LivaNova PLC 10-Q for FY2023 Q1

LivaNova PLC (LIVN)

10-Q 2023-05-03 For: 2023-03-31

Added on April 10, 2026

About this 10-Q

LivaNova PLC filed this 10-Q on May 3, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $263.42M; up 9.7% from $240.18M a year earlier
Net income: $7.37M; up 146.2% from net income of $2.99M a year earlier
Diluted EPS: $0.14; up 133.3% from $0.06 a year earlier

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Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Class			Outstanding at April 26, 2023
Ordinary Shares - £1.00 par value per share			53,768,134


Abbreviation						Definition
2022 Form 10-K						LivaNova PLC’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023
ACS						Advanced Circulatory Support
ALung						ALung Technologies, Inc.
AOCI						Accumulated other comprehensive income
Bridge Loan Facility						Incremental Facility Amendment No. 1 to the 2021 First Lien Credit Agreement, relating to a €200 million bridge loan facility, dated February 24, 2022 and repaid on July 6, 2022
CEO						Chief Executive Officer
CFO						Chief Financial Officer
CMS						U.S. Centers for Medicare & Medicaid Services
Court of Appeal						Court of Appeal in Milan
Delayed Draw Term Facility						$50 million delayed draw term facility under the 2021 First Lien Credit Agreement resulting from the Incremental Facility Amendment No. 2
DRE						Drug-resistant epilepsy
DTD						Difficult-to-treat depression
ECJ						European Court of Justice
Exchange Act						U.S. Securities Exchange Act of 1934, as amended
ECMO						Extracorporeal membrane oxygenation
FDA						U.S. Food and Drug Administration
FDIC						Federal Deposit Insurance Corporation
FX						Foreign currency exchange rate
Hemolung RAS						Hemolung Respiratory Assist System
ImThera						ImThera Medical, Inc., acquired by LivaNova in 2018, a company developing an implantable neurostimulation device system for the treatment of obstructive sleep apnea
Incremental Facility Amendment No. 2						An incremental facility amendment to the 2021 First Lien Credit Agreement, dated July 6, 2022
Initial Term Facility						$300 million term facility under the 2021 First Lien Credit Agreement resulting from the Incremental Facility Amendment No. 2
ISIN						Sub-body of the Italian Ministry of Economic Development
LivaNova USA						LivaNova USA, Inc.
LSM						LivaNova Site Management S.r.l.
Mitral						Mitral Holdco S.à r.l.
Notes						$287.5 million aggregate principal amount of 3.00% senior notes due December 2025, issued June 17, 2020
NTAP						New Technology Add-on Payment
OCI						Other comprehensive income (loss)
Order						Administrative order
OSA						Obstructive sleep apnea
OSPREY clinical trial						LivaNova’s clinical trial, “Treating Obstructive Sleep Apnea using Targeted Hypoglossal Neurostimulation”
Public Administrations						The Italian Ministry of the Environment and other Italian government agencies
R&D						Research and Development
RECOVER clinical study						LivaNova’s clinical study “A Prospective, Multi-center, Randomized Controlled Blinded Trial Demonstrating the Safety and Effectiveness of VNS Therapy System as Adjunctive Therapy Versus a No Stimulation Control in Subjects With Treatment-Resistant Depression”


Abbreviation						Definition
RSUs						Service-based restricted stock units
SARs						Service-based stock appreciation rights
SEC						U.S. Securities and Exchange Commission
Securities Act						U.S. Securities Act of 1933, as amended
SG&A						Selling, general and administrative expense
SNIA						SNIA S.p.A.
SNIA Litigation Guarantee						A first demand bank guarantee of €270.0 million in connection with the SNIA litigation
SOFR						Secured Overnight Financing Rate
Sorin spin-off						The spin-off of Sorin from SNIA in 2004
SVB						Silicon Valley Bank
Term Facilities						The Initial Term Facility together with the Delayed Draw Term Facility
U.S.						United States of America
U.S. GAAP						Generally accepted accounting principles in the U.S.
USD						U.S. dollars


	Three Months Ended March 31,
	2023		2022
Net revenue	$	263,418	$	240,175
Cost of sales	89,335		71,732
Gross profit	174,083		168,443
Operating expenses:
Selling, general and administrative	124,129		118,525
Research and development	49,986		40,918
Other operating expense	2,310		(505)
Operating (loss) income	(2,342)		9,505
Interest expense	(13,437)		(7,840)
Foreign exchange and other income/(expense)	25,547		3,904
Income before tax	9,768		5,569
Income tax expense	2,371		2,537
Losses from equity method investments	(27)		(39)
Net income	$	7,370	$	2,993

Basic income per share	$	0.14	$	0.06
Diluted income per share	$	0.14	$	0.06

Shares used in computing basic income per share	53,617		53,300
Shares used in computing diluted income per share	53,900		54,176


	March 31, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	214,340	$	214,172
Restricted cash	308,618		301,446
Accounts receivable, net of allowance of $11,487 at March 31, 2023 and $11,862 at December 31, 2022	178,318		183,110
Inventories	142,453		129,379
Prepaid and refundable taxes	24,342		31,708


Prepaid expenses and other current assets	34,946		26,321
Total Current Assets	903,017		886,136
Property, plant and equipment, net	149,060		147,187
Goodwill	774,447		768,787
Intangible assets, net	364,056		368,559
Operating lease assets	36,339		35,830
Investments	21,471		16,266
Deferred tax assets	1,533		1,384
Long-term derivative assets	31,014		54,393
Other assets	13,951		16,231
Total Assets	$	2,294,888	$	2,294,773
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations	$	22,297	$	23,434
Accounts payable	75,730		74,310
Accrued liabilities and other	96,353		81,481

Current litigation provision liability	19,311		29,481
Taxes payable	22,279		16,505
Accrued employee compensation and related benefits	80,159		72,187

Total Current Liabilities	316,129		297,398
Long-term debt obligations	520,201		518,067
Contingent consideration	90,119		85,292

Deferred tax liabilities	8,627		8,516
Long-term operating lease liabilities	28,782		29,548
Long-term employee compensation and related benefits	16,134		16,804
Long-term derivative liabilities	41,285		85,675
Other long-term liabilities	46,270		45,849
Total Liabilities	1,067,547		1,087,149
Commitments and contingencies (Note 6)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,854,241 shares issued and 53,763,715 shares outstanding at March 31, 2023; 53,851,979 shares issued and 53,564,664 shares outstanding at December 31, 2022	82,424		82,424
Additional paid-in capital	2,162,928		2,157,724
Accumulated other comprehensive loss	(41,032)		(48,119)
Accumulated deficit	(976,660)		(984,030)
Treasury stock at cost, 90,526 ordinary shares at March 31, 2023; 287,315 ordinary shares at December 31, 2022	(319)		(375)
Total Stockholders’ Equity	1,227,341		1,207,624
Total Liabilities and Stockholders’ Equity	$	2,294,888	$	2,294,773


	Initial Fair Value of Consideration		Measurement Period Adjustments (1)		Adjusted Fair Value of Consideration
Cash and other considerations	$	15,586	$	—	$	15,586
Contingent consideration	26,369		(9,578)		16,791
Fair value of consideration transferred	$	41,955	$	(9,578)	$	32,377


	Initial Purchase Price Allocation		Measurement Period Adjustments (1)		Adjusted Purchase Price Allocation
Developed technology - 15-year life	$	13,950	$	(11,050)	$	2,900
Goodwill	25,893		977		26,870
Other assets and liabilities, net	2,112		495		2,607
Net assets acquired	$	41,955	$	(9,578)	$	32,377


ALung Acquisition	Fair value at May 2, 2022		Valuation Technique	Unobservable Input	Ranges
Sales-based earnout	$	16,791	Monte Carlo simulation	Risk-adjusted discount rate	7.0%	-	8.4%
				Credit risk discount rate	6.4%	-	8.0%
				Revenue volatility	25.7%
				Projected years of earnout	2023	-	2027


	Fair Value as of March 31, 2023		Fair Value Measurements Using Inputs Considered as:
			Level 1		Level 2		Level 3
Assets:

Derivative assets - designated as cash flow hedges (interest rate swaps)	$	900	$	—	$	900	$	—

Derivative assets - capped call derivatives	31,014		—		—		31,014
Convertible notes receivable	275		—		—		275
	$	32,189	$	—	$	900	$	31,289

Liabilities:

Derivative liabilities - freestanding instruments (FX)	$	1,236	$	—	$	1,236	$	—
Derivative liabilities - embedded exchange feature	41,285		—		—		41,285
Contingent consideration arrangements	90,119		—		—		90,119
	$	132,640	$	—	$	1,236	$	131,404


	Fair Value as of December 31, 2022		Fair Value Measurements Using Inputs Considered as:
			Level 1		Level 2		Level 3
Assets:
Derivative assets - designated as cash flow hedges (interest rate swap)	$	1,333	$	—	$	1,333	$	—
Derivative assets - capped call derivatives	54,393		—		—		54,393
Convertible notes receivable	285		—		—		285
	$	56,011	$	—	$	1,333	$	54,678

Liabilities:
Derivative liabilities - freestanding instruments (FX)	$	5,886	$	—	$	5,886	$	—

Derivative liabilities - embedded exchange feature	85,675		—		—		85,675
Contingent consideration arrangements	85,292		—		—		85,292
	$	176,853	$	—	$	5,886	$	170,967


	Capped Call Derivative Asset		Convertible Notes Receivable		Embedded Exchange Feature Derivative Liability		Contingent Consideration Liability Arrangements
As of December 31, 2022 - long-term	$	54,393	$	285	$	85,675	$	85,292



Changes in fair value	(23,379)		(10)		(44,390)		4,827
Total at March 31, 2023 - long-term	$	31,014	$	275	$	41,285	$	90,119


	March 31, 2023		December 31, 2022		Maturity	Interest Rate
Term Facilities	$	288,022	$	289,294	July 2027	8.20%
2020 Cash Exchangeable Senior Notes	243,320		239,568		December 2025	3.00%
Bank of America Merrill Lynch Banco Múltiplo S.A.	6,715		6,462		July 2023	16.20%
Mediocredito Italiano	1,637		1,601		December 2023	0.50% - 6.59%
Bank of America, U.S.	1,500		1,500		January 2025	7.74%
Other	564		534
Total long-term facilities	541,758		538,959
Less current portion of long-term debt	21,557		20,892
Total long-term debt obligations	$	520,201	$	518,067


Description of Derivative Contract	March 31, 2023		December 31, 2022
Interest rate swap contracts	$	210,000	$	210,000


Total litigation provision liability at December 31, 2022	$	32,487
Payments	(11,568)
Adjustments (1)	1,314
FX and other	137
Total litigation provision liability at March 31, 2023	22,370
Less current portion of litigation provision liability at March 31, 2023	19,311
Long-term portion of litigation provision liability at March 31, 2023 (2)	$	3,059


	Three Months Ended March 31,
	2023		2022
Operating Activities:
Net income	$	7,370	$	2,993
Non-cash items included in net income:
Remeasurement of derivative instruments	(26,281)		(1,355)
Stock-based compensation	10,579		10,256
Amortization	6,355		6,465
Depreciation	5,956		5,626
Amortization of debt issuance costs	5,019		4,412
Remeasurement of contingent consideration to fair value	4,827		(3,773)
Amortization of operating lease assets	2,642		2,653
Other	(184)		1,073
Changes in operating assets and liabilities:
Accounts receivable, net	7,558		1,494
Inventories	(11,342)		(9,637)
Other current and non-current assets	(3,838)		(1,953)
Accounts payable and accrued current and non-current liabilities	21,378		9,957
Taxes payable	972		709
Litigation provision liability	(10,254)		(3,097)
Net cash provided by operating activities	20,757		25,823
Investing Activities:
Purchases of property, plant and equipment	(7,685)		(5,215)
Purchase of investments	(5,136)		(278)
Other	1,337		11
Net cash used in investing activities	(11,484)		(5,482)
Financing Activities:
Repayments of short-term borrowings (maturities greater than 90 days)	(1,974)		—
Repayment of long-term debt obligations	(1,875)		—
Shares repurchased from employees for minimum tax withholding	(1,577)		(1,074)
Proceeds from long-term debt obligations	—		218,342
Payment of debt issuance costs	—		(2,426)
Other	191		35
Net cash (used in) provided by financing activities	(5,235)		214,877
Effect of exchange rate changes on cash, cash equivalents and restricted cash	3,302		(826)
Net increase in cash, cash equivalents and restricted cash	7,340		234,392
Cash, cash equivalents and restricted cash at beginning of period	515,618		207,992
Cash, cash equivalents and restricted cash at end of period	$	522,958	$	442,384


	Three Months Ended March 31,
		2023		2022
Cardiopulmonary
United States		$	36,114	$	38,096
Europe (1)		36,283		32,067
Rest of World		59,675		46,912
		132,072		117,075
Neuromodulation
United States		94,489		87,210
Europe (1)		13,280		12,456
Rest of World		12,954		10,561
		120,723		110,227
Advanced Circulatory Support
United States		9,664		10,963
Europe (1)		80		603
Rest of World		98		117
		9,842		11,683
Other
United States		—		—
Europe (1)		—		—
Rest of World		781		1,190
		781		1,190
Totals
United States		140,267		136,269
Europe (1)		49,643		45,126
Rest of World		73,508		58,780
Total (2)		$	263,418	$	240,175


	March 31, 2023		December 31, 2022
Raw materials	$	80,054	$	70,027
Work-in-process	18,500		15,508
Finished goods	43,899		43,844
	$	142,453	$	129,379


	Ordinary Shares	Ordinary Shares - Amount		Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Stockholders' Equity (1)






December 31, 2022	53,852	$	82,424	$	2,157,724	$	(375)	$	(48,119)	$	(984,030)	$	1,207,624

Stock-based compensation plans	2	—		5,204		56		—		—		5,260
Net income	—	—		—		—		—		7,370		7,370
Other comprehensive income	—	—		—		—		7,087		—		7,087
March 31, 2023	53,854	$	82,424	$	2,162,928	$	(319)	$	(41,032)	$	(976,660)	$	1,227,341


	Change in Unrealized Gain (Loss) on Derivatives		Foreign Currency Translation Adjustments Gain (Loss) (1)		Total
December 31, 2022	$	966	$	(49,085)	$	(48,119)
Other comprehensive loss before reclassifications, before tax	(433)		8,053		7,620
Tax benefit	—		—		—
Other comprehensive loss before reclassifications, net of tax	(433)		8,053		7,620
Reclassification of gain from accumulated other comprehensive loss, before tax	(533)		—		(533)
Reclassification of tax benefit	—		—		—
Reclassification of gain from accumulated other comprehensive loss, after tax	(533)		—		(533)
Net current-period other comprehensive loss, net of tax	(966)		8,053		7,087
March 31, 2023	$	—	$	(41,032)	$	(41,032)

December 31, 2021	$	(945)	$	(6,232)	$	(7,177)
Other comprehensive loss before reclassifications, before tax	(642)		(8,260)		(8,902)
Tax benefit	—		—		—
Other comprehensive loss before reclassifications, net of tax	(642)		(8,260)		(8,902)
Reclassification of loss from accumulated other comprehensive income, before tax	(53)		—		(53)
Reclassification of tax benefit	—		—		—
Reclassification of loss from accumulated other comprehensive income, after tax	(53)		—		(53)
Net current-period other comprehensive loss, net of tax	(695)		(8,260)		(8,955)
March 31, 2022	$	(1,640)	$	(14,492)	$	(16,132)


	Three Months Ended March 31, 2023
	Shares	Weighted Average Grant Date Fair Value
Service-based SARs	974,204	$	19.44
Service-based RSUs	459,818	$	42.30
Market performance-based RSUs	94,561	$	38.95
Operating performance-based RSUs	94,556	$	42.30


	March 31, 2023		December 31, 2022
Legal and other administrative costs	$	15,403	$	8,653
Contract liabilities	11,718		10,226
Operating lease liabilities	9,992		9,379
Interest payable	8,379		(76)
Research and development costs	7,667		7,020
Italian medical device payback law	6,960		6,414
Royalty accrual	3,816		3,950
Provisions for agents, returns and other	2,428		1,678
Current derivative liabilities	1,236		5,886
Restructuring liabilities	798		2,045
Other accrued expenses	27,956		26,306
	$	96,353	$	81,481


	March 31, 2023		December 31, 2022
Available Short-term Liquidity
Cash and cash equivalents	$	214,340	$	214,172
Availability under the 2021 First Lien Credit Agreement	125,000		125,000
Availability under the Delayed Draw Term Facility	50,000		50,000
	$	389,340	$	389,172

Working Capital
Current assets	$	903,017	$	886,136
Current liabilities	316,129		297,398
	$	586,888	$	588,738

Debt Obligations
Current portion of long-term debt	$	21,557	$	20,892
Short-term unsecured borrowing arrangements	740		2,542
Current debt obligations	22,297		23,434
Long-term debt obligations	520,201		518,067
Total debt obligations	$	542,498	$	541,501


Exhibit Number			Document Description
10.1*†			Form of LivaNova PLC 2022 Incentive Award Plan Stock Appreciation Right Grant Notice and Agreement, effective February 2023
10.2*†			Form of LivaNova PLC 2022 Incentive Award Plan Restricted Stock Unit Award Grant Notice and Agreement, effective February 2023
10.3*†			Form of LivaNova PLC 2022 Incentive Award Plan Performance Stock Unit Award Grant Notice and Agreement, effective February 2023
31.1*			Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*			Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of the Chief Executive Officer and Chief Financial Officer of LivaNova PLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*			Interactive Data Files Pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income for the three months ended March 31, 2023 and 2022, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022, (iii) the Condensed Consolidated Balance Sheet as of March 31, 2023 and December 31, 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022, and (vi) the Notes to the Condensed Consolidated Financial Statements
104*			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


	LIVANOVA PLC


Date: May 3, 2023	By:	/s/ WILLIAM A. KOZY
		William A. Kozy
		Interim Chief Executive Officer and Chair of the Board
		(Principal Executive Officer)


	LIVANOVA PLC


Date: May 3, 2023	By:	/s/ ALEX SHVARTSBURG
		Alex Shvartsburg
		Chief Financial Officer
		(Principal Accounting and Financial Officer)