Frederick Wise

Frederick Wise sought more detail on the upcoming digital features for the da Vinci 5, asking how they will enhance the system's value proposition. He also inquired about the key drivers for the next phase of growth for the Ion and SP platforms and when these products might cease to be a drag on overall company margins.

Answer

CEO Gary Guthart outlined three categories of digital benefits for dV5: enabling better outcomes with real-time tools, accelerating the learning curve for care teams, and allowing customers to perform value analysis with their own data. CFO Jamie Samath stated that Ion's growth will come from international expansion and new indications, while SP's growth depends on broader indications in the U.S., pending stapler clearance. He described improving the margins for both platforms as a 'midterm' objective.

Frederick Wise relayed feedback that larger academic centers are waiting for dual console availability for da Vinci 5, while smaller hospitals are adopting it faster. He asked if this was accurate and what the implications are for procedure growth. He also asked about the early experience with the Intuitive Hub.

Answer

President David Rosa acknowledged that during the supply ramp, dual console availability is being prioritized for incremental single-system deals, and the team is working with a broad set of customers. CEO Gary Guthart stated he doesn't anticipate this dynamic will significantly inflect procedure growth rates. Regarding the Hub, Guthart noted its current strength is as an on-premise data recorder and media manager, and that the company is at the beginning of the Hub's journey in terms of penetration and future cloud-based features.

Frederick Wise of Stifel asked for clarity on the expected quarterly top-line cadence for the remainder of the year, given the offsetting impacts of tariff headwinds, business momentum, and favorable foreign exchange rates.

Answer

CEO Bryan Hanson clarified that tariffs primarily affect the bottom line, not revenue. He explained that the Q1 order timing benefit, related to ERP cutovers and SKU rationalization, is expected to reverse in Q2 and Q3, with the most significant negative impact on growth anticipated in Q3.

Frederick Wise asked what key factors could drive performance to the upper end of the 2025 guidance. He also requested more detail on the Health Information Systems (HIS) business and the progress of its autonomous coding opportunity.

Answer

CEO Bryan Hanson identified three potential upside drivers: smooth execution of major ERP system cutovers, success of the new commercial excellence model, and improved capacity planning for high-demand products. Regarding HIS, he explained that autonomous coding is in its early phases but has the potential to automate 50-90% of cases, significantly reducing labor costs and errors for customers using their Encompass 360 platform.

Frederick Wise questioned the 72-73% gross margin guidance, asking why it wasn't higher given strong U.S. sales and new product introductions. He also requested an update on the OPSB specialty bracing clinic expansion, specifically the ramp-up in Florida and Colorado and future plans for U.S. and international growth.

Answer

CFO Fred Hite explained the gross margin guidance reflects potential future international set sales, which have lower margins, and typical fourth-quarter softness. CEO David Bailey added that OPSB clinic expansion is progressing well, with increasing volume in established locations like Ohio, Colorado, and Florida. He noted the expansion pipeline is 'very full' for the coming years and that the company is actively exploring international OPSB opportunities, particularly in Western Europe.

Frederick Wise from Stifel asked for a more detailed breakdown of the OrthoPediatrics Specialty Bracing (OPSB) opportunity, including its pipeline, licensing deals, and expected impact in 2025. He also questioned the flat gross margin guidance, suggesting potential upside from new products and the closure of the Israeli manufacturing facility.

Answer

Executive David Bailey emphasized that scaling OPSB is a top priority, noting the large, capital-efficient market opportunity and a strong funnel for clinic expansion that could exceed the guided four new territories in 2025. He highlighted the rapid growth of products like the DF2 brace as proof of concept. Regarding margins, CFO Fred Hite stated the flat guidance is conservative. While acknowledging the reclassification impact, he indicated that activities around pricing, manufacturing consolidation, and other cost reviews could provide future upside.

Frederick Wise asked for an analysis of the OSPREY trial data's competitive positioning and commercialization timeline, and also inquired about the outlook for the Heart-Lung Machine (HLM) and oxygenator businesses.

Answer

Chief Innovation Officer Ahmet Tezel highlighted the strength of the OSPREY data, noting the trial included more severe OSA patients and those with CCC, yet still showed a 65% responder rate at 12 months. He emphasized the differentiated 6-electrode technology offers future optimization potential. CEO Vladimir Makatsaria added that the commercial strategy is being developed, with options including partnerships, and will be detailed at the upcoming Investor Day. Regarding Cardiopulmonary, Makatsaria confirmed strong oxygenator demand is outpacing supply, with capacity expansions underway. For HLMs, he noted the Essenz system is on track to comprise 60% of placements in 2025, boosted by a recent, ahead-of-schedule approval in China.

Frederick Wise of Stifel inquired about the fourth-quarter performance of the Cardiopulmonary segment in the U.S. and Europe, seeking clarity on the drivers behind the 2025 outlook. He also asked about the innovation pipeline, specifically requesting quantification of the new ECMO product's potential 2025 revenue impact and other expected product launches.

Answer

CFO Alex Shvartsburg stated the company was pleased with Cardiopulmonary performance, noting strong sequential growth in HLM placements despite a tough 40% growth comp from Q4 2023. He highlighted that demand for consumables outpaces supply and that manufacturing capacity increased by 10%. CEO Vladimir Makatsaria emphasized innovation as a strategic pillar, focusing on milestone delivery in core businesses and market access for OSA and DTD. Chief Innovation Officer Ahmet Tezel added that near-term epilepsy plans include submitting for FDA approval for connected care VNS therapy. He also mentioned the development of a NextGen oxygenator and continuous software upgrades for the Essenz system.

Frederick Wise requested a more detailed outlook for the oxygenator business, including competitor status, capacity expansion progress, and performance sustainability. He also asked about the development timelines for key innovation programs and the potential timing for a DTD coverage decision from CMS.

Answer

CEO Vladimir Makatsaria stated that strong procedure growth and industry-wide supply constraints continue to drive demand, and LivaNova is on track to increase its manufacturing output by at least 10% in 2024. CFO Alex Shvartsburg added that demand continues to outpace global supply despite competitor actions. Chief Innovation Officer Ahmet Tezel noted that while core product timelines are not disclosed, they are mid-to-late stage programs. For DTD, a formal CMS request will follow publications expected in Q1 2025, with a decision typically taking about a year.

Frederick Wise of Stifel inquired about the financial impact of a large tender contract on Q1 results, the expected revenue cadence for the upcoming quarters, and how investors should model the impact of new tariffs beyond the current fiscal year.

Answer

CFO Micah Young explained that the large tender contract shifted some revenue timing but the underlying business remains strong, with double-digit consumable growth ex-tender. He guided towards normal seasonality for revenue, with Q2 typically flat to slightly down sequentially. Both Young and CEO Katie Szyman advised against annualizing the 2025 tariff impact for 2026, citing the fluid nature of trade negotiations and ongoing mitigation efforts, particularly concerning the disproportionate impact from China tariffs.

Frederick Wise asked new CEO Katie Szyman for her perspective on the hemodynamic monitoring opportunity for Masimo and requested that CFO Micah Young provide color on the expected quarterly revenue flow for 2025.

Answer

CEO Catherine Szyman noted that while she is still learning Masimo's core markets, she sees a broad opportunity in hemodynamics focused on expanding monitoring to a large number of currently untreated patients. CFO Micah Young explained that 2025 includes a 53rd week in Q4 and advised analysts to apply historical seasonality (approx. 24.5% of revenue for each of the first three quarters) after adjusting for the impact of the extra week.

Frederick Wise asked for insights into the 2025 sales outlook for the healthcare business, including key drivers and potential concerns. He also sought clarification on what factors could push Q4 driver shipments to the high or low end of the guidance range.

Answer

CFO Micah Young reiterated the long-term growth plan, highlighting opportunities in the rainbow and hemodynamics platform (LiDCO) and the U.S. launch of ORi. COO Bilal Muhsin also mentioned the new Radius VSM wearable monitor. For Q4 driver guidance, Young explained that the range accounts for variability in OEM ordering, which constitutes about 75% of shipments. He noted that strong contracting, with $318 million in new contract value YTD, provides a solid foundation for future growth.

Frederick Wise asked for clarity on the Q2 2025 outlook versus Q1, the full-year cadence, new CEO Dave Pacitti's strategic priorities, and the specific assumptions behind the updated tariff impact guidance.

Answer

Interim CFO Jason Pickett addressed the quarterly cadence, noting that a Q1 distributor order benefit in the Specialty Nutrition Systems (SNS) segment will likely lead to a softer Q2, but the full-year segment guidance remains intact. CEO David Pacitti outlined his focus on optimizing go-to-market strategies and commercial execution within the two new segments. Pacitti and executive Scott Galovan detailed the tariff impact, stating the revised guidance includes an estimated $15 million in incremental costs, assuming rates on Chinese goods will be below the threatened 145% but still higher than last year. They also listed mitigation strategies, including leveraging trade agreements, product exemptions, and internal cost controls.

Frederick 'Rick' Wise asked for an update on the U.S. launch of the Oxford Partial cementless knee, inquiring about surgeon training progress and the timeline for adoption to reach levels seen in Europe.

Answer

President and CEO Ivan Tornos expressed excitement for the launch, confirming they are on track to train 'north of 1,000' surgeons by year-end. He highlighted strong early momentum, with contract penetration already over 50% and expected to reach 70-80% in the second half of 2025, positioning it to be one of the company's most significant product launches.

Frederick Wise of Stifel asked about the innovation pipeline, specifically which new products would be most impactful in the second half of 2025 and whether guidance reflected an optimistic launch scenario.

Answer

President and CEO Ivan Tornos asserted the guidance is not overly optimistic. He highlighted the Z1 hip stem and HAMMR impactor as key to gaining U.S. Hip share in H2. He particularly emphasized the Oxford Partial Cementless Knee as a highly differentiated, PMA-approved product capable of reclaiming significant market share lost over the past few years in a $1 billion market segment.

Frederick Wise of Stifel asked for a breakdown of price versus volume for the full-year 2025 guidance, sought details on the expected contribution from the European Artegraft launch, and inquired about the gross margin outlook, particularly the impact of the graft product mix.

Answer

CEO George LeMaitre noted that Q1 organic growth was 9% price and 4% unit growth but declined to forecast the split for the full year, suggesting the status quo was a reasonable assumption. He stated that while the European Artegraft market is estimated at $8 million, the company has only modeled €350,000 in sales for the remainder of 2025 as it gains experience. Executive Dorian LeBlanc explained the gross margin drag was due to the strong performance of lower-margin allografts, a trend that may continue.

Frederick Wise of Stifel inquired about the sustainability of the current mix of price and unit growth into 2025 and asked about the company's confidence in achieving its sales representative hiring targets.

Answer

CFO Joseph Pellegrino highlighted that the company's niche product strategy and new pricing floors support sustainable price hikes. CEO George LeMaitre expressed confidence in reaching the 155-160 sales rep target by year-end, noting that hiring is on track and similar expansion is anticipated for the next year.

Frederick Wise of Stifel Financial Corp. requested a more detailed update on the company's supply chain improvement initiatives, asking about progress, specific actions, and expected impact. He also asked for an update on the BioBrace platform.

Answer

CEO Patrick Beyer explained that supply chain efforts are focused on three key areas: procurement, production planning, and production itself, with an initial focus on implant products. He noted that several key portfolios are now off backorder. Regarding BioBrace, Beyer reported strong progress, including its use in 52 clinical procedures, recent FDA 510(k) clearance for a new rotator cuff delivery device, and over 50% enrollment in its 268-patient prospective randomized clinical study.

Frederick Wise of Stifel asked for a high-level explanation of the conservatism baked into the 2025 guidance and what factors could lead to outperformance. He also sought more detail on the growth drivers for AirSeal, particularly its expanding role in laparoscopy.

Answer

CFO Todd Garner explained that the guidance reflects current performance levels and the need to 'earn their way up,' citing the recovery of the Orthopedics business as a key potential upside. He also noted currency headwinds and operational investments as temporary margin pressures. CEO Patrick Beyer highlighted AirSeal's clinical benefits in both robotic and laparoscopic procedures, noting a significant uptick in U.S. laparoscopic adoption.

Frederick Wise of Stifel asked about the broader impact of trade tensions beyond tariffs, questioning how the company maintains double-digit growth expectations in China and if there are concerns about supply chain disruptions.

Answer

Michael Mahoney, Chairman and CEO, expressed confidence in the company's ability to manage geopolitical complexities. He noted that while China is a complex market facing VBP headwinds, the local team consistently delivers strong results driven by innovation and strategic local partnerships. He affirmed that the company's global manufacturing footprint is well-optimized for long-term growth and resilient to disruptions.

Frederick Wise, also known as Rick Wise, asked whether the initial 2025 guidance should be viewed as prudently conservative and requested insight into the key upside drivers and risks, including how potential PFA competition is factored in.

Answer

CEO Mike Mahoney confirmed the guidance is thoughtful and prudent, consistent with past practice. He detailed that the company has more tailwinds than headwinds, citing momentum in FARAPULSE, the AGENT DCB launch, and solid growth across most business units. Key headwinds include potential PFA competition, more extensive VBP/DBP pricing pressure in China, and emerging low-cost competitors in some MedSurg businesses.

Frederick Wise from Stifel asked about the launch of the FARAWAVE NAV catheter, its potential for a price premium, and its strategic positioning against mapping systems approved for all arrhythmias.

Answer

CMO Dr. Ken Stein detailed that the FARAVIEW software on the OPL platform is the first mapping system designed around PFA, offering unique features like dynamic catheter visualization and 'field tagging'. He noted that while FARAWAVE is for AF ablation, future catheters like FARAPOINT and FARAFLEX will expand capabilities. He declined to comment on specific product pricing.

Frederick Wise of Stifel inquired about the early commercial progress of AMDS, the company's confidence in recovering revenue lost from the cyber incident, and the specific reasons for the AMDS PMA timeline delay.

Answer

CEO James Mackin detailed the AMDS launch process, highlighting strong physician interest driven by new clinical data. CFO Lance Berry and CEO Mackin explained that revenue recovery is expected because underlying demand for tissue and On-X products consistently outstrips supply. Mackin clarified the PMA delay is due to new, industry-wide FDA testing requirements, which does not impact the revenue ramp given the existing HDE approval.

Frederick Wise of Stifel inquired about the outlook for gross margin in 2025 after a lower-than-expected Q4 result and asked for details on the R&D charge related to the PFA partnership and the underlying project status.

Answer

CFO Angela Wirick advised modeling a relatively flat gross margin around 75% for 2025, with international mix being a headwind offset by new products and efficiencies. She explained the Q4 R&D charge was a $12 million upfront payment for the PFA partnership and that the 2025 R&D forecast includes about $10 million in potential milestone payments.

Rick Wise asked if the Q1 TAVR guidance represented a change in outlook since the December Analyst Day. He also followed up on whether the company was seeing an increase in referral volumes from the EARLY TAVR data, similar to his own channel checks.

Answer

CFO Scott Ullem confirmed there was no change in expectations and the Q1 guidance was consistent with their plan from December. Larry Wood, Global Group President of TAVR, acknowledged hearing anecdotal reports of increased referrals but stressed that broader education of the referral community is still needed. He noted the key balancing factor for this new patient inflow will be hospital capacity.

Frederick Wise asked about capital allocation, specifically if the newly announced $1 billion share repurchase plan signals a temporary step back from the company's tuck-in M&A strategy while it integrates APM.

Answer

EVP and CFO Chris DelOrefice clarified that capital allocation priorities are largely unchanged, with dividends remaining reliable and tuck-in M&A still a priority. He explained that strong cash flow generation provides the flexibility to execute a $1 billion buyback—reflecting a belief in the stock's intrinsic value—while simultaneously focusing on integrating APM and deleveraging to the company's 2.5x net leverage target within 12 to 18 months.

Frederick Wise of Stifel asked about the seemingly conservative Q4 guidance despite a strong Q3, the current status and quality of the order pipeline, and whether recent hurricanes had a negative impact on the quarter.

Answer

CFO Nabeel Ahmed explained the guidance reflects passing through the Q3 outperformance while remaining thoughtful. CEO Leslie Trigg added that the company is being conservative until there is more than one quarter of evidence of a turnaround, though she expressed high confidence for Q4 and 2025. Trigg also highlighted that the 2025 pipeline is large, with nearly half of opportunities in later sales stages, and confirmed that the hurricanes had no adverse effect on business operations or patient starts.

On behalf of Frederick Wise, an analyst from Stifel inquired why the company did not raise its full-year revenue guidance despite a solid Q3 performance and multiple quarters of outperformance.

Answer

CEO Steven Williamson explained that while Q1 saw overperformance, Q3 experienced significant seasonality as anticipated. He stated that the company remains in line with its original annual guidance and did not feel it was prudent to make changes at this time.

Frederick Wise of Stifel inquired about the physician community's reaction to the proposed CMS reimbursement, Profound's sales and marketing preparations for the new environment, the company's confidence in reaching its 75-system installation target by year-end, and the nature of its deepening relationships with major MRI manufacturers.

Answer

CEO Arun Menawat explained that physicians are highly receptive to the flexibility of the new reimbursement codes, which allow procedures in various settings like OBLs and ASCs. He noted that while some customers paused ahead of the proposal, the sales pipeline is now more engaged, underpinning the confidence in the 75-system goal. Menawat also detailed that partnerships with MRI companies are focused on creating a synergistic "interventional MR" ecosystem, including new, smaller, and more practical MRI systems that will facilitate the adoption of MR-guided diagnosis and treatment.