LivaNova PLC (LIVN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Fourth Quarter and Full Year 2017 Earnings Conference Call. (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 of Investor Relations and Corporate Communications. Please go ahead.

Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the fourth quarter and full year 2017. Joining me on today's call are Damien McDonald, our Chief Executive Officer; and Thad Huston, our Chief Financial Officer.

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 a detailed discussion 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. If this -- in this press release, 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 aids in monitoring the company's ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis 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 alternative to, the operating performance measures as prescribed per GAAP. Please review the financial tables provided in the press release that reconciles such non-GAAP measures to directly comparable financial measures presented in accordance with 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 communication tool. You can find the presentation in the Investor Relations section of our website under News & Events, Presentations at www.livanova.com.

In just a few moments, Damien will be discussing net sales results for the quarter. In our press release, we provide a table that shows both reported net sales growth and constant currency growth so you can see the impact of foreign currency fluctuations. For discussion purposes, our comments on net sales growth during opening remarks will be expressed in constant currency.

And with that, I will now turn the call over to Damien.

Thanks, Karen. Welcome to our Fourth Quarter and Full Year 2017 Conference Call. 2017 was a busy and, I should say, exciting year for LivaNova. We made significant advancements in many areas of our business as the year progressed, which is evident in our strong second half performance. For those of you that know the management team well, we take our commitments very seriously and take pride in doing what we say we're going to do. For the full year 2017, I'm extremely pleased to tell you that we met or exceeded all of our financial projections for the year.

I'm going to walk you through some of the highlights in the fourth quarter and full year, discuss our sales results by business. And after my comments, Thad will give you some more color on financials and 2018 guidance. Then I'll wrap up with some closing comments before we move to Q&A.

Starting with the key events of the fourth quarter of 2017. Early in the quarter, we announced FDA approval for our SenTiva VNS Therapy system and next-generation programmer. Together, the components offer patients with drug-resistant epilepsy a smaller, smarter and faster recovery device with enhanced personalized features. We launched the product in the fourth quarter, and initial demand and interest for the device has been high. I'll spend more time discussing that with the details during our sales discussion.

When we announced that we -- we also then announced we entered into a binding letter of intent to sell our CRM business to MicroPort Scientific Corporation. We believe this transaction will be favorable for all parties involved. For MicroPort, the transaction allows them to strengthen their global presence. For LivaNova, it allows us to focus on our areas of leadership and strength: Cardiac Surgery and Neuromodulation. The deal is progressing well, and we are on track to close it in the second quarter.

Last week, we provided the most recent 7 quarters of our financial data, recast to show CRM as discontinued operations. It's available on the Investor Relations section of our website. As we have discussed previously, all financial metrics, with the exception of tax rate, have improved as a result of the transaction.

Later in the quarter, we announced our intent to acquire ImThera Medical, which closed earlier this year. We are very excited about this opportunity. The current obstructive sleep apnea market is approximately $5 billion, a large and growing market with huge unmet needs. Our sleep therapy device is an implantable product that stimulates the hypoglossal nerve, which opens the airway while the patient is sleeping. This acquisition aligns to our platform strategy we outlined in our Investor Day last September.

The current standard of care is CPAP, a therapy where a large number of patients are either noncompliant or have not responded well to treatment. And this is the patient pool we believe could benefit from hypoglossal nerve stimulation. We are focusing on expansion in Europe, where we have CE Mark approval, and continue to enroll patients in our U.S. FDA pivotal trial.

We were also pleased to end the year with strong financial performance. We improved top line growth in every quarter in 2017, ending the year with an overall growth rate of 4%. While we increased our adjusted R&D investment 18% in 2017, we also ended the year with adjusted operating margins from continuing operations of nearly 22%. We reduced our adjusted income tax rate from 25% for full year 2016 to 23% for full year 2017. Our adjusted earnings per share from continuing operations increased 9% year-over-year. We ended the year with $94 million in cash and decreased our net debt by over 30%. And we fully funded the initial payments on 2 acquisitions and announced a significant divestiture that will allow us to focus on our core products.

Before I turn to our net sales results for the quarter, I want to provide an update on our transcatheter mitral valve replacement, or TMVR, clinical trials, and discuss our recent announcement regarding our intent to purchase TandemLife.

The last update we provided on our TMVR clinical trials was at our Investor Day last September. We discussed that we were running 2 trials in parallel: PRELUDE, which is our 20-patient feasibility trial; and INTERLUDE, which is our 75-patient CE Mark trial. At that point in time, we had enrolled 13 patients in PRELUDE and anticipated completing enrollment by midyear, and had just started enrollment in INTERLUDE, with plans to complete enrollment by the end of 2019.

Since that time, we've enrolled 2 additional patients in PRELUDE, and we've been actively studying all of the procedures, what went right and where we can improve. As a result, we paused enrollment to implement various design enhancements to the Caisson system, based on our clinical learnings and physician feedback from the patients treated to date. In addition, we have continued development of 2 larger valve sizes which will allow us to significantly expand the population of treatable patients. All of this was submitted to the FDA last week, which we believe will create a 3-month delay in our timelines.

Now turning to TandemLife. We like this deal for many reasons. This is another acquisition aligned with our strategy of adding products that complement our existing portfolio, in this case, Cardiac Surgery. TandemLife created products to be simple enough to set up and deploy in a broad range of hospitals, and it is the only company with a complete set of system solutions that can be used for all applications, from extracorporeal life support, or ECLS, to percutaneous mechanical circulatory support.

Near term, our focus will be on growing the ECLS and right heart support business in the U.S. Currently, only a small percent of U.S. hospitals offer this type of advanced technology, and we believe the TandemLife suite of systems can expand patient care options and improve access to the highest-quality medical care.

Turning now to our sales results for the quarter and full year. Total sales from continuing operations were up 8%, with all our business franchises and regions showing growth for the quarter compared with the fourth quarter of 2016. For the full year, sales were up 4%, with positive contributions from both Neuromodulation and Cardiac Surgery. So let's look at each business franchise.

Cardiac Surgery sales were $178 million, up 7% from the fourth quarter of 2016. This is the strongest growth quarter for our Cardiac Surgery business since the inception of LivaNova. Cardiopulmonary sales were $142 million in the quarter, an increase of 9% versus the fourth quarter of 2016, primarily due to strong growth in heart-lung machines, which were up in every region. While the majority of the increase was due to our focus on upgrading customers from our S3 device to our S5 device, it was also contribution from competitive captures and replacement of existing S5 devices. In addition, our INSPIRE oxygenator performed well in the quarter, particularly in our international regions.

For the full year, Cardiopulmonary was up 3.5% versus full year 2016. This was primarily due to HLM growth and steady sales of our INSPIRE oxygenator.

Turning to heart valves. Sales for heart valves were $36 million in the quarter, up slightly versus the fourth quarter of 2016. This is the second quarter where we have seen growth in the overall franchise. There are 2 things at play here. First, while mechanical and traditional tissue valves continue to decline, sales in these 2 areas are becoming a smaller piece of the total. And second, Perceval continues to experience strong double-digit growth, becoming much more impactful for overall growth. For the full year, heart valves were slightly down versus full year 2016.

Now let's turn to Neuromodulation. Sales reached $100 million in the quarter, up 9% versus the fourth quarter of 2016. New patient growth continued to be consistent with what we have seen most of the year, growing in the mid- to high single-digit range. We had a couple of events in the fourth quarter that accelerated the growth.

First, we saw strong growth from the launch of SenTiva, our newest VNS therapy system. While it's still early to claim a trend, we are pleased to see that the median age of patients receiving implants is starting to decrease, which means we are able to intervene earlier during the course of this chronic illness. The introduction of SenTiva, which is a smaller and smarter device, coupled with our pediatric and MRI label expansions, propelled VNS Therapy in 2017 by providing better patient care and making our devices easier to use for both the patient and clinician.

Second, in the third quarter of 2017, we discussed how sales were impacted by patient procedures that were delayed due to the hurricanes. As planned, we were able to reschedule the majority of these procedures during the fourth quarter.

For the full year, Neuromodulation were up 7%, primarily due to the continued growth of ASPIRE-SR, and more recently, strong patient adoption of SenTiva.

I'll turn the call over to Thad now for an overview of our financial results. Thad?

Thank you, Damien. I'm going to discuss the fourth quarter financials in greater detail and provide 2018 guidance. Since our 2017 guidance included CRM, I will comment both on the full year financial numbers with CRM as discontinued operations and the financial numbers including CRM, so there's a direct comparison to our 2017 guidance.

As Damien mentioned, sales growth from continuing operations in the fourth quarter was very strong, showing 8% growth. For the full year, sales growth from continuing operations was 4%. Including CRM, sales growth was 2.8%, reaching the high end of our projected range of 1% to 3%.

Adjusted gross margin as a percent of net sales in the quarter was 64%, down 30 basis points from the fourth quarter of 2016. Increases resulting from favorable product mix were offset by more than 100 basis points impact from foreign currency. For the full year, adjusted gross margin as a percent of net sales was 66%. Including CRM, adjusted gross margin as a percent of net sales was 65%, falling in the middle of our projected range of mid-60%.

Adjusted R&D expense in the fourth quarter was $31 million compared to $20 million in the fourth quarter of 2016. R&D as a percent of net sales was 11%, up 8% in the quarter -- in the fourth quarter of 2016. This is in line with our expectations that we highlighted to you last quarter, which is that you would see an uptick in clinical spend in the fourth quarter, both for our TMVR and heart failure program. For the full year, adjusted R&D as a percentage of net sales was 9%. Including CRM, adjusted R&D as a percent of net sales was 10.5%, aligned with our projection of 10% to 11% for the full year.

Adjusted SG&A for the fourth quarter was $93 million compared to $87 million in the fourth quarter of 2016. SG&A as a percentage of net sales was 33%, down 170 basis points versus the fourth quarter of 2016. Increases in sales and marketing activities related to advancing our growth drivers were offset by our continued focus on improving G&A efficiency. For the full year, adjusted SG&A as a percentage of net sales was 35%. Including CRM, adjusted SG&A as a percent of net sales was 36%, in line with our projected range of 36% to 37%.

Adjusted operating income from continuing operations was $55 million, up 2% versus the fourth quarter of last year. Adjusted operating margin from continuing operations was 20% compared to 22% in the fourth quarter of 2016. For the full year, adjusted operating margin from continuing operations was close to 22%. Including CRM, adjusted operating margin was 19%, aligned with our projection of high teens.

Our adjusted effective tax rate in the quarter was 20%, an improvement from 21% in the fourth quarter of 2016, primarily a result of our ongoing efforts to optimize our tax -- global tax structure. For the full year 2017, our adjusted effective tax rate was 23%. Including CRM, our adjusted effective tax rate was 22%, meeting the bottom end of our projected range of 22% to 23%.

And finally, adjusted diluted EPS from continuing operations for the fourth quarter was $0.88, an increase of 6% compared to the fourth quarter of 2016. Year-to-date, adjusted diluted EPS from continuing operations was $3.31. Including CRM, adjusted diluted EPS was $3.54, beating the upper end of our projected range of $3.30 to $3.45.

Now turning to cash flow. Our cash flow from operations for the 12 months ended December 31, 2017, was $91 million. Cash flow from operations, excluding payments for onetime integration, restructuring and product remediation cost, was $156 million. Capital spending for the full year 2017 was $34 million, down slightly from the full year 2016. Our cash balance at year-end 2017 was $94 million, up from $40 million at the end of 2016. Our net debt at year-end 2017 was $50 million, down from $75 million as of year-end 2016.

Now turning to full year 2018 guidance, which again, is based on continuing operations and therefore excludes any impact of our CRM business. The guidance assumes strong organic growth coming from our near-term growth drivers, coupled with increased investment in clinical and registries pertaining to our strategic portfolio initiatives, TMVR, treatment-resistant depression and heart failure. It also assumes dilution from our current acquisition of ImThera as we continue enrollment in our FDA clinical trials. It does not include any contribution from TandemLife, which we expect to close in the second quarter.

So we expect sales to grow in 2018 between 4% and 6% on a constant currency basis. If current exchange rates remain unchanged, the company's full year revenue guidance benefits us by approximately 2%. Adjusted gross margin in 2018 is projected to be in the 66% to 68% range. In 2018, we expect adjusted R&D to be in the range of 11% to 13% of sales and adjusted SG&A to be in the range of 34% to 36% of sales. As a result of these factors, we are projecting 2018 adjusted operating margin from continuing operations to be in the 19% to 21% range.

Our adjusted effective tax rate for 2018 is expected to be in the range of 20% to 22%. A positive impact of approximately 2% is based on our current understanding of recently enacted U.S. tax reform legislation, which decreases the U.S. corporate rate from 35% to 21%.

And we are projecting adjusted diluted earnings per share from continuing operations to be in the range of $3.40 to $3.60, which includes an impact from foreign currency of a negative $0.10 to $0.15. We assume our share count to be approximately 49 million.

In terms of EPS calendarization, we expect earnings in the second half-year will be greater than in the first half of the year, primarily due to momentum in our international regions. In addition, as a reminder, the first quarter is historically our softest earnings quarter.

Our adjusted cash flow from operations for 2018, excluding integration, restructuring and product remediation, is expected to be in the range of $180 million to $200 million. The integration, restructuring and product remediation payments are expected to be in the range of $60 million to $70 million.

Capital spending is projected to be in the range between $35 million and $40 million, and depreciation and amortization is expected to be in the range of $26 million to $28 million.

There are a few key assumptions that are critical to the achievement of our 2018 guidance. In Neuromodulation, we have assumed that the growth is driven by 3 major components. First, we assume that SenTiva continues to gain adoption throughout the year and that new patient growth is in the high single digits. Second, we will be very active in 2018 with our DTC, or direct-to-consumer, advertising campaign. This program is going to be a key component in expanding our patient outreach and growing our Neuromodulation business. Third, we see significant sequential progression in our international regions due to implementation of various programs, such as our reimbursement strategy, pricing discipline and focused distributor partnerships.

In Cardiac Surgery, we've assumed that the growth is also driven by 3 major components. First, we assume that Perceval will continue to deliver strong double-digit growth in both the U.S. and Europe. This will be partially offset by continued declines in traditional tissue and mechanical valves. Additionally, we'll be impacted by a change in a contract manufacturing agreement, which will result in a decline in the first half of the year for our valve business, followed by growth in the second half of the year as the strength of Perceval is able to more than offset these declines.

Second, we expect to continue upgrading our global heart-lung machine customers over the course of the year from our S3 to S5 devices. This will drive the majority of our cardiopulmonary growth. And third, we anticipate that our INSPIRE oxygenator continues to show steady growth globally.

As I mentioned earlier, we assume that the TandemLife deal closes in the second quarter, and we will integrate the business into our Cardiac Surgery franchise. We disclosed in our press release that the deal will be modestly accretive this year. While TandemLife is not included in our 2018 guidance, many of you asked about some of the assumptions underlying that statement. TandemLife already has multiple products that are approved and on market, with strong performance over the past year.

Sales in 2017 were $21 million, up 45% from the prior year. They have strong margins which are accretive to our current gross margins. And we believe we can leverage our customer base and global infrastructure to improve margins over time and to increase penetration in the U.S. and to expand globally.

In addition, we believe we can increase market penetration by branching out into other emerging applications with additional marketing clearances and approvals. In 2018, we assume that sales will grow in excess of 30%. Over the course of the next several years, we expect sales to grow in excess of 20% per year while leveraging operating expenses. All of this translates into a mid-teens IRR for the deal, which is aligned with our profile to enter into an acquisition agreement.

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

Thanks, Thad. We were very pleased to exit 2017 with strong momentum and to meet the financial commitments that we laid out for you, from sales to earnings. We made significant advancements as the year progressed. Our foundation is solid, and we have an abundance of growth drivers to advance the business. We expect to see strong contributions this year from our key products: Our newest VNS Therapy system, SenTiva; our S5 heart-lung machine; our sutureless heart valve, Perceval; and our INSPIRE oxygenator.

We are on track for a second quarter close of the sale of our CRM business to MicroPort. We are integrating ImThera into our Neuromodulation business, focusing near term on growing the European market while we complete our FDA clinical trials in the U.S. We are working to close the TandemLife acquisition, whose advanced cardiopulmonary temporary support devices are highly complementary to our Cardiac Surgery business. And we're investing in our future, funding clinical trials and registries for our strategic portfolio initiatives: Transcatheter mitral valve replacement, treatment-resistant depression and heart failure.

We have provided 2018 guidance which highlights both top line and bottom line growth, increasing margins and cash flow improvement. We have a clear road map for value creation and are well positioned to deliver on our commitments to drive shareholder value.

And with that, Casey, we're ready for questions.

(Operator Instructions) And your first question comes from Raj Denhoy with Jefferies.

Wonder if I could maybe start on the margin side. The operating margin guidance for 2018, it's down a bit from where you were in 2017. Tax rate gives you a little bit of leeway there, but I'm curious about that trajectory. I think previously, you'd talked about this kind of 100 basis points a year of operating margin expansion over the near term. And so what's the change in thinking there?

Raj, great to hear from you, and thanks for the question. We are very much aligned to what we were projecting before. I mean, we clearly see a focus on improving gross margin roughly 100 basis points. We also talked a lot about our increase in R&D investment, which you saw in the fourth quarter, which will carry into 2018, so maintaining our overall kind of level of operating margin. But on the net income, we did see an improvement on our tax rate as well. So.

Yes. We're not backing off what we talked about at Investor Day, which was to get from the mid-high teens, which I think we did quicker than anyone anticipated, into the 20s. And so we're continuing to guide that way as our long-term guidance from Investor Day. So we're not really backing off, but we're also executing on what we said, which is the R&D investment.

Yes. In the quarter, we saw 100 basis points impact of foreign currency, which caused our gross margin to come back a little bit. But clearly, we're seeing a continued focus on pricing and mix. It's very positive as we go forward.

That's helpful. Maybe just for my second question, I'd ask about TandemLife. I guess if you look at the history of that company, the products never really got much traction. The procedure was difficult, the catheter was quite large. You guys paid a fair price for that product and it sounds like you have high expectations going forward. And so perhaps you could maybe just give us a little bit more about what gets you so excited about the prospects for the new products, where the previous products from that company didn't really get a lot of commercial traction.

Yes, that's great question. Look, I think this is a classic example of a company that was pivoting from some underinvestment. And the current team, I think, have done a good job of realigning the company and getting the portfolio strategy going. So that's really their focus for the last several years. And it's a classic example of a low-revenue company being cash constrained. And I think in our portfolio, we can take their low revenue, which by the way is growing at 45%, and put it into our system and get behind some of their R&D pipeline, which I think is pretty exciting. It's not very visible yet, but what we have as an opportunity, I think, with near-term growth is exciting, but also what they have in the pipeline. And so between those 2 things and putting it into our system, that's why we get excited.

It's very much in line with what we described before with our M&A strategy and fitting into our Cardiac Surgery pipeline, but also near-term accretive, driving revenue growth for the foreseeable future. So we really like it. And it is very much a U.S. asset, so we think that there's a great opportunity for us to expand globally.

Your next question comes from Matt O'Brien with Piper Jaffray.

This is JP on for Matt. I wanted to first start with the TMVR program. It's a minor delay of 3 months, but you had some learnings from your initial patients. So I was trying to get a little more detail there on what were your initial learnings and what actions you're looking to improve that product.

Yes, look. Great question and pick up. We've always talked about this as being a feasibility study, and those sort of studies are the learning opportunity. And we took a step back and said there are some things, when we got the feedback from some of our operators and clinicians, that they said would really help advance. And mostly, that had to do with the handling of the delivery system, a little bit about the anchoring and how we anchor the device, which is a unique aspect of the product. And also, we wanted to make sure we've done enough to look at the training for the imaging and what was required for getting the positioning right in the first place, which is a really key aspect of it. And the imaging aspect of this is advancing pretty rapidly, so we learned a lot in the last 3 months. In addition, we also -- we're working a lot on these 2 additional valve sizes. And so a lot of the focus has been on getting those 2 products into the mix as well. And so if you wrap it all up, we thought that pausing while we did that and taking this 3-month delay early on was important. And as we've said, we'd rather be right than first. And patient safety is the big thing here for us. So we put all that learning into this refiling.

Got it. That's very helpful. And then I just wanted to ask one on the cardio-pulmonology business that was much stronger than we had expected in the quarter. And it looks like, in terms of guidance, it's going to be a contributor there. So specifically on the S3 to the S5 upgrades, can you help us frame up where you are in terms of upgrading your -- maybe your current install base of S3s? Or how long this tailwind of the S5 introduction can last?

Yes, look. I think we've got some really great leaders who've come on board here, who've put in place what we've referred to earlier as funnel management. And the visibility to that funnel has been really what's driving this. And we see 12 to 18 months of really great conversion opportunity across all our geographies. It's not something we focused on previously. It wasn't visible to us. And putting those processes in place has been a really great effort by all 3 of the regional sales teams. And I really applaud them for their change in behavior and process because it opened up a whole corridor of activity for us that previously, not visible. So great runway, great visibility. And I'm excited about what I think that team can do.

(Operator Instructions) Your next question comes from Jason Mills with Canaccord Genuity.

Damien, Thad, can you hear me okay?

Yes, Jason.

I guess I wanted to start as well with Tandem. The -- couple of questions there. One, I know you're initially focused, Damien, on the right heart failure and the ECLS opportunities, which look like they have some growth potential to them. But longer term, I think investors are interested whether or not in the pipeline there might be something to compete with Impella, which is obviously one of the more successful medical devices of our recent time. Could you talk about that? And then, given this looks like it shouldn't have any problems closing, at least from the outside looking in, I'm wondering why you're not including it in at least the guidance for the second half of the year. And perhaps you could give us some framework on what sort of accretion to the earnings line we could see from this business, just rough numbers if possible.

Look, I'll take part 1. And why don't take part 2, Thad. Look, on the expansion of opportunity, I'm not going to be glib intentionally, but stay tuned. I think, look, the first thing is we don't own the asset yet. We're still working through that. And secondly, we have this really great near-term opportunity that, again, I think has been really underexploited. And I think our focus is going to be on that right heart with ECLS. And then once we get it into our system and into our accelerated product development processes, then we can look at taking on other indications and opportunities. But I think let's first land the ship and get it on board. Secondly, in terms of the guidance, again, don't know if you want to jump in, I mean, we...

Look, I mean, to me, we haven't closed it yet. And so we had a lot going on this quarter. Obviously, both the discontinued ops treatment of CRM. We've acquired 2 businesses in 2017. We thought it would be prudent to kind of talk about guidance with TandemLife once we closed the deal. As I mentioned, the sales were $21 million in 2017, up 45% versus prior year. It's modestly profitable today. And it has high margins, which are higher on the gross margin side than what we have as a company average. So again, depending on when we close it, then we can come back and give you more around the financial impact.

But -- and as we said, our intention is to find things that surround a core point or a disease state. And this tucks in perfectly to the cardiac team.

That makes sense. I guess for my second question, just given a lot of updates here on your pipeline. Maybe you could spend a minute and give us sort of a rank order, in any way you'd like, sort of an assessment of your pipeline, which you've added to. So at the Analyst Day, you obviously talked about treatment-resistant depression, transcatheter mitral valves and heart failure. You've added a sleep therapy component to that pipeline as well now with Tandem, which you just talked about. Perhaps give us an update on your initiatives in TRD and heart failure and how they fit in to your thinking, your spending plan for 2018 and maybe over the next couple of years relative to the other things in your pipeline. Looks like you have sort of 5 buckets of initiatives now, not 3. And just love to get your thoughts on your rank quarter.

Well, I think, clearly, TandemLife has a near-term revenue which is exciting for us. And so bringing that on and accelerating that is going to be a really key opportunity for us, both domestically in the U.S. and internationally. I think then, the timelines on case on ImThera really haven't changed. In heart failure, we've funded that in our existing guidance. We're continuing to progress with that, and I'm excited about the opportunity there. So then you get to TRD. And look, I think the recent [ART] report was encouraging. I think what that shows is that TRD is both definable and treatable. We're continuing to have very, I would say, progressive discussions with CMS on that. And we're encouraged by the opportunity there. We continue to believe that in terms of a patient response and a patient remission, this is a really great therapy. Our pilot in Germany is progressing and we're seeing good early results there. So we hope that the TRD opportunity is something that's real. But again, as we've talked about, the processes with CMS are opaque. But we're trying to signal that' we're prepared to invest in what it takes to have this patient population have a therapy option that's otherwise not available. And that's why things like the RESTORE-LIFE registry is important. We're showing that we're investing behind this patient set. So again, if you think back to our Investor Day, look at those opportunities, very little has changed in what we were guiding then. And then we add in TandemLife and ImThera. I think what it really says, I hope everyone understands, is we have this great pipeline.

And we're investing for the future and delivering the present, which I think is really exciting and exactly in line with what we told everyone at Investor Day. The fact is, the fourth quarter, we said we're going to increase R&D investment, we did that. Going into 2018, we're exactly within the guidance and the ranges that we talked about before. And we now have what you pointed out, 5 really exciting opportunities in our pipeline that we're going to get behind. And we're...

Yes, I'll get back in queue. I'll get back in queue.

(Operator Instructions) Your next question comes from Mike Matson with Needham & Company.

Just wanted to start, I guess, with ImThera. I know you gave a little more detail, and clearly, this is a huge market opportunity. But what I'm wondering is when you do start to commercialize that product, how are you going to sell it? Is it -- think it's probably a different call point than the call point your reps are selling to right now in Neuromodulation. And then I guess the second part of the question would just be around competition. How do you think this particular technology compares to the other product, I guess, the INSPIRE product that's already FDA approved?

Yes. 2 great questions. So on the call point, look, there is a lot of overlap here on this device. Firstly, technologically, we know how to make small, implantable electronic devices with a lead, and that's why we are working aggressively to combine this with our Neuromodulation platform. But a lot of the implanting of this will be with ENT surgeons, and a lot of ENTs already place the VNS device for drug-resistant epilepsy. So there's more to learn and build out the call point around the sleep centers, but that's something we believe we're prepared to invest in and that we have line of sight on. So I think we have an overlap on the call point for implanting, and we're working on the visibility to how we build out the commercial side on the sleep centers. Look, in terms of competition, here's what I think. Firstly, I wish INSPIRE every success and hope that they are successful in all sorts of aspects of their business and the reimbursement side as well. But here's what we think. We have a simpler procedure. We have 1 lead versus 2, which there are obvious implications to that. It's less patient pain. There's quicker patient recovery. And we think we're in a very good spot with our product versus the competition. And that's why we were bullish on the acquisition.

And then just one on M&A. So one, you've done a few deals now or -- should we expect more? And then two, if you look at the types of deals you've been doing, I guess the way I would classify them is sort of either near-commercial or early commercial launch products. Is that kind of the MO here that you're expecting to continue?

Absolutely. Now look. We found 2017 to be a really transformational year. I mean, one, to execute the divestiture of CRM and then to bring in 3 other assets is pretty remarkable. We want to continue down that trend and build out our platforms in Neuromodulation and Cardiac Surgery, and we're going to keep going. But I agree with you, it would likely be near-term, smaller acquisitions that we can easily bolt on or integrate within our company.

(Operator Instructions) And there are no final questions coming in queue. Ladies and gentlemen, thank you very much for joining today. This concludes today's conference call, and you may now disconnect.

Thank you.

Thanks, everyone.

Thank you.