to 50% drop within the first year. At this point, they may be referred to an ENT for [indiscernible] or surgery, but fewer than 10% qualify for [indiscernible] due to criteria like high BMI, AHI severity or having complete concentric collapse, leaving many high-need patients without effective options. Physicians hesitate to recommend [indiscernible] for these challenging patients because current technologies show suboptimal results in addition to label restrictions for CCC. As a result, current [ HE&S ] solutions have been challenged to establish themselves as a true second-line therapy, creating a clear need for new solutions that overcome these limitations.

There's an additional dynamic contributing to the current low conversion rate of 10%. The current direct-to-consumer campaign in this category funnels patients to ENTs despite being uninformed that [indiscernible] is a surgery with an actual implant. We continue to hear from our physicians that many patients coming from the DTC funnel associate [indiscernible] with a remote device versus an implant. And therefore, they prefer first-line therapies like CPAP during their initial consultation. This substantially impacts conversion rates.

Next, the OSA care pathway is also continuing to evolve quickly with GLP-1 drugs. They have impacted OSA diagnosis improving the effectiveness of CPAP by lowering BMI, and starting to become first-line therapy on their own. Also access to GLP-1s for weight loss often depends on additional diagnosis, such as OSA or diabetes, making them a natural selection over CPAP for many patients.

As of today, it is still premature to fully evaluate the long-term effects of GLP-1 drugs. However, this therapy is emerging as a significant first line and injunct option with potential to expand the OSA market. While the GLP-1s are broadening both treatment approaches and market reach, they're unlikely to replace existing therapies. There are 3 main reasons for this.

First, approximately 1/3 of patients are unable to tolerate them. Second, you have to be on the drug indefinitely to maintain weight loss. And third, you have to be obese to be prescribed a GLP-1 for OSA. And many OSA patients actually have a normal BMI. These three facts underscore the continued necessity for alternative second-line treatments such as proximal [indiscernible].

Recently, I had a chance to ask Dr. Malhotra, who is our principal investigator from the [ OSPREY ] trial for his thoughts on how broader OSA pathway is evolving over the next few years. Please note that Dr. Malhotra was also the primary investigator from the GLP-1, or [ ZIP bound ] trial in the U.S. Can we please play the video?

[Presentation]

Okay. So having discussed the significant unmet need I would like to pivot to how we plan to enter this space, utilizing [ proximately ] [indiscernible] and the unique value our therapy provides. We're offering a new modality with proximal hypoglassive nerve stimulation that enables more complete control of the tongue and the airway. This gives health care providers the ability to treat a wide range of challenging patients, including about 30% of OSA patients in the general public that have complete concentric collapse. This requires a simple surgery, a battery that lasts 15 years and a path to remote titration in the future.

LivaNova's existing in-house neuromodulation expertise in commercial, R&D and manufacturing provide unlimited opportunities for synergy across functions. And up until now, I've outlined why OSA is a large opportunity where there are many patients who do not respond to first-line therapies, and are in need for alternative treatment options. I also talked about our advantage with [indiscernible] highlighting its capacity to address needs of complex patients. These will be fueled by LivaNova's scale, experience and expertise within the neuromodulation market. Collectively, these will allow us to be the preferred solution for patients looking for that second line of therapy, while also establishing a secondary high-growth neuromodulation business.

In return, this will generate significant value for both LivaNova and its stakeholders by launching the product by 2027, adding between $200 million to $400 million in incremental revenue by 2030, and breaking P&L even by 2029. Now I want to do a deeper analysis of our competitive advantages by briefly outlining the 4 key focus areas before addressing each one of them in greater detail.

First, the technology. We're offering a novel modality in proximal [indiscernible] with a 6 electrode architecture. This is supported by a comprehensive portfolio of existing IP. The 6 electrode architecture allows us to stimulate broader muscle groups in the tongue and the airway.

Second, I will present our clinical outcomes, which are validated by a gold-standard randomized clinical trial. Our trial demonstrated effectiveness even among more challenging patients along with a robust safety profile.

Third, I will emphasize our innovation engine, which drives our entire portfolio. We will utilize our established expertise in R&D, manufacturing, regulatory and clinical affairs within implantable neuromodulation technologies.

And finally, we have in-house demand generation expertise and an established commercial operations process. Referral generation is supported by the fact that 40% of top [indiscernible] accounts are existing LivaNova customers. Surgical advocacy expertise will also ensure we understand that critical perspective.

So let's start with the first box on this slide, our differentiated technology. As I previously mentioned, proximal [ hypoglassanerve ] stimulation allows increased control over the tongue and the airway movement. This enables for a variety of patients including those with a high risk of complete concentric collapse. Please note that CCC patients, which are almost 1/3 of OSA patients, are contraindicated for the market leader in this segment. [indiscernible] uses 6 electrodes positioned on the proximal trunk of the nerve, which provides access to additional muscles affecting the tongue and the airway. This expanded level of control contributes to its effectiveness in treating diverse group of patients. [indiscernible] delivers tonic, or constant stimulation, which has been shown in trials to maintain benefits even if the therapies pause for 2 weeks, a feature not observed in first-generation technologies. The implantation procedure is less complex than first-generation [indiscernible] products due to the location of the nerve cuff resulting with reduced surgery time.

Now transitioning to our robust clinical outcomes. We believe it's important to start with reviewing the design of our OSPREY trial and how it compares to the studies of first-generation devices. In contrast to these studies, OSPREY is a true randomized controlled trial with subjects randomized to stimulation or [indiscernible] control all the way up to month 7, which was the primary endpoint. RCTs are the gold standard of clinical evidence, and we're proud to be bringing this level of scientific robustness to this space.

Additionally, other studies required a preoperative drug-induced sleep endoscopy, or dice, to screen out patients with CCC. However, this was not required for OSPREY, and these patients were not excluded from our study. We believe this means the population of OSPREY is even more representative of the real-world patients. Similarly, OSPREY enrolled patients with higher mean AHI and BMI at baseline compared to other pivotal studies, representing a more challenging patient population. And note that AHI is the Apnea Hypopnea Index, which directly measures the severity of the disease.

I would like Dr. Malhotra to comment about the relevance of patient demographics prior to talking about the results.

[Presentation]

As we just said, the differences in patient demographics are critical when you look at the results with a responder rate of 65% after 12 months of therapy. This was achieved with about 45% of the study patients having high risk of CCC, which are consider the most difficult to treat. In light of the study design and the patient population of OSPREY, these results demonstrate the strength of our 6 electrode PHS technology.

Now let's hear from Dr. Malhotra again about the results.

[Presentation]

Now if we go back to this slide, one of the key differentiators we have is our ability to utilize our broad neuromod innovation capabilities in our OSA program. One example will be utilizing the LivaNova cloud platform that Steph talked about during her presentation. Our strategy is to utilize the capabilities we developed originally for epilepsy also for our OSA technology.

Specifically, our strategy is to access the data from our devices to enable both the patient and the physician to track the progress of their therapy. As you heard in Steph's presentation, we have invested in a cloud-based digital health platform as an enabler. We will have digital portals for our physicians to remotely access their patient's device. Through the cloud platform, we're also creating a pathway for remote programming and improved patient engagement through mobile apps. Our digital capabilities will also improve physician workflows with data analytics and patient management while ultimately delivering optimal care for our patients.

We now focus on the device itself. We have taken our clinically validated therapy and evolved it into a commercially ready product that redefines expectations in this space. One of the significant advancements is our rechargeable battery technology. The implant is designed to last 15 years, well beyond others in the market. Thanks to the rechargeable system, battery life will no longer be a limiting factor. Having no battery restrictions gives us flexibility to develop new features without requiring early replacements.

One specific example would be the ability to have frequent Bluetooth connection with the device for both the patient and the physician without being concerned with the high energy demands of Bluetooth. We have also designed the system to be MRI compatible with few exclusions. This makes it easier for patients to access imaging when needed without the complications associated with implantable devices. As I discussed in the previous slide, mobile technology is fully integrated into our solution to enhance both clinical workflows and patient experience through user-centric apps. And finally, our pipeline of upgrades supports secure, remote over-the-air upgrades. This allows us to continuously improve how we deliver the therapy. Altogether, we're confident our [indiscernible] technology is being built for a scalable innovation in a rapidly evolving health care landscape.

Before discussing our planned commercial strategy, I would like to talk about something that I'm really personally excited about. I would like to share some groundbreaking new clinical data that Vlad mentioned, that provides evidence that we can help even more OSA patients. We have discussed the exceptionally strong clinical outcomes from the trial's 13-month end point, even while treating the most severe patients of any U.S. FDA trial, and without fully utilizing all 6 electrodes available on the device.

Since we released the top line 13-month results with the latest patient data available to us, we have further advanced the titration algorithm by a new multi-contact therapy as it was originally intended. This new proprietary policy technology enables the use of combinations of contacts fully utilizing up to 6 electrodes, which unlocks additional benefits by optimizing therapy for each individual patient. Please note that [indiscernible] was not available during the initial titrations of the OSPREY trial. So the [ MON13 ] data does not include [ PolySync ]. [indiscernible] simultaneously combines electrodes in such a way that it provides a more targeted nerve activation. We believe, and now have compelling initial clinical evidence, that the greater control of this approach will enable an even greater patient response.

To test our hypothesis, we invited all 35 patients who were nonresponders through month 13 to return for the [indiscernible] titration and [indiscernible] study 30 days later to measure its impact. It is important to note that all nonresponders at month 13 were invited, and therefore, no patients were excluded. 25 patients who are nonresponders in OSPREY through month 13 have agreed to these additional visits, and of these 10 have now completed. Of those 8 out of 10 have become responders. In other words, [indiscernible] has an 80% response rate in a population of previous nonresponders.

To level set, our 13-month OSPREY results without utilizing [indiscernible] were already differentiated, producing about 2/3 responder rate. This is in line with other technologies despite enrolling the most severe population and not excluding difficult-to-treat CCC patients. The demonstrated ability of [indiscernible] to convert nonresponders into responders shows its potential to unlock unmatched efficacy in this space. Not only does that position us well against existing [indiscernible] therapies but demonstrating effectiveness in an even broader group of patients could drive a step change in the market penetration of neuromodulation for treatment of OSA.

That is why we're incredibly excited about the results we are seeing so far from [ PolySync ]. We look forward to sharing additional data in the near future as we complete these 25 patients by the end of this year. And to be clear, we intend to make [indiscernible] immediately available during our commercial launch to ensure all of our patients have access to this advanced algorithm at their initial titration. This will not be used as a follow-up for nonresponders. We will optimize therapy with policing for all patients from the start.

In the last section, I want to focus more on the commercial aspects as we prepare to launch the product. We have established that OSA is a large, growing and underserved market with a clear and urgent unmet need for a therapy that is effective tolerable and easy to integrate into existing [ care ] pathways. We believe our differentiated [indiscernible] therapy is the solution to that need. Now let me talk about how we're going to bring this to the market.

After a careful evaluation of partnership options, we have made a decision to commercialize OSA therapy independently. I would like to take a few minutes to walk you through why we're confident in this decision and believe this path offers the best return for shareholders.

First, to level set on the market reality, the broad OSA market is fragmented. Most of the patient population is still being funneled into CPAP. And when that fails, patients often find themselves with no clear next steps. This is not just a product gap, but a commercial execution gap. The barrier of adoption in this space is not demand, but doctor awareness, procedural confidence, as well as patient access. Whoever influences all these points, education and training in particular, will shape the trajectory of the market. With LivaNova's deep, decades longer modulation expertise, we're well positioned to do exactly that. We know how to commercialize therapies that require training and patient education and payer navigation. We have a successful track record of doing all 3.

Second, LivaNova's technological differentiation and compelling clinical data increased our confidence including the initial policy results I walked you through earlier. Our confidence in the opportunity makes the concessions of a potential partnership less attractive.

Third is the economics involved in OSA. By doing this ourselves, we retain full control over several key aspects critical to driving long-term value creation. Pricing, margin, positioning and customer relationships. Retaining commercial oversight allows us to minimize long-term dilution of economics. In summary, we believe we will unlock the most value by staying very close to our end user.

Now let me share some key aspects of our commercial strategy. Our commercial strategy will be divided into two phases. For the first phase of the launch, we will focus exclusively on trial, getting as many as possible ENTs in academic centers, integrated delivery networks and private practices to experience our device with their own patients. We want them to be confident our therapy can deliver successful outcomes in challenging patients they would not consider today. And we have good reason to put our commercial resources into maximizing trial.

We tested the value proposition in a quantitative research study with 150 ENTs and sleep specialists. And 97% of ENTs said they would definitely, or probably trial our device. A score that places our [ PHNS ] solution at the very top of the database of medical device concepts ever tested.

In the second phase, accelerated pace of the revenue ramp is a direct function of the trial established in year 1, specifically the yield rate from trial to adoption, which reflects how the customers' experience compares to expectations. Here, we also have good reason to believe [ PH&S ] solution will perform favorably relative to customer expectations. For example, ENTs have told us that proximal placement of our electrode cuff makes for an easier and faster surgery that will allow them to get in more cases per day. Not having to perform DISE procedure further simplifies the workflow.

OSPREY trial data shows that challenging patients who are not well served today achieve robust outcomes consistent with those with less severe disease. We have an advanced titration algorithm or [indiscernible] test, which is already demonstrating significantly better response rates among most challenging patients that will further improve customer experience. We have seen this type of growth acceleration in other successful neuromodulation launches where new entrants have strong value propositions and differentiated technologies relative to incumbent offerings. We believe these analogs provide a good benchmark for PH&S.

As the commercial launch progresses, we will build a scaled commercial team, including a field-based team of clinical specialists that will titrate patients fully utilizing policing feature upon launch and territory managers who will initiate trial programs in target accounts. During the trial phase, we will build upon foundational elements by an ongoing stream of publications, advisory boards and presentations, trial programs designed to encourage ENTs to experience the results of PH&S in their own practices and a comprehensive credentialing program for new implanting ENTs. Unlike other entrants in this space, we do not intend to invest in direct-to-consumer advertising, and we will not sell against CPAP.

Direct-to-consumer advertising in our industry has been shown to generate leads from unqualified patients, resulting in frustration for both the doctor and the patient. We are a second-line therapy, and we will focus on those who need a second-line solution. The OSA category can see consumer-facing noise, so focus on channel efficiency matters. Our therapy requires targeted physician engagement and not mass market awareness at this stage. We will focus on educating the right physicians and activating the right centers. That's where adoption comes from, and that is where our capital will be going. We are prioritizing efficient referral-driven growth and not expansive brand building. This is aligned to our disciplined investment approach. Similarly, we will scale the commercial organization in a fiscally disciplined manner. We can do this without slowing down revenue growth because adoption of neurostimulation solutions typically lag trial by about 3 to 6 months. And therefore, our commercial deployment will first focus on trial and credentialing effort.

As revenue begins to shift from trial-driven to adoption-driven, the ratio of field clinical specialists to territory managers will increase. In the early years, territories will be less than 1.5 million, growing to about 2 million by year 3. By 2030, we expect the ratio of field clinical specialists to territory managers to level out around 1:1 ratio. We expect total territories to exceed 150 and the customer base of implanting ENTs to exceed 400. I will provide additional detail on the resulting OSA financial profile later in this presentation.

Now I would like to talk about how we support access for patients, payers and providers. Unlike epilepsy and depression, we will be entering the market for HCNS therapy as a third to market. As such, we anticipate adopting existing coding guidance to expedite market access and provide early adopters with a clear path to reimbursement. Given existing confusion over established codes, we're working with relevant medical societies to ensure that coding guidance is clear at launch and the risk of denials is minimized. This partnership with these organizations helps ensure straightforward and HCP-friendly pathways. We will also have a robust health economic case for both payers and providers based on improved workflows and reduction in health care resource use. In addition, we're developing detailed analysis of the surgical workflows to understand the payer and provider economics. This analysis will consider the total episode costs to understand how PH&S can improve provider efficiency and minimize health care costs.

Now let's look at our product road map. This reflects a clear trajectory from connected devices to intelligent care. We start with MRI conditional and Bluetooth-enabled device, establishing the digital backbone for remote monitoring and therapy management. We then enable remote programming and data collection, expanding clinical reach and insight. As we advance, we significantly reduce the in-clinic titration burden through remote titration, streamlining workflows and improving efficiency. We then move into intelligent care, where automated titration powered by machine learning enhances both clinical precision and operational effectiveness. And each phase builds on the last, driving clinical impact and long-term value through purposeful innovation. It also allows us to continue to upgrade the platform with meaningful innovation for the next 3 to 5 years, almost on an annual basis and very importantly, mostly through software upgrades.

I want to now spend a couple of minutes on the key milestones coming up in the next couple of years. We expect the PMA approval for the clinical trial device to be in the first half of next year. This was a modular PMA submission, and we're confident on the approval timing. We will follow the approval with a 180-day PMA supplement for the commercial MRI compatible device that will enable us to commence a limited market release in the first half of 2027. The full market release should begin about 3 months after the limited market release. The gap between the approval of the clinical trial device and the launch of the commercial device creates an opportunity for us to build a strong body of evidence and to promote and even train ENTs before approval of the commercial device. It opens the door for us to get a head start on what we know to be a 6- to 9-month adoption cycle.

Before we close on OSA, I want to cover one more topic, the financial profile of OSA for the next few years. As we've discussed throughout today's presentation, our differentiated technology, disciplined commercial strategy and the ability to leverage LivaNova's neuromodulation expertise will enable us to achieve a highly attractive financial profile in OSA.

To summarize, first, we expect to launch in 2027. First, with a limited market release, which will set the stage for rapid adoption. Second, we expect to achieve breakeven P&L by 2029, driven by a phased commercial rollout and efficiently scaling our field organization. Third, in 2030, we project between $200 million to $400 million in revenue, supported by strong market fundamentals, differentiated clinical outcomes and targeted physician engagement. We expect continued revenue growth beyond the $200 million to $400 million range after 2030. Fourth, we expect to deliver an 80-plus percent gross margin profile in 2030, reflecting the economics of implantable neuromodulation therapies and our ability to leverage existing infrastructure.

Finally, we anticipate an adjusted operating income margin of 25-plus percent in 2030, underscoring the scalability and durability of this platform. Further margin improvement is expected in outer years. Taken together, these milestones demonstrate that OSA provides an opportunity to enter a large double-digit growth market with a clear pathway to attractive margins powered by LivaNova's proven neuromodulation expertise.

Let me close on why we think we are uniquely positioned to win in OSA. The OSA market is large, growing and underpenetrated. However, there remains a very real clinical need for broadly effective treatments for patients who require a second-line therapy as many patients fail CPAP and GLP-1s. PHNS is the next-generation neuromod technology shown to be effective in treating the most severe patient population in the most rigorous RCT done to date in this space. The OSA clinical community is very open to new technology choices, especially those supported by clinical evidence.

Pending continuation of the exceptionally strong results from the PolisSync algorithm, PHNS will become a new paradigm of clinical effectiveness within neuromodulation for OSA. And we believe LivaNova has the scale, expertise and experience to be successful in this market. And finally, OSA offers a derisked growth platform through a clear path to commercialization, leveraging existing neuromod capabilities, including deep decades proven commercial expertise. In summary, [ PHNS ] will set a new standard of care for treatment of OSA and create a significant shareholder value. Thank you.

And now I will turn it over to Alex. Alex has been with LivaNova since 2017 and has been our CFO since 2021. He has been an amazing partner for me since I joined the company as we work together to upgrade our innovation capabilities. I've been very fortunate to work with a CFO who understands and prioritizes innovation. With that said, the stage is yours.

Thank you, Amit, and good afternoon, everyone. Throughout the day, my colleagues have defined who LivaNova is today and our vision for the future. From a financial perspective, I'd like to emphasize that today, LivaNova is a profitable cash-generating company with strong positions in 2 major segments: cardiopulmonary and epilepsy. We also have 2 unique neuromodulation platform assets that have the potential to drive growth and create value for years to come. I believe that our focus on execution and innovation is what sets us apart and enables us to deliver significant shareholder value.

Next, let's take a look at our historical performance and outlook for 2025. Since 2023, LivaNova has transformed and our results show it. Whether it's our top or bottom line, our financial performance has improved dramatically and consistently. That wasn't always the case in the past. And as Vlad noted earlier, our performance during this time frame is closely correlated with strategic actions we took. These include streamlining our portfolio, refocusing on our core businesses and driving disciplined execution across every function and region in the company. Please note that my comments regarding 2025 are in line with the guidance we issued on November 5. For 2025, we expect organic revenue growth between 9.5% and 10.5%. That's about a 10% CAGR over the last 3 years.

As you can see, I'm also sharing our adjusted operating income margin, which we haven't explicitly guided in the past. For 2025, we expect it to be between 20% and 21%, which represents nearly a 30% CAGR over the last 3 years. We expect adjusted diluted earnings per share between $3.80 and $3.90 based on 55 million shares. That's a 17% 3-year CAGR. Adjusted free cash flow from operations is expected to be $160 million to $180 million for 2025, a 30% CAGR over the last 3 years. And we've delivered strong results and are set to finish 2025 in a great position. Today, you've heard about our strategy and the bright future ahead. So allow me to round this out with the long-range financial prospects for the company.

Before we begin with our 5-year outlook, just a little bit of housekeeping. When describing our CAGRs, our baseline period reflects the midpoint of our 2025 guidance ranges, as I just described. I also want to be extremely clear. Our long-range model does not include difficult-to-treat depression. If we get positive CMS coverage, it could be a significant upside for the company. As Ahmed shared, the U.S. DTD opportunity is significant. We estimate that every 1 percentage point of penetration represents $400 million to $500 million in revenue with an epilepsy-like gross margin. In this long-range plan, we're treating DTD as pure upside. On the other hand, if coverage isn't granted, we will wind down the program and stop investments. As a point of reference, we're investing approximately $15 million in 2025.

So let's jump in. Franco and Steph have provided insights into how our strong business -- core business contributes to value creation. Starting with cardiopulmonary. We expect mid- to high single-digit revenue CAGR through 2030 as we continue to innovate around the Essen platform, increase manufacturing capacity for consumables and launch our next-generation oxygenator technology. At the same time, we forecast CP operating margin expansion of more than 300 basis points. Moving across, epilepsy, we project maintaining a mid-single-digit revenue CAGR through 2030, supported by impactful clinical evidence, improved reimbursement, strong commercial execution and digital innovation. We're confident we can expand epilepsy operating margin by 200 basis points over this time frame.

Earlier, Amit outlined our go-to-market plans for obstructive sleep apnea. This is a very compelling opportunity. OSA will accelerate our growth and profitability in the long run, underpinned by our unique technology, robust clinical evidence and fast-growing market that is ready for competition. Our full commercial launch will take place in the second half of 2027. We will invest in building the necessary commercial infrastructure and new product innovation over the next several years to ensure our success. We expect to rapidly scale OSA revenue to approximately $200 million to $400 million, achieving an operating margin of 25% plus by 2030.

We're also modeling OSA breakeven P&L by 2029. Now we have analyzed this opportunity and assessed numerous scenarios. We've accounted for the evolving competitive landscape, including the impact of GLP-1s. We utilized very realistic market assumptions and the investment requirements in our modeling. We studied analogs in other therapeutic categories, which informed our forecast. I want to emphasize that our $200 million to $400 million range does not represent our peak revenue expectations. The OSA business is a natural plug into our neuromodulation infrastructure, leveraging manufacturing, R&D, commercial and back-office capabilities to accelerate time to value. We recognize that delivering on this 5-year plan requires a milestone-based investment strategy in the near term, aligned with market conditions. And I'm confident we can execute within this framework.

Let me acknowledge the $200 million range is a wide revenue range for OSA. To be clear, this range does not reflect our lack of conviction in the opportunity or the rigor of our forecast. It simply reflects a few variables that could impact outcomes in 2030. I'd like to talk about 3 of those. First, launch timing. While we don't anticipate a significant shift in timing, regulatory time lines are not entirely in our control. Even a modest adjustment months, not years, can have an impact on 2030 revenue because of the shape of the uptake revenue curve. Importantly, this does not change the long-term opportunity or the underlying trajectory. It simply affects where we may land in 2030.

Second, Polysync outcomes. As Amit described, the current results only include 10 out of 35 patients. If PolySync continues to convert nonresponders into responders, it could drive a step change in penetration. This would not only have a positive implication for 2030 revenue, but for sustained growth well beyond. And third, market growth. This is a market that has been growing approximately 20% over the last 3 years. But we've taken a more prudent assumption in our modeling. To summarize, we have rigorously modeled the OSA opportunity using realistic market share assumptions and investment requirements, accounting for the evolving competitive landscape, including the impact of GLP-1s. While there are variables that could influence revenue, we believe the range we provided reflects a balanced view of what LivaNova can achieve in OSA by 2030. So let's step back and look at what this means for the enterprise.

As you can see, there are essentially 2 phases to our strategic plan. Phase 1 reflects 2025 through 2028, where the core continues to drive mid- to high single-digit revenue CAGR and margin expansion while we invest in scaling the OSA business. During this time, we're committed to maintaining an annual adjusted operating margin above 20%. We also forecast EPS growth in line with revenue growth. The second phase captures 2028 through 2030. During this phase, we expect OSA to begin to contribute meaningfully to enterprise margin expansion.

As I stated, we expect OSA P&L to breakeven by 2029 and deliver a robust 25% plus operating margin by 2030. This results in a compelling financial profile over the long-range plan from 2025 to 2030. We expect to deliver a high single-digit plus revenue CAGR, exiting with adjusted operating income margin in the mid- to high 20s. This model translates into a low double-digit to mid-teens EPS CAGR. In short, we're using the strength of our core to enter a high-growth, high-margin business while capitalizing on our neuromodulation capabilities. This strategy doesn't just deliver strong financial outcomes by 2030. It sets the foundation for sustainable, diversified growth and margin expansion for years to come.

Next, let me walk you through the key drivers of our margin expansion plan. As you've seen, the cardiopulmonary and epilepsy units are very profitable, enabling us to drive strong financial performance while investing in critical infrastructure and innovation to sustain our growth. Let's walk across this bridge from left to right. Our gross margin will be driven by 4 key elements: One, Franco mentioned that we will drive cost out of Essence and improve our manufacturing efficiencies in CP consumables. Two, the CP portfolio will be enhanced by driving service and software revenue, which have attractive gross margin profiles. And three, we will continue to use price as a lever across both CP and Neuromod. And finally, our product mix will be skewed toward neuromodulation, which carries a higher gross margin.

Next, in SG&A, we expect increased leverage from our fixed cost base. We have built a foundational infrastructure for scale and now expect our top line growth to significantly outpace incremental investments. This is the way I think about it. As we stand up OSA, we will unlock significant efficiencies across LivaNova from R&D to commercial operations to back-office functions. In addition, most go-to-market investments are front-loaded. As top line scales, each incremental dollar of revenue carries higher profitability. This reinforces our path towards sustainable margin expansion. And finally, R&D ratio will continue to decline as clinical spend tapers off in OSA and DTD. We will also be able to gain efficiencies from our investments in our digital technology platform, especially as we launch new products.

For those of you who have been following us for a while, you may recall that historically, LivaNova has not been a capital-intensive business. We have significantly stepped up our CapEx investments over the last 2 years. These investments support growth plans and drive long-term operational efficiencies. There are 3 major investment priorities. First, we're expanding our cardiopulmonary manufacturing capacity. This decision is grounded in our market share gains achieved over the last 2 years, and we expect that trend to continue. Second, we're upgrading our ERP system to a single global instance S4, which will help us streamline operations, maximize manufacturing efficiency and improve working capital across the business. This implementation is already in flight, and we expect it to be completed by the end of 2028.

And third, we have made substantial investments in innovation with our LivaNova digital health platform. This cloud-based platform will allow us to launch digitally enabled products and services that will contribute to growth. Now what happens after that? Well, as these big projects come to completion, our CapEx will normalize to historical rates.

Now let's shift our focus to cash generation. We expect to generate approximately $800 million to $900 million in free cash flow over our long-range plan with an average conversion ratio of over 80%, putting us among the top of med tech peers. With profitable growth and normalized CapEx driving robust free cash flow, we're well positioned to continue to reduce debt and invest in future growth through both organic initiatives and strategic M&A. As a reminder, we expect to make the SNIA payment soon which will reset our leverage ratio to approximately 1x EBITDA. In conclusion, we believe our plan is both balanced and achievable. We thoughtfully assessed the risks and opportunities ahead and built contingencies to continue to deliver consistent value through a range of uncertainties.

Next, let me walk you through our capital allocation framework and priorities in detail. Our capital allocation priorities reflect both our conviction in LivaNova's long-term growth potential and our disciplined approach to value creation. We're focused on putting capital to work where it generates the most optimal returns and that starts with investing in our business. First, we're investing in our core platforms where we have a clear line of sight to value creation. These are proven and differentiated businesses with global demand, as you've heard today.

Second, we have a high conviction in the OSA market. We're taking a thoughtful and evidence-driven approach to invest in the commercialization of a differentiated technology. We believe that the potential growth and the profitability of OSA justifies our investment. Just as a reminder, our goal is to keep adjusted operating margins above 20% annually even as we increase investments in OSA over the next 3 years.

Our capital allocation strategy reflects a deliberate decision to reinvest capital into the business in a disciplined manner. This includes targeted investments in growth and innovation, which we believe solidifies LivaNova as a market leader in neuromodulation and cardiopulmonary. Ultimately, we believe the pipeline innovation is the path to durable returns for our shareholders over time. Also, we do not view innovation as an investment as a discretionary budget item, but as a core differentiator. It is essential to maintain our leadership edge and continue to deliver competitively differentiated products to the market.

Our investments are already yielding results. Just look at the recent Essence performance. It is a clear example of our innovation investment paying off. And finally, we're evaluating select bolt-on M&A opportunities that can strengthen our core and meet clear strategic and financial hurdles. As you've heard from Phil today, while tuck-in acquisitions are part of our growth toolkit, we remain highly selective and targeted in our approach to them. We're prepared to move decisively on opportunities that will position LivaNova as a market leader and strengthen our core competencies, but we're approaching M&A with clear guardrails in mind.

Our bar for acquisitions is high, and every dollar of capital invested has to clear a strategic and financial hurdle. Overall, our priority is to invest in high-growth areas to build a strong, more resilient business. We believe this approach will help us deliver sustainable value to our shareholders. As such, LivaNova does not have a committed share repurchase program. We're currently investing in a disciplined manner where we believe the returns are the highest back into growth and innovation.

That said, we regularly assess our capital allocation strategy and remain flexible and open to share repurchases in the future as our strategic priorities and financial strength and market conditions allow. Here's the bottom line. We're focused on building a stronger, more durable LivaNova, and our capital allocation framework is grounded in a commitment to generate long-term shareholder value.

Before turning it over to Vlad for closing remarks, I'd like to leave you with the following key takeaways. Our plan is expected to deliver steady revenue growth in the core with acceleration from OSA. CP growth will come from the Essence replacement cycle, market share gains in consumables, Epilepsy offers a stable, profitable growth, supported by commercial execution, clinical evidence and better reimbursement as well as digital technology. OSA will drive above-market growth as we scale up in a fast-growth market.

Core business and OSA will support adjusted operating margins above 20%, even as we invest to scale the OSA business. All this should drive significant operating margin expansion and low double-digit to mid-teens EPS CAGR through 2030. I'm also confident that we will keep generating strong cash flows over time. With our disciplined capital allocation strategy, we're set to make a difference for patients, customers, employees and shareholders.

In closing, I hope that I have provided clarity into our core businesses of epilepsy and CP as well as a transformative growth opportunity ahead with OSA. Let's also not forget the potential upside with DGD. We look forward to delivering on our commitments and creating shareholder value. Thank you for your time today. And while Vlad makes his way back to the stage, I'd like to say that it's been a great 18 months since Vlad joined the company. Our vision under his leadership is taking shape, and I'm more excited about the future of this company than ever before. I appreciate your support and your interest in LivaNova. Thank you.

Thank you, Alex. Thank you for the kind words, and also thank you for doing this presentation in this very impressive both. I'm still not clear whether it's a tool to help your injury or is it a fashion statement. But thank you. Well, listen, before we open it up for Q&A, I want to thank all of you for joining us today for being exceptional listeners. Many of you have followed LivaNova through several chapters of our history.

In recent years, we've strengthened our market leadership positions in both cardiopulmonary and epilepsy. We streamlined our portfolio. We invested into innovation in a targeted way. These efforts paid off. LivaNova has delivered 10 out of 11 quarters of double-digit top line growth. We improved our margins. We delivered free cash flow generation. And we look ahead.

LivaNova is becoming a disciplined growth-oriented med tech company. We sharpened our focus and rigorous plan for investment where our differentiated right to win is clearly justifies it. We have the right team, we have the right strategy and the discipline to execute effectively. This is what gives me great confidence in our path ahead.

Our cardiopulmonary and epilepsy businesses together provide a stable, profitable foundation with mid-single-digit or better growth and attractive margin profile. Our entry into OSA is derisked, backed by compelling data and differentiated technology that addresses significant unmet needs and increases our portfolio growth. We're launching our OSA with disciplined execution, leveraging our proven neuromodulation infrastructure, avoiding costly direct-to-customer investments. And the growing profitability of our core business will allow us to maintain annual adjusted operating margin above 20% even while investing to scale OSA. OSA, for us, is a high conviction opportunity that will accelerate our portfolio growth.

Our strategy and operational drivers translate directly into financial value that support a low double-digit to mid-teens EPS CAGR through 2030. Our DTD program, which I will remind you is not included in our targets, represents a pure upside. DTD would be a natural extension of our neuromodulation platform and potential game changer pending a favorable CMS reimbursement decision. Our capital allocation priorities are disciplined and transparent, and we are committed to keeping our shareholders informed as we progress.

In closing, I'm deeply confident in LivaNova's path forward. We are well positioned for transformative growth and sustained value creation to our shareholders. And I look forward to sharing this journey with you and celebrating our future success. And now I'd like to invite my colleagues to join me on the stage for a Q&A session. Thank you.

Okay. So as you can see, we have Vlad, Alex, Ahmet and Phil on the stage for Q&A. If you have a question in the room, I ask that you raise your hand, I'll call on you. [Operator Instructions] So with that, we'll open the floor to questions. Anthony?

Anthony from Mizuho. Lots of great information, and great to see the new plan taking shape here. Maybe just for 2026, when we think about the near-term plan versus the long-term plan, it feels like -- and I think the message is a lot of the sleep build-out will begin in '26. And I'm thinking the way to think about adjusted operating margin for '26 is essentially flattish, high single-digit growth rate for top line. Maybe is that a good place -- I'll leave that there for '26, and then I have a couple of follow-ups.

Appreciate your question, Anthony. So we -- this was a long-range plan presentation. And I think we provided a really nice framework for how to think about 2026, right? So if you look at our -- the Phase I of our plan, which is kind of the mid- to high single-digit revenue growth, right, and maintaining that 20% operating margin profile, right, and EPS growing in line with revenue. I think 2026 fits really nicely into that framework.

Fair enough. And the follow-up on think about how you define the market, it's 20% trailing 3 years, ] the leading player in the space Inspire just finished the quarter at about 10%. So what is baked in for how the market is actually going to play out over the next 5 years? And when you think about getting to 25% after breakeven, so breakeven 29%, 25% margin, it feels like that midpoint $300 million is really back-end loaded. Just want to confirm, is that the way to think about it?

Yes. So maybe I'll start with just to reframe why we're so optimistic about OSA. And it starts with the market growth, right? It starts with this large market and significantly growing market. It gives us opportunity to get in there and build accelerated, sustainable and more important, profitable growth.

And as Ahmet shared and Alex shared, we obviously -- we have a range of assumptions in terms of our growth. And there are 3 key things that will influence that where we're going to be on the range. How fast we get our approval, how differentiated our technology is going to be from clinical results. And the third one is going to be on the market growth. So that really kind of -- that will influence the phasing of our growth. And maybe, Ahmet, I don't know if you have any.

Yes. For example, just to double-click on a couple of things. So we are extremely excited about PolySync. If PolySync's success continues, the growth will be higher for us because it's going to expand the market even faster. And we think it will impact the HT&S market because the average responder rate is going to be in a new set of levels. So it's the timing, it's the PolySync results, how strong they are. We hope it continues the way it is and the underlying market condition.

And GLP-1s, we think by the time we're in market, it will settle a little bit more. Right now, as you know, the market leader talks about the impact it's making into the market. But we think the fundamentals of GLP-1 are going to actually help HGNS market because it increases diagnosis. There's a large patient population that cannot use it or is not on it indefinitely or has side effects or has a normal BMI. But we think the overall impact of GLP-1 is going to help the market because it's also going to bring patients into the range where HGNS is going to be successful. And as you know, we study the most severe patients. So we believe we're going to capture a higher proportion of the patients that are coming from the top of the funnel through GLP-1s.

Yes. And maybe just one data point to add. We did our own market research and of 150. And what we're seeing very clearly in the data is that funnel is increasing. There are more patients being diagnosed. Those offices are busier. And so that top of the funnel is increasing. And then the net effect that Ahmet so well described in the presentation, we believe that will flow through to a positive net effect on the bottom, especially as the normalization of GLP-1s in the care pathway over the next 12 to 18 months.

Thanks, Anthony. Mike Polark.

Mike Polark with Wolfe Research. I have one on oxygenators and then one on sleep. On oxys, I heard, in 2030, you will have built capacity to be 60% of that market. I think the forecast, if I saw it correct, you get low 40s percent share. So can you bridge that for us? Is it conservatism? Why build to be 60% and only take low 40s?

Yes. It's a great question. So I'll start and please build up on this. But -- so let me start with the fact that our momentum has been very strong. So a couple of years ago, we started with low 30s market share. Today, we estimate it to be in high 30s. This is not a new market. This is a very consistent, very mature market. And you rarely see analogs across med tech where, in a very mature market, you have such a rapid share gains. And normally, it's either caused by the disruptive innovation or some kind of disruption in the market. In our case, this was caused by the fact that market grew faster than the industry expected. We reacted better. We created more capacity, and we've benefited from it.

Moving forward, we have another variable coming into kind of our ability to capture market share, which Franco talked about, which is a new clinically differentiated oxygenator. So the prudent approach we took is to say that the market share trend will continue. We made an assumption of 800 basis points in terms of market share gains over the next few years, driven by our ability to continue to manufacture more and launch of a new product.

Now this is a market where there are 3 major competitors now. One exited this market. And this is also the market where it's not a nice-to-have procedure, it's a life-saving procedure. So there is also kind of a public health broad impact if products are not available in this market.

So we feel, a, it's our responsibility to make sure that we've built capacity to address the market needs; and b, we want to make sure that in a situation where it's a mature market, and we, in a way, positively surprised ourselves by gaining so much share over the last 2 years that we can accelerate that share gain. So it's a combination of our aspiration to grow faster, but also a prudent approach that we're taking in terms of planning forward.

A lot of great information today. If you said this, I missed it. But pricing, how do you expect to price relative to Inspire? And if I did the math correct, on your 2030 vision for territories and implanters, 400 implanters, 150 territories, that's less than 3 implanters per territory, and that's higher touch than what's been developed to this point. So can you put that together for us why not more docs per rep?

So let me start off. Again, our high conviction on the market opportunity, right, high growth and our ability to gain share in this market is really driven by the clinical evidence, by the differentiated technology, right? Now our go-to-market will evolve over time. But we feel that our share assumptions are realistic in that sense, and we have the ability to continue to drive productivity over time.

Maybe I'll comment on that 15,400 number real quick. So what we found out is that the HNS therapy is very concentrated. It's extremely concentrated. About 2 to 3 dozen centers cover more than 80% of implants. So our approach is go to those centers with our differentiated clinical data and focus on those versus going very broad when 80% is in very concentrated environments.

And then maybe just specific to price, obviously, not going to give a specific number today, but we want to make sure that, that price reflects both the clinical value proposition that we described as well as the market conditions. And so we're currently doing work on that to refine our assumption on what price could be.

Adam.

Adam Maeder, Piper Sandler. Two for me. I guess the first one is on sleep. And just wanted to see if you could share your expectations in terms of what the FDA label will actually look like. Do you expect to have an indication for a complete concentric collapse? Or is the expectation that you won't have any contraindication language in the label?

And then the second part of the sleep question is just PolySync, really interesting feature of the technology. The initial data that you've shared is small numbers. So do you have a plan to kind of build upon the clinical evidence profile of PolySync? And then I had one follow-up.

Yes. I mean in terms of the indication, it will be -- there will be no contraindication because we didn't exclude them. So there will be no contraindication. There will not be a warning. I mean, I can't say that definitely, but there is no reason for a contraindication, no reason for a warning. Now we didn't specifically do a study to identify CCC patients and treat them. So the indication statement will not say and proven to work in CCC patients, but it is just like we didn't exclude all females where the indication statement wouldn't say only males. So our coverage statement is going to be moderate to severe OSA with the numbers from the study in terms of starting AHI, and it should have no contraindication, no warning for CCC.

And then the policy question, Yes. So what we did is that we generate that data within the FDA trial. So it allowed us to do it in our agreed-upon protocol with FDA. So that's why we did 35 patients, which were the nonresponders. We invited all of them, 25 of them said yes. We will most certainly, once we launch the product, we will do registry studies because as I mentioned, moving forward that initial launch and onwards, we're going to use PolySync at the first titration. So we want to generate a new data set out of 100 patients that are titrated originally with PolySync, what's the responder rate. So that's why the answer will be absolutely, we will do more studies, but we will launch with PolySync.

And for the follow-up, I wanted to ask about the cardiopulmonary outlook in the LRP, mid-singles to high single-digit growth over the planning period. Can you maybe just bifurcate that between HLMs and oxys? You talked about the Essence replacement curve concluding in 2027, and you'll lap some of the price mix benefit. So do oxy and HLMs grow similar? Or is there a scenario where oxy could actually grow faster than HLM? Just any color there would be helpful.

That's a great question. So if you look over the past 2 years, growth has been relatively well balanced between HLMs and oxys. And I would say the HLM growth has been accelerated versus our expectations, driven by the fact that customers saw a major value proposition from Essenz and selected fully -- system with full optionality, and that obviously drove the price premium up, and we are able to maintain that price premium so far.

Moving forward beyond '26 and then '27, they will still be a tailwind in terms of growth in HLM while somewhat slowing versus what we have today. As this happens, we expect oxygenator growth to pick up, not only because of our ability to continue to gain share through supply improvements, but also through a launch of new oxygenator. And at this point, it's in the preclinical setting, and Franco shared some of the clinical value, but we believe that versus anything on the market today, it is significantly differentiated in terms of clinical performance. And like I said, in a mature market, share can be gained through either some kind of other disruption or innovation disruption. We believe that this has some runway in terms of gaining significant share through innovation.

Dave Rescott with Baird. I had 2 questions, and I'll ask one and then a follow-up. But the first on DTD, I know you provided the opportunity that's out there, and it's not included in the LRP. And if it were to be, it would be, I think, a pretty substantial number as you called out on the top line. So when we think about what that opportunity could look like on the bottom line, right, is that something where you should also still be able to sustain that minimum of 20% operating margins over the period? And can you help us think about that maybe curve of profit or adoption relative to the one that you laid out for us?

Yes. So first of all, as we see DTD as a potential major opportunity pending CMS approval. First, it's a significant market. Ahmet showed that we believe about 1.2 million patients in the U.S. alone can benefit from this technology. And in that case, 1% of penetration into this market would equal about $400 million to $500 million market size. So that's a significant market opportunity. And it's aligned with our strategic direction of getting into faster, bigger growth markets where we can also maintain a sustained higher level of growth.

Now the difference with OSA here, obviously, there are no alternatives today for those patients. So we would be -- if we enter this market, we would be the first and the only player in this market space. So that makes it very attractive.

Now so the market opportunity is large. And then if I go internally, inside LivaNova today, we already have capabilities dedicated to DTD. So our commercial team is focused on depression only. We have neuromodulation capabilities that we can leverage across the entire organization with reimbursement group and health economics and regulatory, R&D, manufacturing. So we can control this scaling up and scaling down of this capability relatively simple in a simple way.

Now the opportunity itself, there are so many ranges. Obviously, if the approval doesn't happen, it's a very clear path. If the approval happens, then it depends what level of indication we're going to get. And that really will kind of change or create various options for the market size and opportunity. So we have a playbook for each of those different options in terms of market opportunity. And as we see what happens with CMS approval process, we will share the playbook. But at this point, we're just treating it as a pure upside to our current plan.

[The M&A strategy, heard comments on that. And if you think about the broader portfolio, you've got cardiopulm, you've got epilepsy within epilepsy -- or sorry, neuromod within neuromod, you've got sleep, epilepsy, maybe depression. So can you help us think about where across the portfolio M&A would be a focus? Is it something that you would look to, again, leverage that neuromod type of business versus the specific call points within neuromod itself? And then help us maybe understand how the -- either success of DTD or the pace of adoption in OSA influences the timing of the M&A strategy.

Yes. Thank you for this question. I'll turn it over to Phil to talk about our strategy. But before we do that, I do want to focus on one thing that Phil talked about in his presentation. And that is the capability that we've been building. So we looked at our history. We've learned on some of the -- our kind of journey from the past, and we really focused over the last 18 months to building internal capability that will allow us to execute whatever M&A strategy we have. So Phil coming in into the organization with very rich and kind of extensive experience in M&A, we have a number of other leaders that joined us. We've reshaped our process and our culture so that when the opportunities come, that we will be able to execute them well.

Yes. And so I think in Alex's remarks, you heard the use of the word disciplined for M&A. And so what does discipline mean? To us, it means that we're laser-focused on aligning it to the strategic priorities that we ensure that we can leverage kind of capabilities and the right to win and that we're very disciplined in risk-adjusted returns for efficient use of capital. And so while we've built the capability that Vlad described to kind of scour the landscape and make sure we're understanding kind of what's out there, the number of opportunities that are going to reach above that bar are few and far between. But that doesn't mean that it isn't going to continue to be an important focus for us with a focus on tuck-in M&A. So the ability to leverage some of the core assets that we have in the organization today, like, for example, in epilepsy, where you heard Steph describe the strong commercial channel and strong customer relationships that we've established over the last 30 years.

Matt Taylor?

Matt Taylor from Jefferies. I want to follow up on some of the sleep stuff. So understanding the label may not have CCC on it. How much of that is going to be in your go-to-market strategy? Meaning can you educate folks, can you develop other data to show that your product stands out and convince some of the naysayers that because of the proximal aspect, et cetera, you can effectively treat those patients?

Yes. I mean what we will communicate very clearly is that in our OSPREY trial, 45% of the patient cohort was high-risk CCC patients. So there are predictor algorithms that you can predict it without D study. So we will make CCC a big part of our initial launch strategy. But I think it's the overall data set, the high severity, high BMI, no exclusion of CCC makes the clinical data extremely valuable for physicians. And I think physicians do get the importance of CCC because as Dr. Malhotra mentioned that it adds to the treatment pathway. It complicates the entire process. It adds a lot of time and cost. It's not very well reimbursed. But to answer your question, it's going to be an important part of our story.

And maybe just one follow-up. I think investors are going to be encouraged to see that you're going to go to market with something MRI compatible and with less recharge burden. One of the other things I wanted to double-click on was the programming, and it seems like you're making efforts to streamline that. How much can you automate that in the future? And how easy can you make it to program? And what impact will that have?

That's a great question. So one of the advantages we have is that the investments we made in epilepsy for cloud connectivity, we can directly transfer to OSA. We can directly transfer to depression. Actually, we can also directly transfer it to CP. So that's the beauty of having a single cloud system.

That is in the strategy what you described because ultimately, you don't want to bring patients in for a PSG. Now the limiting factor is measuring the impact of the titration. Connecting to the device is going to be easy. We already have the capability with epilepsy. We will have it with the device. But you need to know when you titrate it, what's the impact. And the way to get there is to measure the oxygen. So even integrating with like rings and things like that enables you to do that.

So if you looked at our strategy slide, that is the goal. The goal is to do in-home titration by measuring parameters like oxygen in the long run. It's less about the technology. It's more about measuring the effect like oxygen and developing algorithms that will enable the physicians to say, okay, based on this, I'm going to titrate to do that. It's part of our strategy because we think that's going to even expand the market.

And Matt, I think that we're laser-focused on building and upgrading our software and AI capabilities. And if you haven't had a chance yet, I'm going to advertise a little bit, see our -- the breakout room where the team can demonstrate our epilepsy technology. And our last software upgrade was done using AI. And I think we're kind of in a leading group of med tech companies that will continue using AI as our kind of key capability to drive innovation.

David Roman.

David Roman from Goldman Sachs. Maybe just on the core neuromodulation business, one of the things that you had introduced probably about a year ago was an expectation that volumes would be flattish in 2025 and 2026. I think in the presentation today, you started talking about seeing a resumption of growth in the replacement market. Can you maybe just help us understand how that has unfolded? And are you seeing normal -- kind of a normalization of market growth here? And as you look forward, can you maybe give us some sense of the geographic contributors to your mid-single-digit expectations for the neuromod business?

So let me take it from 2 dimensions. One is replacement and new patients and then geographic expectations, and Alex, please jump in on to this.

So what we have seen over the past few quarters and what we project moving forward as the replacement devices will continue to grow at low single-digit growth moving forward, we see that the post-COVID impact is going to be neutralized. And moving forward, like I said, we expect low single-digit growth from the replacement point of view. Now that's 70% today of our revenue.

On the new patients, we believe that the profile of our business will be mid- to high single digit, driven by commercial excellence, driven by all the innovation that Steph talked about, and we're very excited about clinical evidence that came with the CORE-VNS study. So that will contribute to the core -- to the new products.

Now the other important factor that is going to play into this model will be what happens with the reimbursement. So today, we have a high level of confidence that as of January 1, on the replacement devices, reimbursement will go from Level 4 to Level 5, and that will, over the lifetime of patients, create significant improvement into the economics of health care providers. We are working on Level 6 for the new patients, and that will be an upside to our current plan. So that is kind of where we expect low single digit on replacement, mid- to high single digits on new patients.

In terms of geographic mix, like Steph said, this is a very underpenetrated market. It's more underpenetrated outside of the U.S. So we see more opportunity for growth outside of the U.S. just based on low level of penetration.

And then maybe just a follow-up. As you kind of consider the risks and opportunities across the LRP, what are some of the factors that can contribute to achieving the LRP in a scenario where OSA comes in at or below the low end of the range that you're communicating here?

So for me, there are 2 upsides to our plan that will -- that can contribute in a major way. One is I talked about on the epilepsy side, it's a Level 6 reimbursement. On the cardiopulmonary side, it's our ability to scale manufacturing faster than we expect. Those are the 2 big contributors. And I think on OSA, at this point, we're in early stages. So that's why we provided such a significant range that had some opportunity to go faster or to be at the lower end. At this point, it's very difficult to say.

Mike Matson.

Mike Matson from Needham & Company. Just curious, and it sounds like your sleep sales force is going to be more focused on the ENT. So how important are the sleep doctors in terms of influencing decision on which product gets used? And will you focus on that call point at all with that sales force?

It's both for sure. So as I mentioned in my talk, one reason we wanted to not partner was because of the complexity of the pathway between the patient, the sleep specialists and ENTs. So our focus is going to be to ensure that we connect with both and do that connection better than today in the market between the sleep specialists and the ENTs. So our focus is, yes, the final implanter is ENT, but we will have a strategy to connect with sleep specialists as well.

Yes. And maybe the only thing to add to that is, I mean, we've done that in epilepsy already. So when you think about the epileptologists to the neurosurgeon, that's a unique care pathway as well that we've helped shape as our leadership in epilepsy, and that's going to be an analogous dynamic in OSA as well between sleep and ENT. So making sure we have presence in both will be important.

Okay. Got it. And then just the -- in terms of the breakeven assumptions in -- with sleep apnea, what are your assumptions on gross margin? I'm sure you're not going to give me numbers, but is that going to ramp pretty meaningfully? Or -- I mean, I imagine you already have the plant, you're already producing the epilepsy products. So I can't imagine that there's a lot of fixed cost issue there, but -- or overhead issue. But we had thought maybe it would be more breakeven potentially earlier because the gross margins are so high, but maybe that's what I was missing is that the gross margin has to ramp over time as well.

That's a great question, Mike. The beauty of standing up OSA inside LivaNova is being able to leverage this foundational infrastructure that we have for neuromod. So we see a very attractive gross margin profile. I think you mentioned it in your -- it's going to be 80-plus percent. So at scale, it's going to take a little bit of time to get there, but it gives us tremendous leverage right out of the gate. It's -- the build-out of the commercial channel is going to take some time, right, and ramping revenue. So we do see 2029 as a realistic time frame for this business to break even. Could it happen sooner? Maybe, but we'll -- time will tell.

Just to clarify though, the gross margin, do you expect it to be materially lower than that 80% in the first few years? Or is it going to be fairly close to that sort of stable over that time frame?

I mean it may start slightly below the 80% threshold, but we see it ramping to that level rather quickly.

We're just about time for Q&A. One more. Go ahead.

Just one follow-up on margins and just on the comment you made on gross margins. If you think about the sort of impact of these investments on the total operating margin and the trajectory you laid out, is it fair to say that like gross margins will be a little bit of a lesser impact, middle of the P&L, SG&A, a little bit of a heavier impact?

And if you could -- understanding we're on -- you've laid out a time frame for breakeven for OSA. Is that sort of a wedge into the P&L over the next couple of years? You're growing reps and resources in the middle of the P&L kind of proportionately with the commercial opportunity? Or do you get a sense of what the weight looks like next year or the year after and then before you get to breakeven?

Let me take the gross margin impact kind of from an enterprise perspective first. The biggest gross margin expansion opportunity for us comes in the cardiopulmonary business, right? So just continuing to take cost out of the capital equipment platform, continuing to drive efficiencies in consumables, scaling volume there, right, to drive higher levels of absorption and continuing to use price as a lever to drive gross margin expansion. I think Franco mentioned it in his presentation that, that is an area that we're going to continue to focus on to drive gross margin expansion.

As we think about neuromod, epilepsy has a very high gross margin today. So there's probably lesser opportunity. And then again, we're excited about the OSA gross margin opportunity because it's actually accretive to the overall gross margin profile.

And then as far as the balance of the P&L, I think, again, this is where I get excited about driving leverage in the foundational infrastructure that we've built so far, right? And being able to plug in a business like OSA or DTV into that infrastructure to drive leverage and continue to expand margins that way, probably get too excited about that.

All right. Well, thank you. So listen, I want to end where I started and by saying thank you. First of all, I do want to say thank you to the LivaNova team who made today possible. Briana, the entire IR team, all the presenters, the executive leadership team that's here and all the colleagues around the world. It's -- their hard work is reflected in the results that we were able to deliver over the last couple of years. And more importantly, our confidence in our future comes from the confidence in the team across the world. So I want to start by saying thank you to them. And I want to thank all of you for being here today, for engaging during the day, but more importantly, for your ongoing partnership and interest in LivaNova. So thank you very much. And with that, that concludes our 2025 Investor Day. Thank you.

Thank you, everyone. As a reminder, the product showcase is open for about an hour. Vlad talked about the digital health platform that you can see. It's interactive. It's really cool. We have our Essenz system out there for you to check out. We also have our next-generation oxygenator as well as our OSA team and DTD and also CORE-VNS. So I highly encourage everyone to go check that out. And then lunch will be on the second floor in the Ambassador Room. Thank you.

Good day, ladies and gentlemen, and welcome to LivaNova plc Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 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.

[Operator Instructions] First question comes from Michael Polark with Wolfe Research.

I'm going to start in the release on just the fourth quarter and what's implied there. If I do the simple math on EPS, I'm getting $0.80 flat year-on-year. It just looks extremely conservative relative to the performance year-to-date. It implies gross margin down -- operating margin down a lot sequentially year-on-year. And so Alex or Vlad, I'm hopeful you can walk us through a little more precisely like puts and takes in the fourth quarter, anything that you're bracing for in this guide that the Street might have been under considering. I heard about the PCBA conversion. Maybe that's a big piece of the answer. It could be tariffs as well. But any further context on the fourth quarter implied earnings outlook, I would appreciate.

Mike, it's Alex. Yes, you're absolutely right. The printed circuit board investment that we're making is indeed happening in the fourth quarter. In my prepared remarks, I referred to a $0.10 impact. That's what the key driver [ is of kind of ] the softer Q4. And if you recall, we talked about the investment in PCBA as a -- it's a platform for us to continue to drive strategic revenue in the future with software and service. So that's -- it was a planned investment. We kind of foreshadowed it last quarter, and it is indeed happening in Q4.

I'll ask a follow-up on oxygenators. Obviously, the cardiopulmonary performance 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. Thanks, Mike, for the question. It's indeed gaining share in oxygenators has been and will continue to be one of our key growth drivers. We have very strong momentum over the last 24 months in terms of share gains, and that is supported by our ability to continue manufacturing -- expanding our manufacturing. So last year, if you recall, we've increased our capacity by around 10%. This year, again, our capacity expansion is close to 15%. However, our actual output for the full year will be below 10%. And that gap is driven by deficit in third-party component supplies. We're working very closely with a group of our suppliers to make sure that we continue to improve that situation and do our best to close the year strong.

Now for the next year, we are actually adding another manufacturing line within LivaNova. It's been an ongoing investment and projects that we have been driving. So that will allow us to have a step change in our own manufacturing capacity. And obviously, we're working closely with all the suppliers to make sure that they continue to grow and expand their capacity as well.

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 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 the current installed base there and the opportunity for China, that would be helpful as well.

Yes. So thank you for this question as well. So we launched -- we had a commercial launch in China in August. It's about 6 months before the kind of the internal target date. And that's a really good sign for us from the Chinese market, both from the clinicians, but also from regulators that means there's a high demand for this product. So far, the feedback from the clinical and the hospital community has been very strong, very good on the launch. The selling cycle on the equipment is relatively long, obviously, than the disposables. And so that's why I kind of made a comment that we expect the majority of growth impact starting in 2026. So if you recall what we've always said, we -- last year, 40% of our worldwide placements were Essenz. This year, 60% of all HLMs placed globally will be Essenz. And then next year, 80% of all HLMs placed around the world will be Essenz. And China will be the main contributor to that upside from 60% to 80%.

And then during the Investor Day next week, which I hope you can attend, we will unpack a little bit more the opportunity in China and specifically what we expect from 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?

Yes. So thank you for the question. So I'll make it compartmentalize a little bit. There will be 2 occasions that we will share in more detail our longer-term projections on epilepsy as well as expectations for '26. So again, November 12 is our Investor Day, and then we will guide early in the year for 2026. But a little bit of flavor on what we're starting to see in terms of results. I think 2 things. One is strong execution globally. So we continue to just improve our level of commercial execution, and that pays off with consistent results across the world. Number two, we had CORE-VNS study results out. That's the largest to date real-world evidence study. And we're starting to deploy the results of the study to the clinical community and starting to get very positive results. And so maybe after I finish, I'll ask Ahmet just to say a few points about that. And then to your point on -- we're very pleased on the reimbursement improvement that is anticipated as of January 1 with the shift from Level 4 to Level 5 on the end of service units. And that obviously improves economic viability of -- over the lifetime of VNS patients for the providers. And so that clearly is an important growth driver for us moving forward. And we'll continue to work on market access and improved reimbursement also for the NPIs. So maybe, Ahmet, if you can comment a little bit 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 time line. 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 to 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 is no strict time lines. But as a reference, and it's just a reference, Medtronic just complete 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 in 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.

Look, we don't want to preempt discussion today for Investor Day. We'll -- next week, we'll connect the dots between our current execution and our financial ambitions for the long-range plan. So again, kind of looking forward to sharing the details of our long-term strategy and financial objectives next week 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?

So David, and very important question. Thank you for asking it. Look, I think this is -- if you look at 1/3 roughly of epilepsy population have resistant to drugs. And then it takes 10 to 15 years to get from the diagnosis of being a DRE patient to actually getting or seeking for treatment. And if you look at the kind of across various clinical specialties, treatment of drug-resistant epilepsy patients has one of the lowest penetrations. And there are a number of barriers or if you flip the drivers that will contribute to improvement of that penetration. And you mentioned the 2 of them. One is reimbursement and making sure that hospitals also have financial economic benefit from those procedures. And we made a major step on that in terms of Level 4 to Level 5.

And like I said, we'll continue to work on Level 6 for the NPIs as well. The other kind of clinical strategic direction is in the innovation area is how do we make sure that we continue to create products and procedures that are less invasive and more clinically effective. And ultimately, that is the goal of innovation, minimally invasive, more clinically effective. And what CORE-VNS study shows is that with relatively less invasive procedures like VNS, we are starting to see really strong long-term results. And that is an important data point for the clinical community to drive penetration of the procedure. And so I'll turn it to Ahmet a little bit to talk more from a scientific point of view.

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 it, 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.

Yes. So I'll start maybe with the second one. So we expect the new line to be -- to go live in the second half of the year. So that's when we will start seeing acceleration beyond just ongoing improvements within the current network. And the step change, so we won't guide specifically to our exact capacity increase, but it will be beyond what we have done historically on an annual basis. So that's the first one. And then -- so that's the second one, sorry. On the first one, so China is a big driver. Remember, there are 2 drivers on the growth of HLM. The first one is this kind of percent improvement of placement penetration, call it, during the year. So we're going from 60% to 80% next year. And yes, China will be the major contributor to that upgrade.

The second one, and if you look over the last few quarters, and this is where the biggest upside came from in terms of our growth, same in quarter 3 is with the fact that we are able to maintain very strong price premium on Essenz versus S5. And -- and that ability to preserve price premium is actually a very strong indicator of value proposition of Essenz to the clinical community. And so one of our targets and using your point, could that be an upside is to make sure that we continue to preserve price premium as we roll out Essenz across the world.

We now turn to Mike Matson with Needham.

So just a few on the oxygenator business. So are there any signs of your competitors trying to expand their production? And then what's your confidence that the demand remains as strong as it's been, particularly the, I guess, procedural-driven component of that? And then if the growth were to slow -- or demand were to slow down, is there any -- as you've added this capacity, would that pressure your margins or anything like that? Or is it easy enough to kind of turn it off if you see things slow down?

So very good question. So I'll start with the second part of it. So the way we're building our additional capacity is in a very financial disciplined manner. So fluctuations in the demand within a certain range are not going to impact negatively [ our kind of this ] type of investment, and we won't see any negative pressure on the financials. On the first part of the question, so we have now, over the last 2 years have seen the momentum of share gains. And we believe that we are now -- we've gained share from low 30s to very high 30s now in terms of percent share in a very mature market like oxygenator, you rarely see that. And we attribute that not to a disruption in the market with competitors, but the fact that we have not seen any investment and innovation or capacity increase from Medtronic and Terumo. And obviously, from getting there, we saw exit from this part of the -- from this segment of the market. So we continue to gain share.

Our first step is to continue gaining share through improved supply. And the second step will be to launch new generation oxygenator. We're going to talk about the clinical value that it brings during the Investor Day. So we see share gain in oxygenator as not just a short-term blip, but it's a long-term strategy, and we have execution plan behind that. And then to the market growth, look, we are learning more and more about what drives the procedure growth, and it's multidimensional. Part of it is that we're just as a society, getting older and getting more open heart surgeries. Number two is emerging markets where open heart procedure penetration is lower and has more runway for growth. Those markets are becoming bigger part of the pie. And so that kind of contributes positively to overall growth.

And then finally, we believe that there was a kind of lack of diagnosis during COVID, and that resulted in more advanced heart disease for patients after COVID. So that potentially will go -- that part of the market growth will potentially go away. And then finally, on the valve procedures, we see a more robust growth on valve procedures as kind of TAVI growth kind of momentum is flattening.

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 back order 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. Okay. That makes sense, especially with the new oxygenator coming. So -- and then just one quickly on the HLM side. With the PCB upgrade, how involved are the sales reps going to be in terms of managing that with the customers? And is this something that could 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 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?

John, thanks for your question. Look, we -- if you look at our cash position, very well positioned to address the SNIA payment. And I appreciate you calling out the fact that we're -- our cash generation has improved. Yes, obviously, it gives us -- putting SNIA behind this ultimately gives us the flexibility to deploy our capital against strategic initiatives and M&A is one of those tools that we will look to. So I think it's important for us to continue to focus on improving our cash generation. That is -- that's the lifeline for any company to be successful is to drive 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, look, so the epilepsy business, really pleased with our performance in the quarter and year-to-date. The commercial teams have executed extremely well, particularly coming out of the field safety notice situation that we had in the quarter. So we're starting to catch up in terms of deferred procedures that we saw. And it's a multifaceted approach to driving penetration in the marketplace. As a market leader, we're obviously focused on driving data generation, clinical evidence to support the therapy, the health economic reimbursement improvements are going to help us. This is -- it's part of our overall strategy to drive growth. And again, we keep pitching Investor Day, but we'll unpack a lot of that next week when we talk about our long-range strategy.

We now turn to Matt Miksic with Barclays.

So congrats on the quarter and on the momentum here. I just wanted to follow up on one aspect of the sort of next, call it, next set of drivers, indications, which I'm sure you'll get into next week on DTD and OSA. If you could sort of give a sense of where -- how those -- what those investments look like, 2 very different to me anyway, opportunities and very different set of investments and different challenges facing each. Maybe if you were to think about the P&L and the profile [ of the ] when and how do we see, say, DTD phasing into your intermediate and long-term growth? And at a high level, when and how do we see OSA potentially phasing into intermediate and long-term growth. Understanding, of course, you don't really want to get into everything now.

Yes. Matt, thanks for the question. And it's a really good lead into the Investor Day. I think we will spend 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. And then just maybe in this next quarter, understanding that you're already investing a fair amount of spend into these programs. You called out the sort of the circuit board investments and some of the other businesses you're ramping up [ PVA ] in the fourth quarter. Can you quantify what you're -- if you're picking up the investment in Q4 at all from current levels or maybe just a level check on sort of what the quarterly spend looks like and how that's progressing in advance of the bigger plan you'll unveil next week.

Matt, thanks for your question. Look, Q4 is always -- we always see an uptick in spend. It's our kind of the biggest quarter in terms of our OpEx, both SG&A and R&D. So that's all factored into the full year guide.

Understood. But no color, you 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 time lines 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 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.