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LivaNova PLC (NASDAQ:LIVN)
Q1 2021 Earnings Call
Apr 28, 2021, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to LivaNova's PLC First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to introduce your host for today's conference, Mr. Matthew Dodds, LivaNova's, Senior Vice President of Corporate Development. Please go ahead, sir.

Matthew Dodds -- Senior Vice President, Corporate Development

Thank you, Jacqueline, and welcome to our conference call and webcast, discussing LivaNova's financial results for the first quarter of 2021. Joining me on today's call are Damien McDonald, our Chief Executive Officer; Alex Shvartsburg, our Interim 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 with respect to our performance, including but not limited to sales results, which will all be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which 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 Investors section of our website under News Events and Presentations at investor.livanova.com.

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

Damien McDonald -- Chief Executive Officer

Thank you, Matt, and thank you to everyone for joining us today and welcome to our conference call for the first quarter of 2021. Today, I'll start off by discussing some recent updates to our business. Then move to sales results, focusing first on our primary growth drivers Epilepsy and ACS. Then I'll discuss our strategic portfolio initiatives DTD, heart failure and OSA. After my comments, Alex will provide you with additional details on our results and reaffirm 2021 full-year guidance. I'll then wrap up by closing comments and moving to a Q&A.

The neuromodulation and cardiovascular businesses continue to recover from the depressed levels of activity that began in the second quarter of 2020. In the first two months of this year, procedure volumes in the U.S. were significantly impacted by elevated COVID case levels. The trends improved in March and we exited the quarter with good momentum. The rest of the world and Europe regions continue to experience high degrees of variability and many countries saw worsening sequential trends, were shut down for varying periods of time. We continue to see market fluctuations related to COVID case volumes and the patient's willingness to seek treatment. Despite this uncertainty though, we expect procedure volumes to improve as we move through the year.

Moving to recent events. We achieved a key clinical milestone in our heart failure program with more than 300 patients now enrolled in our ANTHEM HFrEF pivotal trial. Once we follow these patients for nine months and randomize a total of 400 patients, the resulting data will be reviewed in anticipation of filing with the FDA. If approved for use by the FDA, this will become the first VNS-based therapy for the adjunctive treatment of chronic heart failure in the U.S.

Earlier this week, we announced that the UNCOVER study in collaboration with Verily and a subset of the RECOVER study enrolled its first patient. Data obtained from verily develop digital tools, will complement the clinical outcomes collected in the RECOVER study, providing clinicians with a more comprehensive view of depression patient biomarkers.

In Cardiopulmonary to B-Capt, a new in-line blood gas monitoring system received 510(k) clearance earlier this month. The system, which is integrated into our HLM is designed to easily and accurately monitor blood gas parameters during pediatric and adult cardiopulmonary bypass procedures, it enables a perfusionist to quickly react to parameter changes. B-Capta is a key development for our HLM platform and the first of several new innovations we expect to roll out as we make continue progress toward the next generation HLM.

Also this month, our S5 PRO HLM received 510(k) clearance. The product features B-Capta as a primary component along with new sensor technology and improved software. These product enhancements build upon our 45-plus years of safety and reliability. Related to our Heart Valve divestiture, we amended the purchase agreement with Gyrus in April to provide freight of third closing of a subsidiary responsible for site management services at the Saluja[Phonetic] campus. We expect the initial closing of the heart valve operations in Italy and Canada to occur on June 1, consistent with the timeline previously announced. This will be followed by closings of the sales infrastructure in the second half of the year.

Now, I'll discuss our core growth drivers Epilepsy and ACS. Epilepsy sales increased 15% globally versus the first quarter of 2020 with growth across all three regions. This increase is attributable to improving market dynamics, mainly in the U.S. U.S. Epilepsy sales increased 12% versus the first quarter of 2020. Total implants improved versus the prior year, driven primarily by replacements. Epilepsy sales in Europe grew 1% versus prior year levels, led by France, Italy and Germany, offset by results in the U.K.

Meanwhile, we achieved growth of 69% in the rest of world region led by the Middle East and Asia Pacific.

For the full year, we continue to expect global Epilepsy sales to grow 15% to 20%, including sequential growth in new implants as patients and their caregivers return to in-person physician visits. In addition we anticipate a tailwind in replacement implants related to the backlog created in 2020. Our progress is propelled by our U.S. go-to-market initiative. These dedicated teams now account for just over 10% of U.S. sales and the results are trending above the baseline business. We have added one new team in Q1 and expect to deploy three new teams during the second quarter. ACS sales were $13 million in the quarter, an increase of 24% from the first quarter of 2020. Growth was driven by the continued adoption of livestock and an increase in procedure volumes. We forecast ACS to grow at least 20% in 2021.

Turning now to DTD, sales in the first quarter were $1 million. In 2021, we anticipate DTD sales of approximately $10 million to $15 million from a combination of RECOVER study and replacement implants for CMS-eligible patients. We are encouraged by a sequential acceleration of patients consenting into the study and we continue to expect to implant 250 unipolar patients and-or 150 bipolar patients in their respective RECOVER arms by year-end.

In heart failure, the ANTHEM-HFrEF U.S. Pivotal trial continues to make progress ahead of expectations, with enrollment surpassing 300 patients. As previously said, we believe we start analyzing the interim data in the first half of 2022. We also continue to make progress in OSA since submitting the IND for approval in late December we've been responding to additional questions and still expect to start the study in mid 2021.

For the Cardiopulmonary business, sales were $109 million in the quarter, a decline of 10% versus the first quarter of 2020. Oxygenator sales declined in the mid-teens globally with the U.S. and Asia Pacific performing better than Europe and LATAM. HLM sales increased in the mid-single digits and were favorably impacted by better than expected S5 sales in the rest of world and the U.S. regions.

Moving to heart valves, sales for the segment were $21 million in the quarter, a decrease of 19% versus the first quarter of 2020.

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

Alex Shvartsburg -- Chief Financial Officer

Thank you, Damian. I'll discuss our first quarter results in greater detail. Sales in the quarter were $248 million, a decline of 0.4% versus the first quarter of 2020. Cardiovascular sales were $143 million, down 9% from the first quarter of 2020. Neuromodulation sales were $104 million, an increase of 15% compared to the first quarter of 2020. Adjusted gross margin as a percent of net sales in the quarter was 68.6%, up 30 basis points from the first quarter of 2020. The margin increase was primarily driven by sales mix offset by unfavorable manufacturing variances.

Adjusted R&D expense for the first quarter was $42 million compared to $41 million in the first quarter of 2020. R&D as a percentage of net sales was 16.9% for both periods. Overall R&D is increasing behind continued progress in the ANTHEM-HFrEF Pivotal trial and the RECOVER study.

Adjusted SG&A expense for the first quarter was $96 million compared to $104 million in the first quarter of 2020. SG&A as a percentage of net sales was 38.9%, down from 42.8% in the first quarter of 2020, behind continued focus on cost containment measures.

Adjusted operating income from continuing operations was $32 million compared to $21 million in the first quarter of last year. Adjusted operating income margin from continuing operations was 12.7% compared to 8.7% in the first quarter of 2020. The adjusted effective tax rate in the quarter was 10.8% compared to 8.2% in the first quarter of 2020. The higher tax rate is primarily attributable to geographic income mix.

Finally, adjusted diluted earnings per share from continuing operations in the quarter was $0.35 compared to $0.33 in the first quarter of 2020.

Moving to cash flow, the cash balance at March 31, 2021 was $253 million, in-line with our cash balance at December 31, 2020. Net debt at quarter end was approximately $503 million versus $505 million at year-end 2020. Our adjusted free cash flow, excluding extraordinary items through the first quarter of 2021 was negative $10 million, as compared to the first quarter of 2020 our free cash flow was largely impacted by cash interest payments and divestiture-related expenses. Capital spending for the first quarter was $8 million, which was flat to the first quarter of 2020.

Now turning to 2021 guidance. As Damian mentioned, we are reaffirming our previously announced full-year sales and EPS guidance. To recap, we are forecasting 2021 sales growth between 8% and 13% on a constant currency basis, which assumes a 1% tailwind from exchange rates. We are projecting adjusted diluted earnings per share from continuing operations in the range of $1.40 to $1.90.

Adjusted cash flow from operations, excluding extraordinary items is expected to be in the range of $30 million to $50 million. For modeling purposes, we assume sales in the first half will be lower than the second half due to softness in several international markets, including LATAM and Europe, primarily related to the impacts of COVID-19. Additionally we expect EPS in the second quarter to be roughly in-line with the first quarter, primarily related to the phasing of spending for pipeline clinical studies.

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

Damien McDonald -- Chief Executive Officer

Thanks, Alex. We remain optimistic that we will deliver on our pipeline commitments and full-year guidance, led by our focus on execution and as COVID-19 infection rates improve. Additionally, we continue to take actions to further streamline our business, lower costs and improve free cash flow. As procedures return, we believe the work we've been doing to improve margins will become clearer. We look forward to updating you on our continued progress to improve the lives of patients and drive shareholder value.

And with that, Jacqueline. We're ready to answer questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Rick Wise from Stifel. Your line is open.

Damien McDonald -- Chief Executive Officer

Hey Rick.

Rick Wise -- Stifel Nicolaus -- Analyst

Good morning. Good morning, Damian. Just lots -- obviously lots to dig into here. But maybe let me start off with the Epilepsy business. In general, it's great to see the progress across the board, and particularly in the epilepsy, but help us understand maybe just as we look at the rest of the year, the impact of your steadily evolving dedicated sales teams in the U.S. -- 10% of sales. Today, you're adding three reps, talk about the impact on volumes that we could see. Maybe flesh out the progress you're making in entering those Level 4 centers, etc. Just update us there on the outlook in a little more detail, if you could? Thank you.

Damien McDonald -- Chief Executive Officer

Sure. Great question. Rick, I'm sorry it's so early in the morning on the East Coast. A few things there. Look, I'm really pleased with how that team is evolving and executing and the ability for us to add talent into that pool. It's a program where we've enhanced our sales and marketing approach to drive new patient growth. There is the first thing is the teams, which is in having a key account leader and MSL, the Medical Science Liaison, a TC, the Therapy consultant, who is there running the day-to-day and nurse education specialists, who are working specifically with the clinic and the patients. That's coupled with accelerating clinical evidence generation through investigator-initiated research and we've also worked to expand our publication strategy to help with the science and the discussions with patients and clinicians.

We're seeing that typically there's about a six month lag of these teams developed their key account plan, get up to speed, learn how to navigate the clinic and they're making progress across the board, all of the existing parts have really shown above baseline performance and we're really pleased with that. We continue to see firsts from them -- the first NPI referral from a new epileptologist in Boston, first time we've seen that from that clinic. We had our first advisory board meeting in March. We had a number of clinicians from the key accounts there, which is in a new attendance and engagement with us. A major Midwest hospital held its first neurosurgeon training, we've never been able to access that clinic and teach on VNS and as a result of that two neurosurgeons completed the first implants.

So, I think these behaviors are starting to read through positively, on top of that, as we see procedure volumes improve and patients willing to go back to the clinic and importantly, in-person visits start to increase. We'll see this continue to read through.

Rick Wise -- Stifel Nicolaus -- Analyst

Okay. And clearly, you're making progress on the DTD trial front and it's encouraging to hear that you'll hit -- you think 250 unipolar, 150 bipolar by year-end. Just to make sure I'm understanding Hurley, how do we think about what's next beyond that year-end milestone? And what -- how we should think about? I know it's early to looking at the '22, but next steps after that it seems like you're encouraged at the pace of enrollment.

Damien McDonald -- Chief Executive Officer

Yeah, definitely, with the way that people are consenting into the study and we saw the definitive acceleration through the quarter and that's encouraging. I think we've got more than 70% of our clinics are activated now, which is great. Patients are returning to the clinic, which is great. And as we can consent into the study and get them through the baseline one and two and into implant will be able to really see the progress there. I think the next thing for us is to make sure we hit these milestones toward the end of the year. And then the key for us is making sure. We learned a lot from the HFrEF study from ANTHEM, about making sure the field clinical engineers available for the titrations and we continue to drive the monthly follow ups. We've got a score these patients each month. So our attention throughout the year is going to turn more to the mechanics of operating the study.

Matthew Dodds -- Senior Vice President, Corporate Development

The Rick, it's Matt. So if you take unipolar as an example, 250 patients implanted, that's the next milestone for that part of the study. Then we'd start following them, we get to look every 25 patients after that. What we're looking for statistical significance on time in response. Once we hit that, we would then submit to CMS and then ultimately CMS will then approve us to move the registry. So we still assume that will happen in late '22, early '23.

Rick Wise -- Stifel Nicolaus -- Analyst

That's very helpful. Congrats on all the progress in the quarter. Thanks.

Matthew Dodds -- Senior Vice President, Corporate Development

Thanks.

Damien McDonald -- Chief Executive Officer

Thanks, Rick.

Operator

Your next question comes from Adam Maeder from Piper Sandler. Your line is open.

Adam Maeder -- Piper Sandler -- Analyst

Hi. Good morning, Guys. Hey, Damien. I'm doing well. Thanks. How are you?

Damien McDonald -- Chief Executive Officer

Excellent. Thank you.

Adam Maeder -- Piper Sandler -- Analyst

Great. Well, congratulations on the progress to start the year and thanks for taking the questions here. I had a couple and I guess I just wanted to start with a big picture question on the procedure environment or landscape. I think you talked about this a little bit. March saw a significant improvement and you exited heading into April with some good momentum, but wanted to just try and flesh that out a little bit for how the business trended over the course of Q1 and throughout April? And I had a couple of follow-ups. Thanks.

Damien McDonald -- Chief Executive Officer

Yes. So, as I said, January and February started off -- a slow a bit. The acceleration really, really read through in March, particularly in the U.S., and like you and everyone else, we're watching the headlines and tracking with our teams. The positive trends in the U.S. and a few other geographies sort of balanced by the issues that we -- you see in LATAM, particularly Brazil or India, in Asia-Pac, Canada again, Germany. I would say and I'm very encouraged by the momentum out of Q1 and we were pleased to see that and also the visibility in our funnel heading into Q2, we were very encouraged by that. But -- and we're modeling the procedure volumes continue to improve sequentially throughout the year.

Matthew Dodds -- Senior Vice President, Corporate Development

I would say -- it's Matt. I would say, in Europe, we're assuming like a lot of the companies, probably a one-quarter delay in them getting traction and moving on, so more of a back half for Europe and LATAM. And as we said before, Asia-Pac, different countries are having a different levels of performance, but overall, it looks pretty good.

Adam Maeder -- Piper Sandler -- Analyst

Got it. That's helpful. And then my next question is just on the guide, you elected to leave the guidance unchanged. Despite the Q1 be -- so maybe just talk through the guidance philosophy, a little bit more, is it purely just some conservatism given COVID-19 and where you are in the year, which I think makes sense or are there some other items that are contemplated or factored in there, just hoping to better understand that?

Damien McDonald -- Chief Executive Officer

Yeah, I think the way you characterize first half is how we're viewing it. Let's not get over escape, we like the momentum, we like the visibility in the funnel what makes us cautious of the COVID headlines and the vaccination rates. I say -- as I said we're modeling procedure volume improvement and that will read through for the performance, but we're just being cautious as we looked at the pace of change around the world.

Adam Maeder -- Piper Sandler -- Analyst

Okay, understood. That's very clear. Thanks. And if I can just sneak one, one more in. I think last month it was, there was a report in the Financial Times about Premier having some interest in the business. Just wondering if you're able or willing to comment on that topic. And thanks so much guys for taking the questions and congrats on the nice start.

Damien McDonald -- Chief Executive Officer

Yeah, I would say, it seems to be Q1 rumor time and in the same thing, the year before, we don't comment on any speculation related to that. Our focus is entirely on execution. Let's get the company rocking and help people deal with coming out of the COVID crisis.

Operator

Your next question comes from Anthony Petrone from Jefferies. Your line is open.

Anthony Petrone -- Jefferies -- Analyst

Thanks and good morning, everyone. Good afternoon. Congrats on a strong start to the year. A couple, I'll just rattle them off Damien, one would be -- the first one on the push-in comprehensive epilepsy centers talked about that a bit last quarter. Sounds like some of the sales hires will be focused on those centers. So maybe just an update on where you sit in targeting those 200 to 300 sites and how we think that evolves throughout the year? The second question would be on the ANTHEM study. Just want to check there if you're still on track to hit the enrollment target for the first half of '21? And I'll have one quick follow-up. Thanks.

Damien McDonald -- Chief Executive Officer

Sure. So, yeah, with respect to the CECs, as I said there, those teams now account for north of 10% of our U.S. sales there in about 50-plus clinics. In total there are roughly 250 Level 3, Level 4 centers and we're adding teams. We've already added one in Q1 and will add another three in Q2. We're really quite a long way through the hiring process to fill out those teams. So I'm really encouraged by the progress there. As I said, we see about a six-month lag depending on the team as they get to -- up to speed, but I'm really encouraged by the progress there. ANTHEM enrollment, that team has done a tremendous job. As we said, we have now. I have a 300 patients, randomized and enrolled. The program here is that we follow those 300 for nine months. And as we also get through the follow-up, we continue to enroll up to the 400th patients and when net of that 400 patients is randomized, we then can start reviewing the data and then based on that, we anticipate being able to decide whether to submit to the FDA for approval and we probably do that in the first half of '22.

Anthony Petrone -- Jefferies -- Analyst

That's helpful and quick follow up would just be on the operating margin in the quarter, it was certainly well ahead of where we modeled and an improvement certainly from even from trends in the back half. So maybe just kind of level set,how you sort of see operating margin progressing throughout the year here in 2021, just as it as it's reflected in your earnings guidance. Thanks.

Damien McDonald -- Chief Executive Officer

Yeah. Thanks for your question, Anthony. Yeah. We were cautiously optimistic in the quarter and as we saw things progressing throughout the quarter. We, we started to continue to invest. We, we were holding back a bit in terms of our investments in the quarter. And we, and hence the margin was through better than expected, but we feel good about our guidance and our margin for the full year.

Anthony Petrone -- Jefferies -- Analyst

Okay, thanks.

Operator

Your next question. Your next question comes from Michael Pollard from Baird. Your line is open.

Damien McDonald -- Chief Executive Officer

Good morning, Mike.

Michael Pollard -- Baird -- Analyst

Good morning. Good morning, good afternoon. Two on Cardiopulmonary. The first is just the quarter oxygenators down mid teens, HLM revenue up mid single digits. Encouraged by the HLM number of curious if you could unpack that pushes and pulls in the period. And then the oxygenators down mid-teens. Is that simply just the read through to, to procedures and if so might get comment on the trend in cardiac procedures January, February, March -- exiting March.

Matthew Dodds -- Senior Vice President, Corporate Development

Sure. Hey, Mike. It's Matt. So for oxygenators, if you look at our SKU, we are heavily SKU to what we call rest of world then Europe, than the U.S. and those are the regions where we're just seeing more pressure. If you look at some other companies have reported, they SKU higher to the U.S.. So we still believe that our oxygenator number on a global basis in and especially in rest of world is indicative of the procedure volumes. So we do think we've held share there. And I think in terms of the quarter, there was an improvement in March. It was not the same as neuromod. It was a little more steady in Jan, Feb, March for that business.

Michael Pollard -- Baird -- Analyst

And then HLM mid singles. I mean that seems to be a good result anything to call out there?

Matthew Dodds -- Senior Vice President, Corporate Development

It is. I think it was a little better than we expected. I think that, and you've seen in some other the capital equipment companies, the hospitals, I think are spending more in capital equipment than we realized and also for us given our share, people still really want to, if they need a new HLM machine and the S5 is still, we consider best in class. In terms of the markets, I'd say overall it was pretty good. I think the U.S. in particular was solid.

Michael Pollard -- Baird -- Analyst

The follow-up also on CPA. I have noticed in March and April, one of your competitors here has had not one but two recalls pediatric oxygenators and a blood pump that I think competes with your ATS solution. So I won't name a name, but I'm curious, have you seen any change in competitive dynamics in the very recent past year as a result of some of these announcements?

Matthew Dodds -- Senior Vice President, Corporate Development

So my take is not that much. They're both relatively small products pediatric oxygenators is a small piece of the pie. So nothing material to think about for share.

Michael Pollard -- Baird -- Analyst

Okay.

Damien McDonald -- Chief Executive Officer

Thank you very much.

Matthew Dodds -- Senior Vice President, Corporate Development

Thanks, Mike. Cheers.

Operator

Your next question comes from Scott Bardo from Berenberg. Your line is open.

Scott Bardo -- Barenberg -- Analyst

Yeah, thanks very much for taking the questions. Yeah, first question please. Just on gross margins, which I'm guessing is a reflection of the mix and neuromodulation. Alex, I wonder if you could help by providing some feeling and outlook as to what it is embedded in your guidance for gross margin for the full year? And also if you could help us understand some of the cost operating cost the evolution throughout the successive quarters that would be helpful. I know that's not easy given your heart valve disposal. Second question please, just related to your pipeline initiatives Sleep Apnea. All all going well Damien, can you can give us some sense of when you think you might be in a position of submitting to the regulator. Just some sense of timing and the hurdles that are required to achieve those milestones. And I've got a quick follow-up. Thanks.

Damien McDonald -- Chief Executive Officer

Matt, you want to go first on the gross margin and costs?

Matthew Dodds -- Senior Vice President, Corporate Development

Yeah, so on gross margins, I think this quarter was indicative of how we're progressing against, against our targets for the year. We're going to continue to see improvements in gross, slight -- slight improvements in gross margins as our volumes continue to grow in epilepsy. And we had a, we had a nice bump this quarter because of HLM, which relative to the overall fleet carries a stronger gross margin as well. So feeling pretty, pretty good about our ability to continue to grow some gross margins over the course of the year. In terms of SG&A, like I said, we held back investments in the first quarter, a bit too just as we -- we're seeing some softer trends and so we were, we're going to see some level of investment expand in the second half of the year, as our sales or revenue velocity picks up.

Damien McDonald -- Chief Executive Officer

So we're going to continue to see the SG&A as a percent of sales to decrease in '21 versus '20. We'll get the economy of scale, sales rebound and we're continuing with our cost discipline and you can see that read through in some of the data that we've, we've published the last few quarters. So I think that's an important change in the behavior here and it's reading through. In terms of OSA, we submitted the IVA at the end of the year, last year we were responding to questions. Our intention is still to kick off the study in mid-'21, again depending on the response times from the FDA, but we're still bullish on the market, we're still bullish on the technology and I like what the team is doing to be able to get this thing going again.

Scott Bardo -- Barenberg -- Analyst

Okay, fine, but no indication on when this product might come to market. I mean presumably, one might expect filing in a couple of years is that too early or...

Matthew Dodds -- Senior Vice President, Corporate Development

That might be a little -- it's Matt. It might be a little early, Scott. We're thinking probably 2024, if we start in the middle of this year. So you've got a year a year of enrollment, a year of enrollment, 6 to 12 months of follow up depending on where we land with negotiations and then the approval program through the FDA. So that puts us in late '23 or early '24.

Scott Bardo -- Barenberg -- Analyst

Thanks. And real quick, just on free cash flow and a little bit soft in the quarter as you highlight, I wonder if you can just help outline again some of the moving parts to improve in that toward your guidance and how that guidance will be affected on disposal of the heart valves?

Damien McDonald -- Chief Executive Officer

Yeah. So I still feel good about our guidance $30 million to $50 million for the full year, the first quarter was softer and that's typical in terms of the way our phasing is from in terms of cash conversion. We had a couple of items, one, was the divestiture-related costs legal and advisory fees that we incurred in the first quarter and then some separation payments related to the organizational restructuring that we did in Q4, Q1.

Scott Bardo -- Barenberg -- Analyst

Thanks Dam.

Damien McDonald -- Chief Executive Officer

Thanks, Scott.

Operator

Your next question comes from Matt Taylor from UBS. Your line is open.

Matthew Dodds -- Senior Vice President, Corporate Development

Good morning, Matt.

Matt Taylor -- UBS -- Analyst

Good morning. Thanks a lot for taking the question. I was hoping you could talk to us a little bit more about expectations for the phasing or cadence of revenue through the year and what's inherent in your guidance for some of the visibility that you have now in Q2. How close are we going to get back to kind of normal seasonality based on some of the underlying trends you're seeing? And can you talk about any factors to think about in terms of a mix of capital or some of those new neuromod implants coming back is big swing factors?

Damien McDonald -- Chief Executive Officer

Yeah. So I think, again, thinking about modeling. The way we've looked at it is that procedures continue to improve throughout the year, and so sequentially quarter-on-quarter, I think that's the first way to think of it. In terms of one of the key drivers for us in neuromodulation, we're pretty convinced that there has been a backlog created in 2020 in the U.S. neuromodulation, particularly around the end of service.

So we think that that will continue roughly a 1,000 patients that we think we're backlogged into third procedures. So we will recapture those over the next one to two years. The new patients as they return to clinics, importantly, as people are prepared to go back as care givers with patients, but we skew pediatric, so about a third of our population is pediatric is those patients go back into the clinic. We view that as a positive pool in the back half of the year as well.

Cardiopulmonary, I think we expect to see a level of procedure acceleration from the backlog of patients that deferred cardiac procedures. We're across a number of procedures cabbage, Aortic valve replacement, Mitral valve, A-fib congenital defects. So we expect cardiopulmonary again to progress throughout the year.

Matt Taylor -- UBS -- Analyst

Okay, thanks for that. And then I was hoping you could just spend a minute and explain the importance of UNCOVER, I hadn't heard you talk about that before. Is that to kind of nice to have that extra data set to right along RECOVER or is that going to be important in terms of the submission strategy or for some other key learnings?

Damien McDonald -- Chief Executive Officer

I think, importantly for interventional psychiatrists, having these biomarkers available and systematically capture is really key, there's not a lot of systematic data about this. And partnering with Verily, I think it's important, and we've coupled that with the RECOVER study. So it's a sub-study inside the RECOVER. So it doesn't impact what we're doing with RECOVER all the timelines of our engagement with CMS. But we believe one of the key aspects of moving through the depression patient set is going to be able to have more and more data about these patients how they react, what things and signals we can use to try and indicate who is going to respond. And so we're pleased that we've got -- someone who is going to have a lot of AI capability to help us on cover that.

Matt Taylor -- UBS -- Analyst

Great. Thank you.

Damien McDonald -- Chief Executive Officer

Thanks, Matt. Jacqueline? Your next question comes from Mike Matson from Needham and Company. Your line is open.

Mike Matson -- Needham and Company -- Analyst

Hi, good morning. Thanks for taking my questions. Given -- hi. I just wanted to ask two about the pipeline project. So starting with DTD and that heart failure. When do you think the earliest we could potentially see data made public from either of those trials? And then what would the forum be where you would try to release that data, the heart failure data for example. I'd imagine you'd want to have that presented at some sort of cardiovascular conference or something?

Matthew Dodds -- Senior Vice President, Corporate Development

Hey, Mike. It's Matt. So for DTD it's really going to come down to CMS' preference. This far along, we're going to kind of defaults to what they prefer in terms of us submitting the data versus presenting it. And we're not going to know that until we get to the point where we believe we can submit it to them. For heart failure, it's probably the ESC or the Heart Failure Society Meeting in September of 2022, that's the next big meeting. We're probably a little tight for the ACC. It could be close, but I would assume ESC heart failure with the possibility of ACC for that data.

Mike Matson -- Needham and Company -- Analyst

Okay, thanks. And then just a question on the adjusted free cash flow guidance that you've given, does that include the proceeds from the Heart Valve sale, I would assume not, but I just wanted to ask about that?

Damien McDonald -- Chief Executive Officer

No, it does not, Mike.

Mike Matson -- Needham and Company -- Analyst

Okay, great. Thank you.

Damien McDonald -- Chief Executive Officer

Thank you, Mike.

Operator

There are no further questions at this time. Damien McDonald, I turn the call back over to you.

Damien McDonald -- Chief Executive Officer

Well, thank you everyone and for kicking off early and we appreciate the questions, and on behalf of the entire team, we appreciate your support and the interest in LivaNova and we look forward to seeing you next quarter. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Matthew Dodds -- Senior Vice President, Corporate Development

Damien McDonald -- Chief Executive Officer

Alex Shvartsburg -- Chief Financial Officer

Rick Wise -- Stifel Nicolaus -- Analyst

Adam Maeder -- Piper Sandler -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Michael Pollard -- Baird -- Analyst

Scott Bardo -- Barenberg -- Analyst

Matt Taylor -- UBS -- Analyst

Mike Matson -- Needham and Company -- Analyst

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