LivaNova PLC (LIVN) Q1 2020 Earnings Call Transcript

LivaNova PLC (LIVN 0.47%)
Q1 2020 Earnings Call
Apr 29, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the LivaNova PLC first-quarter 2020 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to introduce the host for today's conference, Mr. Matthew Dodds, LivaNova's senior vice president of corporate development.

You may begin, sir.

Matthew Dodds -- Senior Vice President of Corporate Development

Thank you, Demetrius, and welcome to our conference call and webcast discussing LivaNova's financial results for the first quarter of 2020. 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 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 -- Chief Executive Officer

Thank you, Matt, and thank you for joining us, and I hope you and your families are all safe and well. Before we discuss our first-quarter results and updated guidance, I'd like to make a few comments in light of the pandemic. Since the outbreak of COVID-19, our priority has been to continue to support patients' healthcare professionals and our employees. We remain focused on providing life-saving technologies and supporting our customers.

We are still in the early days of assessing the impact of COVID-19 and the impact that it's had and it is expected to have on our business. I would like to take this moment to thank all our associates worldwide who have shown remarkable resilience through this crisis, particularly those on the front line and in our manufacturing facilities who have maintained our supply chain. As Thad and I will outline during the call, in the first quarter of 2020, COVID-19 started to impact the rest-of-world region in mid-February, followed by Europe in early March, and the U.S. in mid-March.

I'm going to start off by discussing some recent highlights, and our sales results by business. After my comments, Thad will provide you with additional detail on the financials and our revised 2020 guidance. Then I will wrap up with closing comments before moving on to Q&A. In late February, we entered into a research collaboration with Verily as part of our RECOVER depression study.

This will allow us to capture biomarkers of depression and data on patient behavior using technology and analytics provided by Verily. These data will provide further insights into depressive episodes and a patient's response to VNS Therapy and its impact on DTD. At the ACC and World Congress of Cardiology meeting in March, we presented two posters. The posters reviewed the benefits of Autonomic Regulation Therapy or ART and further support for the rationale for the ANTHEM-HFrEF heart failure pivotal study by reporting the long-term improvement in autonomic tone, baroreceptor sensitivity and cardiac electrical stability produced by VNS.

In April, we received FDA emergency use authorization or EUA for several cardiovascular products for ECMO therapy. The EUA temporarily expands the application of devices for ECMO therapy to greater than six hours in response to COVID-19. Product indications for use have been modified accordingly for many products within our cardiopulmonary and ACS portfolios. We also received CE Mark approval for the Bi-Flow ECMO cannula.

This cannula is designed to reduce the risk of limb ischemia, a significant and all-too-common complication from ECMO therapy. Lastly, earlier this week, we announced the conclusion of a series of debt covenant amendments, which materially modify the status of our current credit agreements. These amendments include adjustments to covenant calculations and temporary updates for certain limits on financial ratios. These amended agreements provide us additional assurance and flexibility to better manage the business through the pandemic.

Now I'll discuss our three growth drivers: epilepsy, advanced circulatory support and the rest-of-world region. All net sales results will be stated on a constant-currency basis. U.S. epilepsy sales declined in the mid-single digits versus the first quarter of 2019.

This decrease is attributable to the impact on new patient implants because of COVID-19. Our U.S. business was tracking well until mid-March when we saw a steep drop in new patient implants and some impact to replacement implants. In 2020, we now expect our U.S.

epilepsy business, excluding DTD, sales to decline in the mid-teens due to the impact of COVID-19 on elective surgery. We currently expect the second quarter to see the largest impact with the business recovering as we move through the year. We are forecasting sales to return to near pre-COVID levels in the fourth quarter. Advanced circulatory support sales were $11 million in the quarter, an increase of nearly 30% from the first quarter of 2019.

The growth was driven by deeper penetration of existing accounts of Protek Duo kits used to right ventricular recovery and TandemLung respiratory support kits also saw an acceleration in the quarter. The limited rollout of LifeSPARC is going well, and we are on track to start the U.S. commercial release at the end of this quarter. We now expect our ACS business to grow above 30% in 2020.

Rest-of-world sales were $64 million in the quarter, growing 1% versus the first quarter of 2019. The region was primarily impacted by COVID-19 with some execution issues in Japan and the Middle East. Turning now to difficult-to-treat depression. Sales in the quarter were $1.4 million up more than 70% versus the first quarter of 2019.

Our current estimate is that the enrollment in the RECOVER depression study will be impacted by COVID-19 for six months, and we now expect DTD sales of approximately $5 million to $10 million for the year. We currently expect to enroll our 250th patient by the end of the second quarter of 2021. In heart failure, our ANTHEM-HFrEF U.S. pivotal trial has enrolled more than 200 patients.

We have temporarily paused enrollment in accordance with site restrictions due COVID-19, though we are supporting patients and physicians by using remote technology to remain engaged. We now expect to reach 300 patients in the second quarter of 2021. I'll now turn the call over to Thad for an overview of our financial results. Thad?

Thad Huston -- Chief Financial Officer

Thank you, Damien. I'm going to discuss the first-quarter results in greater detail and then provide an update on our 2020 guidance. Sales for the first quarter were $242 million, a decline of 1.8% compared to the same quarter of prior year. Cardiovascular sales were $152 million, down 0.2% from the first quarter of 2019.

Cardiopulmonary sales were $116 million in the quarter, a decline of 2.2% versus the first quarter of 2019. Heart-lung machines sales declined in the mid-single digits primarily due to difficult year-over-year comparisons globally. Oxygenators sales grew in the low single digits related to strong performance in the rest-of-world region including Southeast Asia, Eastern Europe and Brazil. Turning to heart valves.

Sales for heart valves were $25 million in the quarter, an increase of 1% versus the first quarter of 2019. Heart valves benefited from an easier comparison related to our transition to direct sales that occurred in certain markets in the rest-of-world region in the second half of 2019. Now let's turn to neuromodulation. Sales were $90 million, which is a decline of 4.6%, versus the first quarter of 2019.

Until mid-March, U.S. neuromodulation have been tracking to a mid- to high single-digit growth rate for the quarter. Neuromodulation sales in Europe grew in the mid-single digits, led by the U.K. and Germany.

The rest-of-world region declined in the mid-teens, in part due to softness in the Middle East. Adjusted gross margin as a percent of net sales in the quarter was 68.3%, down 100 basis points from the first quarter of 2019. The margin decline was primarily driven by mix from lower neuromodulation sales. Adjusted R&D expense in the first quarter is $41 million, compared to $37 million in the first quarter of 2019.

R&D as a percentage of net sales was 16.9% versus 14.7% in the first quarter of 2019. The R&D increase is due to higher costs associated with the continued enrollment of the ANTHEM-HFrEF, heart failure pivotal trial and progress in the RECOVERY depression study. Adjusted SG&A expense for the first quarter was $104 million, compared to $105 million in the first quarter of 2019. SG&A as a percentage of net sales was 42.8%, up from 41.6% for the first quarter of 2019.

Adjusted operating income from continuing operations was $21 million, compared to $33 million in the first quarter of last year. Adjusted operating income margin from continuing operations was 8.7%, compared to 12.9% in the first quarter of 2019. Our adjusted effective tax rate in the quarter was 8.2%, an improvement from 15.5% in the first quarter of 2019. The lower tax rate is related to previous tax planning initiatives.

Finally, adjusted diluted EPS from continuing operations in the quarter was $0.33, compared to $0.54 for the first quarter of 2019. Moving to cash flow. Our cash flow from operations, excluding payments for onetime integration and restructuring costs, through the first quarter of 2020 was $25 million, compared to $24 million in the same quarter the previous year. Capital spending for the first quarter of 2020 was $9 million, which is $3 million higher than the first quarter of 2019.

Our cash balance at March 31, 2020 was $126 million, up from $61 million at December 31, 2019. Our net debt at quarter-end was $400 million, up from $272 million at year-end 2019 as we get an additional $115 million in 3T legal costs this quarter. As Damien highlighted previously, in light of recent market developments, we have implemented a number of actions designed to strengthen our liquidity position and promote financial resiliency. Among these actions, we have secured amendments to certain covenants prior to December 31, 2020.

These amendments include adjustments on covenant calculations and an update for certain ratios on calculations of debt-to-EBITDA and EBITDA-to-net interest payable. In addition, we are in the process of evaluating strategic financing alternatives to fund our short- and medium-term capital needs. Among these alternatives, we have been analyzing a potential offering of equity, equity-linked or debt securities. Discussions concerning these potential transactions are ongoing, and no assurance can be given that the transaction will be consummated or as to the ultimate terms of any transaction.

Now turning to our updated 2020 guidance. Given the current COVID-19 challenges, we are providing revised guidance for the second quarter and the full year. We believe it is important to provide updated guidance as we are in a period of additional uncertainty, and we've expanded our sales and EPS ranges to address this. For the full year, we are now expecting 2020 sales to decline between 7% and 17% on a constant-currency basis.

If current exchange rates remain unchanged, the company's full-year revenue guidance will be negatively impacted by one to two percentage points. We now expect our global epilepsy business to decline in the range of 10% to 15% due to the COVID-19's impact on elective procedures. The largest impact is expected to occur in the second quarter with a gradual recovery occurring in the back half of the year and a return to growth in the fourth quarter. DTD sales are now expected to fall in a range of $5 million to $10 million.

Sales in our cardiovascular portfolio are estimated to decline in the mid-single digits with strong growth coming from ACS, largely offset by the late-stage replacement cycle of HLMs and the impact of lower cardiac surgery procedure volumes and heart valves, in particular. On the expense side, we have executed actions to offset some of the expected sales impact. Specifically, we've instituted a hiring freeze and are participating in government-sponsored work programs. We have reduced spend related to travel, marketing events, field presence, and we've shifted to working with our customers and stakeholders using remote methods.

We've reduced our discretionary spend related to consulting and contingency staffing, and finally, we've balanced our manufacturing output to coincide with demand. Now turning back to the rest of the P&L. Adjusted gross margin is projected to be in the range of 66% to 68%. We expect adjusted R&D to be in the range of 14.5% to 15.5% of sales and adjusted SG&A to be in the range of 40% to 41% of sales, driven in large part due to our decline in revenue, spending reductions and investments in DTD.

We are projecting adjusted operating margin from continuing operations to be in the 10.5% to 12.5% range. Our adjusted effective tax rate is expected to be in the range of 10% to 12%. We are adjusting -- we are estimating adjusted diluted earnings per share for continuing operations in the range of $1.40 to $1.70. The share count is expected to be approximately 49 million.

Our adjusted cash flow from operations, excluding integration, restructuring, 3T product remediation and litigation payments, is projected to be in the range of $80 million to $100 million. The integration and restructuring expenses are expected to be in the range of $10 million to $20 million, compared to $44 million in 2019. Capital spending is projected to range between $20 million and $25 million, and depreciation and amortization expense is expected to be approximately $28 million. For the second quarter, we are expecting sales to decline in the range of 30% to 45% and the loss per share to be in the range of $0.25 to $0.35.

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

Damien McDonald -- Chief Executive Officer

Thanks, Thad. I'd like to finish by acknowledging the selfless dedication of healthcare professionals around the world. Their extraordinary efforts continue, and we wish health and safety for them and their families. We look forward to updating you on our continued progress and delivering on our commitments to drive shareholder value.

And with that, Demetrius, we're open for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question comes from Raj Denhoy with with Jefferies. You may proceed.

Raj Denhoy -- Jefferies -- Analyst

Great. Hello. I wonder if maybe we could start with the trajectory of the business here as you move through April. I appreciate it's been tough for most companies.

Is there anything you can offer in terms of how things have trended here just in the first month of the second quarter?

Damien McDonald -- Chief Executive Officer

Yes, Raj, it's a good question. I would say that I characterize this as modest signs of light. We've seen our monitoring of hospital by hospital, state by state in our weekly calls internally. We've seen modest improvements in some hospitals, some areas, some states, little green shoots in a few countries in Europe as they've changed their regulations around what they consider essential and elective and, similarly, some smart signs of growth in China.

So again, early days, but we are seeing small, modest signs of light.

Raj Denhoy -- Jefferies -- Analyst

Understood. I guess I'm just trying to reconcile that with the guidance cut rate, which is pretty substantial on the top line. And also, I guess the commentary in terms of resumption, particularly in VNS, by the fourth quarter back to kind of pre-COVID levels. And so I guess the question is really around your confidence in the current outlook, right? Because things aren't very fluid at this point.

So just trying to the gauge kind of the error bands around what you offered in terms of guidance at this point.

Thad Huston -- Chief Financial Officer

Yes, I would just add. I mean, I think to me, the way we think about the guidance and the range is it's highly fluid, and there's a level of uncertainty, and so we purposely put some fairly broad ranges for the quarter and also for the full year. But again, we're monitoring it weekly. We're studying the market.

We're even looking at kind of a state-by-state, country-by-country view. And again, we're going to continue to monitor, but we're increasing in terms of some of the confidence, again, around just seeing some modest progress, as Damien described.

Raj Denhoy -- Jefferies -- Analyst

OK. Maybe just one last one on kind of the operating expenses, right? So again, everybody's models are slightly different, but in ours, it looks like the combination of R&D and SG&A is coming down by about $100 million from where we were previously. And so I'm trying to get at where that is coming from and if those cuts are sort of -- how deep that is in a sense. And so when things do come back, how much of this cost reduction you've embarked on is going to be sort of difficult to recover from? Or how quickly can it kind of snap back?

Thad Huston -- Chief Financial Officer

No. I think to me, I described the number of things that we are doing to protect the income. But at the same time, it's really important that we continue to invest in the long term. And so we are continuing to support our trials.

Of course, enrollment is obviously going to be affected because of just delays in the challenges of just getting clinical trials up and running. We are working and taking advantage of headcount freezes, travel restrictions and obviously, any government support to help us protect, again, some of the expense cuts. But we are trying to balance short and long term, of course.

Damien McDonald -- Chief Executive Officer

So to that end, Raj, we've ring-fenced studies that are critical to our long-term value creation, like RECOVER and ANTHEM trials. We've ring-fenced new product development around key things like LifeSPARC and Polaris, and Iris and other things that are less critical, less urgent, we've put those on hold.

Raj Denhoy -- Jefferies -- Analyst

Understood. I'll leave it there. Thank you.

Thad Huston -- Chief Financial Officer

Thank you.

Damien McDonald -- Chief Executive Officer

Thanks, Raj.

Operator

And our next question comes from Rick Wise with Stifel. You may proceed.

Damien McDonald -- Chief Executive Officer

Hey, rick.

Operator

If you have yourself on mute, please unmute the line.

Rick Wise -- Stifel Financial Corp. -- Analyst

Hear me at this point?

Damien McDonald -- Chief Executive Officer

We can, yes. Yes.

Rick Wise -- Stifel Financial Corp. -- Analyst

OK. Great. Sorry about that. Maybe start off with LifeSPARC.

Clearly, you have some optimistic thoughts about recovery there, expected to deliver at least 30% ACS growth for 2020. Maybe just update us on where you are with your ability to supply the product on the manufacturing side. And does COVID accelerate LifeSPARC demand, pull forward demand? Just some more color and support of that particular positive piece of your outlook.

Damien McDonald -- Chief Executive Officer

Yes. So two things there. First, on the supply and manufacturing, I will tell you I think the team made great progress there in our weekly Friday call with that team. I continue to be impressed with how they run the project management of that and our component supply that we talked about at the end of last quarter is moving well.

And so we still expect to be able to execute the commercial release in the second half, as we announced earlier, so I'm really pleased with that progress. On the demand overall, I think we've seen great demand from our existing accounts. So we are in an account penetration play here. So it's existing accounts that are using more protect to, more TandemLung, that's the respiratory support product.

But interestingly, the right ventricle also needs to be supported when you have these events in this respiratory distress. So that's why I think we're seeing this uptick in ProtekDuo. So I think the teams continued to execute well there, and we see strong performance from that group in the U.S. and in a few countries internationally.

So I think that's why we're a bit more bullish on the full-year results.

Matthew Dodds -- Senior Vice President of Corporate Development

So Rick, it's Matt, also. We talked about before, one of the keys of LifeSPARC is getting more controllers, also the ease of use of this controller. We can expand the footprint. Today, we're in less than 200 centers in the U.S.

There's room to go to 500 or more. ECMO is a very valuable device for respiratory distress, as you've heard. So that's a key component. The back half of the year is expanding, not just going deeper into accounts, as Damien said.

But this will give us the ability to expand into a lot of new accounts who will find this product very easy to use and will then embrace an ECMO practice.

Rick Wise -- Stifel Financial Corp. -- Analyst

OK. Turning to -- thank you, Matt. Turning to the DTD trial. If I heard you correctly, correct me if I'm wrong, you had 250 patients enrolled by the end of the second quarter.

I think you talked about the $5 million to $10 million contribution impact as well. But maybe if you could expand on your comments there, talk about restarting the trial as things recover. What should we expect? What are you expecting? And Damien, how does the time-line shift -- how do the time lines that you've articulated in the recent past shift now in light of this pause in enrollment?

Damien McDonald -- Chief Executive Officer

Yes. So to get to that last part of that question, we think a shift of about six months is what we're forecasting. What happens? It's really about patient enrollment and the implant sequence. That's what's slowing down.

What's not slowing down is this team's work on the infrastructure of setting up the trial. So they've continued to work diligently on-site activation, and we've been doing a number of remote-site activations, I think, which is fairly novel process. We've also continued to work on patient identification and patient awareness of the study and done a number of digital activities to engage with people in that DTD community to push them to be aware of the trial. So related to that, we're also continuing our work on how to engage with the private payers.

And a recent hire of a specialist for health economics and reimbursement in that area is a really important key step that this guy has experience in this space and patient advocacy from pharma, and I'm expecting a lot of engagement there as we continue that process. So infrastructure is still progressing. It's really about patient enrollment and implant that's the slowing step here, and that's why we're saying plus six months for the target that we previously talked about.

Rick Wise -- Stifel Financial Corp. -- Analyst

Great. And just last for me. Obviously, on the debt and financing side, you've made some important and critical progress with your covenants and some of the details you've announced. I mean, can you expand on your comments what kind of funding do you feel like you need? When is it needed? And maybe you can give us more concrete input about what to expect, how you're approaching this and just how you're thinking about -- does the lower end of the guidance, maybe another way to say it, drive the need for financing? Or if you hit the upper end, you need less? I'm not sure how to put it all in context.

Thad Huston -- Chief Financial Officer

Sure. Thank you. Yeah. I think as we stated, we've amended the covenants of all of our facilities to give us enough room for, let's call it, the next 15 months, which is usually the period that you want to test from an audit perspective that, of course, going beyond that is ultimately what we're looking at.

So I think that gives us a lot of flexibility, and we continue to look at other facilities. So for example, we had ended the quarter with $126 million in cash, and we added recently another facility from Barclays last week. And we're just going to continue to look at what else could we do. We feel that even with the downsides that we have a number of different levers that we could pull on the expense side to protect income and cash flow.

And with the facilities we have, is sufficient to meet our liquidity and our debt obligations. But I think this has taught us all lessons is to just evaluate different strategic financing alternatives and to have additional capacity. And so we are looking at the offerings of potentially equity debt just looking at what else could we do just to firm up and have more additional headroom. But I don't have major concerns.

It's just been, obviously, we've had to address what was a really strong balance sheet two years ago. Our leverage was well below one time net debt-to-EBITDA. But given the 3T liability and the payments that we've made, our debt levels went a bit higher. So of course, we needed some additional headroom with covenants, but we're looking at just additional instruments.

Rick Wise -- Stifel Financial Corp. -- Analyst

So just to follow-up quickly on that. So you're saying this is more thinking long term, and this is something that -- when you talk about the additional financing that you very much want to have nice to have, important to have but not so critical, not necessarily anxiety-provoking for the next six, 12 months. I'm not sure exactly what you're saying, Thad.

Thad Huston -- Chief Financial Officer

Yes. No, no. I think it's both, right? So to me, there's a level of uncertainty, Rick, in this environment. So we want to cover short term, right? And at the same time, we've been in the process of looking at restructuring our current facilities.

And so if you look at the details of what we have, we a repayment schedule of our $350 million facility in Q3 and Q1 next year of $70 million in those two time periods. We also look at other instruments to try to balance debt and equity depending on the scenario. So it's kind of a short-term creating more headroom but then also taking longer-term steps just to recapitalize the company structure. Is that clear?

Rick Wise -- Stifel Financial Corp. -- Analyst

Yes. Thank you for the thorough detail. Thank you.

Thad Huston -- Chief Financial Officer

Sure. Absolutely.

Operator

And our next question comes from Scott Bardo with Berenberg. You may proceed.

Damien McDonald -- Chief Executive Officer

Hey, Scott. How are you?

Scott Bardo -- Berenberg -- Analyst

Hi, Damien. Yes, so just a little bit more understanding, please, of the guidance framework. And obviously, I appreciate you've taken a stab at this guidance framework. Just to understand it fully, I think you said that you would anticipate cardiovascular to be down about mid-single digit for the full year.

Was that right? That's your base case assumption?

Damien McDonald -- Chief Executive Officer

Yes, mid- to high single digit for the full year. Yes.

Scott Bardo -- Berenberg -- Analyst

And just to understand that a bit further with respect to the cardiopulmonary business, which has been largely for CABG procedures and so forth, normalized world, not considered deferrable or less likelihood to defer, have you seen or are you seeing signals that that should decline? And what is the compensatory effect, you think, from the additional ECMO provision that you now have? Does that confer a degree of stability to that business that wasn't there before? Just really want to understand those moving parts a bit more, please.

Damien McDonald -- Chief Executive Officer

Yes. I think obviously, what we've talked about here is we expect the biggest decline in Q2 with elective procedures being down, and that's going to impact oxygenators largely. And now our ECMO business unit. So the TandemLife business plus the small ECMO business we had in our cardiopulmonary portfolio is up, and we've seen a small increase there.

But not to offset the Oxy and HLM business. So the business is growing. It's an important part of this, but it's also a very complex part of the procedures. And you don't always go back from ventilator to ECMO, and so we're pleased to see the uptick, but we're not banking on that being a full compensatory effect for all the cardiopulmonary portfolio.

Matthew Dodds -- Senior Vice President of Corporate Development

And Scott, it's Matt. I would say -- I know you like to go into detail on this. Probably, if there's one area to think about it being under pressure in cardiovascular, it's going to be capital equipment in the U.S. and Europe, right? So HLMs, ATS, that's where we're forecasting to see a big hit on that business, so that's not truly procedures.

That's more of a capital component.

Scott Bardo -- Berenberg -- Analyst

OK. That's helpful. And again, the walk-through is a significant impact in Q2, still declines in Q3, more normalization in the fourth quarter. Is that how you think about it? And any recent noises from hospitals about reactivating elected procedures or at least starting as early as now soon? Have you baked in a relatively conservative negative assumption here? That's what I'm trying to understand.

Damien McDonald -- Chief Executive Officer

Your opening statement is how we've modeled it. And again, what we try to explain is that we are looking at this weekly with our commercial teams in Europe and international country by country in the U.S., hospital by hospital, state by state. Again, I think everyone is aware that the state differences in the U.S. are very, very compelling.

So that's where we've tried to be a bit more granular on the state-level differences. But our model broadly is how you summarized it.

Scott Bardo -- Berenberg -- Analyst

OK. And so the nature of the question for neuromodulation, please. So clearly, I understand you're expecting some sharp decline. So just to understand this further, is it your expectation that you see a relatively stable replacement business? Which is 50% or so of these U.S.

sales is my understanding. And so that new patients are significantly down for the next few quarters. Is that basically the flow?

Damien McDonald -- Chief Executive Officer

Back to the same idea about the model. Biggest impact in Q2, a small recovery in Q3, getting back to sort of normal sales in Q4. And I would say on NPI versus the OS, we've seen a more dramatic impact on the new NPIs, the new patient implants, and a slight decrease in the end of service. And again, very much impacted by differences in what people consider are elective.

The U.K. and Germany, for example, just this last week that battery replacements are an essential surgery. So we're monitoring this country by country, state by state.

Scott Bardo -- Berenberg -- Analyst

OK. Understood. And sorry, just a last clarification. Your revenue framework is outlining potential for down 17% sales.

I'm not sure I understand that in the context of your biggest business, cardiovascular, being, let's say, mid-single digit. It seems to me that or even mid- to high single digit, that wouldn't make sense given the commentary of 10%, 15% neuromodulation decline. So are you essentially saying that the most likely scenario is the low end of the range? I just want to understand that.

Matthew Dodds -- Senior Vice President of Corporate Development

Scott, it's Matt. So no, what we did, if you look at the growth rates we gave by the major businesses, you're going to fall in the middle of that minus 7% to 17%. We just want to have a slightly wider range given all the uncertainty right now, so we're not encouraging you to go to the right to the worst part of the range.

Scott Bardo -- Berenberg -- Analyst

OK. Understood. And encouraging that you see things returning to more normalized volume in Q4. Of course, with no crystal ball, but that seems a sensible assumption to me.

Now as we think about 2021, and I think this is more of a relevant number to look at, can you at least give us some sense of where you think you can recover the business to, according to your sort of midterm plan? Should we expect an earnings number that's at or above 2019? Is that a good sense, actually, as to how this business trajectory recovers over the next 12, 24 months?

Thad Huston -- Chief Financial Officer

Yes. I would say it's a bit premature to predict 2021 at this point. I do think that, again, depending on kind of how -- whether it's a V shape recovery or U shape or W, we just don't know at this point, Scott. But again, we are going to take every action that we can to firm up the business to ensure that we're making both short- and long-term decisions to get this thing back to where it should be.

Whether it's the previous 2019 results or the previous guidance on 2020, we just don't know at this point.

Scott Bardo -- Berenberg -- Analyst

OK. And last question then, please, for me. And again, I congratulate you for extending the terms of your covenants, but I wanted to understand a little bit better the concept of equity or equity-linked debt. Obviously, leaving over shares are broadly trading where they were when you merged in 2015.

So I would argue your shares are not really in a position of strength. Why would it make sense to consider equity when debt is cheap and you have headroom in your covenants? And more importantly, has this experience where debt has got a little bit ahead of where you would like it changed your thoughts on acquiring loss-making developmental assets or the very high levels of internal investment you make, which are artificially compressing your margins?

Thad Huston -- Chief Financial Officer

Great question, and you're absolutely right. It's how we see it as well with this balance of what is kind of the right kind of facilities that could help us as LivaNova, where we're trading today, looking at our relative valuation, looking at the various tools in the market, and how is the market developing for these tools as well? And we're trying to balance a little bit of equity, a little bit of debt. But try to find the right kind of thing to address kind of short and long-term capital needs. We haven't decided.

And again, we're exploring options. And we just wanted to highlight that today. But you're absolutely right. I think we would also think about very carefully about doing future M&A, especially dilutive deals.

The TandemLife deals are accretive, immediately accelerate growth. Those are the types of acquisitions that we had obviously been keen on continuing to do.

Scott Bardo -- Berenberg -- Analyst

Thanks so much.

Operator

Ladies and gentlemen, this concludes our Q&A portion of today's conference. I would like to turn the call back over to Matt Dodds for any further closing remarks.

Matthew Dodds -- Senior Vice President of Corporate Development

OK. Well, Demetrius, thanks very much. Thank you for everyone for joining us, and we look forward to continued conversation and reporting on our shareholder value creation as we move forward. Be safe, everyone.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Matthew Dodds -- Senior Vice President of Corporate Development

Damien McDonald -- Chief Executive Officer

Thad Huston -- Chief Financial Officer

Raj Denhoy -- Jefferies -- Analyst

Rick Wise -- Stifel Financial Corp. -- Analyst

Scott Bardo -- Berenberg -- Analyst

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