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livn-20240630
false12/312024Q20001639691P5DP10D0.016398Note 14. Subsequent 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
Form 10-Q

(Mark One)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 001-37599
https://cdn.kscope.io/945918486d4fca2900237ac771e2dc44-lnlogomain280x78.jpg
LivaNova PLC
(Exact name of registrant as specified in its charter)
England and Wales ................... 98-1268150
(State or other jurisdiction of .......... (I.R.S. Employer
incorporation or organization) ........ Identification No.)
20 Eastbourne Terrace, London, United Kingdom, W2 6LG
(Address of principal executive offices) ....................... (Zip Code)
Registrant’s telephone number, including area code: (44) (0) 203 325-0660
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares - £1.00 par value per shareLIVNThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑     No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐     No ☑
ClassOutstanding at July 26, 2024
Ordinary Shares - £1.00 par value per share54,297,960


LIVANOVA PLC
TABLE OF CONTENTS
ItemDescriptionPage
PART I. FINANCIAL INFORMATION
 PART II. OTHER INFORMATION





DEFINITIONS
In this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, the following terms and abbreviations have the meanings listed below. “LivaNova” and the “Company” refer to LivaNova PLC and its consolidated subsidiaries.
AbbreviationDefinition
2015 PlanLivaNova PLC 2015 Incentive Award Plan
2015 Plan AmendmentAmendment No. 2 to the LivaNova PLC 2015 Incentive Award Plan
2021 First Lien Credit AgreementFirst Lien Credit Agreement between LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., and Goldman Sachs Bank USA, as First Lien Administrative Agent and First Lien Collateral Agent, entered into on August 13, 2021
2023 Form 10-KLivaNova PLC’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024
2024 Restructuring PlanA plan, initiated during the first quarter of 2024, to enhance LivaNova’s focus on its core Cardiopulmonary and Neuromodulation segments
2025 Capped CallsPrivately-negotiated capped call transactions entered into with certain financial institutions
2025 Notes$287.5 million aggregate principal amount 3.00% unsecured cash exchangeable senior notes due 2025 by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, issued by LivaNova USA on June 17, 2020
2025 Notes Repurchase TransactionRepurchase of $230.0 million aggregate principal amount of the 2025 Notes in privately-negotiated transactions from proceeds from the issuance of the 2029 Notes
2029 Capped CallsPrivately-negotiated capped call transactions entered into with certain financial institutions
2029 Notes$345.0 million aggregate principal amount 2.50% unsecured convertible senior notes due 2029 by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, issued by LivaNova PLC on March 8, 2024
A&R 2022 PlanAmended and Restated LivaNova PLC 2022 Incentive Award Plan
A&R 2022 Plan AmendmentAmendment No. 1 to the Amended and Restated LivaNova PLC 2022 Incentive Award Plan
ACSAdvanced Circulatory Support
ALungALung Technologies, Inc.
AOCIAccumulated other comprehensive income (loss)
BarclaysBarclays Bank Ireland PLC
Capped Call TransactionsThe 2025 Capped Calls and the 2029 Capped Calls
CEOChief Executive Officer
CFOChief Financial Officer
CMSThe U.S. Centers for Medicare & Medicaid Services
CODMChief Operating Decision Maker
Convertible Notes Measurement Period
Any specified ten consecutive trading day measurement period
Court of AppealCourt of Appeal in Milan
Delayed Draw Term Facility$50.0 million delayed draw term facility under the 2021 First Lien Credit Agreement resulting from the Incremental Facility Amendment No. 2
DREDrug-resistant epilepsy
DTDDifficult-to-treat depression
ECJEuropean Court of Justice
Exchange ActU.S. Securities Exchange Act of 1934, as amended
FXForeign currency exchange rate
HLMHeart-lung machine
ImTheraImThera 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
1

AbbreviationDefinition
Incremental Facility Amendment No. 3An incremental facility amendment to the 2021 First Lien Credit Agreement, dated March 8, 2024
Initial Term Facility$300.0 million term facility under the 2021 First Lien Credit Agreement, resulting from the Incremental Facility Amendment No. 2
ISIN
National Inspectorate for Nuclear Safety and Radiation Protection, a sub-body of the Italian Ministry of Economic Development
LivaNova PLCA public limited company organized under the laws of England and Wales on February 20, 2015
LivaNova USALivaNova USA, Inc.
LSMLivaNova Site Management S.r.l.
MDLFederal multi-district litigation in the U.S. District Court for the Middle District of Pennsylvania
NasdaqNasdaq Global Select Market
OCIOther comprehensive income (loss)
Option CounterpartiesCertain financial institutions with whom LivaNova USA or LivaNova PLC, as applicable, has entered into the 2025 Capped Calls and 2029 Capped Calls
OSAObstructive sleep apnea
OSPREY clinical trial
LivaNova’s clinical trial, “Treating Obstructive Sleep Apnea using Targeted Hypoglossal Neurostimulation”
Pillar Two
Organisation for Economic Co-operation and Development Global Anti-Base Erosion Model Rules (Pillar Two)
Public AdministrationsThe Italian Ministry of the Environment and other Italian government agencies
R&DResearch and Development
ReportThis Quarterly Report on Form 10-Q
RSUsRestricted stock units
SARsStock appreciation rights
SECU.S. Securities and Exchange Commission
Securities ActU.S. Securities Act of 1933, as amended
SG&ASelling, general, and administrative expenses
SNIASNIA S.p.A.
SNIA Litigation GuaranteeA first demand bank guarantee of €270.0 million in connection with the SNIA environmental litigation
Sorin Sorin S.p.A.
Term FacilitiesThe Initial Term Facility, together with the Delayed Draw Term Facility
U.S.United States of America
U.S. GAAPGenerally Accepted Accounting Principles in the U.S.
UKUnited Kingdom
UK ActFinance (No. 2) Act 2023
USDU.S. dollar
VNS TherapyLivaNova Vagus Nerve Stimulation Therapy
2

INTELLECTUAL PROPERTY, TRADEMARKS, AND TRADE NAMES
This report may contain references to LivaNova’s proprietary intellectual property, including among others:
•Trademarks for LivaNova’s Neuromodulation systems, the VNS Therapy™ System, and LivaNova’s proprietary pulse generator products: Model 102 (Pulse™), Model 102R (Pulse Duo™), Model 103 (Demipulse™), Model 104 (Demipulse Duo™), Model 106 (AspireSR™), Model 1000 (SenTiva™), Model 1000-D (SenTiva™ Duo), and Model 8103 (Symmetry™).
•Trademarks for LivaNova’s Cardiopulmonary products and systems: Essenz™, S5™, S5 Pro™, B-Capta™, Inspire™, Heartlink™, XTRA™, 3T Heater-Cooler™, Connect™, and Revolution™.
•Trademarks for LivaNova’s advanced circulatory support systems: TandemLife™, TandemHeart™, TandemLung™, ProtekDuo™, LifeSPARC™, ALung™, Hemolung™, Respiratory Dialysis™, and ActivMix™.
•Trademarks for LivaNova’s obstructive sleep apnea system: ImThera™ and aura6000™.
These trademarks and trade names are the property of LivaNova or the property of LivaNova’s consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, LivaNova’s trademarks and trade names referred to in this Report may appear without the ™ symbol, but such references are not intended to indicate in any way that the Company will not assert, to the fullest extent under applicable law, LivaNova’s rights to these trademarks and trade names.
3

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this Report, other than statements of historical or current fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. These statements include, but are not limited to, LivaNova’s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events, and involve known and unknown risks that are difficult to predict. As a result, the Company’s actual financial results, performance, achievements, or prospects may differ materially from those expressed or implied by these forward-looking statements. Generally, you can identify forward-looking statements by the use of words such as “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “should,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” “foresee” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by LivaNova and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties, and other important factors, many of which are beyond the Company’s control, that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Report, and include, but are not limited to, the following risks and uncertainties: volatility in the global market and worldwide economic conditions, including as caused by the invasion of Ukraine, the evolving instability in the Middle East, inflation, changing interest rates, foreign exchange fluctuations, changes to existing trade agreements and relationships between the U.S. and other countries, including the implementation of sanctions; cyber-attacks or other disruptions to the Company’s information technology systems or those of third parties with which the Company interacts; costs of complying with privacy and security of personal information requirements and laws; risks relating to supply chain pressures; changes in technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies; failure to obtain approvals or reimbursement in relation to the Company’s products; failure to establish, expand or maintain market acceptance of the Company’s products for the treatment of the Company’s approved indications; failure to develop and commercialize new products and the rate and degree of market acceptance of such products; unfavorable results from clinical studies or failure to meet milestones; failure to comply with, or changes in, laws, regulations or administrative practices affecting government regulation of the Company’s products; risks relating to recalls, enforcement actions or product liability claims; changes or reduction in reimbursement for the Company’s products or failure to comply with rules relating to reimbursement of healthcare goods and services; failure to comply with anti-bribery laws; losses or costs from pending or future lawsuits and governmental investigations, including in the case of the Company’s 3T Heater-Cooler and SNIA environmental litigations; risks associated with environmental laws and regulations as well as environmental liabilities, violations, protest voting, and litigation; product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs; failure to retain key personnel, prevent labor shortages, or manage labor costs; the failure of the Company’s R&D efforts to keep up with the rapid pace of technological development in the medical device industry; the risks relating to the impact of climate change and the risk of ESG pressures from internal and external stakeholders; the risk of quality concerns and the impacts thereof; failure to protect the Company’s proprietary intellectual property; failure of new acquisitions to further the Company’s strategic objectives or strengthen the Company’s existing businesses; the potential for impairments of intangible assets, goodwill, and other long-lived assets; risks relating to the Company’s indebtedness; effectiveness of the Company’s internal controls over financial reporting; changes in the Company’s profitability and/or failure to manage costs and expenses; fluctuations in future quarterly operating results and/or variations in revenue and operating expenses relative to estimates; changes in tax laws and regulations, including exposure to additional income tax liabilities; and other unknown or unpredictable factors that could harm the Company’s financial performance.
Other factors that could cause LivaNova’s actual results to differ from projected results are described in: (1) “Part II, Item 1A. Risk Factors” and elsewhere in this and the Company’s other Quarterly Reports on Form 10-Q, (2) the Company’s 2023 Form 10-K, (3) the Company’s reports and registration statements filed and furnished from time to time with the SEC, and (4) other announcements LivaNova makes from time to time.
Readers are cautioned not to place undue reliance on the Company’s forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise. You should read the following discussion and analysis in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere in this Report. Operating results for the six months ended June 30, 2024 are not necessarily indicative of future results, including the full fiscal year. You should also refer to the Company’s “Annual Consolidated Financial Statements,” “Notes” thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors” contained in LivaNova’s 2023 Form 10-K and in the Company’s Quarterly Reports on Form 10-Q.
FINANCIAL INFORMATION AND CURRENCY OF FINANCIAL STATEMENTS
All of the financial information included in this Report has been prepared in accordance with U.S. GAAP. The reporting currency of the Company’s condensed consolidated financial statements is USD.
4

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Net revenue$318,575 $293,882 $613,487 $557,300 
Cost of sales99,710 88,685 187,232 178,020 
Gross profit218,865 205,197 426,255 379,280 
Operating expenses:
Selling, general, and administrative129,118 125,872 258,981 250,001 
Research and development44,737 51,124 90,401 101,110 
Other operating expenses4,844 10,825 20,461 13,135 
Operating income40,166 17,376 56,412 15,034 
Interest expense(15,532)(14,809)(31,425)(28,246)
Loss on debt extinguishment— — (25,482)— 
Foreign exchange and other income/(expense)(3,045)2,713 (12,116)28,260 
Income (loss) before tax21,589 5,280 (12,611)15,048 
Income tax expense5,227 4,097 12,944 6,468 
Loss from equity method investments(29)(28)(55)(55)
Net income (loss)$16,333 $1,155 $(25,610)$8,525 
Basic income (loss) per share$0.30 $0.02 $(0.47)$0.16 
Diluted income (loss) per share$0.30 $0.02 $(0.47)$0.16 
Shares used in computing basic income (loss) per share54,238 53,803 54,202 53,713 
Shares used in computing diluted income (loss) per share54,591 53,977 54,202 53,942 
    

See accompanying notes to the condensed consolidated financial statements.
5

LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Net income (loss)$16,333 $1,155 $(25,610)$8,525 
Other comprehensive (loss) income:
Unrealized loss on cash flow hedges— — — (966)
Tax effect— — — — 
Net of tax— — — (966)
Foreign currency translation adjustment(7,613)5,453 (24,936)13,506 
Other comprehensive (loss) income, net of tax(7,613)5,453 (24,936)12,540 
Comprehensive income (loss)$8,720 $6,608 $(50,546)$21,065 

See accompanying notes to the condensed consolidated financial statements.
6

LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
 June 30, 2024December 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents$329,237 $266,504 
Restricted cash303,884 311,368 
Accounts receivable, net of allowance of $10,903 at June 30, 2024 and $12,019 at December 31, 2023
200,889 215,072 
Inventories154,722 147,887 
Prepaid and refundable taxes21,931 20,145 
Prepaid expenses and other current assets36,026 27,182 
Total Current Assets1,046,689 988,158 
Property, plant, and equipment, net158,055 154,181 
Goodwill766,368 782,941 
Intangible assets, net248,195 261,178 
Operating lease assets49,737 50,845 
Investments17,217 22,843 
Deferred tax assets113,011 118,858 
Long-term derivative assets39,553 38,496 
Other assets14,363 12,063 
Total Assets$2,453,188 $2,429,563 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations$19,742 $18,111 
Accounts payable81,323 80,845 
Accrued liabilities and other97,971 107,301 
Current litigation provision liability15,968 10,756 
Taxes payable23,317 23,340 
Accrued employee compensation and related benefits64,665 94,630 
Total Current Liabilities302,986 334,983 
Long-term debt obligations605,432 568,543 
Contingent consideration81,174 80,902 
Deferred tax liabilities10,842 11,567 
Long-term operating lease liabilities43,512 45,388 
Long-term employee compensation and related benefits16,392 17,254 
Long-term derivative liabilities105,409 45,569 
Other long-term liabilities44,899 47,729 
Total Liabilities1,210,646 1,151,935 
Commitments and contingencies (Note 6)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 54,403,904 shares issued and 54,296,008 shares outstanding at June 30, 2024; 53,942,151 shares issued and 53,918,222 shares outstanding at December 31, 2023
83,070 82,533 
Additional paid-in capital2,204,580 2,189,517 
Accumulated other comprehensive loss(52,819)(27,883)
Accumulated deficit(992,094)(966,484)
Treasury stock at cost, 107,896 ordinary shares at June 30, 2024; 23,929 ordinary shares at December 31, 2023
(195)(55)
Total Stockholders’ Equity1,242,542 1,277,628 
Total Liabilities and Stockholders’ Equity$2,453,188 $2,429,563 
See accompanying notes to the condensed consolidated financial statements.
7

LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended June 30,
20242023
Operating Activities:
Net (loss) income$(25,610)$8,525 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss on debt extinguishment25,482 — 
Stock-based compensation18,425 16,290 
Remeasurement of derivative instruments12,465 (25,332)
Depreciation12,441 12,040 
Amortization of debt issuance costs10,195 9,535 
Amortization of intangible assets8,615 12,747 
Impairment of investment in ShiraTronics, Inc.
5,750 — 
Deferred income tax expense5,556 85 
Amortization of operating lease assets4,377 5,107 
Remeasurement of contingent consideration to fair value272 7,334 
Other704 113 
Changes in operating assets and liabilities:
Accounts receivable, net8,398 (707)
Inventories(10,938)(25,439)
Other current and non-current assets(3,366)(8,321)
Accounts payable and accrued current and non-current liabilities(25,380)(4,638)
Taxes payable820 2,738 
Litigation provision liability5,131 (7,257)
Net cash provided by operating activities53,337 2,820 
Investing Activities:
Purchases of property, plant, and equipment(18,554)(13,344)
Purchase of investments(374)(5,409)
Other(4)614 
Net cash used in investing activities(18,932)(18,139)
Financing Activities:
Proceeds from long-term debt obligations335,513 50,000 
Repayment of long-term debt obligations(238,750)(11,808)
Payment of debt extinguishment costs(38,953)— 
Purchase of capped calls(31,637)— 
Proceeds from unwind of capped calls22,523 — 
Payment of contingent consideration(13,750)— 
Shares repurchased from employees for minimum tax withholding(8,125)(5,841)
Proceeds from exercise of stock options3,682 17 
Payment of debt issuance costs(5,698)— 
Repayments of short-term borrowings (maturities greater than 90 days)— (1,974)
Other472 385 
Net cash provided by financing activities25,277 30,779 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(4,433)3,282 
Net increase in cash, cash equivalents, and restricted cash55,249 18,742 
Cash, cash equivalents, and restricted cash at beginning of period577,872 515,618 
Cash, cash equivalents, and restricted cash at end of period$633,121 $534,360 
See accompanying notes to the condensed consolidated financial statements.
8

LIVANOVA PLC AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Unaudited Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of LivaNova and the notes thereto as of and for the three and six months ended June 30, 2024 and 2023 have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated balance sheet of LivaNova at December 31, 2023 has been derived from audited consolidated financial statements contained in LivaNova’s 2023 Form 10-K, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the operating results of LivaNova and its subsidiaries for the three and six months ended June 30, 2024 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying LivaNova’s 2023 Form 10-K.
Cybersecurity Incident
As previously disclosed, in November 2023, LivaNova detected a cybersecurity incident that resulted in a disruption of portions of the Company’s information technology systems. Promptly after detecting the issue, LivaNova began an investigation with assistance from external cybersecurity experts and coordinated with law enforcement. The Company implemented remediation measures to mitigate the impact of the incident. The Company continues to assess the nature and scope of the affected data and analyze its legal notification obligations, and the Company is notifying affected individuals and regulators as required by applicable law. The Company believes the incident is contained and mitigation efforts are complete.
Through June 30, 2024, LivaNova incurred direct costs totaling $8.3 million in connection with this cybersecurity incident, including $2.9 million and $5.7 million during the three and six months ended June 30, 2024, respectively. These costs primarily include external cybersecurity experts, legal counsel, and system restoration costs, and do not include business interruption losses or potential losses associated with class action-related litigations, as discussed in “Note 6. Commitments and Contingencies.” The Company expects to incur additional costs related to this incident in the future. LivaNova maintains insurance, including cyber insurance, which is subject to certain retentions and policy limitations that may limit the amount that the insurers may pay the Company. During the second quarter of 2024, LivaNova filed a claim for insurance reimbursement of covered costs and business interruption losses related to this incident for which it has yet to receive reimbursement or recognize the amount filed as a receivable. The Company’s insurance coverage may be insufficient or unavailable to cover any or all costs and expenses related to this cybersecurity incident.
Significant Accounting Policies
LivaNova’s significant accounting policies are included within “Note 2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting Policies” and “Note 3. Revenue Recognition” of LivaNova’s 2023 Form 10-K.
Note 2. Restructuring
From time to time, LivaNova initiates restructuring plans to leverage economies of scale, streamline distribution and logistics, and strengthen operational and administrative effectiveness in order to reduce overall costs.
On January 5, 2024, the Board of Directors of LivaNova approved the 2024 Restructuring Plan to enhance the Company’s focus on its core Cardiopulmonary and Neuromodulation segments. The main component of the 2024 Restructuring Plan is to wind down the ACS segment, which the Company anticipates will be substantially complete by the end of 2024. In connection with the 2024 Restructuring Plan, LivaNova expects to incur pre-tax restructuring charges in the range of $15.0 million to $20.0 million. The anticipated charges are comprised of $10.0 million to $12.0 million in severance expenses and retention bonuses and $5.0 million to $8.0 million in other expenses, including lease termination, facilities remediation, and asset disposal expenses. Retention bonuses will be earned over the period of service, which is expected to be over the full year of 2024. All future cash payments related to these restructuring charges are expected to be substantially paid out during 2024. These estimates are subject to change. LivaNova recognized restructuring expense under the 2024 Restructuring Plan of $2.1 million and $11.4 million in other operating expenses on its condensed consolidated statements of income (loss) for the three and six months ended June 30, 2024, respectively.
9

The following table presents a reconciliation of the beginning and ending balance of the accruals and other reserves recorded in connection with LivaNova’s restructuring plans included in accounts payable and accrued liabilities and other on the condensed consolidated balance sheets (in thousands):
Employee Severance and Other Termination CostsOtherTotal
Balance at December 31, 2023 (1)
$911 $— $911 
Charges9,084 2,280 11,364 
Cash payments(6,627)(1,780)(8,407)
Balance at June 30, 2024
$3,368 $500 $3,868 
(1)Represents restructuring plans initiated prior to 2024.
The following table presents restructuring expense by reportable segment (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Neuromodulation $— $144 $— $560 
Other (1)
2,139 62 11,364 371 
$2,139 $206 $11,364 $931 
(1)Other primarily includes restructuring expense not allocated to segments.
Note 3. Fair Value Measurements
LivaNova reviews its fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities in the fair value hierarchy. There were no transfers between Level 1, Level 2, or Level 3 during the six months ended June 30, 2024 and 2023.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the level in the fair value hierarchy at which the Company’s assets and liabilities are measured on a recurring basis (in thousands):
Balance Sheet LocationJune 30, 2024Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - freestanding instruments (FX)Prepaid expenses and other current assets$914 $— $914 $— 
Derivative assets - capped call derivatives (2025 Notes)Long-term derivative assets7,439 — — 7,439 
Derivative assets - capped call derivatives (2029 Notes)Long-term derivative assets32,114 — — 32,114 
Convertible notes receivableOther assets275 — — 275 
$40,742 $— $914 $39,828 
Liabilities:
Derivative liabilities - freestanding instruments (FX) Accrued liabilities and other$39 $— $39 $— 
Derivative liabilities - embedded derivative (2025 Notes)Long-term derivative liabilities10,017 — — 10,017 
Derivative liabilities - embedded derivative (2029 Notes)Long-term derivative liabilities95,392 — — 95,392 
Contingent consideration arrangementContingent consideration81,174 — — 81,174 
$186,622 $— $39 $186,583 
10

Balance Sheet LocationDecember 31, 2023
Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - capped call derivatives (2025 Notes)Long-term derivative assets$38,496 $— $— $38,496 
Convertible notes receivableOther assets275 — — 275 
$38,771 $— $— $38,771 
Liabilities:
Derivative liabilities - freestanding instruments (FX)Accrued liabilities and other$3,883 $— $3,883 $— 
Derivative liabilities - embedded derivative (2025 Notes)Long-term derivative liabilities45,569 — — 45,569 
Contingent consideration arrangementContingent consideration80,902 — — 80,902 
Contingent consideration arrangementAccrued liabilities and other13,750 — — 13,750 
$144,104 $— $3,883 $140,221 
Reconciliation of Level 3 Assets and Liabilities
The following tables present reconciliations of recurring fair value measurements that use significant unobservable inputs (Level 3) (in thousands):
Three Months Ended June 30, 2024
Capped Call Derivative Assets
(2025 Notes)		Capped Call Derivative Assets
(2029 Notes)		Convertible Notes ReceivableEmbedded Derivative Liability
(2025 Notes)		Embedded Derivative Liability
(2029 Notes)		Contingent Consideration Liability Arrangement
March 31, 2024$8,010 $33,607 $269 $10,632 $94,288 $80,769 
Changes in fair value(571)(1,493)6 (615)1,104 405 
June 30, 2024$7,439 $32,114 $275 $10,017 $95,392 $81,174 
Three Months Ended June 30, 2023
Capped Call Derivative Assets
(2025 Notes)		Convertible Notes ReceivableEmbedded Derivative Liability
(2025 Notes)		Contingent Consideration Liability Arrangements
March 31, 2023$31,014 $275 $41,285 $90,119 
Changes in fair value11,020 — 12,420 2,507 
June 30, 2023$42,034 $275 $53,705 $92,626 
Six Months Ended June 30, 2024
Capped Call Derivative Assets
(2025 Notes)		Capped Call Derivative Assets
(2029 Notes)		Convertible Notes ReceivableEmbedded Derivative Liability
(2025 Notes)		Embedded Derivative Liability
(2029 Notes)		Contingent Consideration Liability Arrangements
December 31, 2023
$38,496 $— $275 $45,569 $— $94,652 
Additions— 31,637 — — 87,457 — 
Cash receipt(22,524)— — — — — 
Payment— — — (36,915)— (13,750)
Changes in fair value(8,533)477 — 1,363 7,935 272 
June 30, 2024$7,439 $32,114 $275 $10,017 $95,392 $81,174 
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Six Months Ended June 30, 2023
Capped Call Derivative Assets
(2025 Notes)		Convertible Notes ReceivableEmbedded Derivative Liability
(2025 Notes)		Contingent Consideration Liability Arrangements
December 31, 2022$54,393 $285 $85,675 $85,292 
Changes in fair value(12,359)(10)(31,970)7,334 
June 30, 2023$42,034 $275 $53,705 $92,626 
Embedded and Capped Call Derivatives
In June 2020, the Company issued $287.5 million in notes due in 2025 and entered into related capped call transactions. In March 2024, the Company issued $345.0 million in notes due in 2029 and entered into related capped call transactions. The 2025 Notes include an embedded derivative that is bifurcated from the 2025 Notes, and the 2029 Notes include an embedded derivative that is bifurcated from the 2029 Notes (collectively the “embedded derivatives”). In connection with the issuance of the 2029 Notes, the Company repurchased an aggregate principal amount of $230.0 million of the 2025 Notes and unwound a corresponding portion of the 2025 Capped Calls. For additional information, refer to “Note 4. Financing Arrangements.” The embedded derivatives are measured at fair value using a binomial lattice model and estimated discounted cash flows that utilize observable and unobservable market data. The Capped Call Transactions are measured at fair value using the Black-Scholes model utilizing observable and unobservable market data, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable.
The embedded derivatives and Capped Call Transactions are classified as Level 3 because the Company uses historical volatility and implied volatility from actual options traded to determine expected stock price volatility, an unobservable input that is significant to the valuation. In general, an increase in LivaNova’s stock price or stock price volatility would increase the fair value of the embedded derivatives and Capped Call Transactions which would result in an increase in net expense. As the remaining time to the expiration of the derivatives decreases, the fair value of the derivatives decreases. The future impact of the derivatives on net income depends on how significant inputs such as stock price, stock price volatility, and time to the expiration of the derivatives change in relation to other inputs. Changes in the fair value of the embedded derivatives and capped call derivatives are recognized in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss).
The following table presents the stock price volatility utilized in determining the fair value of LivaNova’s capped call derivative assets and embedded derivative liabilities:
June 30, 2024Capped Call Derivative Assets
(2025 Notes)		Capped Call Derivative Assets
(2029 Notes)		Embedded Derivative Liability
(2025 Notes)		Embedded Derivative Liability
(2029 Notes)
Stock price volatility41 %39 %41 %39 %
Contingent Consideration Arrangements
The following table presents the fair value of LivaNova’s Level 3 contingent consideration arrangements by acquisition (in thousands):
June 30, 2024December 31, 2023
ImThera$81,174 $80,902 
ALung— 13,750 
$81,174 $94,652 
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The ImThera business combination involved contingent consideration arrangements comprised of potential cash payments upon the achievement of a certain regulatory milestone and a sales-based earnout associated with sales of products. The sales-based earnouts are valued using projected sales from LivaNova’s internal strategic plan. These arrangements are Level 3 fair value measurements and included the following significant unobservable inputs as of June 30, 2024:
ImThera AcquisitionValuation TechniqueUnobservable InputInputs
Regulatory milestone-based paymentDiscounted cash flowDiscount rate9.0%
Probability of payment85%
Projected payment year2026
Sales-based earnoutMonte-Carlo simulationRisk-adjusted discount rate
14.2% - 14.6%
Credit risk discount rate
9.0% - 9.4%
Revenue volatility25.1%
Probability of payment85%
Projected years of earnout
2026 - 2029
Note 4. Financing Arrangements
The following table presents a summary of LivaNova’s long-term debt obligations (in thousands, except interest rates):
June 30, 2024December 31, 2023MaturityInterest Rate
Term Facilities$320,684 $328,459 July 20278.65%
2029 Notes249,838 — March 20292.50%
2025 Notes52,052 255,500 December 20253.00%
Bank of America, U.S.1,500 1,500 January 20258.19%
Other463 568 
Total long-term facilities624,537 586,027 
Less: Current portion of long-term debt19,105 17,484 
Total long-term debt obligations$605,432 $568,543 
Revolving Credit and Term Facilities
The outstanding principal amount of LivaNova’s short-term unsecured revolving credit agreements and other agreements with various banks was $0.6 million at each of June 30, 2024 and December 31, 2023 with an average interest rate of 4.94% and loan terms ranging from overnight to 364 days as of June 30, 2024.
On March 8, 2024, LivaNova and LivaNova USA entered into Incremental Facility Amendment No. 3, which provides for LivaNova USA to obtain revolving commitments in an aggregate principal amount of $225.0 million. The $225.0 million revolving facility is subject to the terms and conditions of the 2021 First Lien Credit Agreement, as amended thereof, and replaced the previously existing $125.0 million revolving facility under the 2021 First Lien Credit Agreement. The $225.0 million revolving facility is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. The $225.0 million revolving facility matures on March 8, 2029. There were no outstanding borrowings under the revolving facilities under the 2021 First Lien Credit Agreement as of June 30, 2024 and December 31, 2023.
The 2021 First Lien Credit Agreement, as amended, also requires the payment of certain commitment fees on the unused portion of the commitments, at a variable percentage based on LivaNova’s Total Net Leverage Ratio. As of June 30, 2024 and December 31, 2023, the applicable commitment fee percentage was 0.5% per annum.
The 2021 First Lien Credit Agreement, as amended, contains customary representations, warranties, and covenants, including the requirement to maintain a Senior Secured First Lien Net Leverage Ratio of not more than 3.50 to 1.00, calculated as the ratio of Consolidated Senior Secured First Lien Net Indebtedness to Consolidated EBITDA, as defined in the credit agreement, for the period of four consecutive fiscal quarters ended on the calculation date and an Interest Coverage Ratio of not less than 2.00 to 1.00, calculated as the ratio of Consolidated EBITDA to Consolidated Interest Expense, both as defined in the credit agreement, for the period of four consecutive fiscal quarters ended on the calculation date. As of June 30, 2024, the Company was in compliance with the financial covenants contained in the 2021 First Lien Credit Agreement.
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Debt discount and issuance costs related to the Initial Term Facility were $9.6 million. Amortization of debt discount and issuance costs for the Initial Term Facility was $0.5 million and $1.0 million for the three and six months ended June 30, 2024, respectively, and $0.5 million and $1.0 million for the three and six months ended June 30, 2023, respectively. Amortization of debt discount and issuance costs is included in interest expense on the condensed consolidated statements of income (loss). The unamortized discount and issuance costs related to the Initial Term Facility as of June 30, 2024 and December 31, 2023 were $5.9 million and $6.8 million, respectively. Issuance costs related to the Delayed Draw Term Facility were $1.6 million and were fully amortized as of December 31, 2023. Amortization of issuance costs for the Delayed Draw Term Facility was zero and $0.5 million for the three and six months ended June 30, 2023, respectively.
2029 Notes Issuance and 2025 Notes Repurchase Transactions
On March 8, 2024, LivaNova issued $345.0 million aggregate principal amount of 2.50% notes due 2029 by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act, which included exercise in full of the initial purchasers’ option to purchase up to an additional $45.0 million principal amount of the 2029 Notes. The 2029 Notes are senior unsecured obligations of the Company. The Company used part of the proceeds from the issuance of the 2029 Notes to repurchase $230.0 million aggregate principal amount of the 2025 Notes in privately-negotiated transactions for an aggregate cash repurchase consideration of $270.5 million.
The 2025 Notes Repurchase Transaction was treated as a debt extinguishment. The carrying value of the related 2025 Notes, which included the unamortized debt issuance cost and discounts and the fair value of the embedded derivative, was derecognized, and the 2029 Notes issued were recognized at fair value. The difference between the consideration used to extinguish the 2025 Notes, the carrying value of the 2025 Notes (including unamortized debt discount and issuance cost) and the fair value of the embedded derivative was recognized as an extinguishment loss of $25.5 million recorded through loss on debt extinguishment on LivaNova’s condensed consolidated statements of income (loss). Any third-party costs incurred directly related to the 2025 Notes Repurchase Transaction were deferred and capitalized as additional debt issuance cost to be amortized on the 2029 Notes.
Contemporaneously with the 2025 Notes Repurchase Transaction, the Company and the financial institutions party to the 2025 Capped Calls agreed to terminate a portion of the 2025 Capped Calls in a notional amount corresponding to the amount of 2025 Notes repurchased. The Company received $22.5 million in cash consideration, the fair value of the terminated portion, upon settlement. The terms of the remaining 2025 Capped Calls remain unchanged and continue to be classified as long-term derivative assets.
2029 Notes
The sale of the 2029 Notes resulted in $332.1 million in net proceeds to the Company after deducting issuance costs. Interest is payable semiannually in arrears on March 15 and September 15. The effective interest rate of the 2029 Notes at June 30, 2024 was 9.79%. The 2029 Notes mature on March 15, 2029, unless earlier repurchased, redeemed or converted.
Debt discount and issuance costs related to the 2029 Notes were $99.6 million, including $87.5 million of discount related to the embedded derivative (discussed below), and $12.1 million of new debt issuance costs related to the 2029 Notes. Amortization of debt discount and issuance cost for the 2029 Notes was $3.9 million and $4.8 million for the three and six months ended June 30, 2024, respectively, and is included in interest expense on the condensed consolidated statements of income (loss). The unamortized debt issuance cost and discount related to the 2029 Notes as of June 30, 2024 was $95.2 million.
Commencing after the calendar quarter ending on June 30, 2024, and prior to the close of business on the business day immediately preceding December 15, 2028, the 2029 Notes will be convertible only under the following circumstances:
•During any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of ordinary shares of the Company for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130%, or $90.22 per share, of the conversion price on each applicable trading day;
•At any time during the five business day period immediately after any ten consecutive trading day period, if the trading price per $1,000 principal amount of the 2029 Notes for each trading day of the Convertible Notes Measurement Period was less than 98% of the product of the last reported sale price of the ordinary shares on each such trading day and the conversion rate on each such trading day;
•If the Company calls any or all of the 2029 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding December 15, 2028; or
•Upon the occurrence of specified corporate events (as set forth in the indenture governing the 2029 Notes).
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Upon any conversion of the 2029 Notes, LivaNova will be required to pay cash up to the aggregate principal amount of the 2029 Notes to be converted and may elect to settle the conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted in cash, shares, or a combination of the two.
On or after December 15, 2028, holders of the 2029 Notes may convert their 2029 Notes at their option at any time until the close of business on the second Scheduled Trading Day (as defined in the indenture governing the 2029 Notes) immediately preceding the maturity date.
There have been no changes to the initial conversion price of the 2029 Notes since issuance. During the three months ended June 30, 2024, the conditions for conversion were not met. Therefore, the 2029 Notes are not convertible during the three months ending September 30, 2024.
The Company may redeem the 2029 Notes in whole or in part at its option on or after March 22, 2027 for cash if the last reported sale price per ordinary share has been at least 130%, or $90.22 per share, of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. Additionally, the Company may redeem the 2029 Notes at its option, in whole but not in part, in connection with certain tax-related events.
Holders of the 2029 Notes may require the Company to repurchase their 2029 Notes upon the occurrence of a Fundamental Change (as defined in the indenture governing the 2029 Notes) at a repurchase price equal to the principal amount thereof plus accrued and unpaid interest to, but excluding, the repurchase date. In addition, in connection with certain corporate events or if the Company issues a notice of redemption, the Company will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2029 Notes in connection with such corporate event or during the relevant redemption period.
The indenture governing the 2029 Notes contains customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee (as defined in the indenture governing the 2029 Notes) or holders of at least 25% in aggregate principal amount of the 2029 Notes then outstanding may declare the entire principal amount of all the 2029 Notes, and accrued and unpaid interest on such 2029 Notes, to be immediately due and payable. Upon events of default in connection with specified bankruptcy events involving the Company, the 2029 Notes will become due and payable immediately.
2029 Notes Embedded Derivative
The embedded derivative of the 2029 Notes requires bifurcation from the 2029 Notes and is accounted for as a derivative liability. The fair value of the 2029 Notes embedded derivative at the time of issuance was $87.5 million and was recorded as a debt discount. The debt discount is amortized as interest expense using the effective interest method over the term of the 2029 Notes, together with other debt issuance cost and discounts. The 2029 Notes embedded derivative liability is carried on the condensed consolidated balance sheets at its estimated fair value and is adjusted at the end of each reporting period, with the unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss). The fair value of the 2029 Notes embedded derivative liability was $95.4 million as of June 30, 2024.
2029 Capped Calls
In connection with pricing the 2029 Notes, the Company entered into privately-negotiated capped call transactions with certain financial institutions. The 2029 Capped Calls have an initial strike price of $69.40, subject to certain adjustments, which corresponds to the initial conversion price of the 2029 Notes. The 2029 Capped Calls are subject to anti-dilution adjustments substantially similar to the 2029 Notes and cover the number of LivaNova’s ordinary shares underlying the 2029 Notes. The 2029 Capped Calls are generally expected to offset cash payments or the cash equivalent value of ordinary shares upon conversion if the market value per ordinary share is greater than the strike price, with such offset being subject to an initial cap price of $94.28 per share. If the Company’s share price exceeds the cap price at the time of valuation in respect of a conversion, the proceeds under the 2029 Capped Calls would not fully offset the excess principal amount due to the holders of the 2029 Notes. The 2029 Capped Calls expire on March 15, 2029 and must be settled in cash. If the 2029 Capped Calls are early terminated, settlement occurs at their termination value, which is equal to their fair value at the time of the early termination. The 2029 Capped Calls are carried on the condensed consolidated balance sheets as a derivative asset at their estimated fair value and are adjusted at the end of each reporting period, with unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss). The fair value of the 2029 Capped Calls was $32.1 million as of June 30, 2024. The 2029 Capped Calls were classified as long-term assets as of June 30, 2024.
2025 Notes
On June 17, 2020, LivaNova USA issued $287.5 million aggregate principal amount of 3.00% notes due 2025 by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2025 Notes are senior
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unsecured obligations of the Company. The sale of the 2025 Notes resulted in $278.0 million in net proceeds to the Company after deducting issuance costs. Interest is payable semiannually in arrears on June 15 and December 15 of each year. On March 8, 2024, in connection with the issuance of the 2029 Notes, the Company used part of the net proceeds to repurchase $230.0 million aggregate principal amount of the 2025 Notes in privately-negotiated transactions. For additional information, refer to “2029 Notes Issuance and 2025 Notes Repurchase Transactions” above. The effective interest rate of the 2025 Notes at June 30, 2024 was 9.16%. The 2025 Notes mature on December 15, 2025 unless earlier exchanged, repurchased, or redeemed.
Debt discount and issuance costs related to the 2025 Notes were $82.0 million and included $75.0 million of discount attributable to the embedded derivative, discussed below, and $7.0 million of allocated issuance costs to the 2025 Notes related to legal, bank, and accounting fees. Upon the closing of the 2025 Notes Repurchase Transaction in March 2024, the remaining unamortized debt discount and issuance costs related to the 2025 Notes were $5.8 million. Amortization of debt discount and issuance costs for the 2025 Notes was $0.8 million and $4.2 million for the three and six months ended June 30, 2024, respectively, and $3.9 million and $7.7 million for the three and six months ended June 30, 2023, respectively, and is included in interest expense on the condensed consolidated statements of income (loss). The unamortized discount related to the 2025 Notes as of June 30, 2024 and December 31, 2023 was $5.4 million and $32.0 million, respectively.
Holders of the 2025 Notes are entitled to exchange the 2025 Notes at any time during specified periods, at their option. This includes the right to exchange the 2025 Notes during any calendar quarter, if the last reported sale price of LivaNova’s ordinary shares, with a nominal value of £1.00 per share, is greater than or equal to 130% of the exchange price, or $79.27 per share, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. The exchange condition was not satisfied on June 30, 2024. As a result, the Company has included its obligations from the 2025 Notes and the associated embedded derivative as a long-term liability on the condensed consolidated balance sheet as of June 30, 2024. The 2025 Notes are exchangeable solely into cash and are not exchangeable into ordinary shares of LivaNova or any other security under any circumstances. The initial exchange rate for the 2025 Notes is 16.3980 ordinary shares per $1,000 principal amount of 2025 Notes (equivalent to an initial exchange price of $60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the 2025 Notes.
There have been no changes to the initial exchange price of the 2025 Notes since issuance. During the three months ended June 30, 2024, the conditions for exchange were not met. Therefore, the 2025 Notes are not exchangeable during the three months ending September 30, 2024.
The Company may redeem the 2025 Notes at its option prior to the 51st scheduled trading day immediately preceding the maturity date, in whole or in part, if the last reported sale price per ordinary share has been at least 130% of the exchange price, or $79.27 per share, then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the 2025 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Additionally, the Company may redeem the 2025 Notes at its option, prior to their stated maturity, in whole but not in part, in connection with certain tax-related events.
2025 Notes Embedded Derivative
The embedded derivative of the 2025 Notes requires bifurcation from the 2025 Notes and is accounted for as a derivative liability. The fair value of the 2025 Notes embedded derivative at the time of issuance was $75.0 million and was recorded as a debt discount. The debt discount is amortized as interest expense using the effective interest method over the term of the 2025 Notes, together with other debt issuance costs and discounts. The 2025 Notes embedded derivative liability is carried on the condensed consolidated balance sheets at its estimated fair value and is adjusted at the end of each reporting period, with the unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss). The fair value of the 2025 Notes embedded derivative liability was $10.0 million and $45.6 million as of June 30, 2024 and December 31, 2023, respectively.
2025 Capped Calls
In connection with the pricing of the 2025 Notes, the Company entered into privately-negotiated capped call transactions with certain financial institutions. The 2025 Capped Calls cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2025 Notes, the number of LivaNova’s ordinary shares underlying the 2025 Notes and are generally expected to offset any cash payments the Company is required to make upon exchange of the 2025 Notes in excess of the principal amount thereof in the event that the market value per ordinary share, as measured under the 2025 Capped Calls, is greater than the strike price of the 2025 Capped Calls, with such offset being subject to an initial cap price of $100.00 per share. If the
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Company’s share price exceeds the cap price at the time of valuation in respect of an exchange, the proceeds under the 2025 Capped Calls would not fully offset the excess principal amount due to the holders of the 2025 Notes. The 2025 Capped Calls expire on December 15, 2025 and must be settled in cash. If the 2025 Capped Calls are early terminated, settlement occurs at their termination value, which is equal to their fair value at the time of the early termination. The 2025 Capped Calls are carried on the condensed consolidated balance sheets as a derivative asset at their estimated fair value and are adjusted at the end of each reporting period, with unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss). In connection with the issuance of the 2029 Notes, the Company repurchased an aggregate principal amount of $230.0 million of the 2025 Notes and unwound a corresponding portion of the 2025 Capped Calls at the fair value of such portion of the 2025 Capped Calls. The fair value of the 2025 Capped Calls then in existence was $7.4 million and $38.5 million as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, the 2025 Capped Calls were classified as long-term assets.
Note 5. Derivatives and Risk Management
Due to the global nature of LivaNova’s operations, the Company is exposed to FX fluctuations. LivaNova enters into FX derivative contracts to reduce the impact of FX fluctuations on earnings and cash flow.
LivaNova is also exposed to equity price risk in connection with its 2025 Notes and 2029 Notes, including exchange/conversion and settlement provisions based on the price of its ordinary shares at exchange/conversion or maturity of the 2025 Notes and 2029 Notes. The Capped Call Transactions associated with the 2025 Notes and 2029 Notes also include settlement provisions that are based on the price of LivaNova’s ordinary shares, subject to a capped price per share. LivaNova does not enter into derivative contracts for speculative purposes.
LivaNova measures all outstanding derivatives each period end at fair value and reports the fair value as either financial assets or liabilities on the condensed consolidated balance sheets. At inception of the contract, the derivative is designated as either a freestanding derivative or a hedge. Derivatives that are not designated as hedging instruments are referred to as freestanding derivatives with changes in fair value included in earnings. These derivatives are intended to serve as economic hedges and follow the cash flows of the economic hedged item. The cash flows from these derivative contracts are reported as operating activities on LivaNova’s condensed consolidated statements of cash flows.
If the derivative qualifies for hedge accounting, changes in the fair value of the derivative will be recorded in AOCI until the hedged item is recognized in earnings upon settlement/termination. Interest rate swap gains and losses in AOCI are reclassified to interest expense on LivaNova’s condensed consolidated statements of income (loss). LivaNova evaluates hedge effectiveness at inception. LivaNova had no designated hedging instruments as of June 30, 2024 and December 31, 2023.
Counterparty Credit Risk
LivaNova is exposed to credit risk in the event of non-performance by the counterparties to the Company’s derivatives.
The Option Counterparties are financial institutions. To limit LivaNova’s credit risk, the Company selected financial institutions with a minimum long-term investment grade credit rating. LivaNova’s exposure to the credit risk of the Option Counterparties is not secured by any collateral. If such an Option Counterparty becomes subject to insolvency proceedings, LivaNova will become an unsecured creditor in those proceedings, with a claim equal to the Company’s exposure at that time under the 2025 Capped Calls and/or 2029 Capped Calls, as applicable, with that Option Counterparty.
To manage credit risk with respect to LivaNova’s other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors their respective market positions. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any transactions with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
Freestanding FX Derivative Contracts
The gross notional amount of freestanding FX derivative contracts not designated as hedging instruments outstanding as of June 30, 2024 and December 31, 2023 was $179.0 million and $223.4 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans and trade receivables. LivaNova recorded net gains for these freestanding derivatives of $1.7 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively, and net gains (losses) of $4.9 million and $(0.9) million for the six months ended June 30, 2024 and 2023, respectively. These gains and losses are included in foreign exchange and other income/(expense) on LivaNova’s condensed consolidated statements of income (loss).
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Cash Flow Hedges
Historically, LivaNova entered into interest rate swaps associated with the Initial Term Facility, which qualified for and were designated as cash flow hedges. The Company’s outstanding interest rate swaps expired on April 6, 2023. LivaNova elected not to renew the interest rate swaps. Interest expense associated with the Initial Term Facility is principally offset by holding a significant portion of the Term Facilities in a depository account, which earns a floating rate of interest.
The pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in OCI and the amount reclassified to earnings from AOCI were as follows (in thousands):
Six Months Ended June 30, 2023
Description of Derivative ContractLocation in Earnings of Reclassified Gain or LossLoss Recognized in OCIGain Reclassified from AOCI to Earnings
Interest rate swap contractsInterest expense$(433)$533 
Balance Sheet Presentation
LivaNova offsets fair value amounts associated with its derivative instruments that are executed with the same counterparty under master netting arrangements on the Company’s condensed consolidated balance sheets. Master netting arrangements include a right to set off or net together purchases and sales of similar products in the settlement process.
The following tables present the fair value and the location of derivative contracts reported on the condensed consolidated balance sheets (in thousands):
Derivative AssetsDerivative Liabilities
June 30, 2024Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Not Designated as Hedging Instruments:
Capped call derivatives (2025 Notes)Long-term derivative assets$7,439 
Capped call derivatives (2029 Notes)Long-term derivative assets32,114 
Embedded derivative (2025 Notes)Long-term derivative liabilities$10,017 
Embedded derivative (2029 Notes)Long-term derivative liabilities95,392 
FX derivative contractsPrepaid expenses and other current assets914 Accrued liabilities and other39 
Total derivatives not designated as hedging instruments$40,467 $105,448 
Derivative AssetsDerivative Liabilities
December 31, 2023Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Not Designated as Hedging Instruments:
Capped call derivatives (2025 Notes)Long-term derivative assets$38,496 
FX derivative contractsAccrued liabilities and other$3,883 
Embedded derivative (2025 Notes)Long-term derivative liabilities45,569 
Total derivatives not designated as hedging instruments$38,496 $49,452 
(1)For the classification of inputs used to evaluate the fair value of LivaNova’s derivatives, refer to “Note 3. Fair Value Measurements.”
Note 6. Commitments and Contingencies
Saluggia Site Hazardous Substances
LSM, formerly a subsidiary of Sorin, one of the companies that merged into LivaNova PLC in 2015, manages site services for the campus in Saluggia, Italy. In addition to being a former LivaNova manufacturing facility, the Saluggia campus is also the location of manufacturing facilities of third parties, a cafeteria for workers, and storage facilities for hazardous substances and
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equipment previously used in a nuclear research center, later turned nuclear medicine business, between the 1960s and the late 1990s. Pursuant to authorization from the Italian government, LSM performs ordinary maintenance, secures the facilities, monitors air and water quality, and files applicable reports with the competent environmental authorities.
In 2020, LSM received correspondence from ISIN requesting that, within five years, LSM demonstrate the financial capacity to meet its obligations under Italian law to clean and dismantle any contaminated buildings and equipment, as well as to deliver hazardous substances to a national repository. This repository will be built by the Italian government at a location and time yet to be determined. ISIN subsequently published Technical Guide n. 30, which identifies the technical criteria, and general safety and protection requirements for the design, construction, operation, and dismantling of temporary storage facilities for the hazardous substances. In January 2021, a list of 67 potential sites for the national repository was published.
Although there is no legal obligation to begin any work or deliver the hazardous substances, as the performance of these obligations is contingent on the construction of the as-yet unbuilt national repository, based on the aforementioned factors, the Company concluded its obligation to clean, dismantle, and deliver any hazardous substances to a national repository is probable and reasonably estimable. The estimated liability as of June 30, 2024 was €35.6 million ($38.1 million), which represented the low end of the estimated range of loss of €35.6 million ($38.1 million) to €45.4 million ($48.6 million). The estimated liability as of December 31, 2023 was €35.8 million ($39.7 million).
SNIA Environmental Litigation
Sorin was created as a result of a spin-off from SNIA in 2004 and in 2015, Sorin was merged into LivaNova. SNIA subsequently became insolvent, and the Public Administrations sought compensation from SNIA in an aggregate amount of approximately $3.7 billion for remediation costs relating to the environmental damage at chemical sites previously operated by SNIA’s other subsidiaries.
There are proceedings relating to the SNIA bankruptcy to which LivaNova is not a party in the Bankruptcy Court of Udine and the Bankruptcy Court of Milan. In 2011, the Bankruptcy Court of Udine held that the Public Administrations were not creditors of either SNIA or its subsidiaries in connection with their claims in the Italian insolvency proceedings. The Public Administrations appealed. In 2016, the Court of Udine rejected the appeal, and the Public Administrations appealed to the Italian Supreme Court. Similarly, in 2014, the Bankruptcy Court of Milan held that the Public Administrations were not creditors of either SNIA or its subsidiaries. The Public Administrations appealed. In April 2022, the Bankruptcy Court of Milan declared the Public Administrations to be a non-privileged creditor of SNIA for up to €454.0 million, and the Public Administrations appealed to the Italian Supreme Court.
In 2012, SNIA filed a civil action against Sorin in the Civil Court of Milan asserting joint liability of a parent and a spun-off company; the Public Administrations entered voluntarily into the proceeding, asking Sorin, as jointly liable with SNIA, to pay compensation for SNIA’s environmental damages. In 2016, the Court of Milan dismissed all legal actions of SNIA and of the Public Administrations further requiring the Public Administrations to pay Sorin €292,000 ($312,440 as of June 30, 2024) for legal fees. The Public Administrations appealed the 2016 Decision to the Court of Appeal. On March 5, 2019, the Court of Appeal issued a partial decision on the merits declaring Sorin/LivaNova jointly liable with SNIA for SNIA’s environmental liabilities in an amount up to the fair value of the net worth received by Sorin because of the spin-off of Sorin from SNIA in 2004, an estimated €572.1 million ($612.1 million as of June 30, 2024). LivaNova appealed the partial decision on liability to the Italian Supreme Court in August 2019.
In 2021, the Court of Appeal delivered the remainder of its decision, ordering LivaNova to pay damages of €453.6 million ($485.3 million as of June 30, 2024). LivaNova appealed the decision on damages in December 2021. On February 21, 2022, the Court of Appeal notified the Company that it granted the Company a suspension with respect to the payment of damages until a decision has been reached on the appeal to the Italian Supreme Court. This suspension was subject to LivaNova providing a first demand bank guarantee of €270.0 million ($288.9 million as of June 30, 2024) within 30 calendar days, and on March 21, 2022, LivaNova delivered the guarantee, thereby satisfying the condition. For additional information on the financing of the guarantee, refer to “Note 12. Supplemental Financial Information.”
In 2022, in response to one of a number of appeals asserted by LivaNova, the Italian Supreme Court issued an ordinance, a procedural document, whereby the Italian Supreme Court referred a question on interpretation of a European directive on demergers to the ECJ. Specifically, the ordinance asked the ECJ to provide a binding decision as to whether a company resulting from a demerger can be held jointly and severally liable not only for the established liabilities of the demerged company that were articulated at the time of demerger, but also for the environmental liabilities of the demerged company that materialized after the demerger which are derived from actions performed prior to the demerger. On July 29, 2024, the ECJ issued a judgment in response to the ordinance. The ECJ judgment states that a demerged company can be held responsible for liabilities not established prior to a demerger as long as the liabilities derive from the conduct of a demerged company prior to
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the demerger. The ECJ judgment also states that national law should determine whether liability for damages stemming from conduct after a demerger can be assigned to a demerged company. The Italian Supreme Court is expected to incorporate the ECJ’s judgment and issue a decision in response to all of the appeals of LivaNova, and counter-appeals submitted by the Public Administrations. While the timing of the decision by the Italian Supreme Court is uncertain, the Company does not expect that a decision will be issued until at least 2025. LivaNova has not recognized a liability in connection with this matter because any potential loss is not currently probable.
Product Liability Litigation
The Company continues to be involved in litigation involving LivaNova’s 3T device. The litigation includes the cases remaining in the MDL, various U.S. state court cases, and in jurisdictions outside the U.S. As of August 1, 2024, the Company was aware of approximately 65 filed and unfiled claims worldwide. The complaints generally seek damages and other relief based on theories of strict liability, negligence, breach of express and implied warranties, failure to warn, design and manufacturing defect, fraudulent and negligent misrepresentation or concealment, unjust enrichment, and violations of various state consumer protection statutes.
During the three and six months ended June 30, 2024, LivaNova recorded an additional liability of $2.7 million and $9.1 million, respectively, due to new information received about the nature of certain claims. As of June 30, 2024 and December 31, 2023, the provision for these matters was $19.0 million and $13.9 million, respectively. While the amount accrued represents LivaNova’s best estimate for those filed and unfiled claims worldwide of which LivaNova is aware and believes are both probable and estimable at this time, the actual liability for resolution of these matters may vary from the Company’s provision. A provision for the remaining claims has not been recorded, because a potential loss is not determined to be probable, or a potential loss or range of potential loss is not reasonably estimable at this time.
The following table presents the changes in the litigation provision liability for the six months ended June 30, 2024 (in thousands):
Total litigation provision liability at December 31, 2023
$13,860 
Payments(3,966)
Adjustments (1)
9,097 
FX and other(14)
Total litigation provision liability at June 30, 202418,977 
Less: Current portion of litigation provision liability at June 30, 202415,968 
Long-term portion of litigation provision liability at June 30, 2024 (2)
$3,009 
(1)Adjustments to the litigation provision are included in other operating expenses on the condensed consolidated statements of income (loss).
(2)Included in other long-term liabilities on the condensed consolidated balance sheets.
Italian MedTech Payback Measure
As previously disclosed, in 2015, the Italian Parliament introduced rules regarding public contracts with the National Healthcare System for the supply of goods and services. In particular, the law introduced a payback measure requiring companies selling medical devices in Italy to repay a percentage of the healthcare expenditures exceeding the regional maximum caps for medical devices. In the intervening years since the rules were first issued, there has been considerable uncertainty about how the law will operate and what the exact timeline is for finalization. In August 2022, a decree was published which provided guidance and timetables for the rule. In response, LivaNova filed an appeal at the Administrative Court against the Decree of the Ministry of Health, assessing the amount payable and against the payback law. LivaNova also filed appeals against the regions requesting payments. In August 2023, the Administrative Court upheld LivaNova’s request to suspend the effect of the requests for payment by the regions, pending the decision by the Administrative Court on the merits of the case. In November 2023, the Administrative Court, in a separate matter, asked the Constitutional Court whether the payback law was compliant with the Italian Constitution and pending the decision by the Constitutional Court, all cases brought by medical device companies in this matter were suspended. On July 22, 2024, the Constitutional Court determined that the payback law is compliant with the Italian Constitution and that companies may reduce their payment obligations between 2015-2018 to 48% of the amount originally charged to companies. Based on market and product information, as previously disclosed, and the recent ruling by the Constitutional Court, the amount reserved for this matter was $15.0 million and $8.2 million as of June 30, 2024 and December 31, 2023, respectively, and is included in accrued liabilities and other in the condensed consolidated balance sheets. However, the actual liability could vary. Amounts recognized associated with the
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Italian medtech payback measure are recorded as a reduction to net revenue in the condensed consolidated statements of income (loss).
Cyber Litigation
In connection with the cybersecurity incident initially reported on November 20, 2023, the Company and/or its subsidiaries are named as defendants in six putative class (and subclass) action lawsuits filed in the United States District Court for the Southern District of Texas in June and July 2024. The complaints allege tort and contract-related common law claims and violations of the Illinois Consumer Fraud Act. The complaints seek damages, equitable and injunctive relief, and an award of costs, attorney fees, and expenses, among other relief. The Company has not yet filed responses to these lawsuits. LivaNova has not recognized a liability in connection with this matter, because a potential loss is neither probable nor reasonably estimable.
Other Matters
Additionally, LivaNova is the subject of various pending or threatened legal actions and proceedings that arise in the ordinary course of LivaNova’s business. These matters are subject to many uncertainties and outcomes that are not predictable and that may not be known for extended periods of time. Since the outcome of these matters cannot be predicted with certainty, the costs associated with them could have a material adverse effect on LivaNova’s consolidated results of operations, financial position or liquidity.
Note 7. Stockholders' Equity
The tables below present the condensed consolidated statements of stockholders’ equity as of and for the three and six months ended June 30, 2024 and 2023 (in thousands):
Ordinary SharesOrdinary Shares - AmountAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
March 31, 202454,296 $82,975 $2,192,676 $(481)$(45,206)$(1,008,427)$1,221,537 
Stock-based compensation plans108 95 11,904 286 — — 12,285 
Net income— — — — — 16,333 16,333 
Other comprehensive loss— — — — (7,613)— (7,613)
June 30, 202454,404 $83,070 $2,204,580 $(195)$(52,819)$(992,094)$1,242,542 
March 31, 202353,854 $82,424 $2,162,928 $(319)$(41,032)$(976,660)$1,227,341 
Stock-based compensation plans50 17 6,418 224 — — 6,659 
Net income— — — — — 1,155 1,155 
Other comprehensive income— — — — 5,453 — 5,453 
June 30, 202353,904 $82,441 $2,169,346 $(95)$(35,579)$(975,505)$1,240,608 
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Ordinary SharesOrdinary Shares - AmountAdditional Paid-In CapitalTreasury StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
December 31, 202353,942 $82,533 $2,189,517 $(55)$(27,883)$(966,484)$1,277,628 
Issuance of shares— 440 — (440)— — — 
Stock-based compensation plans462 97 15,063 300 — — 15,460 
Net loss— — — — — (25,610)(25,610)
Other comprehensive loss— — — — (24,936)— (24,936)
June 30, 202454,404 $83,070 $2,204,580 $(195)$(52,819)$(992,094)$1,242,542 
December 31, 202253,852 $82,424 $2,157,724 $(375)$(48,119)$(984,030)$1,207,624 
Issuance of shares— — — — — — — 
Stock-based compensation plans52 17 11,622 280 — — 11,919 
Net income— — — — — 8,525 8,525 
Other comprehensive income— — — — 12,540 — 12,540 
June 30, 202353,904 $82,441 $2,169,346 $(95)$(35,579)$(975,505)$1,240,608 
The tables below present the change in each component of AOCI, net of tax, and the reclassifications out of AOCI into net income for the six months ended June 30, 2024 and 2023 (in thousands):
Foreign Currency Translation Adjustments (1)
Total
December 31, 2023$(27,883)$(27,883)
Other comprehensive loss before reclassifications, before tax(