UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

Form 10-Q

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 þ     No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (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, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, 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 our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, and include but are not limited to the risks and uncertainties summarized below:

LIVANOVA PLC AND SUBSIDIARIES’SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

The accompanying condensed consolidated financial statements of LivaNova as of, and for the three and nine months ended September 30, 2017March 31, 2019 and September 30, 2016,March 31, 2018, have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.” and such principles, “U.S. GAAP”) 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, 20162018 has been derived from audited financial statements contained in our 20162018 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 (consisting of only normal recurring adjustments) considered necessary for a fair presentationstatement of the operating results of LivaNova and its subsidiaries, for the three and nine months ended September 30, 2017,March 31, 2019 and are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our 20162018 Form 10-K.

Based on our current business plan, we believe that our existing cash and cash equivalents, future cash generated from operations and borrowings will be sufficient to fund our expected operating needs, working capital requirements, R&D opportunities, capital expenditures, obligations anticipated for the structurelitigation involving our 3T device and debt service requirements over the 12-month period beginning from the issuance date of these financial statements. Accordingly, there are no conditions present as of the Mergers, managementissuance date of these financial statements that raise substantial doubt about our ability to continue as a going concern. Our liquidity could be adversely affected by a material deterioration of future operating results.

Our significant accounting policies are detailed in "Note 2:2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting Policies" and “Note 3. Revenue Recognition” of our 20162018 Form 10-K. A further explanationChanges to our accounting policies as a result of our Foreign Currencyadopting the new lease accounting policy isstandard are discussed below:below.

We determine if an arrangement is or contains a lease at inception. Operating lease assets and operating lease liabilities for subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollarsrecognized based on a combinationthe present value of both currentthe future minimum lease payments over the lease term at the latter of our lease standard effective date for adoption or the lease commencement date. Variable lease payments, such as common area rent maintenance charges and historical exchange rates, while their revenues earnedrent escalations not known upon lease commencement, are not included in determination of the minimum lease payments and expenses incurred are translated into U.S. dollars at average period exchange rates. Translation adjustments are included as ‘Accumulated other comprehensive income (loss)’ (“AOCI”)will be expensed in the condensed consolidated balance sheets. Gainsperiod in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement in determining the present value of future payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. We used the incremental borrowing rate available nearest to our adoption date for leases that commenced prior to that date. The operating lease asset also includes any lease payments made in advance and losses arising from transactions denominated inexcludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a currency different from an entity’s functional currency are included in ‘Foreign exchange and other (losses) gains’ in our condensed consolidated statements of income (loss).straight-line basis over the lease term.

ImThera manufactures an implantable device for the treatment of our strategic growth initiatives, on May 2, 2017,obstructive sleep apnea that stimulates multiple tongue muscles via the hypoglossal nerve, which opens the airway while a patient is sleeping. ImThera has a commercial presence in the European market, and an FDA pivotal study is ongoing in the U.S.

On January 16, 2018, we acquired the remaining 51% equity interests86% outstanding interest in Caisson Interventional, LLCImThera Medical, Inc. (“Caisson”ImThera”) for a purchase price of up to $72.0 million, net of $6.3 million of debt forgiveness, consisting of $18.0 million paid at closing, $14.4 million to be paid after 12 months, and contingentcash consideration of up to $39.6$225 million. Cash in the amount of $78.3 million was paid at closing with the balance to be paid based on achievement of a schedule driven primarily bycertain regulatory approvalsmilestone and a sales-based earnout.

The following table presentsGoodwill arising from the preliminary purchase price allocation at fair value for the CaissonImThera acquisition, (in thousands):

The results of the initial cash payment was depositedImThera acquisition added $0.1 million in escrow for future claims indemnification. Of this amount, $2.0 million is included in ‘Prepaid expensesrevenue and other current assets’ and the remaining $1.0 million is included in ‘Other long-term assets’ onoperating losses during the condensed consolidated balance sheet as of September 30, 2017.

TandemLife is focused on the delivery of arrangements that arose fromleading-edge temporary life support systems, including cardiopulmonary and respiratory support solutions. TandemLife complements our Cardiovascular portfolio, and expands our existing line of cardiopulmonary products.

Our 2015 and 2016 Reorganization Plans (the “Plans”) were initiated October 2015 and March 2016, respectively, in conjunction with the completion of the Mergers. We initiated theseinitiate restructuring plans to leverage economies of scale, streamline distribution and logistics and strengthen operational and administrative effectiveness in order to reduce overall costs. Costs associated with these plans were reported as ‘Restructuring expenses’restructuring expenses in ourthe operating results in theof our condensed consolidated statements of income (loss).

In December 2018, we initiated a reorganization plan (the “2018 Plan”) in order to reduce manufacturing and operational costs associated with our Cardiovascular facilities in Saluggia and Mirandola, Italy and Arvada, Colorado. We estimate that the Plans2018 Plan will result in a net reduction of 326approximately 75 personnel and is expected to be completed by the end of which 292 have occurred as of September 30, 2017.

At December 31, 2016, we recognized a liability for a product remediation plan related to our 3T Heater-Cooler device (“3T device”). The remediation plan we developed consists primarily of a modification of the 3T device design to include internal sealing and the addition of a vacuum system to new and existing devices. These changes are intended to address regulatory actions and to reduce further the risk of possible dispersion of aerosols from 3T devices in the operating room. We concluded that it was probable that a liability had been incurred upon management’s approval of the plan and the commitments made by management to various regulatory authorities globally in November and December 2016, and furthermore, the cost associated with the plan was reasonably estimable. The deployment of this solution for commercially distributed devices has been dependent upon final validation and verification of the design changes and approval or clearance by regulatory authorities worldwide, including FDA clearance in the U.S. It is reasonably possible that our estimate of the remediation liability could materially change in future periods due to the various significant assumptions involved such as customer behavior, market reaction and the timing of approvals or clearance by regulatory authorities worldwide.

In April 2017, we obtained CE Mark in Europe for the design change of the 3T device, and in May 2017 we completed our first vacuum canister and internal sealing upgrade on a customer-owned device. We are currently implementing the vacuum canister and internal sealing upgrade program in as many countries as possible throughoutuntil all devices are upgraded. On October 11, 2018, after review of information provided by us, the remainder of 2017. FDA concluded that we could commence the vacuum canister and internal sealing upgrade program in the U.S.

As part of the remediation plan, we also intendcontinue to performoffer a no-charge deep disinfection service (deep cleaning service) for 3T device users who have reported confirmed M. chimaera mycobacterium contamination. Although the deep disinfection service is not yet available in the U.S., it is currently offered in many countries around the world and will be expanded to additional geographies as we receive the required regulatory approvals. Finally,On April 12, 2018, the FDA agreed to allow us to move forward with the deep cleaning service in the U.S., adding to the growing list of countries around the world in which we offer this service. Also, we are continuing to offer the loaner program for 3T devices, initiated in the fourth quarter of 2016, to provide existing 3T device users with a new loaner 3T device at no charge pending regulatory approval and implementation of the vacuum system addition and deep disinfection service worldwide. This loaner program began in the U.S. and is being made available progressively on a global basis, prioritizing and allocating devices to 3T device users based on pre-established criteria.

It is reasonably possible thatWe recognized product remediation expenses during the three months ended March 31, 2019, of $2.9 million and $3.7 million during the three months ended March 31, 2018. Product remediation expenses include internal labor costs, costs to remediate certain inspectional observations made by the FDA at our estimateMunich facility and costs associated with the incorporation of the modification of the 3T device design into the next generation 3T device. These costs and related legal costs are expensed as incurred and are not included within the product remediation liability could materially change in future periods due topresented above. During the various significant assumptions involved, such as customer behavior, market reaction and the timingfourth quarter of approvals or clearance by regulatory authorities worldwide. We recognize changes in estimates on2018, we recognized a prospective basis. At this stage, no$294.1 million liability has

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table provides information by level for assets and liabilities that are measured at fair value on a recurring basis (in thousands):

Our recurring fair value measurements, using significant unobservable inputs (level(Level 3), relate solely to our contingent consideration liability. Refer to “Note 2. Acquisitions” forThe following table provides a discussionreconciliation of the changes inbeginning and ending balance of the fair value of our contingent consideration liability.liability (in thousands):

The outstanding principal amount of long-term debt (in thousands, except interest rates):

Revolving Credit

Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. In addition, due to certain loans with floating interest rates, we are also subject to the impact of changes in interest rates on our interest payments. We enter into foreign currency exchange rate (“FX”) derivative contracts and interest rate swap contracts to reduce the impact of foreign currency exchange rate and interest rate fluctuations on earnings and cash flow. We measure all outstanding derivatives each period end at fair value and report the fair value as either financial assets or liabilities inon the condensed

consolidated balance sheets. We do not enter into derivative contracts for speculative purposes. 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.

If the derivative qualifies for hedge accounting, depending on the nature of the hedge and hedge effectiveness, changes in the fair value of the derivative will either be recognized immediately in earnings or recorded in accumulated other AOCIcomprehensive income (“AOCI”) until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to theour condensed consolidated statementstatements of income (loss) as shown in the tables below and interest rate swap gains and losses in AOCI are reclassified to interest expense in theon our condensed consolidated statementstatements of income (loss). We evaluate hedge effectiveness at inception and on an ongoing basis. If a derivative is no longer expected to be highly effective hedge accounting is discontinued. Hedge ineffectiveness, if

The gross notional amount of freestanding derivativesFX derivative contracts, not designated as hedging instruments, outstanding at September 30, 2017March 31, 2019 and December 31, 20162018 was $239.0$185.1 million and $489.1$320.2 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans, our 2014 EIB loan, and trade receivables. We recorded net lossesgains for these freestanding derivatives of $0.7 million and $7.9$3.7 million for the three and nine months ended September 30, 2017, respectively,March 31, 2019 and net gains (losses)losses of $(1.8) million and $0.4$7.6 million for the three and nine months ended September 30, 2016, respectively.March 31, 2018. These gains and losses are included in ‘Foreignforeign exchange and other gains (losses)’ in the on our condensed consolidated statements of income (loss).