Karen King - VP, IR Damien McDonald - CEO Vivid Sehgal - CFO.

Scott Bardo - Berenberg Cecilia Furlong - Canaccord Michele Baldelli - Exane BNP Paribas.

Good day, ladies and gentlemen, and welcome to the LivaNova PLC First Quarter 2017 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 is being recorded.

I would now like to introduce your host for today's conference Ms. Karen King, LivaNova's Vice President and Investor Relations and Corporate Communications. Ma'am you may begin..

Thank you and welcome to our conference call and webcast discussing LivaNova's financial results for the first quarter of 2017. Joining me on today’s call are Damien McDonald, our Chief Executive Officer; and Vivid Sehgal, our Chief Financial Officer.

As this will be Vivid's last earnings call, we want to thank him publicly for his contributions over the past 18 months and wish him the very best of luck in his future endeavors. This morning's press release, slide presentation 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 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 measures as prescribed 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 News & Events Presentations at www.livanova.com. With that, I will now turn the call over to Damian..

Good morning and good afternoon. Welcome to our first quarter conference call. We had a promising start to 2017. I'd like to walk you through some of the events that recently happened at LivaNova and then discuss our sales results by business franchise.

After my comments, Vivid will give you some more color on the financials and then I'll wrap up with closing comments before moving to Q&A. Over the past couple of months we announced several key decisions in support of our efforts to advance strategic objectives. First, Caisson.

We announced last month that we acquired Caisson Interventional, one of the equity investments. We've been a strategic investor in Caisson since 2012. They have a dedicated and innovative team of professionals and are working on one of the most revolutionary technology in the Transcatheter Mitral Valve Replacement or TMVR field.

Our device is unique as it is the only product designed solely for the transseptal approach and delivered through a single venous access. The device is also designed to be fully retrievable once the function of implant is fully assessed but prior to final release.

While that system is still in early feasibility stage, we believe that this deal makes clear strategic sense. Our cardiac surgery business currently sold at portfolio for surgical valve replacement and repair and this acquisition will position us as a leader in the field.

We are now positioned to accelerate clinical and regulatory efforts in TMVR and ultimately deliver important innovative therapies to our patients. Caisson initiated human implants in June 2016 through a 20 patient FDA early feasibility study in the U.S. [indiscernible].

At the third annual Zurich Mitral Valve Meeting in early February, results were presented for six patients enrolled in the study with five of them successfully implanted. In the six patient, the valve was successfully retrieved which is an important clinical feature.

Patient enrollment in the CE Mark trial which will be called INTERLUDE will begin this year. INTERLUDE has already been approved in Canada and we will begin patient enrollment midyear. That will be followed by patient enrollment in Europe and the U.S. later in 2017. We are currently targeting CE Mark in late 2018 or 2019 with U.S.

FDA approval coming several years later. Today there an estimated 2 million people in the U.S. suffering from severe mitral regurgitation but only about 55,000 patients are receiving mitral valve surgery annually. That's approximately 3% of the total patient pool. External estimates show the market potential as a multibillion dollar global opportunity.

We believe this market will develop comparably to the transcatheter aortic valve replacement or TAVR market with a vast majority of procedures taking place through a transseptal route which is our approach. This acquisition places LivaNova in a strong position to set the benchmark for TMVR systems and to be a leading player in the market.

Regarding some of the specifics of the transaction, the purchase price for the remaining 51% of the company is $72 million, net of $6 million of debt forgiveness. The first payment of approximately $18 million was made at closing.

The remainder we paid out over the next several years on a schedule largely driven by regulatory approval and sales earn-outs. We expect this acquisition to be dilutive to earnings for several years as we go through clinical trials, continue R&D spend, and invest in our production facilities and commercial activities.

However, for all the reasons we have discussed, we believe that in the long term this opportunity will create value for our shareholders and be positively accretive to our earnings. Second, management changes. We announced several weeks ago that our Current CFO, Vivid Sehgal is leaving the company at the end of May to pursue other opportunities.

Vivid has been an integral part of our Executive Leadership team and I want to thank him for his significant contributions in helping position the company for sustainable growth. We expect to announce the successor in the near future and Vivid has agreed to support an orderly transition.

In addition, Jacques Gutedel, President of Europe has been succeeded by [indiscernible]. Most recently [indiscernible] was an executive of Danaher and prior to that was CEO of Hitachi Medical Systems in Europe. He has an extensive track record in healthcare throughout Europe, Asia, Latin America and the Middle East.

I'd like to thank Jacq for his leadership and his contributions to the company over the last eight years Third, simplification. We've said numerous times that we are working on simplifying our business model. One of the areas we are focused on simplifying is our manufacturing footprint and we have taken several steps toward advancing this goal.

During the first quarter, we completed the closure of our Costa Rica manufacturing operation where we had duplicative manufacturing of our VNS devices. We also made a decision to cease production of the oxygenator facility we were building in Suzhou, China.

Market dynamics and expectations in the region have evolved and as a result we no longer believe that this facility is the best strategic auction or use of cash for LivaNova. This decision does not in any way dilute our commitment to delivering strong emerging markets growth. And finally, 3T heater-cooler devices.

On our fourth quarter and year-end 2016 earnings call, we disclosed that we developed a 3T device remediation plan which included a loaner program, a deep disinfection service, and a design modification to address the issue of potential aerosolization.

We said that in the design modification was subject to final verification and validation and we would begin implementing the modification in the second quarter. We are pleased to announce that we have completed final verification and validation for these design modifications which allowed us to obtain CE Mark in April.

We will begin implementing the ceiling and vacuum solution in the next few weeks. These changes will be performed at no cost to our customers. Implementation will start in Western Europe followed by multiple other countries as we receive regulatory approvals.

In the U.S., we continue to make progress towards approval as we work collaboratively with the FDA. As a leader in the industry we are pleased to offer many of our customers and patients a solution that enables lifesaving cardiac surgery. Turning now to our net sales results for the quarter.

In our press release we provided table that shows both reported net sales and constant currency growth so you can see the impact of foreign currency fluctuations. For discussion purposes, we are going to focus our comments on net sales results with constant currency growth. Net sales was slightly up compared to the first quarter of 2016.

Strong price and volume gains in Neuromodulation were offset by lower sales in cardiac surgery and CRM. If we look at each business franchise, cardiac surgery sales were $139 million, a decrease of 2.1% from the first quarter of 2016. Sales for cardiopulmonary were $107 million in the quarter, a decrease of 2.5%.

As we discussed in the past, cardiopulmonary includes disposable sales which make up approximately 75% of the total and capital which makes up the remaining 25%. The higher sales product in disposable is oxygenators and due to the solid demand for Inspire, we continue to see very consistent growth in the 3% to 5% range.

In capital, the higher sales product is heart lung machines or HLM. To the end of 2016, we saw relatively steady sales for HLM in the U.S. but it's started to see softness in Europe in the second half of the year.

If you recall, we discussed that this was due to customers delaying new purchases and holding onto their machines longer in anticipation of the next round of innovation. This quarter we have started to see a comparable dynamic in the U.S. and hearing similar comments from our U.S. customers.

I want to reiterate, we do not believe we are losing share to competitors in either region. We have 70% global market share with HLM and while our competitors have been more vocal in their discussions with customers, we are working on innovation which we will be discussing further at our Investor Day in the third quarter.

Sales for heart valves were $32 million in the quarter, a decrease of less than 1%. Our tissue valve business increased 5% as a result of solid performance in Perceval as suture less valve particularly in the U.S. And this was offset by declines in mechanical heart valves which is starting to move more in line with market declines.

The CRM sales were $58 million during the quarter, a decrease of 2.9% compared to the first quarter of 2016. In low voltage, pacemakers were up for the quarter driven by strong demand for KORA 250 in Japan. In high voltage, we saw softness in ICDs compared to a strong quarter last year with the launch rollout of PLATINIUM devices.

This was offset by strong growth in our PLATINIUM CRT-D products due to the recent incorporation of the IS4 standards. Now let’s turn to Neuromodulation. Sales were $87 million up 7.7% versus the first quarter of 2016 with growth in all regions. AspireSR continue to perform well from both a volume and price perspective.

The patient growth was strong once again with growth continuing in the mid to high single digits. This is reflective of demand for the product driven by a focused investments. Regarding innovation, we recently submitted our application to the FDA for SenTiva.

SenTiva will be our newest VNS therapy device and will incorporate the same technology as AspireSR but will be smaller in size and we anticipate approval of the device in the latter part of the year. I’ll now turn the call over to Vivid for an overview of our financial results.

Vivid?.

Thank you, Damien. Adjusted gross margin as a percentage of net sales in the quarter was 65% up 40 basis points from the first quarter of 2016 resulting from favorable mix and continued focus on cost efficiencies. For full-year we still expect gross margin to be in the mid-60% range. Adjusted R&D expense in the first quarter was $29 million.

R&D as a percentage of net sales was 10.3%, an improvement of 60 basis points from the first quarter of 2016. For the full-year we now estimate R&D as a percentage of sales to be in the range of 11% to 12% as a result our of incremental spend related to investments in TMVR. Adjusted SG&A expense for the first quarter was $107 million.

SG&A as a percentage of net sales was 37.5%, an improvement of 90 basis points from the first quarter of 2016. For the full-year we now estimate adjusted SG&A as a percentage of sales to be in the range of 36% to 37% as a result of incremental operating expenses related to the Caisson acquisition.

Adjusted operating income was $49 million in the first quarter. Operating margin was 17%, an improvement compared to 15% in the first quarter of last year. Our adjusted effective tax rate in the quarter was 23%, an improvement from the 28% in the first quarter of 2016, as a result of our ongoing tax efforts.

Finally adjusted diluted EPS for the first quarter of 2017 was $0.71, 32% higher than the first quarter of 2016. Turning now to cash flow. Our cash flow from operations for the three months ended March 31 was $36 million. Cash flow from operations excluding payments for one-time integration restructuring was $50 million.

Capital spending for the first three months was $8 million in line with the same period of 2016. Our cash balance at March 31 was $63 million up from $40 million as at December 31, 2016. Our net debt at March 31 was $52 million down from $75 million as of the end of 2016 in part due to our continued focus on working capital.

With the acquisition of Caisson, we have updated our full-year guidance. Starting with the income statement, with the exception of adjusted R&D, SG&A and earnings per share for other full-year guidance ranges we provided at March 31 remain the same.

Key guidance ranges are included in our first quarter performance presentation available in the Investor Relations section of our website. While changes to adjusted R&D and SG&A have been discussed, we are now estimating adjusted diluted earnings per share to be in the range of $3.10 to $3.30 with our share account to be approximately 49 million.

In terms of EPS calendarization, we now anticipate earnings in the second half of the year to be approximately 10% greater than in the first half of the year primarily due to momentum in emerging markets and continued growth in Neuromodulation over the course of the year.

Moving to cash flow, our adjusted cash flow from operations for 2017 excluding integration, restructuring and 3T remediation payments is now expected to be in the range of $170 million to $190 million. The integration restructuring and 3T remediation payments are expected to remain in the range of $55 million to $60 million.

With that, I'll turn the call back to Damien for some final comments..

Thanks Vivid. Karen said something at the start and just let me reiterate that. I want to thank you for everything you've done for the company and especially how much I've enjoyed working with you this last few months and all I can say is wish you and your family all very best..

Appreciate it. Thank you..

So in summary, we started out 2017 delivering solid sales, leveraging our income statement and driving strong cash generation. Many or our growth drivers AspireSR, Perceval, Inspire and KORA 250 continued to perform well. We are on track with our submission for SenTiva to the FDA and are looking forward to approvals towards the end of the year.

We also made significant progress with the acquisition of Caisson and we want to extend a warm welcome to the Caisson team. We are excited to bring their talent, innovation and passion to LivaNova. This team is our planned entry into TMVR space which has the potential to be an important growth platform for us in the future.

This is a large market with an unmet need. We believe that we have a unique technology that can offer patients the most advanced minimally invasive mitral valve replacement option. We've also made great strides for the 3T device remediation plan and are pleased to be able to offer our many customers a solution in the near future.

We are on track and working diligently to achieve our annual commitments. The organization is focused on strengthening our position as an innovative medical device company and in delivering long-term shareholder value. We look forward to updating you on our continued progress next quarter. And with that Charlotte, we are ready for questions..

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

Thank you very much. So a few questions please. The first set of questions on business fundamentals for Caisson. So I was just wondering if you could give us a little bit more disclosure on your current valve performance.

You're highlighting strong dynamics with Perceval but I think that's been a whole series of quarters where that failed to showing through.

Can you talk a little bit about the base business and for non-personal structural valves and what you're doing there to stabilize that situation and when would be a realistic point to start to see some of the possible related growth more visible through the P&L. That's question one please..

Great question, thanks for joining us. Let's talk about tissue valves. I think we're continuing to make headway here. I’ll focus on the two positives for a second. First of all, we continue to have strong double digit growth and particularly in the U.S.

And the decline in mechanical heart valves which was high double digits for a long time is starting to get down into the mid to high single-digit range. So we’re getting back mechanical heart valves towards what we call the market decline rate which is something we talked about in the past.

The continuing disappointment for us is the traditional tissue valves. Again, we're working on that. I consider this one of the big challenges for the organization. The whole portfolio was underinvested in and under focused on for a long time. And I think we’re continuing to see some of the fallout from mitral flow.

This is a focus area for us as a management team. And while we continue to focus on Perceval which we believe as a suture less valve is differentiated in the market, getting the tissue valve stabilized probably in the second half is an important focus for us..

Thank you. And just following up. I think you now highlighted a couple of manufacturing facility consolidations. One in Costa Rica, and one in China. Can you talk a little bit more about that because my understanding was that manufacturing consolidation does not par initially of the IT pretax energy plan.

So is this sort of incremental to your plan? And strategically speaking, little bit confused as to why not having domestic regional manufacturing for those growth territories. There’s not still a core priority for the company..

Scott, it's Vivid here. So I think the key thing to think about is first of all, these plans have been in the pipeline for some time. We've been reviewing over time our entire manufacturing footprint. And you’re right. When we looked at it, these were important decisions that we have taken.

In terms of our commitment, I think particularly on the China one, I think what's really good I think as a leadership team, as Damien has come in, is that we have accessed everything from the bottom up activity and I think the situation in China that you’ve seen, whether that’s through some of the mechanical heart valve, economic conditions, where we had to destock for a period of time, conditions have changed over time dramatically in China.

We just think right now, as a management team for the best use of our cash and the best use of our resources is to actually focus on driving business like Perceval, investing in Caisson. So I don’t think this is a major activity for us and we believe we will be very successful in China.

And I think if you look at some of the competitors out there, we believe that China has moved on from the original assumptions that we had and we actually believe imported product has a very important place in the market today. So I think this is about market research and about market conditions..

We’ll continue to look at the footprint. As you've heard me talk about improving gross margin, and where we are in the mid-60s, I think this is an important driver here for us in terms of being able to fund investments. And looking at this footprint is a key part of that.

And we’ll continue to - I think make good decisions to improve gross margin and consolidation is a big part of that..

And I do think if you look at our position, we ended 2015 sort of closing the 63% gross margin range where finishing the quarter now close just under 65%. We made some pretty good trajectory in terms of gross margin.

And I think just in terms of all we're doing, we are looking at opportunities right now in terms of focusing the business to drive better gross margin and better operating margins across the entire business. And I think this is just part of the journey there..

And we should think of this as providing some additional comfort in the 80 million synergies, or potentially incremental to the initial plan?.

I think you should look at it as an opportunity to reinvest back in the business, Scott. I think right now, our best opportunity is to put more money behind modulation and more money behind Perceval. So yes, I think it’s freeing up our opportunity to reinvest right now..

Okay. Thank you. And then perhaps if we can come onto that, congratulations on the bold move with cash on. I just wanted if you could share thoughts as to why now? Why would LivaNova make the step now, what was the triggering factor? I know you've highlighted some promising early observations.

Have you seen any additional data which really clings to do for you? Or is that other factors?.

Great question. Look, I’ve been in markets where unique opportunities come along and I really believe this is one of them. We spoke last quarter about our capital allocations strategy, organic first and equity investments.

We've been partnering with CJ and Todd and the team since 2012 and we wanted this to be about getting a great product to market fast. And we didn't want this to be about working to find the next funding milestone.

And we really believed that putting our resources with the team, especially clinical and regulatory and market access is a great decision to help accelerate this. It's a strong team, they have a unique technology, that’s differentiated.

We think that it’s de-risk to some extent because it’s already in clinical and has a clinical pathway especially around CE Mark. So based on our assessment, we have a pretty high hurdle rate for IRR and we’ve looked at a number of deals recently where we’ve walked away because they haven't met our handle.

Looking at Caisson, we believe this is really compelling, and we believe it was the best use of capital and management energy..

All right, great. And perhaps last question before I jump in the queue. So you've highlighted some additional investment through the P&L which is understandable. But you've mentioned the dilutive nature if you like for some years to come.

Can you share some thoughts on that? Do you see this as being if you like diminishing in earnings dilution over time? Or is there any bump off if you like in cost that required to secure successful commercialization. I just want to understand how to think about this in the longer term or over the next few years.

And following on from that please, obviously you’re taking a bit of earnings dilution. You have a very strong balance sheet. Why, we're not announcing today, a step up in share buyback to mitigate the needs and dilution? Thank you..

I think the way to look at this is obviously we’ve mentioned that this deal will be diluted in terms of EPS. This year, we take in the top and the bottom end of the guidance solely due to Caisson down by about $0.15.

What we are going to talk about is 2018 right now where we actually believe that a minimum level, the same type of EPS dilution, you can expect the same thing again. I think beyond that, this really is about the investment in the clinical trials and how they go.

But I would say that we do believe this will be diluted but now I think 2018 is where we’re going to draw a line in terms of where we expect this to be. It will be at a minimum to similar levels to what it is today. In terms of the share buyback position, that still remains a strong option for the company at this stage.

We obviously, as Damien has said, we’ve been looking around, we’ve been seeing other opportunities that we have. We have, as he said, have a pretty active review of our strategic options from a capital allocation strategy and we've been looking not just this case but other things as well. So I wouldn't discount anything right now.

And I think as a company, the good news is that we still have a $100 million of our original share buyback program available to us and we have spent 50 million of that. So it's more of a point of actually just timing of what we’re going to do..

Thanks. I’ll hop back in the queue..

Thank you. Our next question comes from the line of Jason Mills from Canaccord. Your line is now open..

Hi, good morning. This is actually Cecilia Furlong on for Jason. And I could just briefly turn back to Caisson.

Can you provide a little more color around your current thoughts on your product development in clinical strategy specifically in the U.S.? And if how we should think about R&D impact over the next few years? And really your eventual go-to market strategy.

And how do you view this product fitting into your overall portfolio? And would you kind of look to build a new salesforce around the platform eventually?.

Great question, the whole business plan for Caisson. I really think a few things. Firstly, I think CJ and Todd and the team have done a tremendous job, the results I think speak for themselves. The early patience is showing tremendous recovery, they’re showing great result in terms of mitral regurgitation score.

Clinically, important features like the retrievability have been validated and I think in terms of having a product in early feasibility, this is a really great differentiated product.

Again, we said the part of the reason that we took the decision now is because we wanted to help the team accelerate and focus on bringing this to market in a commercially accelerated way. We think that some of our capabilities in terms of clinical quality and regulatory can help that along as well as manufacturing capability.

We already have two sites that make tissue valve and then produce also OEM for other companies so we have manufacturing capabilities. So, in terms of R&D and manufacturing ramp we think we can really help to chase on to the market.

In terms of the go-to-market, look we’re still early days but clearly having a strong health economics value proposition is going to be important and we’re going to make sure we cover that as we go through the trial interlude trial and the subsequent FDA trial.

But we have again I think good insight into that with our team that we haven't placed at LivaNova.

We already have a strong relationship with a number of sites and surgeons and also involving set of relationships with cardiologists where perhaps this will ultimately play out with as it did with Teva and I think that you could see us easing a hybrid of not only our existing commercial structure in the geographies but also building that out with specific and specialized interventional cardiology reps to deal with this product which is not going to be a simple sale but we think we’ll move along the lines of Teva.

So in terms of go-to-market we’ll use our footprint but augment that with specialists.

Vivid?.

Yes, and I just want to answer the question around the R&D that you mentioned one of the things really important to understand is that we don't see that the case on deal in diluting our commitment to any other part of our R&D portfolio.

I think we obviously have some great opportunities both Damien mentioned in innovation he will talk about at the Investor Day, but also if you look at what we have been doing a new modulation is investing a lot and we’ve taken opportunities to restructure on the line with some of the work that we did on CRM.

So really I think and if you think about the dilution that we’re talking about the $0.15 yeah the vast majority of the spend that we have this year and going into the next few years will be in the R&D in clinical phase.

So the vast majority of the spend so then you’re going to see 2016 was a year where we sort of established a portfolio choice on R&D I think you’re seeing in 2017 exactly what we said before which is back the focus on R&D. But we’re not going to dilutes our efforts on any of our focus brands right now..

Okay. Thank you so much for all the color.

And then just kind of sticking transcatheter mitral field in general kind of the true box approach gets thrown around a lot and I believe you previously mentioned equity investments in multiple repair platforms as well and as just following yesterday’s acquisition how you’re looking at building out mitral portfolio?.

Look I think that's a really great question and I think those that I’ve talk to in the recent past you heard talk about surrounding a core point or surrounding a disease state I think that that's really important aspect of how we’re going to be successful.

We already sell products in the mitral repair and mitral replacement space for surgical repair and replacement. I mentioned earlier with Scott’s question about we underinvested in those traditional valve repair and replacement areas.

I think we've got an opportunity to refocus some of our effort there and as Vivid said we have them plenty of firepower to do to M&A. So we think that this is an evolving part of our portfolio certainly Caisson puts us in a really strong position we believe in TMVR but we’re going to look to see how the holders restack can be surrounded..

Great, thank you for taking my questions..

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

Hi, thank you for taking my question. I have two questions on the Caisson just understand that we cannot have some data or updates is the Europe PCR event meaningful or what is the next event where we can expect some data about it.

The second question still on Caisson is about the reason of the choice about Caisson instead of the HighLife for other investments was any kind of financial consideration put into place like you needed anyway you expected to do shake of the increase to sustain the R&D budget of this company and therefore the agreement was to take out all the company or was it purely only based on clinical data that you can observe it?.

Good morning, good afternoon Michele.

So a couple things data the case on the most recent data was in Zürich a few weeks ago and that’s the latest update we're going to work with the Caisson team to be present at the major meetings as A, data becomes available or be there is slots on the agenda PCR might be a possibility it depends a lot on how the organizers arrange the agenda.

So but our attention is to be present at the major events in terms of Caisson versus HighLife look honestly we really made this decision based on our portfolio decision and looking at what I referred to earlier as IRR for the various options we have.

We’ve looked at this as a whole portfolio approach we really liked not only the financial evaluation of Caisson but also the position that they are in terms of their development.

We continue to really like HighLife the guys there have done really good job they have interesting technology and we’re still a financial investor in that company and their options there that are going to be explored as well..

I think Michele we are again balancing I think what you're seeing from the business right now you see what we've done in terms of the manufacturing some of the work there taking our case somewhere I think we’re going to balance out our own workload and priorities to make sure that we can handle things in an effective way.

So this is certainly not the end of what we’re going to plan to do but I think we have to do it in a organized and structured way and that’s part of the strategy I think you’re going to see going forward..

Okay. 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 my question. Just a follow-up questions first couple on Caisson please. I know we still are in a relatively early development stage but can you share some thoughts about the commercial infrastructure required to make this a success.

And do you think you need heavy sales force investment here or do you genuinely believe there is a lots of synergies with your existing infrastructure.

And just extending upon that does LivaNova need to be in cavy to be a winner in mitral?.

Great question. Scott, so commercial investment I think there is two layers to this, one is we believe we can leverage our sales force structure that we've recently set up with the regional heads as well as the country managers and country sales leaders. So in terms of requiring an entirely new infrastructure we don’t think that’s the case.

What we will need to do is build out a specialist sales force for this procedure type and the cold point.

Again we believe that’s eminently doable we already have relationships and talent in the cardiac space that we believe will be transferable and again we also believe that the technology is going to be compelling enough to attract some really great talent there are always people in the cardiac and interventional space that I think are looking for the next game changing technology.

And we believe that we’re going to have that and it will provide an opportunity to attract some tremendous talent.

In terms of cavy I think that’s a great question we don’t believe it's the case there is a case to be made that you need the both we believe that clinicians will want to work with the most compelling clinical proposition and we believe that TMVR will be able to standalone.

And we think that the Caisson product is going to be compelling enough for people want to work with us. And so we don't see it as a roadblock to us being successful..

Thanks Damien. And just a housekeeping question on Caisson so I mean you've highlighted some additional like are R&D and G&A cost.

And Vivid you still booking quite a lot of minority and losses if you like from the equity method I think you commented now on making some certain portfolio decisions from the current if you like 12 million, 13 million that you’re booking where does that go now with this acquisition.

And on leverage I think in November 15, you highlighted SG&A ratio slightly to come down into the low 30s I appreciate you've just stepped up some investments to 36, 37. But do you still see good opportunities for leverage over the SG&A ratio substantially so on the one that you just guided? Thank you..

I think Scott yes, the first question on the minority interest you will see definitely a reduction on the minority interest. So basically what we are doing is switching out from minority interest more into the R&D line as you can imagine there is a 49% previous shareholder within Caisson, we were booking 49% of their cost into our minority line.

So I think if you look at the minority interest line you can probably look at it as perhaps hardening in terms of nature compared to where it has been historically. But that’s included within the numbers and the guidance that we've given.

And I think just on the minority interest as Damien said look the cost of that one will depend on where our other ones are in terms of their clinicals and where their investments are but yes if you look at the sort of having, it’s about where it will stand.

In terms of the leverage we do have great opportunities I think as you saw a 90 basis point improvement in G&A versus last year and some further investments that we've done. Damien puts some effort into the depression within Europe and we’ve done some further investments in neuromodulation.

So we've been investing at the same time that we have actually been bringing our ratios down. So again I think we’re going to wait until the Investor Day to give you more color on the long-term SG&A and R&D ratios but I think the one thing is absolutely clear is that further leverage is possible the answer is yes.

I think we are we got a great track our synergies are on track and we’re committed to monitoring them and getting there..

Well we are just being more disciplined..

Absolutely and we’re looking for opportunities as you seen whether it’s the CRM project that we had last year with the manufacturing footprint that we had this year.

We will look for opportunities to improve our operating leverage?.

Okay, great. And perhaps just one last potentially provocative question for Damien. So Damien there has been quite lot of management turnover leaving over and over the last 12 to 18 months and there is if you like a perception in the equity market that the worlds are falling off the bus so everyone's running for the door.

And it would be helpful if you could just provide some update if you like and as to all there sufficient channel levels within the organization particularly on the sign side of the business which is the larger to execute if not how do you got about that.

And can you perhaps talk a little bit about the perception if you like that things are right leaving or given all the management move? Thank you..

Yes, good question and I would say candidly I think the perspective is wrong I’m a new CEO and I think part of what people should expect me to do is evaluate the talent and ensure that we have the best talent and the focus talent to drive the organization.

And I have been very lucky in the first few months here to come across some really talented individuals and I hope and expect that a lot of them are going to stay. Nevertheless I am asking people to work with a different model with more discipline and candidly not everyone – likes that and I'd rather they’ll make the choice sooner rather than later.

And I think I have also been able to attract some really tremendous talent and [indiscernible] who we declared in the opening commentary is an extremely talented commercial leader in Europe and Latin America and Middle East, Africa.

There are a number of others that have recently joined we talked a little bit about the search for the new CFO that we hope to be able to speak about soon.

So I think at the same time as some people have opted out, we've also been able to attract some them tremendous talent and people that I have worked with in the past who I know are known commercial leaders or functional leaders with a track record.

So it's the premise I perhaps disagree with and I hope what people see overtime as we have a really strong team..

Okay. Thanks so much indeed and good luck Vivid..

Thank you. I am not showing any further questions at this time. Ladies and gentlemen thank you for your participation in today's conference. This concludes the program and you may all disconnect. Everyone have a great day..