LivaNova PLC

NASDAQ:LIVN

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the LivaNova PLC Second Quarter 2019 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, Mr. Matthew Dodds, LivaNova Senior Vice President of Corporate Development. Please go ahead, sir.

[Matthew Dodds, executive]

Thank you, Jessa, and welcome to our conference call and webcast discussing LivaNova's financial results for the second quarter of 2019. Joining me on today's call are Damien McDonald, our Chief Executive Officer; Thad Huston, our Chief Financial Officer; and Melissa Farina, our Vice President of Investor Relations.

Before we begin, I would like to remind you that the discussions during this call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent financial filings and documents furnished to the SEC including today's press release that is available on our website. We do not undertake to update any forward-looking statement.

Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is available on our website. We have also 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 and press release in the Investor Relations section of our website under News and Events, Presentations, at investor.LivaNova.com.

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

[Damien McDonald, executive]

Thanks, Matt. Welcome to our second quarter 2019 conference call. Today, we will discuss our results, provide some recent highlights and reaffirm guidance.

Our second quarter adjusted earnings per share reached the upper end of our guidance range. Along with strong performance across all business lines in cardiovascular, we were encouraged to see our Neuromodulation business stabilize on a sequential basis in the U.S.

I'm going to start off by discussing some recent highlights, then move to our sales results by business. After my comments, Thad will provide you with additional details on the financials. Then I'll wrap up with closing comments before moving on to Q&A.

On June 12, we closed a tuck-in acquisition of Miami Instruments. The company was founded by Dr. Joseph Lamelas, an internationally recognized expert in minimally invasive heart surgery and the professor-in-chief of cardiac surgery at the University of Miami Health System. Miami Instruments has a suite of products designed to enhance minimally invasive cardiac surgery procedures which fits well with our Perceval sutureless aortic valve. This transaction is expected to have an immaterial impact on our sales and earnings forecast.

On June 18, Stacy Enxing Seng was elected to our Board of Directors. Stacy is currently a venture partner with Lightstone Ventures and sits on the Boards of Cala Health, Hill-Rom, PreCardia, Sonova Holding and the Fogarty Institute for Innovation. In addition, Stacy has previously held executive roles during her more than 25 years of experience in the healthcare and medical device industries. We are delighted to have Stacy join our Board.

On July 15, we announced FDA clearance of the LifeSPARC system, a new advanced circulatory support pump and controller. LifeSPARC is a completely redesigned system that includes a magnetic bearing, improved portability, a simplified interface, easier setup and a higher flow rate. Clearance came slightly ahead of our expectations, and we will initiate a controlled release of LifeSPARC later this quarter. We expect CE mark for LifeSPARC before year-end.

Turning now to our net sales results for the second quarter, which will all be stated on a constant-currency basis. Total net sales were down 1% compared to the second quarter of 2018. Cardiovascular showed strong operational growth in the quarter while Neuromodulation was down due to U.S. performance. While our overall U.S. business declined 6% due to the softness in Neuromodulation, Europe grew for the seventh straight quarter and Rest of World grew double digits for the third consecutive quarter excluding the impact of a Canadian distribution exit.

Cardiovascular sales were $172 million, up 1.2% from the second quarter of 2018 due to growth in cardiopulmonary, advanced circulatory support, or ACS, and heart valves.

Cardiopulmonary sales were $131 million in the quarter, a decline of 1.3% versus the second quarter of 2018. Heart-lung machines sales grew mid-single digits, driven by strength in both S3 conversions and competitive placements, especially in Rest of World.

Our oxygenator sales declined due to the previously mentioned terminated Canadian distribution agreement. In the second quarter of 2018, sales from this agreement were $8.6 million and were located in the Rest of World category of cardiopulmonary. Excluding this impact, oxygenator sales grew in the mid- to high single digits.

Turning to heart valves. Sales for heart valves were $33 million in the quarter, up 4.6% versus the second quarter of 2018, driven by a strong Rest of World performance. Perceval grew in mid-single digits this quarter as continued softness in the U.S. was more than offset by growth in Europe and Rest of World.

ACS reflects our TandemLife business that we acquired in April of 2018. Sales in the quarter were $8 million, representing nearly 40% growth versus the second quarter of 2018, and consistent with the first quarter of 2019.

Last year's sales force expansion continues to gain traction and we saw strong growth across all product lines, especially ProtekDuo.

Now let's turn to neuromodulation. Sales were $104 million, down 4.8% versus the second quarter of 2018. In the U.S., sales decreased 9.9% to $81 million and were ahead of our guidance range of $70 million to $80 million. While the competitive pressures and field turnover that we experienced in the first quarter stabilized in the second quarter as expected, we were encouraged to see our overall implant rates rise modestly versus the second quarter of 2018 led by mid-single-digit growth in end-of-service implants.

We saw another strong quarter of double-digit sales growth in Europe based on the continued option of Sentiva and a strong performance in the U.K. The E.U. adoption of Sentiva is now 53% of generated sales with strong uptake in the U.K., Nordics, Germany and Spain. Rest of World delivered a robust quarter growing nearly 20%, driven by its strong performance in the Middle East, China and Southeast Asia.

And finally, our neuromodulation pipeline continues to make good progress in both our treatment-resistant depression, or TRD, and heart failure programs. In TRD we continue to work with CMS to finalize our RECOVER trial protocol and still expect to enroll our first patient by the end of the third quarter.

In heart failure, our ANTHEM-HFrEF U.S. pivotal trial continues to perform ahead of our expectations at over 65 active sites and more than 100 randomized patients. We are confident in our growth prospects and will continue to focus on execution, strong portfolio management and developing the talent and culture of LivaNova.

I will now turn the call over to Thad for review of our financial results. Thad.

[Thad Huston, executive]

Thank you, Damien. I'm going to discuss the second quarter financials in greater detail. Sales in the second quarter declined 1% versus the second quarter of 2018. Sales growth in ACS heart valves, HLM and oxygenators were offset by a decline in U.S. neuromodulation, and the impact from the termination of a Canadian distribution agreement.

Adjusted gross margin as a percent of net sales in the quarter was 69.3%, up 100 basis points from the second quarter of 2018. The margin improvement was driven by mix, price and operational efficiencies.

Adjusted R&D expense in the second quarter was $40 million compared to $33 million in the second quarter of 2018. R&D as a percentage of net sales was 14.3% versus 11.3% in the second quarter of 2018.

As previously discussed, R&D is increasing behind development of next-generation products including HLM, Sentiva and TandemLife, along with clinical trials and strategic investments in TRD, TMVR, sleep apnea, and heart failure.

Adjusted SG&A expense for the second quarter was $108 million compared to $104 million in the second quarter of 2018. SG&A as a percentage of net sales was 39%, up 280 basis points versus the second quarter of 2018. The increase is largely due to the full impact of expanding ACS commercial capabilities, strengthening our commercial organization in international markets, and a year-over-year decline in our U.S. neuromodulation sales.

Adjusted operating income from continuing operations was $44 million compared to $60 million in the second quarter of last year, which reflects the impact of lower neuromodulation sales while increasing investment in our key growth drivers and R&D.

Adjusted operating income margin from continuing operations declined 490 basis points to 15.9%. Our adjusted effective tax rate in the quarter was 15.4%, an improvement from 17.4% in the second quarter of 2018 as a result of ongoing tax efforts.

Finally, adjusted dilutive EPS from continuing operations in the quarter was $0.70 compared to $0.96 a year ago and at the high end of our guidance range.

Moving to cash flow, our cash flow from operations excluding payments for onetime integration and restructuring costs for the first half of 2019 was $38 million. Capital spending for the first half of the year was $11 million which was $2 million lower than the first half of 2018. Our cash balance at June 30, 2019, was $45 million, down from $47 million at December 31, 2018.

Our net debt at quarter end was $163 million, up from $124 million versus year-end 2018.

In July, we made our first payment of $135 million in connection with the settlement of the 3T multi-district litigation in the United States. And we entered into agreements with our insurance carriers to recover $34 million under our product liability policies.

As part of our asset valuation analysis we determined that the delays in the ImThera R&D program resulted in a pre-tax $50 million non-cash impairment charge in the second quarter.

Now turning to 2019 guidance, in neuromodulation we continue to expect our U.S. business to gradually improve in the back half of the year. We still expect U.S. neuromodulation business to fall within a range of $315 million to $325 million, with the third quarter anticipated to fall into a range of $75 million to $85 million.

In terms of overall guidance, we continue to forecast 2019 sales growth between 1% and 3% on a constant currency basis. If current exchange rates remain unchanged, the company's full year revenue guidance will be negatively impacted by 1%.

Also note that guidance includes 1 quarter of sales from TandemLife prior to the deal closing in April 2018, or $8 million, and the impact of exiting the distribution agreement in Canada that representing $32 million in sales in 2018.

Now turning back to the rest of the P&L, we continue to project adjusted diluted earnings per share from continuing operations to be in the range of $3.00 to $3.10. While we don't normally provide quarterly guidance, we are providing a third-quarter EPS forecast range of $0.70 to $0.80 and a total sales range of $270 million to $280 million.

Our guidance for all other full year metrics is unchanged from May 1.

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

[Damien McDonald, executive]

Thanks, Thad. While our U.S. neuromodulation and Perceval sales remain challenged, corrective actions are progressing and the rest of the business lines and regions are performing well. We continue to expand gross margins, make significant investments in our R&D portfolio while streamlining expenses in non-core areas.

We look forward to updating you on our continued progress and delivering on that commitment to drive shareholder value. And with that, Jessa, we're ready for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Rick Wise from Stifel.

[Frederick Wise, analyst]

Good to see the neuro business seemingly stabilized a little bit here. Let's start off with neuro and a couple questions related to it. Maybe just update us on some of the first quarter challenges you've faced. It seems like you're making progress or have addressed them. The sales force turnover seems to have resolved. Maybe talk about some of these -- the operational issue, changed comp and how that's affecting the business and adding, I hope, to your competence about the second half. And maybe related -- well, actually I'll stop there for the moment. I could go on and on.

[Damien McDonald, executive]

I-- we look forward to it. Overall, the implants rose modestly in the quarter, end-of-service implants were up mid-single-digits year-over-year, and new patient implants went down mid-to-high single digits year-over-year. But up sequentially from Q2. So I think that was positive. And without getting sort of too granular on the year-on-year impact, let's paint it as similar to the first quarter with the new drug entrant and the commercial issues. We did feel like and were encouraged by the fact that even though we're only a few months into our stabilization plan and I think we're encouraged by this NPI improvement sequentially, the sales force retention and comp I think has progressed well. The customer and territory optimization plans are progressing. We're hiring, as we talked about previously, into that field force to support them from a science point of view. We're working on our competitive positioning. We're really got much more granular on our weekly drill on how we execute commercially and share best practice. So again, it's 1 quarter but we're encouraged.

[Frederick Wise, analyst]

That's great. Do you feel like you have a -- I mean, given your comments on the first half replacement side of things, do you have a good line of sight on the second half replacement volumes? And is that mid-single-digit notion a reasonable trajectory to think about? Is that the right way to think about it?

[Matthew Dodds, executive]

This is Matt. So on end of service, we generally assume 2% to 4% for an annual basis. So yes, we're a little bit ahead of that in the first half. Some of it was comps. The comps were a little easier in the first half. They get a tougher in the back half. So for now, we're kind of sticking with that full year range we've historically seen of 2% to 4%.

[Thad Huston, executive]

But our guidance in terms of NPI does reflect a year-over-year decline in new patient implants in the third quarter and then returns to a slight increase in Q4. So we do have some confidence that these headwinds will lessen in the back half of the year.

[Frederick Wise, analyst]

Just jumping around a little bit, the -- Damien, you mentioned about the -- you still expect the TRD trial to get underway this quarter with your approval. My feeling is it's been imminent, I'm sure you hope it's imminent. Where are we now, in sort of -- can you give us any color on your conversations or what you expect or what's holding it up, or any color? When does it get underway do you think?

[Damien McDonald, executive]

Well, look, the process with CMS is iterative, and they're not bound by time lines like an approval process with the FDA. And this is the first non-coverage decision that's moving from a clinical trial into a registry. So there are a lot of moving parts. So we don't have a set time line on when CMS have to approve this, the full study design. But we expect and hope that the protocol will be finalized in the next few weeks. And as I said, we're still banking on the first patient enrolled by the end of the quarter.

[Frederick Wise, analyst]

And just last from me, gross margins were absolutely better than expected given some of the pressures on the neuromod side. Thad, you talked about mixed price and operating efficiencies. How do we think about gross margins from here, and maybe their relative importance of those factors as we contemplate the second half?

[Thad Huston, executive]

Thank you. And you're absolutely right. Given the impact on neuromod you would have expected it to actually be a bit worse. But we have been seeing great progress on all fronts, both price mix and operational efficiencies. And we expect that to continue especially as neuromod starts to pick back up in the back half of the year.

[Damien McDonald, executive]

But we haven't changed the guidance on gross margin from the 68.5 to 69.5.

[Thad Huston, executive]

Right. Extremely well.

[Damien McDonald, executive]

It's -- we're really pleased with how that group is progressing.

[Operator]

Your next question comes from the line of Raj Denhoy from Jefferies.

[Raj Denhoy, analyst]

I'm going to try and ask a couple follow-ups to what Rick was asking. But on the U.S. VNS number, right, so I appreciate the guidance is still $315 million to $325 million. That implies that in the -- or the low end of that implies that the back half of the year will be sort of flat on where you guys were here in the second quarter. And so I guess I'm trying to kind of get your -- or take your temperature in terms of how the quarter progressed. Are you seeing acceleration in the core business, in new implants, such that maybe you're a little more comfortable with the upper end of that as we move into the back half of the year here?

[Damien McDonald, executive]

Again, I think we're a few months into our stabilization plan. It's encouraging to see the sequential uptick in NPIs. But we want to see a continuation of this trend before we start adjusting guidance up so that again, it's not our normal drill to give you quarterly guidance. So I think that's why we're being prudent here and giving that sort of visibility.

[Raj Denhoy, analyst]

Okay. I think you also mentioned that you're much more closely monitoring sort of surgery schedules and the like. What are you hearing in terms of the interest in Epidiolex new scripts impacting the pipeline? Is there anything you can offer just even anecdotally or qualitatively, quantitatively, I should say, in terms of what you're hearing from the field in terms of whether that drug is still having an outsized impact on patients moving through the funnel?

[Melissa Farina, executive]

So hey, Raj. This is Melissa. Our data is showing that our scripts are trending sort of flattish to down, so no change since the last time we spoke about it. Although we're not providing specific guidance on the impact of each of the headwinds, we do expect the impact of Epidiolex to continue over the next 3 to 6 months.

[Raj Denhoy, analyst]

Okay. Fair. And then just lastly, again on the VNS depression trial, the CMS-mandated trial, I guess I'm curious what the holdup still is. My understanding in talking to you guys before that it was still this decision on what that gating event would be to move to the registry portion of the trial. Is that still a point of discussion with CMS? Or what are they still working on in terms of the final sign-off on that trial design?

[Damien McDonald, executive]

That and a number of things. As I said, it's very iterative, Raj. We respond, we get some more questions, we respond, we get some more questions. I think we have a really great relationship. We're continuing to be in a very open dialogue with them. But as I said, this is the first time that a noncoverage decision is -- especially one that's been around for a decade, has been rebooted and moving from a trial to a registry, is just, like I said, a lot of moving parts. So we're just continuing to work with them but that's why we don't have a definitive date. But we're encouraged and hoping that we still enroll by the end of this quarter.

[Raj Denhoy, analyst]

Yes, and so to that point will you, in a sense, if CMS doesn't officially give a full sign-off on this or if there's still some discussion or debate going on, will you begin that trial in the end of the third quarter? Or will you wait until you get a definitive answer from them in terms of what the trial looks like?

[Damien McDonald, executive]

Again, I'm hopeful we'll come to some resolution with CMS. And we really are encouraged by the -- a lot of the conversation we've had has been very progressive. And we have a really great panel of key opinion leaders and investigators lining up. And they've done a lot of work in parallel to the CMS work, so that they're ready to go as soon as we can get the final sign-off. So I think again it's encouraging, and we're going to work towards that end of quarter, first patient in.

[Operator]

Your next question comes from the line of Matthew O'Brien from Piper Jaffray.

[Matthew O'Brien, analyst]

Just a couple for me. Good to see the recovery here of neuromod in the U.S. And I don't want to push too much on this but just wanted to deconstruct a little bit more where some of the recovery came from. It sounds like it's really more internally driven because I think last quarter you'd mentioned some sales force turnover, some ordering patterns. Did you get some bolus of orders here in Q2 that you -- that kind of fell off from Q1 into Q2? Did you backfill some of those rep positions and they're ramping faster than you may have expected? Just any commentary on that would be helpful.

[Thad Huston, executive]

No, absolutely. I think you clearly see that we've already made adjustments to our compensation structure, the methodology that we've put in places really well received by the field force. We've backfilled a majority of the positions, and we feel that we have a very clear line of sight around the new patient funnel and the stages from patient identification to implant. And we're really going into the levels deeper on reporting on account performance. And going forward, we're much more focused on sales force effectiveness and improving our customer targeting and segmentation as well as really building out the story line on the unique aspects of VNS therapy, looking at all different drugs in using VNS. So we feel that, that is the biggest driver of the things that we've controlled, we have gotten under control and we have more confidence about our back half call.

[Matthew O'Brien, analyst]

Got it, and then just 2 more for me and I'll ask them both together, here. But separate questions. Epidiolex, I think it received a favorable opinion in Europe with potential approval here in a couple months. I think the indications are fairly narrow. But would just love to hear what you're thinking about the launch of that product in those indications for the back half of this year and the potential impact it could have on that European business that's doing well. And then LifeSPARC, would love to just hear a little bit more about the rollout there and how that can influence the ACS business because that's been performing better than expected. Thank you.

[Damien McDonald, executive]

Great questions, Matt. So Epidiolex in Europe, we're learning a lot from the U.S. launch with Epidiolex. And we're going to continue to assess their go-to-market strategies and how we execute against that. We're training the team on messaging and our in-market responses. We're not going to take any new drug launch lightly and the dynamic in the E.U. though, is different. And an E.U. business run rate is much smaller than the U.S. Obviously it's 15% of the U.S. business. So it's much more contained.

We know where the accounts are. We know again a lot about messaging and how to competitively position. So I like the way we're preparing for this. So that, for us, is a very key focus for that, the neuromod team in Europe. LifeSPARC, I really love LifeSPARC. There's a bunch of things that I mentioned, the new magnetic bearing has the possibility of improving clinical outcomes. Its improved portability and the dual batteries mean that you can move it around the clinic very easily and not worry about battery life. It's very portable. The interface is really fabulous and brings it into the new millennium. It's easier to set up. I mean I've seen people doing a 5- to 7-minute setup and we're going to be very aggressive on training for that. And it's higher flow rate, so for the more severe cases, we're -- because we're using it in a shock MI acute heart failure, in a cardiac arrest.

So this higher flow rate is a big deal as well. So the team is really excited about this. I mean this is -- I think we've talked about this very attractive aspect of buying TandemLife was that they were so far down the pathway in this new product development. And the fact that it's not sold internationally. So we're really excited about what this can be. The team is really executing well, again, nearly 40% growth in the quarter is tremendous. And we're expecting LifeSPARC to be part of the next momentum lift for that group.

[Operator]

Your next question comes from the line of Matt Taylor from UBS.

[Matthew Taylor, analyst]

So I just wanted to ask about the trend in cardiopulmonary, actually. So I understand the Canada exit but the U.S. and Europe results are a little bit slower than we've seen in some of the recent periods. Can you talk about that trend? Do you expect the growth to pick up in the back half, there? And maybe just give us a sense for where you are now in the upgrade cycles for HLM machines and oxygenators?

[Matthew Dodds, executive]

So for cardiopulmonary broadly, talking about heart-lung oxygenators, some of the other ancillary pieces, overall we said they were both kind of the mid-to-high single digits. So globally, did well. We had much tougher comps in the U.S. this quarter for those 2 businesses, but internationally we really saw strong growth and they've been doing that for quite a while. So nothing really unique there from the first quarter. I always say in the back half, we still feel pretty good about those businesses being mid-single-digit growers on a global basis.

[Damien McDonald, executive]

So HLMs, we're continuing to progress well there with our sales execution. We've got about at least 12 months in the current upgrade cycle and we expect to have our next-gen HLM in the second half of 2020. But our current business is not entirely comprised of upgrades from S3 to S5. We're continuing to see meaningful levels of new installations particularly in the Rest of World. And S5 to S5, so old S5 to new S5 upgrades. So that theme continues to execute well. We're very focused on that funnel management as part of the LivaNova business system and using that globally and getting more effective there as well as making sure we get the Polaris program complete late next year.

[Matthew Taylor, analyst]

Okay. And just to follow up on the pipeline questions, just wanted to clarify. I think at one point, you were talking about a goal to get about 100 patients enrolled in the TRD trial this year. Do you think that's still possible? And could you give us any updates on mitral or sleep apnea that are relevant?

[Thad Huston, executive]

I clearly think that's still possible and it's certainly dependent on getting the first patient in, in Q3. And that is still our goal for TRD. Some of the other programs as we mentioned were where we had seen some delays with sleep apnea. But heart failure is doing extremely well and actually is enrolling still ahead of plan, and where we have over 100 patients currently, randomized.

[Damien McDonald, executive]

So that's really, really going well. And in case on -- they really made excellent progress on the redesign. They've locked into a new design that incorporates the valve and anchor system into a single delivery system. We previously had the valve went down one system, the anchor went down another. This is now a single delivery system which I think is going to really work on ease of use. Our initial feedback in discussions with the FDA has been positive, and we're going to do our free clinical work, kicks off with the bench testing animal study, the [ bi-compatibility ] studies imminently. And then we're really planning on restarting the trial in the first half of 2020. So I think good movement there from the team, and again, a nice rebound given what they had to do in a very short period of time.

[Operator]

[Operator Instructions] Your next question comes from the line of Mike Matson from Needham & Co.

[Michael Matson, analyst]

I just wanted to go back to the LifeSPARC question that Matt had asked. Just curious, if we look at pricing mix, volume, how is that going to impact the growth of that business? Is it something where it's just easier to use, it'll drive increased utilization or -- and then curious if there's any kind of margin differential on the new product versus the old one.

[Damien McDonald, executive]

Yes, good question. So margin, no, it's roughly the same margin, which was above our fleet average anyway, quite significantly. So it's accretive to margin every time we sell one, which is again, a very attractive aspect of the business. So I think for us one of the things that the team has been constrained by is opening significant numbers of new accounts because we stopped making the existing controller a little while back. So we only had a certain number of units to open new accounts.

The team, I think, has done a great job being very focused on account penetration rather than account acquisition. And so now with the new device, we'll obviously be going to the big users to drive penetration deeper where we believe there's still a lot of upside and they already know the product. But we'll also have the opportunity to start looking at account acquisition. And because it is much more simpler and portable as I mentioned, this will be very attractive for the smaller hospital groups that are not the major programs. So I think this is a very attractive for the U.S. And then internationally, we need to start looking at how do we arrange the market penetration opportunities there, and we're literally going country-by-country to look at how we start those, with kits first and then the controllers.

[Thad Huston, executive]

Since we acquired the business, we've doubled the sales force and we've seen a very consistent double-digit growth of this business. And so now having LifeSPARC, that will only help us in accelerating our position in the back half of the year.

[Michael Matson, analyst]

And then does your guidance still include, I think you have factored in 5 to 10 million for TRD for the trial. And I know you just kind of answered a question about the timing and what-not. But I'd assume you're still sticking with that, unless the timing of the trial were to change?

[Thad Huston, executive]

That's exactly right. That's what we were assuming.

[Michael Matson, analyst]

Okay, and that's about to fall mostly into the fourth quarter, I assume, at this point?

[Thad Huston, executive]

Yes.

[Operator]

Your next question comes from the line of Jason Mills from Canaccord Genuity.

[Cecilia Furlong, analyst]

This is actually Cecilia on for Jason. I wanted to follow up on your discussion of Caisson. It's great to hear about the progress but I was just wondering how you're thinking about investing in the structural heart field in general going forward just versus your other pipeline initiatives. And then just the potential to augment the M&A in the future.

[Damien McDonald, executive]

We are very encouraged by how Caisson has rebounded here and our focus on structural heart is really to get this program through the next sets of milestones. We really haven't been very aggressive at adjacencies or M&A while we get this program going. More broadly, M&A continues to be a key part of our growth strategy. I think we previously mentioned that while we reduced some of the debt from the 3T litigation we are going to be very focused on that. But we are still having a very active discussion and funnel on M&A opportunities. And if the right things come along that meet our metrics and hurdles, then we'll be opportunistic. But our M&A focus still is very focused on the head and heart.

[Thad Huston, executive]

We clearly have a fantastic pipeline both with depression and heart failure, sleep apnea and Caisson. We clearly need to support those investments and get those products to the next phases and that's where we're really focusing on that as well as obviously getting the base business back to growth in the back half of this year.

[Cecilia Furlong, analyst]

Great, I appreciate the color. And I guess I just wanted to ask as well about trends in your U.S. Perceval business. Kind of what you were seeing in Q2 and just account trends recently, and as you look to the back half of the year and beyond 2019 just with low risk, how you see this business performing?

[Damien McDonald, executive]

I continue to have the team focus on their turnaround in the U.S. We're really focused on better commercial execution, procedure training. We are very keen about this valve-in-valve indication, and remembering that more than 40% of procedures are concomitant procedures. So you need to have an alternative to TEVA in more than 40% of procedures. The things where there's a cabbage or a mitral valve, or A-fib. So we like what Perceval can do in this space and it's part of the reason why we bought the Miami Instruments business. It's a set of instruments that facilitate the minimally invasive cardiac surgery which is our focus and strategy. So I expect that this team will gradually find their feet as I think I've mentioned before. What we were committed to with this market, what we were committed to with Perceval, what we got wrong was just the time it was going to take to get this to rebound. But I'm quite encouraged by what the team is doing.

[Operator]

There are no further questions at this time. I turn the call back over to Mr. McDonald for closing remarks.

[Damien McDonald, executive]

Well, thank you very much, everyone for joining us. We appreciate your continued support and interest. And we look forward to the next call with you. Thank you.

[Operator]

Thank you. This concludes today's conference call. You may now disconnect.