LIVN Q4 2025: Cardiopulmonary Upgrades Drive 13% Segment Growth as Epilepsy Access Expands

2026-02-25 | By EarningsIQ Research

LivaNova’s core cardiopulmonary and epilepsy franchises delivered another year of double-digit growth and margin expansion, underpinned by market share gains, pricing, and operational discipline. With reimbursement tailwinds and new digital health platforms, the company is positioning itself for higher growth adjacencies in obstructive sleep apnea (OSA) and depression. 2026 guidance reflects prudent assumptions, but optionality for upside remains as innovation and access initiatives mature.

Summary

• Cardiopulmonary Momentum: Essence upgrades and consumables demand are expanding share and recurring revenue streams.
• Epilepsy Access Shift: Medicare reimbursement boosts and clinical data are reshaping the U.S. market for VNS therapy.
• Innovation Leverage: OSA and digital platforms set the stage for portfolio transformation beyond 2026.

Performance Analysis

LivaNova delivered robust revenue growth in both cardiopulmonary and epilepsy, with the cardiopulmonary segment up 13% for the full year, propelled by Essence, its next-generation heart-lung machine (HLM), and consumables market share gains. Essence placements represented 55% of HLM units in 2025, with a goal of reaching 80% by end of 2026, particularly as China ramps up. Consumables revenue grew in the mid-teens, with demand for oxygenators outpacing supply and ongoing capacity expansion underway.

Epilepsy revenue increased 6% for the year, with international markets outpacing the U.S. at 13% growth versus 5% domestically. U.S. epilepsy is poised for acceleration as Medicare reimbursement rates for VNS procedures rise nearly 50% in 2026, improving hospital economics and supporting broader patient access. Operating leverage from fixed costs, disciplined SG&A management, and focused R&D investment in OSA and core product development supported margin expansion, even as R&D spend rose to 14% of revenue.

• Recurring Revenue Expansion: Replacement implants comprise two-thirds of U.S. epilepsy sales, supporting durable, profitable growth.
• Capacity Constraints: Oxygenator output remains gated by third-party supply, moderating near-term upside but underpinning future growth as capacity scales.
• Cash Flow Strength: Free cash flow improved year-over-year, enabling early debt repayment and funding for innovation and capacity initiatives.

Adjusted operating margin expanded 150 basis points, reflecting both top-line growth and cost discipline, while capital allocation prioritized manufacturing scale-up and IT investment to support future growth levers.

Executive Commentary

Strategic Positioning

1. Cardiopulmonary: Installed Base and Consumables Flywheel

The Essence upgrade cycle is central to LivaNova’s cardiopulmonary growth, with 80% of new HLM placements expected to be Essence by end-2026. This installed base drives recurring revenue from consumables and service, while planned capacity expansions aim to alleviate supply constraints and enable further share gains.

2. Epilepsy: Reimbursement and Clinical Evidence as Accelerants

Recent Medicare reimbursement increases (up 48% for new implants) and compelling VNS clinical data are removing barriers to procedure penetration. Early signs point to price as a near-term growth lever, with volume gains expected to build over time as provider economics and clinical perceptions shift.

3. Digital Health and Platform Innovation

FDA approval for LivaNova’s cloud-based clinician portal lays the groundwork for a multi-year connected care roadmap. The platform will ultimately support remote titration, patient insights, and workflow automation across epilepsy, OSA, and cardiopulmonary, creating a shared digital backbone for portfolio-wide innovation.

4. OSA and Depression: Optionality for Portfolio Transformation

OSA (obstructive sleep apnea) represents a high-growth adjacency, with PMA approval for the clinical trial device expected in 1H26 and a limited market release of the MRI-compatible system in 1H27. Clinical trial data (OSPRI) supports differentiation in challenging patient populations, while the PolySync algorithm could expand responder rates. In depression, durable VNS therapy results and ongoing CMS engagement preserve upside pending reimbursement clarity.

Key Considerations

LivaNova’s 2025 results highlight the durability and optionality of its business model, but the next phase will depend on execution in capacity, reimbursement, and innovation scaling.

Key Considerations:

• Essence Upgrade Penetration: Execution in China and other key markets will determine the pace of HLM upgrade-driven growth.
• Oxygenator Supply Chain: Third-party component constraints remain a gating factor for consumables revenue acceleration.
• Reimbursement Uptake: The full impact of Medicare and Medicaid reimbursement changes on U.S. epilepsy volume will play out over several quarters.
• Digital Platform Adoption: Early-phase clinician portal rollouts in 2026 are focused on workflow validation, with broader financial impact expected from 2027 onward.
• Capital Allocation Discipline: Increased capital spending is targeted at manufacturing and IT, but sustained free cash flow is required to fund both growth and innovation.

Risks

Supply chain bottlenecks in oxygenators and third-party components could cap near-term cardiopulmonary growth, while reimbursement dynamics—particularly state-level Medicaid adoption—pose timing risk for epilepsy acceleration. Tariff impacts, regulatory outcomes in OSA and depression, and the pace of digital adoption are additional variables that could affect both revenue and margin trajectory. Management’s guidance incorporates conservative assumptions, but the environment remains dynamic.

Forward Outlook

For Q1 2026, LivaNova expects:

• Full recapture of shifted HLM tenders, especially in China and Europe.
• Continued market share gains in consumables, moderated by supply constraints.

For full-year 2026, management guided:

• Revenue growth of 6% to 7% (constant currency), with a 1% FX tailwind.
• Adjusted operating income margin between 20% and 21%.
• Adjusted EPS of $4.15 to $4.25, reflecting 8% growth at midpoint.
• Free cash flow of $160 to $180 million, supporting $120 million in capital spending for capacity and IT.

Guidance assumes moderation in Essence price premium and continued prudent assumptions on oxygenator output, while innovation investments and SNEA litigation payments are fully incorporated.

Takeaways

LivaNova’s core franchises are delivering on growth and margin expansion, while innovation and reimbursement initiatives are setting the stage for the next leg of portfolio transformation.

• Growth Durability: Cardiopulmonary and epilepsy segments provide stable, high-margin recurring revenue, with near-term upside tied to execution on upgrades and access.
• Strategic Optionality: OSA and digital platforms offer credible paths to higher-growth, higher-margin adjacencies, but require sustained investment and regulatory success.
• Watch for Reimbursement Uptake: The real test will be how quickly improved reimbursement translates into new patient volumes and account reactivations in the U.S. epilepsy market.

Conclusion

LivaNova’s 2025 performance reinforces its status as a durable medtech compounder, with clear levers for both organic growth and margin expansion. The next chapter hinges on successful execution in innovation, reimbursement, and capacity scaling—areas where early groundwork is being laid, but where upside is contingent on operational follow-through.

Industry Read-Through

LivaNova’s experience underscores the importance of installed base upgrades and recurring consumables in driving medtech growth, especially when paired with disciplined capital allocation and targeted innovation. Reimbursement shifts can rapidly alter market access and provider economics, creating windows of opportunity for incumbents with established clinical evidence and commercial infrastructure. The push toward digital health platforms and connected care is increasingly table stakes, with early adoption cycles focused on workflow validation rather than immediate revenue. For peers, capacity constraints and regulatory clarity remain gating factors, while portfolio optionality is a growing differentiator in a consolidating sector.

LIVN Healthcare Medical Devices Innovation Cardiopulmonary Epilepsy Reimbursement Digital Health