Karen King - Vice President of Investor Relations Andre-Michel Ballester - Chief Executive Officer Vivid Sehgal - Chief Financial Officer.

Brooks West - Piper Jaffray Scott Bardo - Berenberg Bank Michele Baldelli - Exane BNP Paribas.

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded.

I would now like to introduce your host for today’s conference Karen King. Please go ahead..

Thank you and welcome to our conference call and webcast discussing LivaNova’s financial results for the third quarter of 2016. My name is Karen King and I’m the Vice President of Investor Relations and Communications for LivaNova. Joining me today are Andre-Michel Ballester, our Chief Executive Officer; and Vivid Sehgal, our Chief Financial Officer.

This morning’s press release and conference call include forward-looking statements. Forward-looking statements may be identified by the use of forward-looking terminology including, but not limited to, may, believe, will expect, anticipate, estimate, plan, intend and forecast or other similar words.

Statements are based on information presently available to us and assumptions that we believe to be reasonable. Investors are cautioned that all such statements involve risks and uncertainties.

Our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements which are not guarantees of future performance and involve known and unknown risks and uncertainties and other factors that are, in some cases, beyond the Company’s control.

For detailed discussions of the factors that may cause our actual results to differ, please refer to our most recent filing with the SEC, including our 10-K dated March 4 and other regulatory filings. Included in the press release today are selected non-GAAP operating results.

In this press release, the management has disclosed financial measurements that present financial information not necessarily in accordance with Generally Accepted Accounting Principles or GAAP.

Company management uses these measurements as aides in monitoring the Company’s ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies.

Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to the operating performance measured as described per GAAP.

To enhance the call; we have 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 communications to all.

You can find the presentation in the Investor Relations section of our website under the Events and Presentations tab at www.livanova.com. With that, I will now turn the call over to Andre-Michel..

Welcome to our third quarter 2016 conference call. I want to start this quarter by discussing our recent announcement regarding the transition to a new CEO. Then moving to sales performance and future financial goal, as I know these are old topics that our top of mind for everyone.

A few hours ago we issued a press release announcing their appointment to the CEO role of Damien McDonald our current Chief Operating Officer. I will work with Damien over the next few months as he assumes the full responsibilities of CEO effective January 1, and then we will continue to support him and the Company into 2017.

It is the right time for me and for the Company to transition. And I’m looking forward to actively supporting Damien and the rest of the organization throughout the process. Joining LivaNova most recently from Danaher. He his fully engaged and ready to lead this Company and achieve LivaNova mission of delivering health innovation that matters.

We just celebrated the first-year anniversary of LivaNova on October 19. It’s been an extraordinary year on multiple levels. We have successfully merged two great companies into one larger stronger and more versatile medical technology leader.

In a short time span, we launched five new innovative products across three business franchises and around the globe. We initiated new clinical trials and announced positive outcomes in multiple clinical trials. We brought in new talents and implemented a new organizational structure to enable focus and improve efficiency.

We expanded the Board of Directors bringing new perspectives and expertise. We reached out to various stakeholders to continuously improve our communication and transparency. I am proud of the last year and especially of the dedicated and the hardworking employees at LivaNova that made us the Company work today.

We have stated that 2016 has been focused on creating the platform for future growth and I believe we have achieved this. Overall, the business continues to grow with evolving market conditions and challenges in some product lines. We are now forecasting lower sales growth for the rest of the year.

We will also be reassessing our long-term goal in light of the disappointing sales performance we are experiencing in the second half of the year. However, we remain committed to expense control and operating leverage.

We have already restructured less profitable businesses and we are accelerating our efforts to reprioritize investments to our growth drivers. Before I walk you through a discussion of sales performance, I want to bring your attention to our 3T heater/cooler devices.

I will remind you some of the comments we have provided historically and bring you up to speed on recent activities. On January 5, 2016, we issued a press release when we received the warning letter from the U.S.

Food and Drug Administration or FDA at our Munich, Germany and Arvada, Colorado facilities which restricted us from importing our 3T heater/cooler devices into the U.S. We still have the ability to service existing customers which we have been doing through a medical necessity protocol.

During our second quarter earnings call, we shared with you that softness in our 3T heater/cooler device was offsetting strength and inspire our newest oxygenator and negatively impacted our cardiopulmonary business.

Few weeks ago, on October 13, the CDC or Centers for Disease Control and Prevention released a publication in the morbidity and mortality weekly report and the FDA subsequently released the safety communication concerning issues in the report.

As a result, we issued a Field Safety Notice or Field Safety Notification and proactively and voluntarily contacted our 3T heater/cooler customers in the U.S. to inform them of the new information and to help facilitate implementation of the agency recommendations outlined in those publications.

We are working with regulators to develop a long-term solution that addresses their concerns. We are doing everything we can in the interim to assist our customers.

Heater/cooler device are critical to regulating the temperature of patients blood during cardiac surgery procedures and we have a significant market share position in the U.S., which means that our heater/cooler devices are used in the majority of cardiac surgeries.

Generally there are no reasonable alternatives to the use of heater/cooler devices during cardiac surgery. Without these devices hospitals would be unable to perform many of the hundreds of thousands of heart surgeries needed by patients each year.

We are working with regulators, clinicians and all relevant parties to resolve this important industry-wide issue.

I am now going to move to a detailed discussion of our sales performance for the third quarter and then Vivid will discuss our current perspective on our full-year guidance, I’ll then wrap up with closing comments leaving ample time for Q&A. Turning now to our net sales results for the quarter.

As a reminder, in our press release, we provide a table that shows both reported net sales growth and constant currency growth so that you can see impact of foreign currency fluctuation. For discussion purposes we’re going to focus on our comments on net sales results with constant currency growth.

Net sales were up 2.4% compared to the third quarter of 2016. If we now look at each business franchise, Cardiac surgery decreased 0.5% for the quarter while Cardiopulmonary was relatively flat, softness in heart valve’s created a decline in the overall franchise.

Sales for cardiopulmonary products were $115 million during the quarter relatively flat compared to third quarter of 2015. Oxygenators continue to perform well during the quarter, INSPIRE our newest device continue to attract strong demand especially in our emerging markets in Japan and Australia.

The positive contribution from oxygenators was offset by a decline in the heart-lung machine segment. This was primarily due to continued softness in our 3T Heater-Cooler device, which is more recently starting to have a global impact. We have also experienced some delays in hospital purchases for heart-lung machine machines in Europe.

Sales for heart valves were $34 million in the quarter a decrease of 2.4% which was a significant disappointment. We’re pleased with the results of our new sutureless valve first of all in the U.S., which is driving the strong double-digit growth in our heart valve franchise in the region.

Also the decline from our base business of traditional tissue and mechanical valves globally was significant, we still anticipate that in the near future this decline will slowdown and ultimately stabilize under the contribution that Perceval will more than offset the decline.

CRM sales were $57 million during the quarter an increase of 3.6% compared to the third quarter of 2016. On the high-voltage side of the market we recently announced PLATINIUM in the U.S. and are seeing good initial interest. In Europe PLATINIUM continues to gain share, which has resulted in strong growth in the mid single-digit range.

Over the past couple of quarters PLATINIUM have showed double-digit growth and while ICDs continue to grow at this rate, growth in our CRT-D products have slowed down due to rapid adoption of the IS4 standard. While our competitors are already aggressively pushing the IS4 concept.

We now expect the EU approval for IS4 device in the first half of 2017, significantly later than initially anticipated. As a result we believe we’ll experience softness in CRT-D sale until we receive approval. On the low-voltage side of the market pacemakers grew in the third quarter in the mid single digit range driven by growth in KORA 250 in Japan.

We expect to see continued growth for the reminder of the year as a result of both KORA 250 and an expansion of our low-voltage lead portfolio. Let’s now turn to neuromodulation.

Neuromodulation had another strong quarter, sales were at $90 million an increase of 6.8% versus the third quarter of 2015 with growth in all three regions, despite a challenging year-over-year comparison. In the U.S. in the third quarter we reached our one-year anniversary from the launch of AspireSR.

As a results while we continue to see strong volume demand for the device the initial pricing benefit that we saw in the third quarter last year is providing a significantly smaller contribution to growth in the quarter. This impact will be even more relevant in the fourth quarter.

However we to see steady device replacement from existing patients and new patient growth continues to be strong. New patient growth is one of our key metrics in measuring progress for VNS Therapy as it continues to attract new patients. We anticipate in our initial guidance a softer growth for Neuromodulation in the second half of the year.

And will remain confident that the positive momentum we’ve seen an average in 2016. We’ll continue in the next few years fueled by new patient growth, discipline pricing and new product launches. Before I turn the call over to Vivid, I wanted to make a final comment regarding our New Ventures activities.

As a reminder we have investments in multiple areas, primarily in sleep apnea, mitral valve and heart failure. We will occasionally provide commentary as these early stage development programs provide public data or reach certain milestones. We have recently made the decision to continue as the minority financial investor in Respicardia.

The Company focused on central sleep apnea, Respicardia becoming a strategic acquire. This is strictly a portfolio decision, Respicardia announced positive results from their pivotal trial and we will remain fully supportive and excited about their technology and management team.

In addition, we are very encouraged by the early clinical results presented by the continuous module companies that we have invested in. Both in London last month and TCT over the last few days.

We remain very excited about the space and the ability of our investment portfolio to provide leading technology to address the significant clinical unmet need. I’ll now turn the call over to Vivid for an overview of our financial results.

Vivid?.

Thank you, Andre-Michel. Adjusted gross margin as a percentage of next sales in the quarter was 64.5% up 70 basis points from the third quarter of 2015. Due to a positive mix impact from sales of high margin products and favorable country mix and manufacturing synergies. For full-year, we still expect gross margin to be in the 64% to 65% range.

Adjusted R&D expense in the third quarter was $31 million. R&D as a percentage of net sales was 11% compared to a 13% for the third quarter of 2015. For the full-year adjusted R&D is now expected to be in the 10% to 11 range. We remain committed to internal R&D.

The low range is in line with our focused approach of reprioritizing spending and protests we have made with our merger and restructuring assets. Adjusted SG&A expense for the third quarter was $104 million. SG&A as a percentage of net sales was 35% down over 200 basis points from the third quarter of 2015.

Largely driven by expected merger synergies as well as disciplined cost control. For the full-year we still expect adjusted SG&A to be in the mid-30% range. Adjusted operating income was $55 million compared to $40 million in the third quarter of last year, an improvement of 38% which demonstrate our commitment to leveraging the income statement.

Gross profit was up year-over-year, while operating expenses was substantially down. Adjusted operating margin was 19%, a major improvement compared to 14% in the third quarter of last year. Our adjusted effective tax rate in the quarter was 25.5%, an improvement from the 26% in the second quarter as a result of our ongoing tax assets.

We expect continued improvement through the remainder of the year to achieve our full-year effective tax rate projection in the range of 24% to 26%. Finally, adjusted diluted EPS for the third quarter of 2016 was $0.78. Turning now to cash flow.

Our cash flow from operations for the nine months ended September 30th was $49 million, cash flow from operations excluding payments for one-time integration and restructuring costs with $86 million. Capital spending in the first nine months of 2016 was $27 million in line with the same period of 2015.

Our cash balance at September 30, 2016 was $64 million flat with our cash balance at June 30, and down from $113 million at December 31, 2015. Reflecting plans at reduction, the elimination of factoring arrangements, cost associated with ongoing restructuring activity, share repurchases and the funding of our equity investments.

Before I move to guidance, I wanted to briefly discuss our share repurchase program and our merger related synergies. In the second quarter, we announced that our Board of Directors approved a repurchase program of up to $30 million in 2016 and up to $150 million through the end of 2018 and we have repurchased approximately $22 million.

Regarding merger related synergies, we stated that our goal this year was $19 million to date. We have been able to capture over three quarters of that. We are on track to reach our annual commitment and well position to achieve our internal synergy target for 2017. Moving to guidance.

On the topline, we now anticipate the constant currency sales growth will be approximately 1% to 2% for the full-year of 2016. I want to assure you that we still have strong confidence in our new products such as possible AspireSR and inspire and believe they will continue to perform well in the upcoming quarter.

However, as I have discussed there are a couple of unexpected items that will overshadow the positive contributions in the second half of this year. First, after the CDC publication and the FDA safety communication, we implemented our loaner program for our customers in the U.S.

that may limit our ability to sell 3T heater/cooler devices in the marketplace. We are also seeing unusual softness in the market for heart lung machines outside of the U.S.

And second, while we saw growth in the third quarter in our CRM business and expect to see continued growth through the rest of the year the pace will be significantly slower than we anticipated due mostly to the delayed approval of the IS4 product in Europe.

With the statements I have made about margins and operating expenses, we believe we can still meet our adjusted earnings per share guidance for the full-year with a narrowing of the range to 2.95 to 3.05.

We continue to progress with our synergy and restructuring activities and remain confident that we can continue to hold our expenses relatively flat and expect our tax rate to continue to improve due to our tax planning efforts. With that, I’ll turn the call back over to Andre-Michel for some final comments..

Thanks, Vivid. The third quarter had both positive and negative attributes. We didn’t mean our internal expectations on the topline due to certain unforeseen market conditions. The combination of merger related synergies, restructuring efforts, disciplined cost controls and focused R&D resulted in solid margins and earnings.

The company likes to reset sales guidance based on our third quarter performance in the current unexpected trends we are seeing. We believe that it is prudent to insure the right expectations are set for the reminder of this year.

The management team is committed to building this business, investing behind our growth drivers and while deleveraging our strong balance sheet. We remain committed to driving long-term shareholder value. With that, operator we are ready for questions..

[Operator Instructions] Our first question comes from the line of Brooks West from Piper Jaffray. Your line is now open..

Hi.

Can you hear me?.

Yes, we can Brooks. Go ahead. Good morning..

Great. Thanks for taking the questions. Good morning.

So I guess the first question is just around the warning letter and I know tough to predict, but is there any way to assign a timeframe to resolution on that issue?.

As you said, well, I mean it’s not easy to predict the outcome of [indiscernible], but I can tell you is that we’re obviously working very, very hard with the FDA and actually with all the regulatory authorities around the world.

We’re working also very hard with our customers, physicians and around patient safety, they are around customer satisfaction and obviously ultimately company’s reputation.

So it is the development with the CDC publication followed by the communication by FDA has I would say increase the – let’s say the pressure on the market to find a solution and we’re working very aggressively and working very closely with the FDA and with our customers to keep them as going from as we can and taking the appropriate steps necessary.

Our sales force is working 24 hours per day and seven days to make sure that they are in front of the customers and trying to work with them. What’s really important for us is that we have to work with the FDA in particular but with also other regulatory agencies around the world to advance the permanent solutions to this industry wide issue.

We have a very, very good ongoing dialogue with the FDA. But at this stage Brooks I would say it’s probably too early for me to determine a date at which we will start implementing the plan of action.

Again, we’re working very, very hard, it’s on top of our priority as you as I’m sure you can imagine but probably too early for us to give a timeline on this..

Okay. Thanks for that. And I guess as a follow up with that in mind. I’m going to ask you another question that’s going to be hard to answer but I’m hoping you’ll test my thought process.

So as I look into 2017 in particular and I look at your businesses and the trend lines and if anything you could maybe argue an incremental headwind in neuromodulation as you continue to anniversary the AspireSR launch and associated price and maybe a little bit more continued pressure on your surgical valve business.

Is it wrong to think about the business in this kind of 2% growth range? Maybe a band around that as we look into next year?.

You’re right. It’s a tough one to answer. Okay. First of all we’ve been basically, we’ve seen things in the recent months or I would say even in the recent weeks that we did not necessarily expected. So, two issues that really were to us, hit performance in the second half of the year.

One is related to the CRM business and delay in approval in Europe of the IS4 standard for our product. So Brooks the first time that we see delays of that nature coming from [GMED] we could certainly develop that. But it’s very, very unusual for them to take such a long time to approve a product that is basically a fairly straightforward file.

So basically we have more than six-month delay on that and that will have relatively positive impact then when we have the approval probably early 2017.

I mean the other piece that really happened in the last few weeks is the CDC and FDA communication for which today we have, let’s say, not yet been able to as we said before set a timeline and really predict exactly what’s going to happen in the next few months.

Now having said all this, okay, I can tell we’re still very positive about the new products we’ve launched. I mean as far as still gaining share in the oxygenator business. First of all driven more than 20% growth in the valve business in the U.S. in the third quarter and it’s only the beginning.

With KORA 250 that has regained some steam in for us Japan. We have PLATINIUM that is you know once we get the IS4 standard approved and the sooner the better we are going to have the same growth in CRT-D that we’ve seen recently in the ICDs.

Last but not least we believe neuromodulation has a strong new patient growth and yes it’s true that we might have to annisvers to anniversary – to the anniversary of the launch. But what’s important for us, as we look at new patient growth and we see it as a positive trend and moving forward.

So I believe that at this stage we are not going, we’re not going to basically give 2017 guidance, we will give it when we give our call in February, maybe Vivid wants to add some color on this..

Yes, Brooks, I just want to emphasize the fact that I think we also are really focusing heavily on our cost base and making sure where we are investing. I think what you’ve seen from us right now.

Is it in light of this we certainly have focused on topline sales growth we have reprioritized well and we’re making every efforts to you know keep going with that process we have. So I think at the moment the best thing for what we’re doing is where we’re accessing our year-end position which we are doing now.

At the same time we’re very, very close in terms of redoubling our efforts and trying to put additional resources behind the growth drivers. But really important is that you know is Andre-Michel stated that you know we will provide full transparency over our 2017 expectations when we do get a quarter four call in February of next year..

Okay. That’s helpful. Thanks guys. Appreciate the question..

Thank you..

Thanks Brooks..

Thank you. [Operator Instructions] Our next question comes from the line of Scott Bardo from Berenberg. Your line is now open..

Yes. Thank you very much for taking my questions. So I am quite disappointing sales update in my opinion certainly considering the weak comparison that you had last year in CRM. So I’d like just talk a little bit about this IS4 product because it’s the first I actually heard of the significance of this product to and accelerated back half performance.

And so I wonder if you could share a little bit about what your expectations are for that product or how not having that approval, is hampering growth for that business and extending upon that point given that you know in a new product cycle for CRM and the comes off quite weak? Can you give us some feeling of way you expect CRM to close for the full-year and is that sort of a sense of the growth that you would expect going forward in this business or that more products the come to bring this back to life.

So that’s the question number one please. And second question relates to the heater/cooler issue.

It was my understanding that you had already in captured light heat around one percentage point of sales impact in your guidance related to this effect being relatively small product line and so that wouldn’t have to explain some of the overwriting and volatility that you see in the Cardiopulmonary business.

So can you give us a broader sale of what the total revenues of this particular franchise is and whether you’ll found to see anecdotally whether that’s being lower Cardiopulmonary procedures going on all some fear in the market as a result of this issue. So that a first to have a follow-up please..

All right, Scott. So first of all nobody is going to disagree with you that were disappointed with our Q3 sales and I think - I was pretty clear in the call and we are putting a lot of time and energy as a team to face the issue.

We believe we have great products in our portfolio, we have great products that we launched in the last two quarters and we believe that in CRM particular.

The PLATINIUM platform is a great platform that has shown double-digit growth in Europe in the high-voltage segment over the last two quarters and we’ve seen a slowdown in this growth and we’re not expecting to slow down simply because IS4 which is a pretty kind of - common standard product for CRT-D.

We thought it was going to be an eventful and therefore just a normal evolution of the product family. And we had started to actually present the product to customers with the expectation that the product will be approved in June of this year.

And this is a big deal because as you know in this market product life cycle is very short and the market has become even more dynamic from that standpoint in having really 12 to 18 months kind of lifecycle for products. And IS4 was our kind of improved feature on top of the PLATINIUM platform.

It was a very big disappoint for us to see that we did not get approval in June. Then approval was scheduled in July, August and so on and so forth. And now we’re realizing that because of mostly the unexpected and difficult to understand way our [indiscernible] GMED is looking at this products.

We are not comfortable that we’ll get IS4 before early next year. Self in itself, okay, it was not necessarily something that was going to accelerate growth.

But what it happens is that not having it has really strongly decelerated growth from the CRT product line to a point where we’re not going to be able to achieve our targets for CRM for this year and particularly in the second half of the year.

Now, in terms of the heater/cooler, the sales guidance was that when we put it together, we set a maximum of 1% that was associated with the 3T heater/cooler in the U.S., okay. So first of all, it was for us a maximum and at that time given where we were we did not think we would ever go to the maximum of the kind of 1% that we mentioned.

And secondly, we did not expect the issue to become a global issue as it has become now. So the impact on the equipment sale of the cardiopulmonary business has become in the second half of the year more significant that we initially anticipated. Scott, you said you had a follow-up question..

Yes. Thank you. So just to understand with CRM then failing to grow despite weak comps in new product cycle I mean is this now becoming accelerated within the Company to consider your strategic options for this business. Or is the open plan to continue to launch new products and hope there’s enough to rather bit of growth into this business.

So that’s follow-up one. Second follow-up is just related to the midterm plan that clearly the Company issued only last year and that plan didn’t calculate 5% to 6% growth if I understand and you previously highlighted that delivering some growth was important and required to deliver the sort of operational leverage that you would expect.

So what I’m trying to understand is that capacity ability within the organization to accelerate cost cutting or to drive continued margin expansion even if the topline is slightly weaker than you anticipated over the next few years? Thank you..

Let me take the – first the CRM question and then I’ll let Vivid to talk about the P&L leverage. On the CRM, again as I said before, once we get the approval of IS4 and we have a number of other smaller approvals that we’re expecting I mentioned during my prepared remarks, some leads on a global basis in Japan, but also in Europe.

So we have a product portfolio that is pretty rich and will come in the next few quarters and we believe that this is a business where we have technology and we have a great platform with PLATINIUM in high voltage and core in low voltage.

Now, we’ve no current plans to sell the business or spin it off, we are continuing to dedicate the R&D resources to the business and we’re seeing progress in Japan. We’re seeing progress in Europe with high voltage.

Unfortunately, we have this delay in the launch of a new products with the market conditions as they are today is certainly a very difficult thing to absorb. We’re still seeing the market with though pricing conditions and this has not improved over the last few quarters.

We’re focusing our efforts on Europe and Japan and some selected emerging countries and we believe that this business has a – it is a good business for us to have in our portfolio right now with great technology and great technology synergies with – and particularly the neuromodulation business. I’ll let Vivid to answer the leverage question.

Vivid?.

I think it’s important to understand that as we finish this year. Well, we appreciate the sales line has been soft. I mean I would draw everyone’s attention to the fact that each line in the income statement has actually been hit and we’re reiterating guidance at this point.

Our operating margins on an adjusted basis of 19%, which is five points higher than last year. So what I think that’s about is really about two things. I think we’re exiting the year from an expense profile an operating leverage perspective in a pretty healthy state at this point.

I’d also sort of talk about the longer-term what’s really important and what we’re focusing on right now is that.

And we’ve said this from day one, is that we will align our expense base to the sales profile of this Company and that’s exactly what we’ve just done in the Q3 and that’s what we’re going to do in Q4 and that’s why as Andre-Michel said we are going to take a little time understand the trends of this business.

But to the answer can we realign or continue with the expense cutting, I wouldn’t look at cutting, we’ve never gone out and cut expenses, what we’ve done for this whole time is to commit ourselves to delivering our synergy targets, but absolutely on track with that.

We’ve structured the business in a very, very appropriate way and we will continue to align our expense base to delivering top line sales growth and [indiscernible]. So the answer to your question is in effect. Yes, we do have some capacity in our Company because that’s how we’re exiting the year and we created flexibility to do that from now..

Okay. Thanks I’ll jump in the queue again. Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of Michele Baldelli from Exane BNP. Your line is now open..

Good afternoon to everybody. Just two questions, let’s say on one side do you have the CRM sales over the last quarter was particularly weak, if you can elaborate the reasons behind given that you spoke about the European situation but just understand. On the other side just to pick a flavor about the biological valve.

Can you update about the performance in particular of the biological valve alone and inside it can you elaborate and give some figure about the new patients acquired - and how much of your let’s say sales is just a shift from the non-biological valve to pass well.

So there is not an – let’s say increase of the number of patients undergoing surgery with your products. Thank you..

Okay. The CRM business actually showed a 3.6% growth in the third quarter and we say that in our prepared remarks that we expected this to be a trend that we could continue for Q4. So we had actually a performance, if you look at the performance by region.

It was driven by a strong performance in the rest of the world and we make no secret that part of this performance is Japan and the regain of share in KORA 250. We had a let’s say lower than previous quarter performance in Europe where as we said we have continued to make good progress with ICDs.

But we’ve lost momentum on this year because we’re expecting the IS4 to be approved by then and therefore to regain some momentum on the ICD with a new product or a new feature on the product we didn’t have it. We believe by the way that when we’ll have it, we’ll be able to regain some momentum on the CRT-D side. The U.S.

was impacted by the late launch of PLATINIUM in U.S. which we thought we would benefit from a full quarter in the U.S. We actually only benefited from a few days of sale at the end of the quarter. So that was kind of a disappointment for us but I would say the U.S. is not a priority for the company right now.

So if you look at really Europe, we believe that we are in line with our previous quarter performance if you expect the impact of the IS4 delayed launched. Again we will catch-up in the quarter when the IS4 launched.

In terms of the biological valve, we’ve said before that we don’t see cannibalization of our valves by Perceval actually we have numerous examples of particularly in the U.S.

now where we launched a product of very large hospitals there were daily using mitral flow or CROWN now and are using a lot of Perceval and have actually started to use Perceval for all their patients. So it is, we believe we’re gaining share particularly in the U.S.

we’re gaining share against other valve manufacturers and we’re very proud of the 21% growth that we’re showing in the quarter and we believe it’s the beginning of a very positive trend for a valve business in the U.S.

So you know confident in our ability to continue to Perceval with new patients, with new customers, with very large academic centers that we’re not using our product portfolio before and now have started to use Perceval so certainly a positive highlight of the quarter for us in a positive highlight of the second half of the year is the trend we see with Perceval in the U.S.

and with the - our valve business in the U.S..

Okay.

And just to understand the biological valves altogether other group level are now including terms of sales in the first nine months or decreasing?.

We don’t split the valve business by type of valve, but it’s clear that we have seen in the past quarters we’ve seen an erosion of our traditional mechanical valves and tissue valve business. On the tissue side it’s obviously - it’s more than compensated by the growth in first of all.

So we have the mechanical valve there are being eroded in a number of countries now. To be honest review there is the market conditions in mechanical valve, but we believe that we have some execution issues that we’ve been facing and we’ve kind of made some decisions in a couple of regions.

The valve business is not a business that we act very, very quickly so it will take time for us to regain momentum. But again, if you look at the tissue side of the business which is the fastest growing business that we have been in the valves segment thanks to Perceval. We’re definitely happy about the performance overall of this segment..

Okay. Thank you. And lastly do you foresee any weakness for the heart-lung machines U.S.

or in other regions because of the ongoing investigation in Pharma of I mean are there one on the heater/cooler just because probably competitors will act let’s say aggressively on these kind of news?.

We definitely see compares acting very aggressively on the heater/cooler. Just as a reminder we believe it’s an industry-wide issue. So we’ll leave everybody take his own decisions on that, but on the heart-lung machines we have the best product in the market. So far we haven’t seen anybody with a product that was close to the S5.

What we’ve seen in Europe in the recent quarter and we see again in Q4 is a soft market. So we’re really hospitals not ordering – the replacement heart-lung machines at the same rate than they used to order them in the last few years.

We don’t really know if it’s related to the heater/cooler issue and in the words we’ve not seen this is the relationship between the two at this stage.

So what we’re seeing in the equipment business is really two different dynamics; one is related to the heater/cooler specifically as we have loners and we’ve limited sales capabilities and the second one is we’ve seen kind of a softness in the order book in Europe in particularly. For the heart-lung for the main equipment..

Thank you very much..

Thank you. Our next question comes from the line of Scott Bardo from Berenberg. Your line is now open..

Yes, thanks for taking the follow-up questions. So firstly, it seems that most of the problems here from the topline perspective have come from legacy Sorin. And of course with the divisional structural change with some of the previous had now leading the organization and Andre-Michel the news today that you’re stepping aside for Damien.

I want to if you could share some thoughts do you think there’s enough experience talent within the new organization surrounding legacy Sorin such that improve for both that business and the growth? So that’s first question. And second question just relates to New Ventures.

I just want to understand because we started off I think when the Company was formed discussing three New Venture opportunities heart failure, sleep apnea and also mitral.

It sounds to me that the only real active program now for the group is now in mitral if you could confirm that and also a little bit of data as to what is led to that decision and also what that means for your minority losses that you record for the Group both this year and next? Thank you..

On the first question, I really think that the issues we have in cardiac surgery and CRM, our issues that the management team is absolutely able to face and with the leadership of Damien with my full support, I believe the Company will be able to face these challenges and turn them around.

Because as we have changed the organization from a business unit organization to a region organization, I think we have a great downpour in the organization regionally and I’m here today in Houston and I’m talking to our U.S. leadership team and they are bringing a tremendous amount of knowledge of the U.S.

market, a tremendous amount of energy and salesmanship, a tremendous amount of leadership and also great track record. So I believe that this new organization were put together even if some of the historic leaders of the Company are now kind of taking a different path.

We have very, very strong roots in this business in the franchise and we’ll keep these roots and this knowledge and we have new talents across the organization I mentioned in the U.S., but I also talk about emerging markets. We’re looking for a new leader in Japan. We are very strong team in Europe.

That is a mix of the – I’d say two legacy companies, so I’m extremely confident that we have the human capital the talent and the knowledge to face some of the issues, we haven’t to take advantage of the opportunities we have because it’s certainly – I’m very proud of a lot of things the Company has done in the last few years in particularly launching new products.

We certainly have great opportunities with inspire with AspireSR. We have great opportunities with Perceval and we believe that again we have the team to face that opportunity. So on new venture, I would say I’d not necessarily conclude as you said that the only thing we’re focusing on is mitral valve.

I think you could conclude that probably at this stage, we are extremely excited and focused on mitral valve because in London, in the London valve meeting a few weeks ago and now at TCT over the last few days, there were more details that were communicated around the initial clinical experience of both HighLife and Caisson in which we have minority interest.

And I must say that these clinical results are extremely encouraging and I’m saying it, but more importantly I think physicians who have been attending this standing-only meetings with hundreds of physicians in the room. The feedback we get from them is that they are very excited about the technology.

So on one side, I would say this is probably very exciting right now, but the other things are exciting. We’ve certainly not – let’s say, we’re not turning our head away from sleep apnea, Respicardia is now becoming a financial investment for us. We are very confident in the technology and in the management team.

We have opportunities in obstructive sleep apnea that are still live and very exciting. On the heart failure side, I would certainly write it off at this stage. There were some disappointment because of the clinical trials by valve control, by other companies, but we have some very good results ourselves.

We’ve made very good progress recently in building our clinical strategy for these patients and we’re working actually with the FDA as we speak to establish a clinical strategy that would provide a path to the U.S. in a reasonable period of time. We hope we can provide more clarity on that on our future plans in the coming months.

This is the business side of it. I think Vivid could probably help to add some comments on the capital allocation strategy as well.

Vivid?.

Yes. I think it’s an important discussion right now in term of that I really see that the balance sheet strength of this Company is not diminished in any way.

If you actually look at our adjusted operating income, we had a 38% improvement in that without our net debt relatively stable despite share repurchasing and some investments within our minority interest.

So the balance sheet strength that we have at this Company and we’ve always said will give us a full range of options on capital allocation strategy.

And I think from our perspective the portfolio of choice was exactly the right choice in terms of aligning ourselves for what we consider to be an important platform for 2017 where of course we will look at our capital allocation and we’re looking at it right now and make some very important decisions for the company.

So I would like to remind that the balance sheet strength of this company is one of the good and best opportunities we have and we certainly do not intend to sit and just let now passes by it something we will consider very strongly..

Okay. Thank you. So I mean I think previously capital markets as you have highlighted that you could see some revenue contribution from these assets and mitral assets in 2017. I think is in previous slide.

So can you give us a feeling of when you or going well and expect some contribution from these mitral assets and presumably some of the steps you are taking with Respicardia today signal favoring towards deploying capital towards some of those assets. So perhaps if you can share a bit more on that please..

It’s so early for us. Because we again these are investment companies they don’t belong to us. We have a right to acquire them that has been agreed when we first invested in this company. So we will come as we said 2016 for us was a critical year particularly in mitral because that was the year when these companies would start their clinical trials.

I think we can check the box in terms of early clinical trails but it’s very early, so both companies have had five patients each and they will continue to recruit patients in the next few months.

Now having said that mitral is a large market, we’ve put out in you know recently our estimate of the size of the market, more than 50,000 patients that could be implanted with a device of that sort in around 10 years from now with really great expectations from our side.

So early for us to discuss market introduction and so for the companies that we don’t own. But I can guarantee you that is on top of our priority list and something that Damien and I have been already discussing for some time and that will continue to focus on moving forward. Now we have to close the call here.

I’d like to tell you one thing that I’m extremely excited about what we’ve done as a company in the last 12 months and putting these two great companies together to build a larger and stronger company. I’m extremely excited to have Damien as a leader for this company moving forward.

We’re entering into a new phase Vivid said multiple times that 2016 was – for us the year of building the base. I think we’ve achieved a lot of the objectives that we have said to ourselves in 2016.

It’s a good time to move to the next level and I think Damien is going to be a fantastic leader for this organization and will drive the organization moving forward. Karen. End of Q&A.

So, thank you everybody. We appreciate you being on the call and everybody have a great day. Thanks..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day..