LivaNova's Q3 2025 Earnings Call: Contradictions Emerge on Chinese Market Growth, Neuro Business, and R&D Strategy Shifts

Business Commentary:

* Revenue Growth and Strategic Investments:

- LivaNova reported revenue of $358 million for Q3 2025, an 11% increase on a constant currency basis and 13% on an organic basis versus the prior year. - The growth was driven by continued momentum in the cardiopulmonary business and solid epilepsy performance across all regions, as well as strategic investments in new products and technologies.

• Cardiopulmonary Segment Performance:
• The cardiopulmonary segment generated $203 million in revenue for Q3 2025, an increase of 16% compared to the third quarter of 2024.

• This growth was attributed to a significant majority of ESSENCE placements in developed markets and sustained favorable price premiums.

• Epilepsy Segment Growth:

• Epilepsy revenue increased 6% year-over-year in Q3 2025, with growth across all regions.

• The growth was supported by strong commercial execution globally and the early rollout activities for the core VNS data, which is expected to strengthen the company's clinical foundation.

• Operational Efficiency and Margin Improvement:

• LivaNova's adjusted operating income margin was 23% compared to 20% in the third quarter of 2024, reflecting higher revenue, fixed cost leverage, and optimization of DTD program spend.

• The improvements in operational efficiency and margin expansion were driven by disciplined execution, productivity enhancements, and strategic investment in innovation priorities.

• Future Strategic Initiatives:

• LivaNova is focusing on its obstructive sleep apnea program and difficult to treat depression programs as significant opportunities to address large patient populations with unmet needs.
• These initiatives are part of the company's strategic priorities to drive long-term growth and create lasting value for patients, customers, and shareholders.
  

Contradiction Point 1

Chinese Market Growth and Essenz Launch

It involves differing expectations for the growth and impact of the Essenz launch in the Chinese market, which is a strategic area for expansion and revenue growth.

What is the contribution from the China market in the quarter and how will it evolve over the next 12 months? - Anthony Petrone (Mizuho)

2025Q3: The China launch showed early positive reception, with orders received as early as August. The impact will be more significant in 2026 due to the length of sales cycles. The company anticipates positive growth from the Chinese market. - Vladimir Makatsaria(CEO)

Can you provide an update on the Essenz launch in China and the impact of recent medical import restrictions? - Michael Polark (Wolfe Research)

2025Q2: We have a strong commercial team in China with no meaningful negative impacts. The approval in China was 6 months ahead of schedule, indicating high demand. Essenz is differentiated and expected to drive upgrade opportunities in China. - Unknown Executive

Contradiction Point 2

Neuro Business Growth Trajectory

It involves differing expectations for the growth trajectory of the neuro business, which is a critical segment for the company's long-term growth.

How will the neuro business evolve through 2026, as the impact of the pandemic on implants subsides and with new reimbursement changes? - Matt Taylor (Jefferies)

2025Q3: Strong execution globally and the core VNS study results are driving growth. Reimbursement improvements are anticipated for January 1, which should improve economic viability for providers. The company is focused on building clinical evidence and market access to support long-term growth. - Vladimir Makatsaria(CEO), Ahmet Tezel(CIO)

How should we assess the growth of the neuromodulation business in year-to-date performance and 2025 guidance? - David Roman (Goldman Sachs)

2025Q2: We've executed well despite the field safety notice. We've recaptured deferred procedures and have strong momentum. This is a solid mid-single-digit growth business that is expected to remain durable for LivaNova. - Alex Shvartsburg(CFO)

Contradiction Point 3

China HLM Market Launch Impact

It involves the strategic approach towards the China HLM market launch and its anticipated impact on revenue growth, which has significant implications for revenue projections and growth expectations.

Can you provide the fourth quarter guidance outlook and explain why it appears conservative despite strong year-to-date performance? - Michael Pollack (Wolfe Research)

2025Q3: The fourth quarter guidance is prudent, driven by the timing of the Chinese HLM launch and strong HLM performance last year. The quarterly revenue growth is expected to be 8%, reflecting the early stages of the Chinese market rollout. The company is being conservative due to the challenging year-over-year comparison. - Alex Shvartsburg(CFO)

How should we assess the $0.21 revenue and margin improvements given the investments in OSA and SNIA? - David Roman (Goldman Sachs)

2025Q1: The China market approval for HLM is a significant milestone. The positive impact is expected to be more pronounced from Q2 onward as we start advancing through our commercial strategy. - Vladimir Makatsaria(CEO)

Contradiction Point 4

Investment Strategy and R&D Allocation

It highlights a shift in the company's investment strategy and R&D allocation, which affects the strategic direction and perceived commitment to specific growth initiatives.

How will investments in DTD and OSA phase into intermediate and long-term growth? - Matt Miksek (Barclays)

2025Q3: Both DTD and OSA investments will be key drivers of future growth. These initiatives are strategic priorities, and detailed plans will be presented at the Investor Day on November 12th. - Vladimir Makatsaria(CEO)

How do you balance core business investments with external pipeline investments? - David Roman (Goldman Sachs)

2024Q4: Our R&D spend as a percent of sales is declining, with more emphasis on core businesses and less on OSA and DTD due to decreasing clinical spend. - Vladimir Makatsaria(CEO)

Contradiction Point 5

Cash Flow and Financial Flexibility

It involves differing views on the strategic use of free cash flow, which impacts investor perceptions of the company's financial management and growth potential.

Can you link strong free cash flow to future strategic initiatives, including M&A? - John McCauley (Stifel)

2025Q3: Improved cash generation provides strategic flexibility, which could include M&A activities. - Alex Shvartsburg(CFO)

How do you balance core business investments with external pipeline initiatives? - David Roman (Goldman Sachs)

2024Q4: We view OS and DTD as opportunities with compelling clinical evidence. We'll continue to invest and partner for success, aiming to deliver value in these markets. - Alex Shvartsburg(CFO)