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: September 30, 2021March 31, 2022
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
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:
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |
| Ordinary Shares - £1.00 par value per share | LIVN | The NASDAQ GlobalStock 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 ☑
| | | | | |
| Class | Outstanding at OctoberApril 29, 20212022 |
| Ordinary Shares - £1.00 par value per share | 53,225,49653,440,615 |
LIVANOVA PLC
TABLE OF CONTENTS
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| | | PART I. FINANCIAL INFORMATION | | PAGE NO. |
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| | | PART II. OTHER INFORMATION | | |
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In this Quarterly Report on Form 10-Q, “LivaNova,” “the Company,” “we,” “us” and “our” refer to LivaNova PLC and its consolidated subsidiaries.
This report may contain references to our proprietary intellectual property, including among others:
•Trademarks for our VNS therapyNeuromodulation systems, the VNS Therapy®™ System, the VITARIA®™ System and our 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), Model 7103 (VITARIA® ™and TitrationAssist™) and Model 8103 (Symmetry®™).
•Trademarks for our Cardiopulmonary productproducts and systems: Essenz™, S5® heart-lung machine, S3® heart-lung machine, S5 Pro™ heart-lung machine,, S3™, S5 Pro™, B-Capta®™,Inspire®™, Heartlink®™, XTRA®™ Autotransfusion System,, 3T Heater-Cooler®™, Connect™, and Revolution® and Essenz™heart-lung machine.
•Trademarks for our advanced circulatory support systems: TandemLife®™, TandemHeart®™, TandemLung®™, ProtekDuo®™, LifeSPARC™, ALung™, Hemolung™, Respiratory Dialysis™ and LifeSPARC®ActivMix™.
•Trademarks for our obstructive sleep apnea system: ImThera®™ and Aura6000aura6000®™.
These trademarks and trade names are the property of LivaNova or the property of our consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and tradenamestrade names referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols,symbol, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and tradenames.trade names.
NOTE ABOUT FORWARD LOOKING STATEMENTS
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:
•changes in our common stock price;technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies;
•activist investors causing disruptionsrisks related to reductions, interruptions or increasing costs related to the business;supply of raw materials and components and the distribution of finished products, including as a result of inflation, war, etc.;
•changes in our profitability;failure to develop and commercialize new products and the rate and degree of market acceptance of such products;
•regulatory activities and announcements, including the failure to obtain approvals or maintain the current regulatory approvals for our new products;
•effectiveness of our internal controls over financial reporting;
•fluctuations in future quarterly operating results;products’ approved indications;
•failure to comply with, or changes in, laws, regulations or administrative practices affecting government regulation of our products, including, but not limited to, U.S. Food and Drug Administration (“FDA”) laws and regulations;
•changes in customer spending patterns;
•failure to establish, expand or maintain market acceptance of our products for the treatment of our approved indications;
•any legislative or administrative reform to the healthcare system, including the U.S. Medicare or Medicaid systems or international reimbursement systems, that significantly reduces reimbursement for our products or procedures or denies coverage for such products or procedures or enhances coverage for competitive products or procedures, as well as adverse decisions by administrators of such systems on coverage or reimbursement issues relating to our products;
•failure to maintain the current regulatory approvals for our products’ approved indications;
•failure to obtain or maintain coverage and reimbursement for our products’ approved indications;indications and risks related to cost containment efforts of healthcare purchasing organizations;
•unfavorable results from clinical studies;
•variations in sales and operating expenses relative to estimates;
•our dependence on certain suppliers and manufacturers to provide certain materials, components and contract services necessary for the production of our products;
•logistical cost and delays related to the supply of raw materials and the distribution of finished products;
•product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs;
•protection, expiration and validity of our intellectual property;
•changes in technology, including the development of superiorstudies or alternative technology or devices by competitors;
•competition from providers of alternative medical therapies, such as pharmaceutical companies and providers of cannabis;
•cyber-attacks or other disruptions to our information technology systems;
•failure to comply with applicable U.S. laws and regulations, including federal and state privacy and security laws and regulations;
•failure to comply with applicable non-U.S. laws and regulations;
•non-U.S. operational and economic risks and concerns;
•failure to attract or retain key personnel;
•failure of new acquisitions to further our strategic objectives or strengthen our existing businesses;meet milestones;
•losses or costs from pending, or future lawsuits and governmental investigations, including any amount of liability or damages imposed by the Appeals Court or the Supreme Court of Italy with respect to SNIA S.p.A.;
•changes in accounting rules that adversely affect the characterization of our consolidated financial position, results of operations or cash flows;
•changes in customer spending patterns;
•risks relating to the exchangeability ofour indebtedness under the exchangeable senior notes;notes, our revolving credit facility and our bridge loan facility;
•volatility in the global market and worldwide economic conditions, including volatility caused by Brexit,the invasion of Ukraine, changes to existing trade agreements and relationships between the U.S. and other countries including the implementation of sanctions and/or COVID-19;
•effectiveness of our internal controls over financial reporting;
•changes in our profitability and/or failure to manage costs and expenses;
•fluctuations in future quarterly operating results and/or variations in sales and operating expenses relative to estimates;
•cyber-attacks or other disruptions to our information technology systems;
•product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs;
•protection, expiration and validity of our intellectual property;
•failure to comply with applicable U.S. laws and regulations, including federal and state privacy and security laws and regulations, and applicable non-U.S. laws and regulations;
•non-U.S. operational and economic risks and concerns;
•risks relating to the outbreak and spread of COVID-19 and its variants around the world;
•changes in tax laws, including changes relatedfailure to Brexit,retain key personnel, prevent labor shortages, or exposure to additional income tax liabilities;manage labor costs;
•harsh weather or natural disasters, including as a result of climate change, that interrupt our business operations or the business operations of our hospital-customers; andhospital-customers or failure to comply with evolving environmental laws;
•failure of new acquisitions to further our strategic objectives or strengthen our existing businesses;
•changes in tax laws, including exposure to additional income tax liabilities;
•changes in our common stock price; and
•activist investors causing disruptions to the market to adopt new therapies or to adopt new therapies quickly.business.
Other factors that could cause our actual results to differ from our projected results are described in (1) “Part II, Item 1A. Risk Factors” and elsewhere in this and our other Quarterly Reports on Form 10-Q, (2) our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 (“20202021 Form 10-K”), (3) our reports and registration statements filed and furnished from time to time with the Securities and Exchange Commission (“SEC”) and (4) other announcements we make from time to time.
Readers are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date hereof. We undertake 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 our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Operating results for the ninethree months ended September 30, 2021March 31, 2022 are not necessarily indicative of future results, including the full fiscal year. You should also refer to our “Annual Consolidated Financial Statements,” “Notes” thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our 20202021 Form 10-K and in our Quarterly Reports on Form 10-Q.
Financial Information and Currency of Financial Statements
All of the financial information included in this quarterly report has been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.” and such principles, “U.S. GAAP”). The reporting currency of our condensed consolidated financial statements is U.S. dollars.
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)
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| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net sales | | $ | 253,215 | | | $ | 240,083 | | | $ | 765,301 | | | $ | 664,686 | |
| Cost of sales | | 83,105 | | | 92,448 | | | 256,828 | | | 234,079 | |
| Gross profit | | 170,110 | | | 147,635 | | | 508,473 | | | 430,607 | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative | | 109,042 | | | 104,036 | | | 347,471 | | | 331,711 | |
| Research and development | | 42,133 | | | 47,368 | | | 139,315 | | | 108,422 | |
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| Other operating expenses | | 1,067 | | | 3,739 | | | 43,103 | | | 12,611 | |
| Operating income (loss) from continuing operations | | 17,868 | | | (7,508) | | | (21,416) | | | (22,137) | |
| Interest income | | 178 | | | 47 | | | 293 | | | 482 | |
| Interest expense | | (11,355) | | | (14,673) | | | (43,806) | | | (25,237) | |
| Loss on debt extinguishment | | (60,238) | | | — | | | (60,238) | | | (1,407) | |
| Foreign exchange and other gains | | 13,436 | | | 3,420 | | | 7,117 | | | 1,914 | |
| Loss from continuing operations before tax | | (40,111) | | | (18,714) | | | (118,050) | | | (46,385) | |
| Income tax expense (benefit) | | 2,098 | | | (3,990) | | | 9,094 | | | 17,581 | |
| Losses from equity method investments | | (28) | | | (48) | | | (109) | | | (221) | |
| Net loss from continuing operations | | (42,237) | | | (14,772) | | | (127,253) | | | (64,187) | |
| Net loss from discontinued operations, net of tax | | — | | | — | | | — | | | (995) | |
| Net loss | | $ | (42,237) | | | $ | (14,772) | | | $ | (127,253) | | | $ | (65,182) | |
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| Basic loss per share: | | | | | | | | |
| Continuing operations | | $ | (0.82) | | | $ | (0.30) | | | $ | (2.56) | | | $ | (1.32) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| | $ | (0.82) | | | $ | (0.30) | | | $ | (2.56) | | | $ | (1.34) | |
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| Diluted loss per share: | | | | | | | | |
| Continuing operations | | $ | (0.82) | | | $ | (0.30) | | | $ | (2.56) | | | $ | (1.32) | |
| Discontinued operations | | — | | | — | | | — | | | (0.02) | |
| | $ | (0.82) | | | $ | (0.30) | | | $ | (2.56) | | | $ | (1.34) | |
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| Shares used in computing basic loss per share | | 51,582 | | | 48,652 | | | 49,748 | | | 48,582 | |
| Shares used in computing diluted loss per share | | 51,582 | | | 48,652 | | | 49,748 | | | 48,582 | |
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| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 (1) |
| Net sales | | | | | | $ | 240,175 | | | $ | 247,603 | |
| Cost of sales | | | | | | 71,732 | | | 84,195 | |
| Gross profit | | | | | | 168,443 | | | 163,408 | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative | | | | | | 118,525 | | | 115,681 | |
| Research and development | | | | | | 40,918 | | | 44,625 | |
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| Other operating expenses | | | | | | (505) | | | 8,800 | |
| Operating income (loss) | | | | | | 9,505 | | | (5,698) | |
| Interest expense | | | | | | (7,840) | | | (15,936) | |
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| Foreign exchange and other gains/(losses) | | | | | | 3,904 | | | (6,443) | |
| Income (loss) before tax | | | | | | 5,569 | | | (28,077) | |
| Income tax expense | | | | | | 2,537 | | | 2,644 | |
| Losses from equity method investments | | | | | | (39) | | | (40) | |
| Net income (loss) | | | | | | $ | 2,993 | | | $ | (30,761) | |
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| Basic income (loss) per share | | | | | | $ | 0.06 | | | $ | (0.63) | |
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| Diluted income (loss) per share | | | | | | $ | 0.06 | | | $ | (0.63) | |
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| Shares used in computing basic income (loss) per share | | | | | | 53,300 | | | 48,736 | |
| Shares used in computing diluted income (loss) per share | | | | | | 54,176 | | | 48,736 | |
(1)The condensed consolidated statement of income (loss) for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
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 September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 (1) |
| Net loss | | $ | (42,237) | | | $ | (14,772) | | | $ | (127,253) | | | $ | (65,182) | | |
| Net income (loss) | | Net income (loss) | | | $ | 2,993 | | | $ | (30,761) | |
| Other comprehensive (loss) income: | Other comprehensive (loss) income: | | Other comprehensive (loss) income: | | | |
| Net change in unrealized (loss) gain on derivatives | | (1,197) | | | 1,640 | | | (2,782) | | | 1,313 | | |
| Net change in unrealized loss on derivatives | | Net change in unrealized loss on derivatives | | | (695) | | | (335) | |
| Tax effect | Tax effect | | 287 | | | (393) | | | 668 | | | (314) | | Tax effect | | | — | | | 339 | |
| Net of tax | Net of tax | | (910) | | | 1,247 | | | (2,114) | | | 999 | | Net of tax | | | (695) | | | 4 | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | (18,986) | | | 23,457 | | | (22,516) | | | 8,008 | | Foreign currency translation adjustment | | | (8,260) | | | (25,875) | |
| Total other comprehensive (loss) income | | (19,896) | | | 24,704 | | | (24,630) | | | 9,007 | | |
| Total comprehensive (loss) income | | $ | (62,133) | | | $ | 9,932 | | | $ | (151,883) | | | $ | (56,175) | | |
| Total other comprehensive loss | | Total other comprehensive loss | | | (8,955) | | | (25,871) | |
| Total comprehensive loss | | Total comprehensive loss | | | $ | (5,962) | | | $ | (56,632) | |
See accompanying notes to the condensed consolidated financial statements
6
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
| | | | | September 30, 2021 | | December 31, 2020 | | | March 31, 2022 | | December 31, 2021 |
| ASSETS | ASSETS | | | | | ASSETS | | | | |
| Current Assets: | Current Assets: | | Current Assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 181,846 | | | $ | 252,832 | | Cash and cash equivalents | | $ | 128,737 | | | $ | 207,992 | |
| Accounts receivable, net of allowance of $11,837 at September 30, 2021 and $10,310 at December 31, 2020 | | 182,008 | | | 184,356 | | |
| Restricted cash | | Restricted cash | | 313,647 | | | — | |
| Accounts receivable, net of allowance of $13,493 at March 31, 2022 and $13,512 at December 31, 2021 | | Accounts receivable, net of allowance of $13,493 at March 31, 2022 and $13,512 at December 31, 2021 | | 182,112 | | | 185,354 | |
| Inventories | Inventories | | 123,733 | | | 126,675 | | Inventories | | 114,844 | | | 105,840 | |
| Prepaid and refundable taxes | Prepaid and refundable taxes | | 36,029 | | | 60,240 | | Prepaid and refundable taxes | | 29,168 | | | 37,621 | |
| Assets held for sale | | — | | | 70,539 | | |
| | Current derivative assets | Current derivative assets | | 95,928 | | | 2,053 | | Current derivative assets | | 82 | | | 106,629 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 26,811 | | | 22,739 | | Prepaid expenses and other current assets | | 41,033 | | | 35,745 | |
| Total Current Assets | Total Current Assets | | 646,355 | | | 719,434 | | Total Current Assets | | 809,623 | | | 679,181 | |
| Property, plant and equipment, net | Property, plant and equipment, net | | 152,728 | | | 163,805 | | Property, plant and equipment, net | | 147,957 | | | 150,066 | |
| Goodwill | Goodwill | | 905,154 | | | 922,318 | | Goodwill | | 896,599 | | | 899,525 | |
| Intangible assets, net | Intangible assets, net | | 408,954 | | | 437,636 | | Intangible assets, net | | 390,455 | | | 399,682 | |
| Operating lease assets | Operating lease assets | | 46,215 | | | 50,525 | | Operating lease assets | | 38,167 | | | 40,600 | |
| Investments | Investments | | 16,580 | | | 31,094 | | Investments | | 16,745 | | | 16,598 | |
| Deferred tax assets | Deferred tax assets | | 2,012 | | | 2,990 | | Deferred tax assets | | 2,699 | | | 2,197 | |
| Long-term derivative assets | Long-term derivative assets | | — | | | 72,302 | | Long-term derivative assets | | 96,717 | | | — | |
| Other assets | Other assets | | 25,411 | | | 11,247 | | Other assets | | 17,921 | | | 13,102 | |
| Total Assets | Total Assets | | $ | 2,203,409 | | | $ | 2,411,351 | | Total Assets | | $ | 2,416,883 | | | $ | 2,200,951 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
| Current Liabilities: | Current Liabilities: | | Current Liabilities: | |
| Current debt obligations | Current debt obligations | | $ | 227,773 | | | $ | 13,343 | | Current debt obligations | | $ | 4,752 | | | $ | 229,673 | |
| Accounts payable | Accounts payable | | 60,248 | | | 73,668 | | Accounts payable | | 73,921 | | | 68,000 | |
| Accrued liabilities and other | Accrued liabilities and other | | 97,504 | | | 88,036 | | Accrued liabilities and other | | 92,026 | | | 88,937 | |
| Current derivative liabilities | Current derivative liabilities | | 151,388 | | | 7,372 | | Current derivative liabilities | | 1,928 | | | 183,109 | |
| Current litigation provision liability | Current litigation provision liability | | 33,526 | | | 28,612 | | Current litigation provision liability | | 30,126 | | | 32,845 | |
| Taxes payable | Taxes payable | | 20,514 | | | 16,463 | | Taxes payable | | 22,592 | | | 15,140 | |
| Accrued employee compensation and related benefits | Accrued employee compensation and related benefits | | 67,512 | | | 51,879 | | Accrued employee compensation and related benefits | | 82,569 | | | 79,266 | |
| Liabilities held for sale | | — | | | 29,679 | | |
| | Total Current Liabilities | Total Current Liabilities | | 658,465 | | | 309,052 | | Total Current Liabilities | | 307,914 | | | 696,970 | |
| Long-term debt obligations | Long-term debt obligations | | 10,797 | | | 642,298 | | Long-term debt obligations | | 455,810 | | | 9,849 | |
| Contingent consideration | Contingent consideration | | 104,080 | | | 89,850 | | Contingent consideration | | 83,341 | | | 86,830 | |
| | Deferred tax liabilities | Deferred tax liabilities | | 8,312 | | | 8,915 | | Deferred tax liabilities | | 7,879 | | | 7,728 | |
| Long-term operating lease liabilities | Long-term operating lease liabilities | | 38,688 | | | 42,221 | | Long-term operating lease liabilities | | 30,876 | | | 35,919 | |
| Long-term employee compensation and related benefits | Long-term employee compensation and related benefits | | 18,173 | | | 20,628 | | Long-term employee compensation and related benefits | | 18,779 | | | 19,105 | |
| Long-term derivative liabilities | Long-term derivative liabilities | | — | | | 121,940 | | Long-term derivative liabilities | | 170,660 | | | — | |
| Other long-term liabilities | Other long-term liabilities | | 52,396 | | | 57,618 | | Other long-term liabilities | | 49,770 | | | 49,905 | |
| Total Liabilities | Total Liabilities | | 890,911 | | | 1,292,522 | | Total Liabilities | | 1,125,029 | | | 906,306 | |
| Commitments and contingencies (Note 8) | | 0 | | 0 | |
| Commitments and contingencies (Note 7) | | Commitments and contingencies (Note 7) | | 0 | | 0 |
| Stockholders’ Equity: | Stockholders’ Equity: | | Stockholders’ Equity: | |
| Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,731,820 shares issued and 53,221,234 shares outstanding at September 30, 2021; 49,447,473 shares issued and 48,655,863 shares outstanding at December 31, 2020 | | 82,254 | | | 76,300 | | |
| Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,763,500 shares issued and 53,435,821 shares outstanding at March 31, 2022; 53,761,510 shares issued and 53,263,297 shares outstanding at December 31, 2021 | | Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,763,500 shares issued and 53,435,821 shares outstanding at March 31, 2022; 53,761,510 shares issued and 53,263,297 shares outstanding at December 31, 2021 | | 82,298 | | | 82,295 | |
| Additional paid-in capital | Additional paid-in capital | | 2,107,391 | | | 1,768,156 | | Additional paid-in capital | | 2,121,098 | | | 2,117,961 | |
| Accumulated other comprehensive income | | 3,179 | | | 27,809 | | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (16,132) | | | (7,177) | |
| Accumulated deficit | Accumulated deficit | | (879,655) | | | (752,402) | | Accumulated deficit | | (894,791) | | | (897,784) | |
| Treasury stock at cost, 510,586 ordinary shares at September 30, 2021; 791,610 ordinary shares at December 31, 2020 | | (671) | | | (1,034) | | |
| Treasury stock at cost, 327,679 ordinary shares at March 31, 2022; 498,213 ordinary shares at December 31, 2021 | | Treasury stock at cost, 327,679 ordinary shares at March 31, 2022; 498,213 ordinary shares at December 31, 2021 | | (619) | | | (650) | |
| Total Stockholders’ Equity | Total Stockholders’ Equity | | 1,312,498 | | | 1,118,829 | | Total Stockholders’ Equity | | 1,291,854 | | | 1,294,645 | |
| Total Liabilities and Stockholders’ Equity | Total Liabilities and Stockholders’ Equity | | $ | 2,203,409 | | | $ | 2,411,351 | | Total Liabilities and Stockholders’ Equity | | $ | 2,416,883 | | | $ | 2,200,951 | |
See accompanying notes to the condensed consolidated financial statements
7
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 (1) |
| Operating Activities: | Operating Activities: | | | | | Operating Activities: | | | | |
| Net loss | | $ | (127,253) | | | $ | (65,182) | | |
| Non-cash items included in net loss: | | |
| Loss on debt extinguishment | | 60,238 | | | 1,407 | | |
| Net income (loss) | | Net income (loss) | | $ | 2,993 | | | $ | (30,761) | |
| Non-cash items included in net income (loss): | | Non-cash items included in net income (loss): | |
| Stock-based compensation | Stock-based compensation | | 30,574 | | | 26,845 | | Stock-based compensation | | 10,256 | | | 9,536 | |
| Amortization | Amortization | | 20,005 | | | 29,346 | | Amortization | | 6,465 | | | 6,699 | |
| Depreciation | Depreciation | | 18,493 | | | 22,206 | | Depreciation | | 5,626 | | | 6,079 | |
| Amortization of debt issuance costs | | Amortization of debt issuance costs | | 4,412 | | | 4,409 | |
| Remeasurement of contingent consideration to fair value | Remeasurement of contingent consideration to fair value | | 17,755 | | | (31,176) | | Remeasurement of contingent consideration to fair value | | (3,773) | | | 453 | |
| Amortization of debt issuance costs | | 13,087 | | | 5,468 | | |
| Amortization of operating lease assets | Amortization of operating lease assets | | 12,133 | | | 9,813 | | Amortization of operating lease assets | | 2,653 | | | 5,389 | |
| Remeasurement of Respicardia investment and loan | Remeasurement of Respicardia investment and loan | | (4,642) | | | — | | Remeasurement of Respicardia investment and loan | | — | | | (4,640) | |
| Remeasurement of derivative instruments | Remeasurement of derivative instruments | | (2,211) | | | (17,654) | | Remeasurement of derivative instruments | | (1,355) | | | 7,268 | |
| Deferred tax (benefit) expense | | (342) | | | 41,133 | | |
| Other | Other | | 1,944 | | | (999) | | Other | | 1,073 | | | 498 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Accounts receivable, net | Accounts receivable, net | | (7,851) | | | 65,401 | | Accounts receivable, net | | 1,494 | | | (3,372) | |
| Inventories | Inventories | | 4,656 | | | (12,141) | | Inventories | | (9,637) | | | (1,625) | |
| Other current and non-current assets | Other current and non-current assets | | 20,532 | | | (15,360) | | Other current and non-current assets | | (1,953) | | | 26,820 | |
| Accounts payable and accrued current and non-current liabilities | Accounts payable and accrued current and non-current liabilities | | 2,999 | | | (50,741) | | Accounts payable and accrued current and non-current liabilities | | 9,957 | | | (1,858) | |
| Taxes payable | Taxes payable | | 4,996 | | | (615) | | Taxes payable | | 709 | | | (3,337) | |
| Litigation provision liability | Litigation provision liability | | 3,951 | | | (124,158) | | Litigation provision liability | | (3,097) | | | (2,078) | |
| Net cash provided by (used in) operating activities | | 69,064 | | | (116,407) | | |
| Net cash provided by operating activities | | Net cash provided by operating activities | | 25,823 | | | 19,480 | |
| Investing Activities: | Investing Activities: | | | | | Investing Activities: | | | | |
| Proceeds from sale of Heart Valves, net of cash disposed | | 40,244 | | | — | | |
| Proceeds from sale of Respicardia investment and loan | | 23,057 | | | — | | |
| Purchases of property, plant and equipment | Purchases of property, plant and equipment | | (17,893) | | | (28,445) | | Purchases of property, plant and equipment | | (5,215) | | | (8,220) | |
| Purchase of investments | Purchase of investments | | (3,520) | | | (3,175) | | Purchase of investments | | (278) | | | (1,800) | |
| Loans to investees | | — | | | (2,250) | | |
| Other | | (1,353) | | | 533 | | |
| Net cash provided by (used in) investing activities | | 40,535 | | | (33,337) | | |
| Proceeds from asset sales | | Proceeds from asset sales | | 11 | | | 162 | |
| Net cash used in investing activities | | Net cash used in investing activities | | (5,482) | | | (9,858) | |
| Financing Activities: | Financing Activities: | | | | | Financing Activities: | | | | |
| Repayment of long-term debt obligations | | (451,396) | | | (481,360) | | |
| Proceeds from issuance of ordinary shares, net | | 324,180 | | | — | | |
| Payment of make-whole premium on long-term debt obligations | | (35,594) | | | — | | |
| Proceeds from long-term debt obligations | | Proceeds from long-term debt obligations | | 218,342 | | | — | |
| Payment of debt issuance costs | | Payment of debt issuance costs | | (2,426) | | | — | |
| Shares repurchased from employees for minimum tax withholding | Shares repurchased from employees for minimum tax withholding | | (12,246) | | | (5,277) | | Shares repurchased from employees for minimum tax withholding | | (1,074) | | | (3,740) | |
| Payment of contingent consideration | Payment of contingent consideration | | (5,249) | | | (8,860) | | Payment of contingent consideration | | — | | | (4,387) | |
| Proceeds from exercise of stock options | | 2,405 | | | 219 | | |
| Debt issuance costs | | (1,875) | | | (20,412) | | |
| Proceeds from share issuances under ESPP | | 1,750 | | | 2,063 | | |
| Proceeds from long-term debt obligations | | — | | | 886,899 | | |
| Proceeds from short term borrowings (maturities greater than 90 days) | | — | | | 46,717 | | |
| Repayments of short term borrowings (maturities greater than 90 days) | | — | | | (44,838) | | |
| Purchase of capped call | | — | | | (43,096) | | |
| Closing adjustment payment for sale of CRM business | | — | | | (14,891) | | |
| Other | Other | | (158) | | | (1,237) | | Other | | 35 | | | (201) | |
| Net cash (used in) provided by financing activities | | (178,183) | | | 315,927 | | |
| Effect of exchange rate changes on cash and cash equivalents | | (2,402) | | | 491 | | |
| Net (decrease) increase in cash and cash equivalents | | (70,986) | | | 166,674 | | |
| Cash and cash equivalents at beginning of period | | 252,832 | | | 61,137 | | |
| Cash and cash equivalents at end of period | | $ | 181,846 | | | $ | 227,811 | | |
| Net cash provided by (used in) financing activities | | Net cash provided by (used in) financing activities | | 214,877 | | | (8,328) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (826) | | | (1,587) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | Net increase (decrease) in cash, cash equivalents and restricted cash | | 234,392 | | | (293) | |
| Cash, cash equivalents and restricted cash at beginning of period | | Cash, cash equivalents and restricted cash at beginning of period | | 207,992 | | | 252,832 | |
| Cash, cash equivalents and restricted cash at end of period | | Cash, cash equivalents and restricted cash at end of period | | $ | 442,384 | | | $ | 252,539 | |
(1)The condensed consolidated statement of cash flows for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
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 condensed consolidated financial statements of LivaNova as of, and for the three and nine months ended September 30, 2021 and 2020,March 31, 2022, 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, 20202021 has been derived from audited financial statements contained in our 20202021 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 nine months ended September 30, 2021,March 31, 2022, and are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our 20202021 Form 10-K.
Global Developments Regarding
COVID-19
Since early 2020, theThe COVID-19 pandemic (“COVID-19”) has caused and may continue to cause unpredictable demand for our products. Throughout the pandemic, healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19, and public health bodies have delayed elective procedures, which has negatively impacted the usage of our products. Further, some people have avoided seeking treatment for non-COVID-19 procedures, and hospitals and clinics have experienced staffing shortages, which has negatively impacted the demand for our products. While we have seen improvement during 2021, wethe recent recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products, our Neuromodulation and Advanced Circulatory Support businesses continue to experience lingeringongoing COVID-19 related headwinds andheadwinds. We are monitoring the potential for various strains of the virus to cause a resumption of high levels of infection and hospitalization that, in turn, may affect the demand for our products.
Moreover, although our RECOVER study and ANTHEM-HFrEF pivotal trial continue to progress, there may be delays or closures of sites in the future should COVID-19 or variants thereof strengthen or reemerge.
Certain conditions improved during 2021, but we continue to experience COVID-19 related headwinds. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. The Company continues to respond to such challenges, and while we have business continuity plans in place, the impact of the ongoing challenges we are experiencing, along with their potential escalation, may adversely affect our business and the recoverability of our tangible and intangible assets. The future impact of pandemic-related developments remains uncertain.
Ukraine Invasion
In February 2022, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the market due to international sanctions, to consider the potential impact of raw material sourced from the region, and to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the Russian authorities in response to international sanctions.
Revision of Previously Issued Financial Statements
During the fourth quarter of 2021, the Company identified and corrected an error related to foreign currency exchange rates utilized to calculate inventory and cost of sales for the years ended December 31, 2017 through 2020 and the nine months ended September 30, 2021. Using the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated whether our previously issued consolidated financial statements were materially misstated due to these errors. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effects of these errors were not material individually or in the aggregate to any previously reported quarterly or annual period. Accordingly, we have revised our previously issued financial statements as shown below (in thousands):
Consolidated Statements of Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
| Cost of sales - exclusive of amortization | | $ | 79,216 | | | $ | 1,275 | | | $ | 80,491 | | | | | | | |
| Operating loss | | (4,423) | | | (1,275) | | | (5,698) | | | | | | | |
| Loss before tax | | (26,802) | | | (1,275) | | | (28,077) | | | | | | | |
| Income tax expense | | 2,856 | | | (212) | | | 2,644 | | | | | | | |
| Net loss | | (29,698) | | | (1,063) | | | (30,761) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.61) | | | $ | (0.02) | | | $ | (0.63) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Consolidated Statements of Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
| Net loss | | $ | (29,698) | | | $ | (1,063) | | | $ | (30,761) | | | | | | | |
| Total comprehensive loss | | (55,569) | | | (1,063) | | | (56,632) | | | | | | | |
Consolidated Statements of Stockholders’ Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adjustments | | As Revised |
| | Accumulated Deficit | | Total Stockholders’ Equity | | Accumulated Deficit | | Total Stockholders’ Equity | | Accumulated Deficit | | Total Stockholders’ Equity |
| March 31, 2021 | | $ | (782,100) | | | $ | 1,065,757 | | | $ | (10,627) | | | $ | (10,627) | | | $ | (792,727) | | | $ | 1,055,130 | |
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 | | |
| | As Previously Reported | | Adjustments | | As Revised | | | | | | |
| Net loss | | $ | (29,698) | | | $ | (1,063) | | | $ | (30,761) | | | | | | | |
| Deferred tax expense (benefit) | | 37 | | | (212) | | | (175) | | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | |
| Inventories | | (2,900) | | | 1,275 | | | (1,625) | | | | | | | |
| Net cash used in operating activities | | 19,480 | | | — | | | 19,480 | | | | | | | |
Reclassifications
We have reclassified certain prior period amounts on the condensed consolidated statements of income (loss), the condensed consolidated balance sheets and the condensed consolidated statements of cash flows for comparative purposes. These reclassifications did not have a material effect on our financial condition, results of operations or cash flows. The prior period reclassifications on the condensed consolidated statements of income (loss) are summarized and presented below (in thousands):
•Product remediation has been reclassified to cost of salessales;
•Merger and integration expenses have been reclassified to other operating expensesexpenses;
•Restructuring expenses have been reclassified to other operating expensesexpenses;
•Litigation provision, net has been reclassified to other operating expensesexpenses;
•Amortization of intangibles has been reclassified to cost of sales or selling, general and administrative based on the nature of the underlying intangible assetasset;
•Gain on the sale of Heart Valve business has been reclassified from revaluation of disposal group to other operating expenses; and
•Loss on debt extinguishmentInterest income has been reclassified fromto foreign exchange and other gains to loss on debt extinguishment.gains/(losses).
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, 2021 | |
| | As Previously Reported | | Reclassifications | | Current Presentation | | As Previously Reported | | Reclassifications | | Current Presentation | | As Revised | | Reclassifications | | Current Presentation | |
| Net sales | Net sales | | $ | 240,083 | | | $ | — | | | $ | 240,083 | | | $ | 664,686 | | | $ | — | | | $ | 664,686 | | Net sales | | $ | 247,603 | | | $ | — | | | $ | 247,603 | | |
| Cost of sales | Cost of sales | | 86,467 | | | 5,981 | | | 92,448 | | | 212,152 | | | 21,927 | | | 234,079 | | Cost of sales | | 80,491 | | | 3,704 | | | 84,195 | | |
| Product remediation | Product remediation | | 1,133 | | | (1,133) | | | — | | | 6,868 | | | (6,868) | | | — | | Product remediation | | 68 | | | (68) | | | — | | |
| Gross profit | Gross profit | | 152,483 | | | (4,848) | | | 147,635 | | | 445,666 | | | (15,059) | | | 430,607 | | Gross profit | | 167,044 | | | (3,636) | | | 163,408 | | |
| Operating expenses: | Operating expenses: | | Operating expenses: | | |
| Selling, general and administrative | Selling, general and administrative | | 99,199 | | | 4,837 | | | 104,036 | | | 317,424 | | | 14,287 | | | 331,711 | | Selling, general and administrative | | 112,618 | | | 3,063 | | | 115,681 | | |
| Research and development | Research and development | | 47,368 | | | — | | | 47,368 | | | 108,422 | | | — | | | 108,422 | | Research and development | | 44,625 | | | — | | | 44,625 | | |
| Merger and integration expenses | Merger and integration expenses | | 1,094 | | | (1,094) | | | — | | | 6,616 | | | (6,616) | | | — | | Merger and integration expenses | | 630 | | | (630) | | | — | | |
| Restructuring expenses | Restructuring expenses | | (349) | | | 349 | | | — | | | 2,025 | | | (2,025) | | | — | | Restructuring expenses | | 6,092 | | | (6,092) | | | — | | |
| Revaluation of disposal group | | Revaluation of disposal group | | (966) | | | 966 | | | — | | |
| Amortization of intangibles | Amortization of intangibles | | 9,685 | | | (9,685) | | | — | | | 29,346 | | | (29,346) | | | — | | Amortization of intangibles | | 6,699 | | | (6,699) | | | — | | |
| Litigation provision, net | Litigation provision, net | | 2,994 | | | (2,994) | | | — | | | 3,970 | | | (3,970) | | | — | | Litigation provision, net | | 3,044 | | | (3,044) | | | — | | |
| Other operating expenses | Other operating expenses | | — | | | 3,739 | | | 3,739 | | | — | | | 12,611 | | | 12,611 | | Other operating expenses | | — | | | 8,800 | | | 8,800 | | |
| Operating loss from continuing operations | | (7,508) | | | — | | | (7,508) | | | (22,137) | | | — | | | (22,137) | | |
| Operating loss | | Operating loss | | (5,698) | | | — | | | (5,698) | | |
| Interest income | Interest income | | 47 | | | — | | | 47 | | | 482 | | | — | | | 482 | | Interest income | | (74) | | | 74 | | | — | | |
| Interest expense | Interest expense | | (14,673) | | | — | | | (14,673) | | | (25,237) | | | — | | | (25,237) | | Interest expense | | (15,936) | | | — | | | (15,936) | | |
| Loss on debt extinguishment | | — | | | — | | | — | | | — | | | (1,407) | | | (1,407) | | |
| Foreign exchange and other gains | | 3,420 | | | — | | | 3,420 | | | 507 | | | 1,407 | | | 1,914 | | |
| Loss from continuing operations before tax | | $ | (18,714) | | | $ | — | | | $ | (18,714) | | | $ | (46,385) | | | $ | — | | | $ | (46,385) | | |
| Foreign exchange and other gains/(losses) | | Foreign exchange and other gains/(losses) | | (6,369) | | | (74) | | | (6,443) | | |
| Loss before tax | | Loss before tax | | $ | (28,077) | | | $ | — | | | $ | (28,077) | | |
|
Significant Accounting Policies
Our significant accounting policies are detailed below and in “Note 2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting Policies” and “Note 3. Revenue Recognition” of our 20202021 Form 10-K.
Restricted Cash
The Company classifies cash that is not available for use in its operations as restricted cash within current assets on the condensed consolidated balance sheet. As of March 31, 2022, our restricted cash balance totaled $313.6 million and was comprised of cash deposits with Barclays held as collateral for a first demand bank guarantee of €270.0 million (approximately $299.5 million as of March 31, 2022) to obtain the suspension of the Court of Appeal of Milan judgment for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court (the “SNIA Litigation Guarantee”). As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”
Note 2. Divestiture of Heart Valve Business
On December 2, 2020, LivaNova entered into a Share and Asset Purchase Agreement (“Purchase Agreement”) with Mitral Holdco S.à r.l. (the “Purchaser”), a company incorporated under the laws of Luxembourg and wholly ownedwholly-owned and controlled by funds advised by Gyrus Capital S.A., a Swiss private equity firm. The Purchase Agreement provides for the divestiture of certain of LivaNova’s subsidiaries as well as certain other assets and liabilities relating to the Company’s Heart Valve business and site management operations conducted by the Company’s subsidiary LivaNova Site Management S.r.l. (“LSM”) at the Company’s Saluggia campus for €60.0 million (approximately $69.5 million as of September 30, 2021).million. On April 9, 2021, LivaNova and the Purchaser entered into an Amended and Restated Share and AssetA&R Purchase Agreement (the “A&R Purchase Agreement”) which amends and restates the original Purchase Agreement to, among other things, defer the closing of the sale and purchase of LSM by up to two years and include or amend certain additional terms relating to such deferral, including certain amendments relating to the potential hazardous substances liabilities of LSM and the related expense reimbursement provisions.
As a result of entering into the Purchase Agreement, during the fourth quarter of 2020 the Company concluded that the assets and liabilities of the Heart Valve business being sold met the criteria to be classified as held for sale. As a result, we recognized an impairment of $180.2 million during the fourth quarter of 2020 to record the Heart Valves disposal group at fair value less estimated cost to sell.
The initial closing of the sale of the Heart Valve business occurred on June 1, 2021, and we received €34.8 million (approximately $42.5 million as of June 1, 2021), subject to customary trade working capital and net indebtedness adjustments, as set forth in the Purchase Agreement. We also received $3.0 million in December 2021. An additional €2.5€9.3 million (approximately $2.9$10.3 million as of September 30, 2021)March 31, 2022) is payable to LivaNova during the fourth quarter of 2021 and €10.0 million (approximately $11.6 million as of September 30, 2021) is payable to LivaNova on December 30,in 2022. During the three and nine months ended September 30,March 31, 2021, we recognized a (loss) gain fromincreased the salecarrying value of the Heart Valve business of $(0.1)disposal group by $1.0 million, and $0.7 million, respectively, which is included within other operating expenses on the condensed consolidated statements of income (loss).
In conjunction with the sale, we entered into a transition services agreement to provide certain support services generally for up to twelve months from the closing date of the sale. These services include, among others, accounting, information technology, human resources, quality assurance, regulatory affairs, supply chain, clinical affairs and customer support. During the three and nine months ended September 30, 2021, we recognized income of $1.0 million and $1.3 million, respectively, for providing these services. Income recognized related to the transition services agreements is recorded as a reduction to the related expenses in the associated expense line items in the condensed consolidated statementsstatement of income (loss).
Note 3. Restructuring
We initiate restructuring plans to leverage economies of scale, streamline distribution and logistics, and strengthen operational and administrative effectiveness in order to reduce overall costs.
During the fourth quarter of 2020, we initiated a reorganization plan (the “2020 Plan”) to reduce our cost structure. We incurred restructuring expenses of $5.3 million during the three months ended December 31, 2020 primarily associated with severance costs for 54 employees, and $0.1 million and $9.8 million during the three and nine months ended September 30, 2021, respectively, primarily associated with severance costs for 27 additional employees during the nine months ended September 30, 2021 under the 2020 Plan and lease abandonment costs.
The following table provides a reconciliation of the beginning and ending balance of the accruals and other reserves recorded in connection with our restructuring plans included within accrued liabilities and other and other long-term liabilities on the condensed consolidated balance sheet (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Employee Severance and Other Termination Costs | | Other | | Total |
| Balance at December 31, 2020 | | $ | 5,749 | | | $ | 546 | | | $ | 6,295 | |
| Charges | | 7,800 | | | 1,981 | | | 9,781 | |
| Cash payments and other | | (10,452) | | | (2,270) | | | (12,722) | |
| Balance at September 30, 2021 | | $ | 3,097 | | | $ | 257 | | | $ | 3,354 | |
The following table presents restructuring expense by reportable segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Cardiovascular | | $ | 53 | | | $ | 9 | | | $ | 2,882 | | | $ | 1,265 | |
| Neuromodulation | | (28) | | | 43 | | | 1,493 | | | 851 | |
| Other | | 63 | | | (401) | | | 5,406 | | | (91) | |
Total (1) | | $ | 88 | | | $ | (349) | | | $ | 9,781 | | | $ | 2,025 | |
(1)Restructuring expense is included within other operating expenses on the condensed consolidated statements of income (loss).
Note 4. Investments
Investments on the condensed consolidated balance sheets represent the carrying value of our investments in equity securities of non-consolidated affiliates without readily determinable fair values for which we do not exert significant influence over the investee. These equity investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. At September 30, 2021March 31, 2022 and December 31, 2020,2021, the carrying value of our investments was $16.6$16.7 million and $31.1$16.6 million, respectively.
In April 2021, Zoll Medical Corporation acquired Respicardia Inc., a privately funded U.S. company in which we had an equity investment and also to which we had a loan outstanding. As a result of the acquisition, we received proceeds of $23.1 million for both our investment and loan receivable withwhich had carrying values of $17.7 million and $0.8 million as of December 31, 2020, respectively. The Company recorded a gain of $4.6 million during the first quarter of 2021 to adjust the investment and loans receivable to fair value, which is included in foreign exchange and other gainsgains/(losses) on the condensed consolidated statementsstatement of income (loss) for the nine months ended September 30, 2021.
During the second quarter of 2021 the Company received a cash dividend from its investment in MD Start II of $3.1 million, which is included in foreign exchange and other gains on the condensed consolidated statements of income (loss) for the nine months ended September 30, 2021.
Note 5.4. Fair Value Measurements
We review the 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 within the fair value hierarchy. There were no transfers between Level 1, Level 2, or Level 3 during the ninethree months ended September 30, 2021March 31, 2022 and 2020.2021.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis (in thousands):
| | | Fair Value as of September 30, 2021 | | Fair Value Measurements Using Inputs Considered as: | | Fair Value as of March 31, 2022 | | Fair Value Measurements Using Inputs Considered as: |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
| Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”) | Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”) | | $ | 272 | | | $ | — | | | $ | 272 | | | $ | — | | Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”) | | $ | 262 | | | $ | ��� | | | $ | 262 | | | $ | — | |
| Derivative assets - freestanding instruments (FX) | Derivative assets - freestanding instruments (FX) | | 1,137 | | | — | | | 1,137 | | | — | | Derivative assets - freestanding instruments (FX) | | 21 | | | — | | | 21 | | | — | |
| Derivative assets - capped call derivatives | Derivative assets - capped call derivatives | | 94,519 | | | — | | | — | | | 94,519 | | Derivative assets - capped call derivatives | | 96,717 | | | — | | | — | | | 96,717 | |
| Convertible notes receivable | Convertible notes receivable | | 2,764 | | | — | | | — | | | 2,764 | | Convertible notes receivable | | 2,770 | | | — | | | — | | | 2,770 | |
| | $ | 98,692 | | | $ | — | | | $ | 1,409 | | | $ | 97,283 | | | $ | 99,770 | | | $ | — | | | $ | 283 | | | $ | 99,487 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Derivative liabilities - designated as cash flow hedges (FX) | Derivative liabilities - designated as cash flow hedges (FX) | | $ | 728 | | | $ | — | | | $ | 728 | | | $ | — | | Derivative liabilities - designated as cash flow hedges (FX) | | $ | 1,946 | | | $ | — | | | $ | 1,946 | | | $ | — | |
| Derivative liabilities - freestanding instruments (FX) | Derivative liabilities - freestanding instruments (FX) | | 9 | | | — | | | 9 | | | — | | Derivative liabilities - freestanding instruments (FX) | | 183 | | | — | | | 183 | | | — | |
| Derivative liabilities - embedded exchange feature | Derivative liabilities - embedded exchange feature | | 150,651 | | | — | | | — | | | 150,651 | | Derivative liabilities - embedded exchange feature | | 170,660 | | | — | | | — | | | 170,660 | |
| Contingent consideration arrangements | Contingent consideration arrangements | | 115,573 | | | — | | | — | | | 115,573 | | Contingent consideration arrangements | | 94,609 | | | — | | | — | | | 94,609 | |
| | $ | 266,961 | | | $ | — | | | $ | 737 | | | $ | 266,224 | | | $ | 267,398 | | | $ | — | | | $ | 2,129 | | | $ | 265,269 | |
| | | Fair Value as of December 31, 2020 | | Fair Value Measurements Using Inputs Considered as: | | Fair Value as of December 31, 2021 | | Fair Value Measurements Using Inputs Considered as: |
| | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| Assets: | Assets: | | | | | | | Assets: | | | | | | | | |
| Derivative assets - designated as cash flow hedges (FX) | | $ | 2,893 | | | $ | — | | | $ | 2,893 | | | $ | — | | |
Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”) | | Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”) | | $ | 243 | | | $ | — | | | $ | 243 | | | $ | — | |
| Derivative assets - freestanding instruments (FX) | Derivative assets - freestanding instruments (FX) | | 55 | | | — | | | 55 | | | — | | Derivative assets - freestanding instruments (FX) | | 61 | | | — | | | 61 | | | — | |
| Derivative assets - capped call derivatives | Derivative assets - capped call derivatives | | 72,302 | | | — | | | — | | | 72,302 | | Derivative assets - capped call derivatives | | 106,629 | | | — | | | — | | | 106,629 | |
| Convertible notes receivable | Convertible notes receivable | | 2,775 | | | — | | | — | | | 2,775 | | Convertible notes receivable | | 2,767 | | | — | | | — | | | 2,767 | |
| | $ | 78,025 | | | $ | — | | | $ | 2,948 | | | $ | 75,077 | | | $ | 109,700 | | | $ | — | | | $ | 304 | | | $ | 109,396 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Derivative liabilities - designated as cash flow hedges (FX) | Derivative liabilities - designated as cash flow hedges (FX) | | $ | 14 | | | $ | — | | | $ | 14 | | | $ | — | | Derivative liabilities - designated as cash flow hedges (FX) | | $ | 1,286 | | | $ | — | | | $ | 1,286 | | | $ | — | |
| Derivative liabilities - freestanding instruments (interest rate swaps) | | 74 | | | — | | | 74 | | | — | | |
| | Derivative liabilities - freestanding instruments (FX) | Derivative liabilities - freestanding instruments (FX) | | 4,073 | | | — | | | 4,073 | | | — | | Derivative liabilities - freestanding instruments (FX) | | 427 | | | — | | | 427 | | | — | |
| Derivative liabilities - embedded exchange feature | Derivative liabilities - embedded exchange feature | | 121,756 | | | — | | | — | | | 121,756 | | Derivative liabilities - embedded exchange feature | | 181,700 | | | — | | | — | | | 181,700 | |
| Derivative liabilities - other | | 4,290 | | | — | | | — | | | 4,290 | | |
| Contingent consideration arrangements | Contingent consideration arrangements | | 103,818 | | | — | | | — | | | 103,818 | | Contingent consideration arrangements | | 98,382 | | | — | | | — | | | 98,382 | |
| | $ | 234,025 | | | $ | — | | | $ | 4,161 | | | $ | 229,864 | | | $ | 281,795 | | | $ | — | | | $ | 1,713 | | | $ | 280,082 | |
The following table provides a reconciliation of the beginning and ending balances of our recurring fair value measurements, using significant unobservable inputs (Level 3) (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capped Call Derivative Asset | | Convertible Notes Receivable | | Embedded Exchange Feature Derivative Liability | | Other Derivative Liabilities | | Contingent Consideration Liability Arrangements |
| As of December 31, 2020 | | $ | 72,302 | | | $ | 2,775 | | | $ | 121,756 | | | $ | 4,290 | | | $ | 103,818 | |
| | | | | | | | | | |
Payments (1) | | — | | | — | | | — | | | — | | | (6,000) | |
| Changes in fair value | | 22,217 | | | (11) | | | 28,895 | | | (4,290) | | | 17,755 | |
| | | | | | | | | | |
| Total at September 30, 2021 | | 94,519 | | | 2,764 | | | 150,651 | | | — | | | 115,573 | |
| Less current portion at September 30, 2021 | | 94,519 | | | 2,495 | | | 150,651 | | | — | | | 11,493 | |
| Long-term portion at September 30, 2021 | | $ | — | | | $ | 269 | | | $ | — | | | $ | — | | | $ | 104,080 | |
(1)During the nine months ended September 30, 2021, we paid $6.0 million under the contingent consideration arrangement for the acquisition of Miami Instruments, LLC (“Miami Instruments”). | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Capped Call Derivative Asset | | Convertible Notes Receivable | | Embedded Exchange Feature Derivative Liability | | Contingent Consideration Liability Arrangements |
| As of December 31, 2021 | | $ | 106,629 | | | $ | 2,767 | | | $ | 181,700 | | | $ | 98,382 | |
| | | | | | | | |
| | | | | | | | |
| Changes in fair value | | (9,912) | | | 3 | | | (11,040) | | | (3,773) | |
| | | | | | | | |
| Total at March 31, 2022 | | 96,717 | | | 2,770 | | | 170,660 | | | 94,609 | |
| Less current portion at March 31, 2022 | | — | | | 2,495 | | | — | | | 11,268 | |
| Long-term portion at March 31, 2022 | | $ | 96,717 | | | $ | 275 | | | $ | 170,660 | | | $ | 83,341 | |
Embedded Exchange Feature and Capped Call Derivatives
In June 2020, the Company issued $287.5 million in cash exchangeable senior notes and entered into related capped call transactions. The cash exchangeable senior notes include an embedded exchange feature that is bifurcated from the cash exchangeable senior notes. Please refer to “Note 6.5. Financing Arrangements” for further details. The embedded exchange feature derivative is measured at fair value using a binomial lattice model and discounted cash flows that utilize observable and unobservable market data. The capped call derivative is 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 exchange feature and capped call derivatives are classified as Level 3 as the Company uses historical volatility and implied volatility from options traded to determine expected stock price volatility which is an unobservable input that is significant to the valuation. In general, an increase in our stock price or stock price volatility would increase the fair value of the embedded exchange feature and capped call derivatives which would result in an increase in expense. As time to the expiration of the derivatives decreases, the fair value of the derivatives would decrease. The future impact 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 exchange feature derivative and capped call derivatives are recognized in foreign exchange and other gainsgains/(losses) in the condensed consolidated statements of income (loss).
The stock price volatility as of September 30, 2021March 31, 2022 was 32%36%. As of September 30, 2021,March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the embedded exchange feature derivative of $133.3$154.5 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $170.2$188.2 million. As of September 30, 2021,March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the capped call derivatives of $101.3$107.4 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $86.8$87.4 million.
Contingent Consideration Arrangements
The following table provides the fair value of our Level 3 contingent consideration arrangements by acquisition (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2021 | | December 31, 2020 |
| ImThera Medical, Inc. (“ImThera”) | | $ | 104,080 | | | $ | 89,436 | |
| CardiacAssist, Inc., doing business as TandemLife (“TandemLife”) | | 11,493 | | | 8,809 | |
| Miami Instruments | | — | | | 5,573 | |
| | | | |
| | $ | 115,573 | | | $ | 103,818 | |
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| ImThera | | $ | 83,341 | | | $ | 86,830 | |
| TandemLife | | 11,268 | | | 11,552 | |
| | $ | 94,609 | | | $ | 98,382 | |
The ImThera business combination involved contingent consideration arrangements composed 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 earnout is valued using projected sales from our internal strategic plan. Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs as of September 30, 2021:March 31, 2022:
| | ImThera Acquisition | ImThera Acquisition | | Valuation Technique | | Unobservable Input | | Inputs | ImThera Acquisition | | Valuation Technique | | Unobservable Input | | Inputs |
| Regulatory milestone-based payment | Regulatory milestone-based payment | | Discounted cash flow | | Discount rate | | 3.8% | Regulatory milestone-based payment | | Discounted cash flow | | Discount rate | | 5.3% |
| | Probability of payment | | 85% | | Probability of payment | | 85% |
| | Projected payment year | | 2024 | | Projected payment year | | 2024 |
| | Sales-based earnout | Sales-based earnout | | Monte Carlo simulation | | Risk-adjusted discount rate | | 12.0% | - | 12.6% | Sales-based earnout | | Monte Carlo simulation | | Risk-adjusted discount rate | | 13.9% |
| | Credit risk discount rate | | 4.2% | - | 5.1% | | Credit risk discount rate | | 5.5% | - | 6.2% |
| | Revenue volatility | | 32.5% | | Revenue volatility | | 32.5% |
| | Probability of payment | | 85% | | Probability of payment | | 85% |
| | Projected years of earnout | | 2025 | - | 2028 | | Projected years of earnout | | 2025 | - | 2028 |
The TandemLife business combination involved a contingent consideration arrangement composed of potential cash payments upon the achievement of certain regulatory milestones. The arrangement is a Level 3 fair value measurement and includes the following significant unobservable inputs as of September 30, 2021:March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| TandemLife Acquisition | | Valuation Technique | | Unobservable Input | | Inputs |
| Regulatory milestone-based payment | | Discounted cash flow | | Discount rate | | 2.3%4.9% |
| | | | Probability of payment | | 90% |
| | | | Projected payment year | | 20222023 |
Note 6.5. Financing Arrangements
The outstanding principal amount of our long-term debt as of September 30, 2021March 31, 2022 and December 31, 20202021 was as follows (in thousands, except interest rates):
| | | September 30, 2021 | | December 31, 2020 | | Maturity | | Interest Rate | | March 31, 2022 | | December 31, 2021 | | Maturity | | Interest Rate |
| 2020 Cash Exchangeable Senior Notes | 2020 Cash Exchangeable Senior Notes | | $ | 221,704 | | | $ | 212,073 | | | December 2025 | | 3.00% | 2020 Cash Exchangeable Senior Notes | | $ | 228,535 | | | $ | 225,140 | | | December 2025 | | 3.00% |
| Bridge Loan Facility | | Bridge Loan Facility | | 216,366 | | | — | | | June 2023 | | 4.17% |
| Bank of America Merrill Lynch Banco Múltiplo S.A. | Bank of America Merrill Lynch Banco Múltiplo S.A. | | 6,237 | | | 6,515 | | | July 2023 | | 4.32% | Bank of America Merrill Lynch Banco Múltiplo S.A. | | 7,203 | | | 6,113 | | | July 2023 | | 9.32% |
| Mediocredito Italiano | Mediocredito Italiano | | 4,380 | | | 5,406 | | | December 2023 | | 0.50 | % | - | 2.74% | Mediocredito Italiano | | 3,312 | | | 3,379 | | | December 2023 | | 0.50% | - | 2.74% |
| Bank of America, U.S. | Bank of America, U.S. | | 1,510 | | | 2,019 | | | January 2023 | | 2.66% | Bank of America, U.S. | | 1,500 | | | 1,500 | | | January 2023 | | 2.85% |
| 2020 Senior Secured Term Loan | | — | | | 424,002 | | | |
| Other | Other | | 576 | | | 660 | | | Other | | 623 | | | 663 | | |
| Total long-term facilities | Total long-term facilities | | 234,407 | | | 650,675 | | | Total long-term facilities | | 457,539 | | | 236,795 | | |
| Less current portion of long-term debt | Less current portion of long-term debt | | 223,610 | | | 8,377 | | | Less current portion of long-term debt | | 1,729 | | | 226,946 | | |
| Total long-term debt | Total long-term debt | | $ | 10,797 | | | $ | 642,298 | | | Total long-term debt | | $ | 455,810 | | | $ | 9,849 | | |
Revolving Credit
The outstanding principal amount of our short-term unsecured revolving credit agreements and other agreements with various banks was $4.2$3.0 million and $5.0$2.7 million at September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, with interest rates ranging from 3.06%2.85% to 7.30%9.32% and loan terms ranging from overnight to 364 days, as of September 30, 2021.March 31, 2022.
On August 13, 2021, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc. (the “Borrower”) entered into a First Lien Credit Agreement with the lenders and issuing banks party thereto and Goldman Sachs Bank USA, as First Lien Administrative Agent and First Lien Collateral Agent, relating to a $125 million senior secured multi-currency revolving credit facility to be made available to the Borrower (the “2021 Revolving Credit Facility”). The 2021 Revolving Credit Facility, as amended on March 16, 2022, expires on August 13, 2026 and bears interest at a rate equal to, for U.S. dollar-denominated loans, an adjusted LIBOR (with LIBOR fallback language to address the announced future cessation of specified dollar LIBOR)Secured Overnight Financing Rate (“SOFR”) with a floor of 0.00%, or a Base Rate, plus, in each case, a variable margin based on the Company’s senior secured net leverage ratio. Interest is paid monthly or quarterly, as selected by the Borrower, with any outstanding principal due at maturity. The First Lien Credit Agreement also contemplates the payment of commitment fees on the unused portion of the commitments, at a variable percentage based on the Company’s senior secured net leverage ratio. The 2021 Revolving Credit 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 First Lien Credit Agreement contains customary representations, warranties and covenants, including the requirement to maintain a senior secured first lien net leverage ratio of less than 4.50 to 1.00 for as long as there are any revolving loans outstanding under the 2021 Revolving Credit Facility, as well as in order for the Company to borrow additional revolving loans.
There were no outstanding borrowings under the 2021 Revolving Credit Facility as of September 30,March 31, 2022 and December 31, 2021.
Bridge Loan Facility
On August 12,February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., entered into an Incremental Facility Amendment No. 1 to the 2021 Revolving Credit Facility, relating to a €200 million bridge loan facility (the “Bridge Loan Facility”). On March 16, 2022, LivaNova entered into Amendment No. 2 to the Company terminated its previous $50.02021 Revolving Credit Facility, which converted the available borrowings under the Bridge Loan Facility from €200 million revolving credit facility agreementto $220.0 million and converted the EURIBOR rate in the 2021 Revolving Credit Facility to SOFR. LivaNova delivered a borrowing notice for $220.0 million in connection with ACF FINCO I LP,the Bridge Loan Facility, which was undrawn, resultingfunded on March 17, 2022. On March 18, 2022, LivaNova PLC, acting through its Italian branch, entered into an Indemnity Letter and an Account Pledge Agreement with Barclays, further to which Barclays issued the SNIA Litigation Guarantee. As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a loss on debt extinguishmentbiweekly basis. The proceeds of $1.6the Bridge Loan Facility were used by LivaNova to post a portion of the cash collateral supporting the SNIA Litigation Guarantee and can be used towards payment of court ordered damages or settlements (including interest, expenses and charges in connection therewith) in the event of a negative decision by the Italian Supreme Court. The cash held as collateral supporting the SNIA Litigation Guarantee of $313.6 million recognized during the three and nine months ended September 30, 2021 primarily associated with the write-off of unamortized debt issuance costs, and is included within loss on debt extinguishmentclassified as restricted cash on the condensed consolidated statementsbalance sheet as of income (loss).
2020 Senior Secured TermMarch 31, 2022. The Bridge Loan
On August 12, 2021, the Company repaid in full Facility bears interest at an adjusted term SOFR, with a floor of 0.5%, plus 3.5% increasing by 0.25% 15 days after drawing and terminated its previously outstanding $450 million 2020 senior secured term loan, resulting in a loss on debt extinguishment of $58.6 million recognized during the three and nine months ended September 30, 2021, which is comprised of a $35.6 million make-whole premium and $23.0 million associated with the write-off of unamortized debt issuance costs, and is included within loss on debt extinguishment on the condensed consolidated statements of income (loss). Forby an additional information, please refer to “Note 9. Stockholders' Equity.”0.5%
90 days after drawing and every 90 days thereafter, with a maximum margin of 5.25% over adjusted SOFR. The effective interest rate of the Bridge Loan Facility at March 31, 2022 was 11.04%. The Bridge Loan Facility matures on June 16, 2023 and is subject to mandatory prepayment in connection with certain asset dispositions, equity or debt issuance as well as in the event that collateral securing the SNIA Litigation Guarantee is released. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”
Debt discounts and issuance costs related to the Bridge Loan Facility were approximately $4.5 million. Amortization of debt discount and issuance costs for the Bridge Loan Facility was $0.9 million for the three months ended March 31, 2022 and is included in interest expense on the consolidated statement of income (loss). The unamortized discount related to the Bridge Loan Facility as of March 31, 2022 was $3.6 million.
Outstanding borrowings under the Bridge Loan Facility was $220.0 million as of March 31, 2022.
2020 Cash Exchangeable Senior Notes
On June 17, 2020, our wholly-owned subsidiary, LivaNova USA, Inc., issued $287.5 million aggregate principal amount of 3.00% cash exchangeable senior notesNotes (the “Notes”) by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The sale of the Notes resulted in approximately $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.year, beginning on December 15, 2020. The effective interest rate of the Notes at September 30, 2021March 31, 2022 was 9.95%. The Notes mature on December 15, 2025 unless earlier exchanged, repurchased, or redeemed.
Debt discounts and issuance costs related to the Notes were approximately $82.0 million and included $75.0 million of discount attributable to the embedded exchange feature, discussed below, and $7.0 million of allocated issuance costs to the Notes related to legal, bank and accounting fees. Amortization of debt discount and issuance costs for the Notes was $3.3$3.4 million and $9.6$3.1 million for the three and nine months ended September 30,March 31, 2022 and 2021, respectively, and $3.0 million and $3.4 million for the three and nine months ended September 30, 2020, respectively, areis included in interest expense on the condensed consolidated statementsstatement of income (loss). The unamortized discount related to the Notes as of September 30,March 31, 2022 and December 31, 2021 was $65.8 million.$59.0 million and $62.4 million, respectively.
Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option. This includes the right to exchange the 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 September 16, 2021, which allowsduring the holders of the Notes to request to exchange the Notes through Decemberquarterly period ending March 31, 2021.2022. As a result, we have reclassifiedincluded our obligations from the Notes and the associated embedded exchange feature derivative as a currentlong-term liability on the condensed consolidated balance sheet as of September 30, 2021. However, as of the date of filing of this Form 10-Q, no holders have elected to exchange the Notes.March 31, 2022. The 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 Notes is 16.3980 ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the Notes.
The Company may redeem the Notes at its option, on or after June 20, 2023 and 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 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 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Additionally, the Company may redeem the Notes at its option, prior to their stated maturity, in whole but not in part, in connection with certain tax-related events.
Embedded Exchange Feature
The embedded exchange feature of the Notes requires bifurcation from the Notes and is accounted for as a derivative liability. The fair value of the Notes’ embedded exchange feature derivative at the time of issuance was $75.0 million and was recorded as debt discount on the Notes. This discount is amortized as interest expense using the effective interest method over the term of the Notes. The Notes’ embedded exchange feature derivative 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 within foreign exchange and other gainsgains/(losses) in the condensed consolidated statements of income (loss). The fair value of the embedded exchange feature derivative liability was $150.7$170.7 million as of September 30, 2021.March 31, 2022.
Capped Call Transactions
In connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers of the Notes or their respective affiliates. The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of LivaNova’s ordinary shares underlying the Notes and are expected generally to offset any cash payments the Company is required to make upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per ordinary share, as measured under the capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to an initial cap price of $100.00 per share. The capped call transactions expire on December 15, 2025 and must be settled in cash. If the capped call transactions are converted or redeemed early, settlement occurs at their termination value, which is equal to their fair value at the time of the redemption. The capped call transactions 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 within foreign exchange and other gainsgains/(losses) in the condensed consolidated statements of income (loss). The fair value of the capped call derivative assets was $94.5$96.7 million as of September 30, 2021.March 31, 2022. As of September 30, 2021,March 31, 2022, the capped call derivative assets are classified as current.long-term.
Note 7.6. Derivatives and Risk Management
Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. We enter into FX derivative contracts to reduce the impact of foreign currency exchange rate fluctuations on earnings and cash flow. We are also exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our ordinary shares, subject to a capped price per share. We do not enter into derivative contracts for speculative purposes.
We measure all outstanding derivatives each period end at fair value and report the fair value as either financial assets or liabilities on 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, changes in the fair value of the derivative will be recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to our condensed consolidated statements of income (loss) as shown in the tables below. We evaluate hedge effectiveness at inception. Cash flows from derivative contracts are reported as operating activities on our condensed consolidated statements of cash flows.
Freestanding FX Derivative Contracts
The gross notional amount of FX derivative contracts not designated as hedging instruments outstanding at September 30, 2021March 31, 2022 and December 31, 20202021 was $132.0$93.8 million and $352.6$136.7 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans and trade receivables. We recorded net gains (losses) for these freestanding derivatives of $2.4$1.0 million and $(11.7)$7.7 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $8.4 million and $(4.8) million for the nine months ended September 30, 2021 and 2020, respectively. These gains (losses) are included in foreign exchange and other gainsgains/(losses) on our condensed consolidated statements of income (loss).
Counterparty Credit Risk
We are exposed to credit risk in the event of non-performance by the counterparties to our derivatives.
The two counterparties to the capped call transactions are financial institutions. To limit our credit risk, we selected financial institutions with a minimum long-term investment grade credit rating. Our exposure to the credit risk of the counterparties is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under the capped call transactions with that counterparty.
To manage credit risk with respect to our other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the 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.
Cash Flow Hedges
We utilize FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with our 12 months12-month U.S. dollar forecasts of revenues and costs denominated in British Pound, Japanese Yen and the Euro. We transfer to earnings from AOCI the gain or loss realized on the FX derivative contracts at the time of invoicing.
The gross notional amounts of open derivative contracts designated as cash flow hedges at September 30, 2021March 31, 2022 and December 31, 20202021 were as follows (in thousands):
| | Description of Derivative Contract | Description of Derivative Contract | | September 30, 2021 | | December 31, 2020 | Description of Derivative Contract | | March 31, 2022 | | December 31, 2021 |
| FX derivative contracts to be exchanged for British Pounds | FX derivative contracts to be exchanged for British Pounds | | $ | 5,380 | | | $ | 9,545 | | FX derivative contracts to be exchanged for British Pounds | | $ | 8,126 | | | $ | 11,160 | |
| FX derivative contracts to be exchanged for Japanese Yen | FX derivative contracts to be exchanged for Japanese Yen | | 6,946 | | | 18,637 | | FX derivative contracts to be exchanged for Japanese Yen | | 3,334 | | | 6,648 | |
| FX derivative contracts to be exchanged for Euros | FX derivative contracts to be exchanged for Euros | | 17,332 | | | 47,444 | | FX derivative contracts to be exchanged for Euros | | 43,620 | | | 58,224 | |
| | $ | 29,658 | | | $ | 75,626 | | | $ | 55,080 | | | $ | 76,032 | |
After-tax net gain associated with derivatives designated as cash flow hedges recorded in the ending balance of AOCI and the amount expected to be reclassified to earnings in the next 12 months are as follows (in thousands):
| | Description of Derivative Contract | Description of Derivative Contract | | After-Tax Net Gain in AOCI as of September 30, 2021 | | After-Tax Net Gain in AOCI as of Amount Expected to be Reclassified to Earnings in Next 12 Months | Description of Derivative Contract | | After-Tax Net Loss in AOCI as of March 31, 2022 | | After-Tax Net Loss in AOCI as of March 31, 2022 Expected to be Reclassified to Earnings in Next 12 Months |
| FX derivative contracts | FX derivative contracts | | $ | 207 | | | $ | 207 | | FX derivative contracts | | $ | (1,640) | | | $ | (1,640) | |
Pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in other comprehensive income (loss) (“OCI”) and the amount reclassified to earnings from AOCI were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended September 30, |
| | | | 2021 | | 2020 |
| Description of Derivative Contract | | Location in Earnings of Reclassified Gain or Loss | | Losses Recognized in OCI | | Gains Reclassified from AOCI to Earnings | | Gains Recognized in OCI | | (Losses) Gains Reclassified from AOCI to Earnings |
| FX derivative contracts | | Foreign exchange and other gains | | $ | (491) | | | $ | 133 | | | $ | 1,482 | | | $ | (692) | |
| FX derivative contracts | | SG&A | | — | | | 573 | | | — | | | 534 | |
| | | | $ | (491) | | | $ | 706 | | | $ | 1,482 | | | $ | (158) | |
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2022 | | 2021 |
| Description of Derivative Contract | Description of Derivative Contract | | Location in Earnings of Reclassified Gain or Loss | | Losses Recognized in OCI | | (Losses) Gains Reclassified from AOCI to Earnings | | Gains Recognized in OCI | | (Losses) Gains Reclassified from AOCI to Earnings | Description of Derivative Contract | | Location in Earnings of Reclassified Gain or Loss | | Losses Recognized in OCI | | Gains (Losses) Reclassified from AOCI to Earnings | | Losses Recognized in OCI | | (Losses) Gains Reclassified from AOCI to Earnings |
| FX derivative contracts | FX derivative contracts | | Foreign exchange and other gains | | $ | (3,335) | | | $ | (2,669) | | | $ | 632 | | | $ | (777) | | FX derivative contracts | | Foreign exchange and other gains/(losses) | | $ | (642) | | | $ | 441 | | | $ | (2,223) | | | $ | (1,496) | |
| FX derivative contracts | FX derivative contracts | | SG&A | | — | | | 2,116 | | | — | | | 209 | | FX derivative contracts | | SG&A | | — | | | (388) | | | — | | | 685 | |
| Interest rate swap contracts | | Interest expense | | — | | | — | | | — | | | (113) | | |
| | $ | (3,335) | | | $ | (553) | | | $ | 632 | | | $ | (681) | | | $ | (642) | | | $ | 53 | | | $ | (2,223) | | | $ | (811) | |
We offset fair value amounts associated with our derivative instruments on our condensed consolidated balance sheets that are executed with the same counterparty under master netting arrangements. Our 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):
| | September 30, 2021 | | Asset Derivatives | | Liability Derivatives | |
| March 31, 2022 | | March 31, 2022 | | Asset Derivatives | | Liability Derivatives |
| Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Fair Value (1) | | Balance Sheet Location | | Fair Value (1) | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Fair Value (1) | | Balance Sheet Location | | Fair Value (1) |
| FX derivative contracts | FX derivative contracts | | Current derivative assets | | $ | 272 | | | Current derivative liabilities | | $ | 728 | | FX derivative contracts | | Current derivative assets | | $ | 262 | | | Current derivative liabilities | | $ | 1,946 | |
| Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | | 272 | | | 728 | | Total derivatives designated as hedging instruments | | 262 | | | 1,946 | |
| Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | | Derivatives Not Designated as Hedging Instruments | |
| FX derivative contracts | FX derivative contracts | | Current derivative assets | | 1,137 | | | Current derivative liabilities | | 9 | | FX derivative contracts | | Current derivative assets | | 3 | | | Current derivative assets | | 183 | |
| FX derivative contracts | | FX derivative contracts | | Current derivative liabilities | | 18 | | |
| Capped call derivatives | Capped call derivatives | | Current derivative assets | | 94,519 | | | Capped call derivatives | | Long-term derivative assets | | 96,717 | | |
| Embedded exchange feature | Embedded exchange feature | | Current derivative liabilities | | 150,651 | | Embedded exchange feature | | Long-term derivative liabilities | | 170,660 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | | 95,656 | | | 150,660 | | Total derivatives not designated as hedging instruments | | 96,738 | | | 170,843 | |
| Total derivatives | Total derivatives | | $ | 95,928 | | | $ | 151,388 | | Total derivatives | | $ | 97,000 | | | $ | 172,789 | |
| | December 31, 2020 | | Asset Derivatives | | Liability Derivatives | |
| December 31, 2021 | | December 31, 2021 | | Asset Derivatives | | Liability Derivatives |
| Derivatives Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Fair Value (1) | | Balance Sheet Location | | Fair Value (1) | Derivatives Designated as Hedging Instruments | | Balance Sheet Location | | Fair Value (1) | | Balance Sheet Location | | Fair Value (1) |
| FX derivative contracts | FX derivative contracts | | Current derivative assets | | $ | 1,998 | | | Current derivative liabilities | | $ | 14 | | FX derivative contracts | | Accrued liabilities | | $ | 243 | | | Accrued liabilities | | $ | 1,286 | |
| FX derivative contracts | | Current derivative liabilities | | 895 | | | |
| | Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | | 2,893 | | | 14 | | Total derivatives designated as hedging instruments | | 243 | | | 1,286 | |
| Derivatives Not Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | | Derivatives Not Designated as Hedging Instruments | |
| Interest rate swap contracts | | Current derivative liabilities | | 74 | | |
| | FX derivative contracts | FX derivative contracts | | Current derivative assets | | 55 | | | Current derivative liabilities | | 4,073 | | FX derivative contracts | | Accrued liabilities | | 61 | | | Accrued liabilities | | 427 | |
| Capped call derivatives | Capped call derivatives | | Long-term derivative assets | | 72,302 | | | Capped call derivatives | | Current derivative assets | | 106,629 | | |
| Embedded exchange feature | Embedded exchange feature | | Long-term derivative liability | | 121,756 | | Embedded exchange feature | | Current derivative liabilities | | 181,700 | |
| Other derivatives | | Current derivative liabilities | | 4,106 | | |
| Other derivatives | | Long-term derivative liability | | 184 | | |
| | Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | | 72,357 | | | 130,193 | | Total derivatives not designated as hedging instruments | | 106,690 | | | 182,127 | |
| Total derivatives | Total derivatives | | $ | 75,250 | | | $ | 130,207 | | Total derivatives | | $ | 106,933 | | | $ | 183,413 | |
(1)For the classification of inputs used to evaluate the fair value of our derivatives, refer to “Note 5.4. Fair Value Measurements.”
Note 8.7. Commitments and Contingencies
FDA Warning Letter
On December 29, 2015, the FDA issued a Warning Letter alleging certain violations of FDA regulations applicable to medical device manufacturers at our Munich, Germany and Arvada, Colorado facilities.
The FDA inspected the Munich facility from August 24, 2015 to August 27, 2015 and the Arvada facility from August 24, 2015 to September 1, 2015. On August 27, 2015, the FDA issued a Form 483 identifying 2 observed non-conformities with certain regulatory requirements at the Munich facility. We did not receive a Form 483 in connection with the FDA’s inspection of the Arvada facility. Following receipt of the Form 483, we provided written responses to the FDA describing corrective and
preventive actions that were underway or to be taken to address the FDA’s observations at the Munich facility. The Warning Letter responded in part to our responses and identified other alleged violations related to the manufacture of our 3T Heater-Cooler device that were not previously included in the Form 483.
The Warning Letter further stated that our 3T devices and other devices we manufactured at our Munich facility were subject to refusal of admission into the U.S. until resolution of the issues set forth by the FDA in the Warning Letter. The FDA had
informed us that the import alert was limited to the 3T devices, but that the agency reserved the right to expand the scope of the import alert if future circumstances warranted such action. The Warning Letter did not request that existing users cease using the 3T device, and manufacturing and shipment of all of our products other than the 3T device were unaffected by the import limitation. To help clarify these issues for current customers, we issued an informational Customer Letter in January 2016 and that same month agreed with the FDA on a process for shipping 3T devices to existing U.S. users pursuant to a certificate of medical necessity program.
Finally, the Warning Letter stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter were reasonably related would not be approved until the violations had been corrected; however, this restriction applied only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.
On February 25, 2020, LivaNova received clearance for K191402, a 510(k) for the 3T devices that addressed issues contained in the 2015 Warning Letter along with design changes that further mitigate the potential risk of aerosolization. Concurrent with this clearance, (1) 3T devices manufactured in accordance with K191402 will not be subjected to the import alert and (2) LivaNova initiated a correction to distribute the updated Operating Instructions cleared under K191402. With this 510(k) clearance, all actions to remediate the FDA’s inspectional observations in the Warning Letter arewere complete, and at this time, LivaNova is awaitingawaited the FDA’s close-out inspection.
On April 28, 2022, the FDA completed its close-out inspection of the Munich, Germany facility and, at the conclusion of the inspection, issued a Form 483 which contained three inspectional observations in the areas of design validation, process validation and complaint investigations. We are preparing a detailed response to the FDA commenting on the Form 483 observations in the context of our previous actions and remediation efforts to the 2015 Warning Letter, including the January 2016 informational Customer Letter; shipment of products pursuant to our certificate of medical necessity program; and the activities that we conducted to obtain clearance of K191402 for the modified 3T device. We intend to submit our response to the FDA within 15 working days of receiving the Form 483 and will also include our proposed corrective and preventive actions to address the FDA's observations. While we intend to resolve the issues raised by the FDA in our response, whether the FDA will accept our response is uncertain. Refer to “Part II, Item 1A. Risk Factors” in this Form 10-Q for additional information regarding the risks surrounding receipt of the Form 483.
CDC and FDA Safety Communications and Company Field Safety Notice
On October 13, 2016, the Center for Disease Control (the “CDC”) and the FDA separately released safety notifications regarding the 3T devices. The CDC’s Morbidity and Mortality Weekly Report (“MMWR”) and Health Advisory Notice (“HAN”) reported that tests conducted by the CDC and its affiliates indicate that there appears to be genetic similarity between both patient and 3T device strains of the non-tuberculous mycobacterium (“NTM”) bacteria M. chimaera isolated in hospitals in Iowa and Pennsylvania. Citing the geographic separation between the two hospitals referenced in the investigation, the report asserts that 3T devices manufactured prior to August 18, 2014 could have been contaminated during the manufacturing process. The CDC’s HAN and FDA’s Safety Communication, issued contemporaneously with the MMWR report, each assess certain risks associated with 3T devices and provide guidance for providers and patients. The CDC notification states that the decision to use the 3T device during a surgical operation is to be taken by the surgeon based on a risk approach and on patient need. Both the CDC’s and FDA’s communications confirm that 3T devices are critical medical devices and enable doctors to perform life-saving cardiac surgery procedures.
Also on October 13, 2016, concurrent with the CDC’s HAN and FDA’s Safety Communication, we issued a Field Safety Notice Update for U.S. users of 3T devices to proactively and voluntarily contact facilities to aid in implementation of the CDC and FDA recommendations. In the fourth quarter of 2016, we initiated a program to provide existing 3T device users with a new loaner 3T device at no charge pending regulatory approval and implementation of additional risk mitigation strategies worldwide, including a vacuum canister and internal sealing upgrade program and a deep disinfection service. In April 2017, we obtained CE Mark in Europe for the design change of the 3T device, and in October 2018, the FDA concluded that we could commence the vacuum canister and internal sealing upgrade program in the U.S. On February 25, 2020, LivaNova received clearance for K191402, a 510(k) for the 3T devices that addressed issues contained in the 2015 Warning Letter along with design changes that further mitigate the potential risk of aerosolization. We are in the process of completing and closing out all recall activities with the FDA. While our vacuum canister and internal sealing upgrade program and deep cleaning service in the U.S. are substantially complete, these services will continue as a servicing option outside of the U.S.
On December 31, 2016, we recognized a liability for our product remediation plan related to our 3T device. 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 during the fourth quarter of 2016, and furthermore, the cost associated with the plan was reasonably estimable. At September 30, 2021,March 31, 2022, the product remediation liability was $0.5$0.8 million. Since clearance
for K191402 was received, the liability associated with 3T remediation efforts has declined over time such that the Company has concluded that, at this point in time, the current/future liability is immaterial, and we do not intend to provide further disclosure on this matter.
Saluggia Site Hazardous Substances
LivaNova Site Management S.r.l. (“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 a 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 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 has, and continues to, perform ordinary maintenance, secure the facilities, monitor air and water quality and file applicable reports with the competent environmental authorities.
During 2020, LSM received correspondence from ISIN (a sub-body of the Italian Ministry of Economic Development) 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. There
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.
As a result of the above correspondence and publication from ISIN and the publication of potential sites for the national repository, some of the substantial uncertainties regarding the obligation became more certain. In connection with developing the plan required by ISIN, we retained a third party specialist to assist in the estimation of the potential costs. Basedbased on the aforementioned factors, the Company concluded its obligation to clean, dismantle, and deliver any hazardous substances to a national repository wasis probable and reasonably estimable as of December 31, 2020. Accordingly, in the fourth quarter of 2020, we recognized a $42.2 million provision for this matter.estimable. The estimated liability as of DecemberMarch 31, 20202022 was $43.0$38.3 million, which represented the low end of the estimated range of loss of $43.0$38.3 million to $55.0$48.7 million. At September 30,The estimated liability as of December 31, 2021 the liability was $40.2$39.3 million. The decrease in the liability from December 31, 20202021 was primarily due to the effects of foreign currency changes during the ninethree months ended September 30, 2021.March 31, 2022.
Litigation
Product Liability
The Company is currently involved in litigation involving our 3T device. The litigation includes federal multi-district litigation in the U.S. District Court for the Middle District of Pennsylvania, various U.S. state court cases and cases in jurisdictions outside the U.S. A class action, filed in February 2016 in the U.S. District Court for the Middle District of Pennsylvania, consisting of all Pennsylvania residents who underwent open heart surgery at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center between 2011 and 2015 and who currently are asymptomatic for NTM infection, was dismissed on July 16, 2021.
On March 29, 2019, we announced a settlement framework that provides for a comprehensive resolution of the personal injury cases pending in the multi-district litigation in U.S. federal court, the related class action in federal court, as well as certain cases in state courts across the United States. The agreement, which makes no admission of liability, is subject to certain conditions, including acceptance of the settlement by individual claimants and provides for a total payment of up to $225 million to resolve the claims covered by the settlement. Per the agreed-upon terms, the first payment of $135 million was paid into a qualified settlement fund in July 2019 and the second payment of $90 million was paid in January 2020. Cases covered by the settlement are being dismissed as amounts are disbursed to individual plaintiffs from the qualified settlement fund.
Cases in state courts in the U.S. and in jurisdictions outside the U.S. continue to progress. As of November 2, 2021,May 4, 2022, including the cases encompassed in the settlement framework described above that have not yet been dismissed, we arewere aware of approximately 8590 filed and unfiled claims worldwide, with the majority of the claims in various federal or state courts throughout the United States. This number includes 85 cases that have settled but have not yet been dismissed. 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.
In the second quarter of 2021, we recorded an additional liability of $29.4 million due to new information received about the nature of certain claims. At September 30, 2021,March 31, 2022, the provision for these matters was $40.2$36.2 million. While the amount accrued represents our best estimate for those filed and unfiled claims that we believe are both probable and estimable at this time, and which are a subset of the filed and unfiled claims worldwide of which we are currently aware, the actual liability for resolution of these matters may vary from our estimate.
from our estimate. The remaining claims for which a provision has not been recorded are remote or the potential loss is not estimable at this time.
Changes in the carrying amount of the litigation provision liability are as follows (in thousands):
| | | | | | | | |
Total litigation provision liability at December 31, 20202021 | | $ | 36,49039,470 | |
| Payments | | (28,303)(2,754) | |
Adjustments (1) | | 32,254 (343) | |
| FX and other | | (227)(142) | |
Total litigation provision liability at September 30, 2021March 31, 2022 | | 40,21436,231 | |
Less current portion of litigation provision liability at September 30, 2021March 31, 2022 | | 33,52630,126 | |
Long-term portion of litigation provision liability at September 30, 2021March 31, 2022 (2) | | $ | 6,6886,105 | |
(1)Adjustments to the litigation provision are included within other operating expenses on the condensed consolidated statements of income (loss) and were $(0.2) million and $32.3 million for the three and nine months ended September 30, 2021, respectively..
(2)Included within other long-term liabilities on the condensed consolidated balance sheet.
Environmental Liability
Sorin was created as a result of a spin-off (the “Sorin spin-off”) from SNIA in January 2004, and in October 2015, Sorin was merged into LivaNova. SNIA subsequently became insolvent, and the Italian Ministry of the Environment and the Protection of Land and Sea (the “Italian Ministry of the Environment”), sought compensation from SNIA in an aggregate amount of approximately $4 billion for remediation costs relating to the environmental damage at chemical sites previously operated by SNIA’s other subsidiaries.
In September 2011 and July 2014, the Bankruptcy Court of Udine and the Bankruptcy Court of Milan held (in proceedings to which we were not parties) that the Italian Ministry of the Environment and other Italian government agencies (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, and in January 2016, the Court of Udine rejected the appeal. The Public Administrations appealed that decision to the Supreme Court. In addition, the Bankruptcy Court of Milan’s decision has been appealed.
In January 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. On April 1, 2016, the Court of Milan dismissed all legal actions of SNIA and of the Public Administrations further requiring the Public Administrations to pay Sorin approximately €292,000 (approximately $338,000$323,901 as of September 30, 2021)March 31, 2022) for legal fees. The Public Administrations appealed the 2016 Decision to the Court of Appeal of Milan.Milan (“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 Sorin spin-off, an estimated €572.1 million (approximately $662.8$634.6 million as of September 30, 2021)March 31, 2022). Next the Court will evaluate a report delivered by a panel of three experts assessing the environmental damages, including the costs of clean-up and compensatory damages, and review briefs from the parties. Thereafter, the Court will issue its ruling on the amount of damages attributable to LivaNova. We cannot predict the outcome of these proceedings with respect to damages, or the timing of any resolution by the Court, however we do not expect a final judgment earlier than December 2021. Separately, we have appealed the partial decision on liability to the Italian Supreme Court (Corte di Cassazione), although any final judgmentin August 2019.
In November 2021, the Court of Appeal delivered the remainder of its decision, ordering LivaNova to pay damages of approximately €453.6 million (approximately $503.1 million as of March 31, 2022). We appealed the decision on damages may not be stayed pending resolutionin December 2021, and in early 2022, the Italian Supreme Court agreed to combine the appeals on liability and damages. 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 our providing a first demand bank guarantee of €270.0 million (approximately $299.5 million as of March 31, 2022) within 30 calendar days. On March 21, 2022, LivaNova delivered the guarantee as required by the Court of Appeal, thereby satisfying the condition to obtain the suspension of the Court of Appeal’s judgment for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court. Refer to “Note 5. Financing Arrangements” for information on the financing of the guarantee.
In 2011, Caffaro, a SNIA subsidiary, sold its Brescia chemical business to Caffaro Brescia, a third party belonging to the Todisco group, and as part of the acquisition, Caffaro Brescia agreed to secure hydraulic barriers at the site and maintain existing environmental security measures. In September 2020, Caffaro Brescia declared it was withdrawing from its agreement to maintain the environmental measures. In January 2021, we (in addition to Caffaro Brescia, and other non-LivaNova entities) received an administrative order (“Order”) from the Italian Ministry of the Environment requiring us to ensure the maintenance of the environmental measures and to guarantee that such works remain fully operational, the annual management and maintenance for which is estimated at approximately €1 million per year. LivaNova’s receipt of the Order appears to be based
on the aforementioned Court of AppealsAppeal decision regarding our alleged joint liability with SNIA for SNIA’s environmental liabilities. Our response, dated February 16, 2021, disputes the grounds upon which the Order is based. We also appealed the Order in the Administrative Court in Brescia.
We have not recognized a liability in connection with these related matters because any potential loss is not currently probable or reasonably estimable.
Patent Litigation
On May 11, 2018, Neuro and Cardiac Technologies LLC (“NCT”), a non-practicing entity, filed a complaint in the United States District Court for the Southern District of Texas asserting that the VNS Therapy System, when used with the SenTiva Model 1000 generator, infringes the claims of U.S. Patent No. 7,076,307 owned by NCT. The complaint requests damages that include a royalty, costs, interest, and attorneys’ fees. On September 13, 2018, we petitioned the Patent Trial and Appeal Board of the U. S. Patent and Trademark Office (the “Patent Office”) for an inter partes review (“IPR”) of the validity of the ‘307 patent, and on May 18, 2020, the Patent Office issued a Final Written Decision determining that all challenged claims are unpatentable. NCT appealed the decision, and in September 2021, the Federal Circuit affirmed the Patent Office’s decision that all challenged claims are unpatentable. Following finality of the Federal Circuit decision, LivaNova will seek dismissal of the litigation. We have not recognized a liability in connection with this matter because any potential loss is not currently probable or reasonably estimable.probable.
Contract Litigation
On November 25, 2019, LivaNova received notice of a lawsuit initiated by former members of Caisson Interventional, LLC (“Caisson”), a subsidiary of the Company acquired in 2017. The lawsuit, Todd J. Mortier, as Member Representative of the former Members of Caisson Interventional, LLC v. LivaNova USA, Inc., is currently pending in the United States District Court for the District of Minnesota. The complaint alleges (i) breach of contract, (ii) breach of the covenant of good faith and fair dealing and (iii) unjust enrichment in connection with the Company’s operation of Caisson’s Transcatheter Mitral Valve Replacement (“TMVR”) program and the Company’s November 20, 2019 announcement that it was ending the TMVR program at the end of 2019. The lawsuit seeks damages arising out of the 2017 acquisition agreement, including various regulatory milestone payments. We intend to vigorously defend this claim. The Company has not recognized a liability related to this matter because any potential loss is not currently probable or reasonably estimable.
Other Matters
Additionally, we are the subject of various pending or threatened legal actions and proceedings that arise in the ordinary course of our 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 our consolidated net income, financial position or liquidity.
Note 9.8. Stockholders' Equity
On August 6, 2021, the Company closed an offering and issued 4,181,818 ordinary shares, par value £1.00 per share, at an offering price of $82.50 per share. Net proceeds from the offering were approximately $322.6 million, after deducting underwriting discounts, commissions and offering expenses. Proceeds from the offering were used to repay the Company’s $450 million 2020 senior secured term loan.
The tables below present the condensed consolidated statements of stockholders’ equity as of and for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | | Ordinary Shares | | Ordinary Shares - Amount | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity | | Ordinary Shares | | Ordinary Shares - Amount | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit (1) | | Total Stockholders' Equity (1) |
| June 30, 2021 | | 49,523 | | | $ | 76,405 | | | $ | 1,779,113 | | | $ | (705) | | | $ | 23,075 | | | $ | (837,418) | | | $ | 1,040,470 | | |
| Issuance of shares | | 4,182 | | | 5,808 | | | 316,798 | | | — | | | — | | | — | | | 322,606 | | |
| December 31, 2021 | | December 31, 2021 | | 53,762 | | | $ | 82,295 | | | $ | 2,117,961 | | | $ | (650) | | | $ | (7,177) | | | $ | (897,784) | | | $ | 1,294,645 | |
| Stock-based compensation plans | | Stock-based compensation plans | | 2 | | | 3 | | | 3,137 | | | 31 | | | — | | | — | | | 3,171 | |
| Net income | | Net income | | — | | | — | | | — | | | — | | | — | | | 2,993 | | | 2,993 | |
| Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (8,955) | | | — | | | (8,955) | |
| March 31, 2022 | | March 31, 2022 | | 53,764 | | | $ | 82,298 | | | $ | 2,121,098 | | | $ | (619) | | | $ | (16,132) | | | $ | (894,791) | | | $ | 1,291,854 | |
| | December 31, 2020 | | December 31, 2020 | | 49,447 | | | $ | 76,300 | | | $ | 1,768,156 | | | $ | (1,034) | | | $ | 27,809 | | | $ | (761,966) | | | $ | 1,109,265 | |
| Stock-based compensation plans | Stock-based compensation plans | | 27 | | | 41 | | | 11,480 | | | 34 | | | — | | | — | | | 11,555 | | Stock-based compensation plans | | 8 | | | 10 | | | 2,251 | | | 236 | | | — | | | — | | | 2,497 | |
| Net loss | Net loss | | — | | | — | | | — | | | — | | | — | | | (42,237) | | | (42,237) | | Net loss | | — | | | — | | | — | | | — | | | — | | | (30,761) | | | (30,761) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (19,896) | | | — | | | (19,896) | | |
| September 30, 2021 | | 53,732 | | | $ | 82,254 | | | $ | 2,107,391 | | | $ | (671) | | | $ | 3,179 | | | $ | (879,655) | | | $ | 1,312,498 | | |
| | June 30, 2020 | | 49,476 | | | $ | 76,338 | | | $ | 1,750,798 | | | $ | (1,057) | | | $ | (35,089) | | | $ | (457,804) | | | $ | 1,333,186 | | |
| Stock-based compensation plans | | — | | | — | | | 7,670 | | | 4 | | | — | | | — | | | 7,674 | | |
| Cancellation of shares | | (73) | | | — | | | — | | | — | | | — | | | — | | | — | | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | (14,772) | | | (14,772) | | |
| Other comprehensive income | Other comprehensive income | | — | | | — | | | — | | | — | | | 24,704 | | | — | | | 24,704 | | Other comprehensive income | | — | | | — | | | — | | | — | | | (25,871) | | | — | | | (25,871) | |
| September 30, 2020 | | 49,403 | | | $ | 76,338 | | | $ | 1,758,468 | | | $ | (1,053) | | | $ | (10,385) | | | $ | (472,576) | | | $ | 1,350,792 | | |
| March 31, 2021 | | March 31, 2021 | | 49,455 | | | $ | 76,310 | | | $ | 1,770,407 | | | $ | (798) | | | $ | 1,938 | | | $ | (792,727) | | | $ | 1,055,130 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | Ordinary Shares - Amount | | Additional Paid-In Capital | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity |
| December 31, 2020 | | 49,447 | | | $ | 76,300 | | | $ | 1,768,156 | | | $ | (1,034) | | | $ | 27,809 | | | $ | (752,402) | | | $ | 1,118,829 | |
| Issuance of shares | | 4,182 | | | 5,808 | | | 316,798 | | | — | | | — | | | — | | | 322,606 | |
| Stock-based compensation plans | | 103 | | | 146 | | | 22,437 | | | 363 | | | — | | | — | | | 22,946 | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | (127,253) | | | (127,253) | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (24,630) | | | — | | | (24,630) | |
| September 30, 2021 | | 53,732 | | | $ | 82,254 | | | $ | 2,107,391 | | | $ | (671) | | | $ | 3,179 | | | $ | (879,655) | | | $ | 1,312,498 | |
| | | | | | | | | | | | | | |
| December 31, 2019 | | 49,411 | | | $ | 76,257 | | | $ | 1,734,870 | | | $ | (1,263) | | | $ | (19,392) | | | $ | (406,755) | | | $ | 1,383,717 | |
Adoption of ASU No. 2016-13 | | — | | | — | | | — | | | — | | | — | | | (639) | | | (639) | |
| Stock-based compensation plans | | 65 | | | 81 | | | 23,598 | | | 210 | | | — | | | — | | | 23,889 | |
| Cancellation of shares | | (73) | | | — | | | — | | | — | | | — | | | — | | | — | |
| Net loss | | — | | | — | | | — | | | — | | | — | | | (65,182) | | | (65,182) | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | 9,007 | | | — | | | 9,007 | |
| September 30, 2020 | | 49,403 | | | $ | 76,338 | | | $ | 1,758,468 | | | $ | (1,053) | | | $ | (10,385) | | | $ | (472,576) | | | $ | 1,350,792 | |
The table below presents the change in each component of AOCI, net of tax, and the reclassifications out of AOCI into net income for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020 (in thousands):
| | | Change in Unrealized Gain (Loss) on Derivatives | | Foreign Currency Translation Adjustments Gain (Loss) (1) | | Total | | Change in Unrealized Gain (Loss) on Derivatives | | Foreign Currency Translation Adjustments Gain (Loss) (1) | | Total |
| December 31, 2020 | | $ | 2,319 | | | $ | 25,490 | | | $ | 27,809 | | |
| December 31, 2021 | | December 31, 2021 | | $ | (945) | | | $ | (6,232) | | | $ | (7,177) | |
| Other comprehensive loss before reclassifications, before tax | Other comprehensive loss before reclassifications, before tax | | (3,335) | | | (22,516) | | | (25,851) | | Other comprehensive loss before reclassifications, before tax | | (642) | | | (8,260) | | | (8,902) | |
| Tax benefit | Tax benefit | | 801 | | | — | | | 801 | | Tax benefit | | — | | | — | | | — | |
| Other comprehensive loss before reclassifications, net of tax | Other comprehensive loss before reclassifications, net of tax | | (2,534) | | | (22,516) | | | (25,050) | | Other comprehensive loss before reclassifications, net of tax | | (642) | | | (8,260) | | | (8,902) | |
| Reclassification of loss from accumulated other comprehensive income, before tax | Reclassification of loss from accumulated other comprehensive income, before tax | | 553 | | | — | | | 553 | | Reclassification of loss from accumulated other comprehensive income, before tax | | (53) | | | — | | | (53) | |
| Reclassification of tax benefit | Reclassification of tax benefit | | (133) | | | — | | | (133) | | Reclassification of tax benefit | | — | | | — | | | — | |
| Reclassification of loss from accumulated other comprehensive income, after tax | Reclassification of loss from accumulated other comprehensive income, after tax | | 420 | | | — | | | 420 | | Reclassification of loss from accumulated other comprehensive income, after tax | | (53) | | | — | | | (53) | |
| Net current-period other comprehensive loss, net of tax | Net current-period other comprehensive loss, net of tax | | (2,114) | | | (22,516) | | | (24,630) | | Net current-period other comprehensive loss, net of tax | | (695) | | | (8,260) | | | (8,955) | |
| September 30, 2021 | | $ | 205 | | | $ | 2,974 | | | $ | 3,179 | | |
| March 31, 2022 | | March 31, 2022 | | $ | (1,640) | | | $ | (14,492) | | | $ | (16,132) | |
| | December 31, 2019 | | $ | 513 | | | $ | (19,905) | | | $ | (19,392) | | |
| December 31, 2020 | | December 31, 2020 | | $ | 2,319 | | | $ | 25,490 | | | $ | 27,809 | |
| Other comprehensive income before reclassifications, before tax | Other comprehensive income before reclassifications, before tax | | 632 | | | 8,008 | | | 8,640 | | Other comprehensive income before reclassifications, before tax | | (1,146) | | | (25,875) | | | (27,021) | |
| Tax expense | Tax expense | | (152) | | | — | | | (152) | | Tax expense | | 534 | | | — | | | 534 | |
| Other comprehensive income before reclassifications, net of tax | Other comprehensive income before reclassifications, net of tax | | 480 | | | 8,008 | | | 8,488 | | Other comprehensive income before reclassifications, net of tax | | (612) | | | (25,875) | | | (26,487) | |
| Reclassification of loss from accumulated other comprehensive income (loss), before tax | Reclassification of loss from accumulated other comprehensive income (loss), before tax | | 681 | | | — | | | 681 | | Reclassification of loss from accumulated other comprehensive income (loss), before tax | | 811 | | | — | | | 811 | |
| Reclassification of tax benefit | Reclassification of tax benefit | | (162) | | | — | | | (162) | | Reclassification of tax benefit | | (195) | | | — | | | (195) | |
| Reclassification of loss from accumulated other comprehensive income (loss), after tax | Reclassification of loss from accumulated other comprehensive income (loss), after tax | | 519 | | | — | | | 519 | | Reclassification of loss from accumulated other comprehensive income (loss), after tax | | 616 | | | — | | | 616 | |
| Net current-period other comprehensive income, net of tax | Net current-period other comprehensive income, net of tax | | 999 | | | 8,008 | | | 9,007 | | Net current-period other comprehensive income, net of tax | | 4 | | | (25,875) | | | (25,871) | |
| September 30, 2020 | | $ | 1,512 | | | $ | (11,897) | | | $ | (10,385) | | |
| March 31, 2021 | | March 31, 2021 | | $ | 2,323 | | | $ | (385) | | | $ | 1,938 | |
(1)Taxes are not provided for foreign currency translation adjustments as translation adjustments are related to earnings that are intended to be reinvested in the countries where earned.
Note 10.9. Stock-Based Incentive Plans
Stock-based incentive plans compensation expense is as follows (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 |
| Service-based restricted stock units (“RSUs”) | Service-based restricted stock units (“RSUs”) | | $ | 4,757 | | | $ | 4,410 | | | $ | 14,804 | | | $ | 13,139 | | Service-based restricted stock units (“RSUs”) | | | $ | 5,344 | | | $ | 4,842 | |
| Service-based stock appreciation rights (“SARs”) | Service-based stock appreciation rights (“SARs”) | | 3,053 | | | 3,211 | | | 9,439 | | | 9,185 | | Service-based stock appreciation rights (“SARs”) | | | 2,938 | | | 3,322 | |
| Market performance-based restricted stock units | Market performance-based restricted stock units | | 925 | | | 814 | | | 2,586 | | | 2,745 | | Market performance-based restricted stock units | | | 851 | | | 763 | |
| Operating performance-based restricted stock units | Operating performance-based restricted stock units | | 2,072 | | | (962) | | | 2,578 | | | 882 | | Operating performance-based restricted stock units | | | 785 | | | 267 | |
| Employee share purchase plan | Employee share purchase plan | | 315 | | | 337 | | | 1,167 | | | 894 | | Employee share purchase plan | | | 338 | | | 342 | |
| Total stock-based compensation expense | Total stock-based compensation expense | | $ | 11,122 | | | $ | 7,810 | | | $ | 30,574 | | | $ | 26,845 | | Total stock-based compensation expense | | | $ | 10,256 | | | $ | 9,536 | |
During the ninethree months ended September 30, 2021,March 31, 2022, we issued stock-based compensatory awards with terms approved by the Compensation Committee of our Board of Directors. The awards with service conditions generally vest ratably from two toover four years and are subject to forfeiture unless service conditions are met. MarketThe market performance-based awards that were issued that cliff vest after three years subject to the rank of our total shareholder return for the three-year period ending December 31, 20232024 relative to the total shareholder returns for a peer group of companies. OperatingThe adjusted free cash flow and return on invested capital operating performance-based awards that were issued that cliff vest after three years subject to the achievement of a target based oncertain thresholds of cumulative results for the adjusted free cash flowthree-year period ending December 31, 2024. Compensation expense related to awards granted during 2022 for fiscal year 2021. Additionally, operating performance-based awards were issued that cliff vest afterthe three years subject to the achievement of amonths ended March 31, 2022 was $0.1 million.
target based on the return on invested capital for fiscal year 2021. Compensation expense related to awards granted during 2021 for the three and nine months ended September 30, 2021 was $3.9 million and $7.3 million, respectively.
Stock-based compensation agreements issued during the ninethree months ended September 30, 2021,March 31, 2022, representing potential shares and their weighted average grant date fair values by type follows (shares in thousands, fair value in dollars):
| | | Nine Months Ended September 30, 2021 | | Three Months Ended March 31, 2022 |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| Service-based SARs | Service-based SARs | | 594,617 | | | $ | 29.22 | | Service-based SARs | | 553,050 | | | $ | 34.13 | |
| Service-based RSUs | Service-based RSUs | | 349,609 | | | $ | 73.94 | | Service-based RSUs | | 246,824 | | | $ | 82.04 | |
| Market performance-based RSUs | Market performance-based RSUs | | 47,916 | | | $ | 114.74 | | Market performance-based RSUs | | 44,180 | | | $ | 103.02 | |
| Operating performance-based RSUs | Operating performance-based RSUs | | 76,040 | | | $ | 73.25 | | Operating performance-based RSUs | | 44,174 | | | $ | 82.04 | |
Note 11.10. Income Taxes
Our effective income tax rate from continuing operations for the three and nine months ended September 30, 2021March 31, 2022 was (5.2)% and (7.7)%, respectively,45.6% compared with 21.3% and (37.9)(9.4)%, respectively, for the for the three and nine months ended September 30, 2020.March 31, 2021. Our effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, valuation allowances, tax credits and incentives, and unrecognized tax benefits associated with uncertain tax positions.
We continually assess the realizability of our worldwide deferred tax asset and valuation allowance positions, and when the need arises, we establish or release valuation allowances accordingly.
Compared with the three months ended September 30, 2020,March 31, 2021, the change in the effective tax rate for the three months ended September 30, 2021 was primarily attributable to the discrete tax impact of the debt extinguishment as compared to a discrete tax benefit related to the settlement of tax litigation in Italy offset by a valuation allowance for certain jurisdictions outside of the U.S. during the three months ended September 30, 2020.
Compared with the nine months ended September 30, 2020, the change in the effective tax rate for the nine months ended September 30, 2021March 31, 2022 was primarily attributable to changes in the valuation allowances the discreteand changes in income before tax impact of the sale of the Heart Valve business and the debt extinguishmentin countries with varying statutory tax rates as compared to the $42.4 million realized discrete tax benefit related to the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the discrete tax benefit due related to the settlement of tax litigationchanges in Italy offset by the establishment of a $74.5 million valuation allowance for the U.K.allowances and other jurisdictions outside the U.S.discrete items during the ninethree months ended September 30, 2020.March 31, 2021.
We operate in multiple jurisdictions throughout the world, and our tax returns are periodically audited or subjected to review by tax authorities. As a result, there is an uncertainty in income taxes recognized in our financial statements. Tax benefits totaling $3.2$1.7 million and $3.4$1.7 million were unrecognized as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. It is reasonably possible that, within the next twelve months, due to the settlement of uncertain tax positions with various tax authorities and the expiration of statutes of limitations, unrecognized tax benefits could decrease by up to approximately $1.5$0.6 million.
European Union State Aid Challenge
On April 2, 2019, the European Commission concluded that “when financing income from a foreign group company, channeled through an offshore subsidiary, derives from UK activities, the group finance exemption is not justified and constitutes State aid under EU rules.” Based upon our assessment of the technical arguments as to whether the UK group exemption is State aid, together with no material UK activities in our financing, no reserve relating to our tax position was recognized related to this matter. Furthermore, in December 2019, we amended our 2017 tax return filing to avail ourselves of different rules to determine UK taxation, which are not subject to the EU decision. We filed our 2018 tax return in a similar fashion. On October 1, 2021, we received a notification from Her Majesty’s Revenue and Customs (“HMRC”) stating that in agreement with our assessment, we are not a beneficiary of state aid as a result of our claim under Chapter 9 for the accounting periods 2015-2018, and accordingly, HMRC regards the issue as closed.
Note 12.11. Earnings Per Share
The following table sets forthReconciliation of the shares used in the basic and diluted weighted-average shares outstanding used in the computation of basic and diluted net incomeearnings per share computations for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Basic and diluted weighted average shares outstanding (1) | | 51,582 | | | 48,652 | | | 49,748 | | | 48,582 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | 2022 | | 2021 |
| Basic weighted average shares outstanding | | | | | | 53,300 | | | 48,736 | |
Add effects of share-based compensation instruments (1) | | | | | | 876 | | | — | |
| Diluted weighted average shares outstanding | | | | | | 54,176 | | | 48,736 | |
(1)Excluded from the computation of diluted earnings per share were stock options, SARs and restricted share units totaling 3.72.2 million and 4.14.3 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and 4.0 million and 4.2 million for the nine months ended September 30, 2021 and 2020, respectively, because to include them would have been anti-dilutive under the treasury stock method.
Note 13.12. Geographic and Segment Information
We identify operating segments based on the way we manage, evaluate and internally report our business activities for purposes of allocating resources, developing and executing our strategy, and assessing performance. We have 23 reportable segments: CardiovascularCardiopulmonary, Neuromodulation and Neuromodulation.Advanced Circulatory Support.
The CardiovascularOur Cardiopulmonary segment generates its revenue fromis engaged in the development, production and sale of cardiopulmonary and advanced circulatory support products. Cardiopulmonary products, includeincluding oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories. Advanced circulatory support products include temporary life support product kits that can include a combination of pumps, oxygenators, and cannulae. On June 1, 2021, the Company completed the initial closing of the sale of the Heart Valve business which was part of the Cardiovascular segment. Revenues and expenses of the Heart Valves business prior to the closing date are included in the Cardiovascular segment results.
Our Neuromodulation segment generates its revenue fromis engaged in the design, development and marketing of devices that deliver neuromodulation therapy systems for the treatment ofto treat drug-resistant epilepsy (“DRE”), difficult-to-treat depression (“DTD”) and obstructive sleep apnea.apnea (“OSA”). Neuromodulation products include the VNS Therapy System, which consists of an implantable pulse generator, a lead that connects the generator to the vagus nerve, and other accessories.
Our Advanced Circulatory Support segment is engaged in the development, production and sale of leading-edge temporary life support products. These products include cardiopulmonary and respiratory support solutions consisting of temporary life support controllers and product kits that can include a combination of pumps, oxygenators, and cannulae.
“Other” includes corporate shared service expenses for finance, legal, human resources, information technology and corporate business development. For 2021, other also includes the results of our Heart Valves business, which was disposed of on June 1, 2021.
Net sales of our reportable segments include revenues from the sale of products that each reportable segment develops and manufactures or distributes. We define segment income as operating income before merger and integration, restructuring and amortization of intangibles.
We operate under 3 geographic regions: U.S., Europe, and Rest of World. The table below presents net sales by operating segment and geographic region (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | |
| Cardiopulmonary | Cardiopulmonary | | | | | | | | | Cardiopulmonary | | | | | |
| United States | United States | | $ | 40,143 | | | $ | 33,549 | | | $ | 113,290 | | | $ | 96,223 | | United States | | $ | 38,096 | | | $ | 35,759 | | |
| Europe | Europe | | 32,850 | | | 29,947 | | | 98,609 | | | 87,475 | | Europe | | 32,067 | | | 30,626 | | |
| Rest of World | Rest of World | | 50,242 | | | 43,704 | | | 137,931 | | | 140,925 | | Rest of World | | 46,912 | | | 42,334 | | |
| | 123,235 | | | 107,200 | | | 349,830 | | | 324,623 | | | | 117,075 | | | 108,719 | | |
| Heart Valves | | | | | | | | | |
| Neuromodulation | | Neuromodulation | | | | | |
| United States | United States | | — | | | 3,129 | | | 4,929 | | | 8,990 | | United States | | 87,210 | | | 82,300 | | |
| Europe | Europe | | — | | | 7,945 | | | 14,407 | | | 22,822 | | Europe | | 12,456 | | | 11,679 | | |
| Rest of World | Rest of World | | — | | | 10,062 | | | 16,843 | | | 32,001 | | Rest of World | | 10,561 | | | 9,720 | | |
| | — | | | 21,136 | | | 36,179 | | | 63,813 | | | | 110,227 | | | 103,699 | | |
| Advanced Circulatory Support | Advanced Circulatory Support | | | | | | | | | Advanced Circulatory Support | | | | | |
| United States | United States | | 14,925 | | | 12,331 | | | 40,449 | | | 28,075 | | United States | | 10,963 | | | 12,560 | | |
| Europe | Europe | | 355 | | | 162 | | | 761 | | | 835 | | Europe | | 603 | | | 228 | | |
| Rest of World | Rest of World | | 119 | | | 49 | | | 456 | | | 136 | | Rest of World | | 117 | | | 204 | | |
| | 15,399 | | | 12,542 | | | 41,666 | | | 29,046 | | | | 11,683 | | | 12,992 | | |
| Cardiovascular | | | | | | | | | |
Other (1) | | Other (1) | | | | | |
| United States | United States | | 55,068 | | | 49,009 | | | 158,668 | | | 133,288 | | United States | | — | | | 2,717 | | |
| Europe | Europe | | 33,205 | | | 38,054 | | | 113,777 | | | 111,132 | | Europe | | — | | | 8,284 | | |
| Rest of World | Rest of World | | 50,361 | | | 53,815 | | | 155,230 | | | 173,062 | | Rest of World | | 1,190 | | | 11,192 | | |
| | 138,634 | | | 140,878 | | | 427,675 | | | 417,482 | | | | 1,190 | | | 22,193 | | |
| Neuromodulation | | | | | | | | | |
| Totals | | Totals | | | | | |
| United States | United States | | 88,724 | | | 79,854 | | | 262,803 | | | 197,345 | | United States | | 136,269 | | | 133,336 | | |
Europe | Europe | | 12,516 | | | 10,475 | | | 38,799 | | | 27,474 | | Europe | | 45,126 | | | 50,817 | | |
| Rest of World | Rest of World | | 12,047 | | | 8,079 | | | 33,020 | | | 20,458 | | Rest of World | | 58,780 | | | 63,450 | | |
| 113,287 | | | 98,408 | | | 334,622 | | | 245,277 | | |
| Other | | 1,294 | | | 797 | | | 3,004 | | | 1,927 | | |
| Totals | | | | | | | | | |
| United States | | 143,792 | | | 128,863 | | | 421,471 | | | 330,633 | | |
Europe (1) | | 45,721 | | | 48,529 | | | 152,576 | | | 138,606 | | |
| Rest of World | | 63,702 | | | 62,691 | | | 191,254 | | | 195,447 | | |
Total (2) | | $ | 253,215 | | | $ | 240,083 | | | $ | 765,301 | | | $ | 664,686 | | |
Total (3) | | Total (3) | | $ | 240,175 | | | $ | 247,603 | | |
(1)For 2021, other primarily includes the net sales of the Company’s Heart Valves business, which was disposed of on June 1, 2021.
(2)Europe sales includeincludes those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included in Rest of World.
(2)(3)No single customer represented over 10% of our consolidated net sales. No country’s net sales exceeded 10% of our consolidated sales except for the U.S.
The table below presents a reconciliation of segment income from continuing operations to consolidated loss from continuing operationsincome (loss) before tax (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Cardiovascular (1) | | $ | 15,682 | | | $ | (7,311) | | | $ | (7,033) | | | $ | (8,037) | |
| Neuromodulation | | 36,155 | | | 21,154 | | | 108,278 | | | 82,294 | |
| Other | | (27,212) | | | (10,921) | | | (92,109) | | | (58,407) | |
| Total reportable segment income from continuing operations | | 24,625 | | | 2,922 | | | 9,136 | | | 15,850 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other expenses (2) | | 6,757 | | | 10,430 | | | 30,552 | | | 37,987 | |
| Operating income (loss) from continuing operations | | 17,868 | | | (7,508) | | | (21,416) | | | (22,137) | |
| Interest income | | 178 | | | 47 | | | 293 | | | 482 | |
| Interest expense | | (11,355) | | | (14,673) | | | (43,806) | | | (25,237) | |
| Loss on debt extinguishment | | (60,238) | | | — | | | (60,238) | | | (1,407) | |
| Foreign exchange and other gains | | 13,436 | | | 3,420 | | | 7,117 | | | 1,914 | |
| Loss from continuing operations before tax | | $ | (40,111) | | | $ | (18,714) | | | $ | (118,050) | | | $ | (46,385) | |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2022 | | 2021 (1) | | | | |
| Cardiopulmonary | | $ | 6,895 | | | $ | 1,442 | | | | | |
| Neuromodulation | | 37,478 | | | 34,083 | | | | | |
| Advanced Circulatory Support | | (5,438) | | | 2,393 | | | | | |
Other (2) | | (23,082) | | | (30,195) | | | | | |
| Total reportable segment income | | 15,853 | | | 7,723 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other expenses (3) | | 6,348 | | | 13,421 | | | | | |
| Operating income (loss) | | 9,505 | | | (5,698) | | | | | |
| | | | | | | | |
| Interest expense | | (7,840) | | | (15,936) | | | | | |
| | | | | | | | |
| Foreign exchange and other gains/(losses) | | 3,904 | | | (6,443) | | | | | |
| Income (loss) before tax | | $ | 5,569 | | | $ | (28,077) | | | | | |
(1)Cardiovascular segment operatingSegment income (loss) includes provision for litigation involving our 3T device of $(0.2) million and $32.3 million for the three and nine months ended September 30,March 31, 2021 respectively, and $3.0 million and $4.0 million for the three and nine months ended September 30, 2020, respectively, which is included within other operating expenses on the condensed consolidated statements of income (loss).has been revised. For additional information, pleasefurther details refer to “Note 8. Commitments and Contingencies.1. Unaudited Condensed Consolidated Financial Statements.”
(2)Other includes corporate shared service expenses consistsfor finance, legal, human resources, information technology and corporate business development. For 2021, other also includes the results of the Company’s Heart Valves business, which was disposed of on June 1, 2021.
(3)Other expenses primarily consist of amortization of intangible assets for the three months ended March 31, 2022, as well as merger and integration expense and restructuring expense and amortization of intangible assets.during the three months ended March 31, 2021.
Assets by segment are as follows (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Cardiovascular | | $ | 1,232,299 | | | $ | 1,361,669 | | |
| Cardiopulmonary | | Cardiopulmonary | | $ | 905,140 | | | $ | 921,481 | |
| Neuromodulation | Neuromodulation | | 652,951 | | | 673,586 | | Neuromodulation | | 653,484 | | | 646,394 | |
| Advanced Circulatory Support | | Advanced Circulatory Support | | 230,278 | | | 231,846 | |
| Other | Other | | 318,159 | | | 376,096 | | Other | | 627,981 | | | 401,230 | |
| Total assets | | $ | 2,203,409 | | | $ | 2,411,351 | | |
| Total | | Total | | $ | 2,416,883 | | | $ | 2,200,951 | |
Capital expenditures by segment are as follows (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended March 31, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | |
| Cardiovascular | | $ | 3,388 | | | $ | 7,040 | | | $ | 11,955 | | | $ | 17,777 | | |
| Cardiopulmonary | | Cardiopulmonary | | $ | 1,829 | | | $ | 3,049 | | |
| Neuromodulation | Neuromodulation | | 45 | | | 1,210 | | | 136 | | | 7,285 | | Neuromodulation | | 84 | | | 40 | | |
| Advanced Circulatory Support | | Advanced Circulatory Support | | 684 | | | 556 | | |
| Other | Other | | 104 | | | 967 | | | 2,692 | | | 3,174 | | Other | | 2,983 | | | 1,469 | | |
| Total | Total | | $ | 3,537 | | | $ | 9,217 | | | $ | 14,783 | | | $ | 28,236 | | Total | | $ | 5,580 | | | $ | 5,114 | | |
The changes in the carrying amount of goodwill by segment for the ninethree months ended September 30, 2021March 31, 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Cardiovascular | | Neuromodulation | | Total |
| December 31, 2020 | | $ | 523,564 | | | $ | 398,754 | | | $ | 922,318 | |
| | | | | | |
| | | | | | |
| Foreign currency adjustments | | (17,164) | | | — | | | (17,164) | |
| September 30, 2021 | | $ | 506,400 | | | $ | 398,754 | | | $ | 905,154 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cardiopulmonary | | Neuromodulation | | Advanced Circulatory Support | | Total |
| December 31, 2021 | | $ | 398,245 | | | $ | 398,754 | | | $ | 102,526 | | | $ | 899,525 | |
| | | | | | | | |
| | | | | | | | |
| Foreign currency adjustments | | (2,926) | | | — | | | — | | | (2,926) | |
| March 31, 2022 | | $ | 395,319 | | | $ | 398,754 | | | $ | 102,526 | | | $ | 896,599 | |
Property, plant and equipment, net by geography are as follows (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| United States | United States | | $ | 61,877 | | | $ | 64,553 | | United States | | $ | 62,099 | | | $ | 60,852 | |
| Europe | Europe | | 85,460 | | | 93,821 | | Europe | | 80,987 | | | 85,313 | |
| Rest of World | Rest of World | | 5,391 | | | 5,431 | | Rest of World | | 4,871 | | | 3,901 | |
| Total | Total | | $ | 152,728 | | | $ | 163,805 | | Total | | $ | 147,957 | | | $ | 150,066 | |
Note 14.13. Supplemental Financial Information
Inventories consisted of the following (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Raw materials | Raw materials | | $ | 41,524 | | | $ | 43,257 | | Raw materials | | $ | 48,367 | | | $ | 43,958 | |
| Work-in-process | Work-in-process | | 11,559 | | | 8,055 | | Work-in-process | | 16,846 | | | 14,161 | |
| Finished goods | Finished goods | | 70,650 | | | 75,363 | | Finished goods | | 49,631 | | | 47,721 | |
| | | | $ | 123,733 | | | $ | 126,675 | | | | $ | 114,844 | | | $ | 105,840 | |
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, inventories include adjustments totaling $4.4$9.8 million and $6.6$8.9 million, respectively, to record balances at lower of cost or net realizable value.
Accrued liabilities and other consisted of the following (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| Legal and administrative costs | | $ | 20,563 | | | $ | 15,820 | | |
Contingent consideration (1) | | Contingent consideration (1) | | $ | 11,268 | | | $ | 11,552 | |
| Operating lease liabilities | Operating lease liabilities | | 11,581 | | | 11,276 | | Operating lease liabilities | | 10,967 | | | 11,261 | |
Contingent consideration (1) | | 11,493 | | | 13,968 | | |
| Legal and other administrative costs | | Legal and other administrative costs | | 10,751 | | | 8,948 | |
| Amount payable to Gyrus Capital S.A. | | Amount payable to Gyrus Capital S.A. | | 9,610 | | | 11,418 | |
| Contract liabilities | Contract liabilities | | 8,194 | | | 6,929 | | Contract liabilities | | 8,722 | | | 8,419 | |
| Amount payable to Gyrus Capital S.A. | | 6,625 | | | — | | |
| Research and development costs | Research and development costs | | 5,505 | | | 4,257 | | Research and development costs | | 5,638 | | | 5,329 | |
Restructuring related liabilities (2) | | 3,317 | | | 6,258 | | |
| Interest payable | | Interest payable | | 2,516 | | | 359 | |
| Provisions for agents, returns and other | Provisions for agents, returns and other | | 2,486 | | | 3,063 | | Provisions for agents, returns and other | | 2,029 | | | 2,535 | |
| | Other accrued expenses | Other accrued expenses | | 27,740 | | | 26,465 | | Other accrued expenses | | 30,525 | | | 29,116 | |
| | $ | 97,504 | | | $ | 88,036 | | | $ | 92,026 | | | $ | 88,937 | |
(1)Refer to “Note 5.4. Fair Value Measurements”
(2)Refer to “Note 3. Restructuring”
As of September 30, 2021March 31, 2022 and December 31, 2020,2021, contract liabilities of $9.8$10.5 million and $8.6$9.8 million, respectively, are included within accrued liabilities and other long-term liabilities on the condensed consolidated balance sheets.
The table below presents the items included within foreign exchange and other gainsgains/(losses) on the condensed consolidated statements of income (loss) (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
Exchangeable Notes fair value adjustment (1) | Exchangeable Notes fair value adjustment (1) | | $ | 23,489 | | | $ | 12,103 | | | $ | (28,895) | | | $ | 15,553 | | Exchangeable Notes fair value adjustment (1) | | | $ | 11,040 | | | $ | (26,335) | |
Capped call fair value adjustment (1) | Capped call fair value adjustment (1) | | (9,741) | | | (5,926) | | | 22,217 | | | (4,097) | | Capped call fair value adjustment (1) | | | (9,912) | | | 12,550 | |
Investment revaluation (2) | Investment revaluation (2) | | — | | | — | | | 4,642 | | | — | | Investment revaluation (2) | | | — | | | 4,642 | |
Other derivative liabilities fair value adjustment (1) | Other derivative liabilities fair value adjustment (1) | | 200 | | | (1,350) | | | 4,290 | | | (1,350) | | Other derivative liabilities fair value adjustment (1) | | | — | | | 3,167 | |
Dividend income (2) | | 287 | | | — | | | 3,420 | | | — | | |
| Foreign exchange rate fluctuations | Foreign exchange rate fluctuations | | (782) | | | (1,608) | | | 352 | | | (4,369) | | Foreign exchange rate fluctuations | | | 2,791 | | | (409) | |
| Exchangeable Notes issuance costs | | — | | | — | | | — | | | (2,478) | | |
| Interest income | | Interest income | | | 20 | | | (74) | |
| Other | Other | | (17) | | | 201 | | | 1,091 | | | (1,345) | | Other | | | (35) | | | 16 | |
| Foreign exchange and other gains | | $ | 13,436 | | | $ | 3,420 | | | $ | 7,117 | | | $ | 1,914 | | |
| Foreign exchange and other gains/(losses) | | Foreign exchange and other gains/(losses) | | | $ | 3,904 | | | $ | (6,443) | |
(1)Refer to “Note 5.4. Fair Value Measurements”
(2)Refer to “Note 4.3. Investments”
The table below presents a reconciliation of cash, cash equivalents and restricted cash reported on the condensed consolidated balance sheets that sum to the total of the amounts shown on the condensed consolidated statement of cash flows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | March 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents | | | | | | $ | 128,737 | | | $ | 207,992 | |
Restricted cash (1) | | | | | | 313,647 | | | — | |
| Cash, cash equivalents and restricted cash | | | | | | $ | 442,384 | | | $ | 207,992 | |
(1)Restricted cash represents funds held as collateral for the SNIA Litigation Guarantee. Refer to “Note 7. Commitments and Contingencies.”
Note 15. New Accounting Pronouncements14. Subsequent Event
AdoptionAcquisition of New Accounting PronouncementsALung Technologies, Inc.
The following table providesAs of March 31, 2022, LivaNova owned a description3% investment in ALung Technologies, Inc. (“ALung”), a privately held medical device company focused on creating advanced medical devices for treating respiratory failure, with a carrying value of our adoption$3.0 million, as well as a note receivable with a carrying value of new Accounting Standards Updates (“ASUs”) issued by$2.5 million. On May 2, 2022, we acquired the FASBremaining 97% of equity interests in ALung for a purchase price of up to $110.0 million, consisting of $10.0 million paid at closing, subject to customary adjustments, and contingent considerations of up to $100.0 million payable upon achievement of certain sales-based milestones beginning in 2023 and ending in 2027. Due to the impacttiming of the adoptionacquisition, the initial accounting for this acquisition is not complete as of the filing date of this Quarterly Report on our condensed financial statements:Form 10-Q.
| | | | | | | | | | | | | | | | | | | | |
Issue Date & Standard
| | Description | | Date of Adoption | | Effect on Financial Statements or Other Significant Matters |
August 2018
ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General(Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans
| | This update adds and removes certain disclosure requirements related to defined benefit plans. | | January 1, 2021 | | There was no material impact to our consolidated financial statements as a result of adopting this ASU. |
December 2019
ASU No. 2019-12, Income Taxes(Topic 740): Simplifying the Accounting for Income Taxes
| | This update simplifies various aspects related to the accounting for income taxes. The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and modifies existing guidance to improve consistent application of Topic 740. | | January 1, 2021 | | There was no material impact to our consolidated financial statements as a result of adopting this ASU. |
August 2020
ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
| | This update simplifies the accounting for convertible debt instruments by removing certain accounting separation models as well as the accounting for debt instruments with embedded conversion features that are not required to be accounted for as derivative instruments. The update also improves the consistency of earnings per share calculations for convertible instruments. | | January 1, 2021 | | There was no material impact to our consolidated financial statements as a result of adopting this ASU. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes which appear elsewhere in this document and with our 20202021 Form 10-K. Our discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Part I, Item 1A1A. of our 20202021 Form 10-K, as updated and supplemented by our Quarterly Reports on Form 10-Q, including in Part 2,II, Item 1A1A. and elsewhere in this Quarterly Report on Form 10-Q.
The capitalized terms used below have been defined in the notes to our condensed consolidated financial statements. In the following text, the terms “LivaNova,” “the Company,” “we,” “us” and “our” refer to LivaNova PLC and its consolidated subsidiaries.
Global Developments
COVID-19
Since early 2020, theThe COVID-19 pandemic (“COVID-19”) has caused and may continue to cause unpredictable demand for our products. Throughout the pandemic, healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19, and public health bodies have delayed elective procedures, which has negatively impacted the usage of our products. Further, some people have avoided seeking treatment for non-COVID-19 procedures, and hospitals and clinics have experienced staffing shortages, which has negatively impacted the demand for our products. While we have seen improvement during 2021, wethe recent recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products, our Neuromodulation and Advanced Circulatory Support businesses continue to experience lingeringongoing COVID-19 related headwinds andheadwinds. We are monitoring the potential for various strains of the virus to cause a resumption of high levels of infection and hospitalization that, in turn, may affect the demand for our products.
WhileMoreover, although our RECOVER study and ANTHEM-HFrEF pivotal trial experienced delays during 2020 due to COVID-19, work continuescontinue to progress, throughout 2021. Impacts related to the Delta strain of COVID-19 have created some delay in implants in the RECOVER study during the quarter, and we continue to monitor relevant conditions at participating centers for both RECOVER and ANTHEM-HFrEF as there canmay be no assurance that there will not bedelays or closures of sites in the future should COVID-19 or variants thereof strengthen or reemerge.
Our business operations have been affected by a range of external factorsCertain conditions improved during 2021, but we continue to experience COVID-19 related toheadwinds. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the COVID-19 pandemic that are not within our control. For example, many jurisdictions have imposed, and in some cases reimposed, a wide range of restrictions to limit the spreadwake of COVID-19. We continueThough, to evaluatedate, our supply of raw materials and the evolving lawsproduction and regulations developing arounddistribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the worldwake of inflation globally. The Company continues to respond to such challenges, and while we have business continuity plans in place, the impact of the ongoing challenges we are working to meet customer-specific requirements to operate in a COVID-19experiencing, along with their potential escalation, may adversely affect our business environment. However, ifand the pandemic has a substantialrecoverability of our tangible and intangible assets. The future impact on our employees, vendors or productivity, our operations may suffer, and in turn our results of operations and overall financial performance may be harmed.pandemic-related developments remains uncertain.
Importantly, we continue to take actions in managing the health and safety of our employees throughout the pandemic. As guidance from authorities such as the U.S. Centers for Disease Control and Prevention or the World Health Organization evolves, we update our practices accordingly. For our manufacturing, operations, and other personnel who have remained on site throughout the pandemic due to the essential nature of their work, we have implemented safety measures such as the use of personal protective equipment and social distancing measures. At the start of the pandemic, we instructed the majority of our employees at many of our facilities across the globe to work from home on a temporary basis and implemented company-wide travel restrictions. Though there has been no Company-wide mandate to return to the office, employees are encouraged to return for purposeful collaboration. We continue to maintain enhanced safety protocols and encourage our employees to seek vaccination. We have incurred additional expenses in connection with our response to the COVID-19 pandemic, including manufacturing inefficiencies and costs related to enabling our employees to support our customers while working remotely.
We have successfully implementedUkraine Invasion
In February 2022, Russia launched an invasion in Ukraine which caused us to assess our business continuity plans,ability to sell in the market due to international sanctions, to consider the potential impact of raw material sourced from the region, and our management team is responding to changesdetermine whether we are able to transact in our environment quickly and effectively. We have not closed anya compliant fashion. Although the region represented 1% of our manufacturing plants. Additionally, while there are many supply chain, labor shortagestotal net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and logistical issues emerging in the wake of COVID-19 related disruptions, to date, the supply of raw materials and the production and distribution of finished products remain operational with no material constraints relating to COVID-19. We continue to monitor the landscape for any potential disruptions.
We continue to implement cost reduction efforts. We have reduced expenses by evaluating whether projects and initiatives are critical to meet the needsa significant escalation or continuation of the Company, protecting strategic priorities for future growth, reducing discretionary spending and tightening management of personnel costs.
The extent to which the COVID-19 pandemic continues to impact the Company’s results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity and longevity of COVID-19 and its variants, the resurgence of COVID-19 in regions that
conflict could have begun to recover from the initial impact of the pandemic, the impact of COVID-19 on economic activity and the actions to contain itsa material, global impact on public healthour operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the global economy.Russian authorities in response to international sanctions.
Business Overview
We are a public limited company organized under the laws of England and Wales and headquartered in London, England. We are a global medical device company focused on the development and delivery of important therapeutic solutionsproducts and therapies for the benefit of patients, healthcare professionals and healthcare systems throughout the world. Working closely with medical professionals in the fields of Cardiovascular and Neuromodulation, weWe design, develop, manufacture and sell innovative therapeutic solutionsproducts and therapies that are consistent with our mission to improve our patients’ quality of life, increaseprovide hope to patients through innovative technologies, delivering life-changing improvements for both the skillsHead and capabilities of healthcare professionals and minimize healthcare costs.Heart.
LivaNova is comprised of twothree reportable segments: CardiovascularCardiopulmonary, Neuromodulation and Neuromodulation,Advanced Circulatory Support, corresponding to our primary therapeutic areas.business units. Other corporate activities includeincludes corporate shared service expenses for finance, legal, human resources, information technology and corporate business development. For 2021, other also includes the results of our Heart Valves business, which was disposed of on June 1, 2021.
For further information regarding our business segments, historical financial information and our methodology for the presentation of financial results, please refer to the condensed consolidated financial statements and accompanying notes of this Quarterly Report on Form 10-Q.
CardiovascularCardiopulmonary
Our CardiovascularCardiopulmonary segment is engaged in the development, production and sale of cardiopulmonary products, and advanced circulatory support. Cardiopulmonary products includeincluding oxygenators, heart-lung machines, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories.
Information on Cardiopulmonary that could potentially impact our condensed consolidated financial statements and related disclosures is incorporated by reference to Part I. Note 7. Commitments and Contingencies: FDA Warning Letter, and Part I. Note 7. Commitments and Contingencies: Product Liability.
Neuromodulation
Our Neuromodulation segment designs, develops and markets devices that deliver neuromodulation therapy to treat DRE, and DTD. It encompasses the development and management of clinical testing of our aura6000 System for treating OSA, a device that stimulates the hypoglossal nerve, which in turn, engages certain muscles in the tongue in order to open the airway while a patient is sleeping, as well as our VITARIA System for treating heart failure by stimulating the right vagus nerve.
DTD RECOVER Study
In March 2022, LivaNova announced the 250th unipolar depression patient has been implanted in the RECOVER clinical study. The study is designed with frequent interim analyses to be conducted by an independent Statistical Analysis Committee. The interim analyses will assess if predictive probability of success has been reached for the unipolar cohort of the study.
Advanced circulatoryCirculatory Support
Our Advanced Circulatory Support segment is engaged in the development, production and sale of leading-edge temporary life support products. These products include cardiopulmonary and respiratory support solutions consisting of temporary life support controllers and product kits that can include a combination of pumps, oxygenators, and cannulae.
DivestitureAdvanced Circulatory Support products simplify temporary extracorporeal cardiopulmonary life support solutions for critically ill patients. Built around a common compact console and pump, LifeSPARC provides temporary support for emergent rescue patients in a variety of Heart Valve Business
On December 2, 2020, LivaNova entered into a Purchase Agreement withsettings. Designed for ease of use, the Purchaser, a company incorporated under the laws of Luxembourgsystem offers power and wholly owned and controlled by funds advised by Gyrus Capital S.A., a Swiss private equity firm. The Purchase Agreement providesversatility for the divestiture of certain of LivaNova’s subsidiaries as well as certain other assets and liabilities relatingmulti-disciplinary programs to the Company’s Heart Valve business and site management operations conducted by the Company’s subsidiary LSM at the Company’s Saluggia campus for €60.0 million (approximately $69.5 million as of September 30, 2021). On April 9, 2021, LivaNova and the Purchaser entered into an A&R Purchase Agreement which amends and restates the original Purchase Agreement to, among other things, defer the closing of the sale and purchase of LSM by up to two years and include or amend certain additional terms relating to such deferral, including certain amendments relating to the potential hazardous substances liabilities of LSM and the related expense reimbursement provisions. The initial closing of the sale of the Heart Valve business occurred on June 1, 2021 and we received €34.8 million (approximately $42.5 million as of June 1, 2021), subject to customary trade working capital and net indebtedness adjustments, as set forthsupport more patients in the Purchase Agreement. An additional €2.5 million (approximately $2.9 million as of September 30, 2021) is payable to LivaNova during the fourth quarter of 2021 and €10.0 million (approximately $11.6 million as of September 30, 2021) is payable to LivaNova on December 30, 2022.
Cardiopulmonary Product Approval
In April 2021, the FDA provided 510(k) clearance for B-Capta, the new in-line, blood-gas monitoring system integrated into the Company’s S5 heart-lung machine.more places. The system is accompanied by four specialized and ready-to-deploy kits, each designed to easily and accurately monitor arterial and venous blood gas parameters even during long and complex pediatric and adult cardiopulmonary bypass procedures. B-Capta, which received CE Mark in May 2020 and completed a successful limited commercial release in Europe, is now available globally.
Product Remediation
On December 29, 2015, the FDA issued a Warning Letter alleging certain violations of FDA regulations applicable to medical device manufacturers at our Munich, Germany and Arvada, Colorado facilities and issued inspectional observations on FDA’s Form-483 applicable to our Munich, Germany facility.
The Warning Letter further stated that our 3T Heater-Cooler devices (the “3T devices”) and other devices we manufactured at our Munich facility were subject to refusal of admission into the U.S. until resolution of the issues set forth by the FDA in the Warning Letter. The FDA informed us that the import alert was limited to the 3T devices, but that the agency reserved the right to expand the scope of the import alert if future circumstances warranted such action. The Warning Letter did not request that existing users cease using the 3T device, and manufacturing and shipment of all our products other than the 3T device were unaffected by the import limitation. To help clarify these issues for current customers, we issued an informational Customer
Letter in January 2016 and that same month agreed with the FDA on a process for shipping 3T devices to existing U.S. users pursuant to a certificate of medical necessity program.
Finally, the Warning Letter stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter were reasonably related would not be approved until the violations had been corrected; however, this restriction applied only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.
On February 25, 2020, LivaNova received clearance for K191402, a 510(k) for the 3T devices that addressed issues contained in the 2015 Warning Letter along with design changes that further mitigate the potential risk of aerosolization. Concurrent with this clearance, (1) 3T devices manufactured in accordance with K191402 will not be subjected to the import alert and (2) LivaNova initiated a correction to distribute the updated Operating Instructions cleared under K191402. With this 510(k) clearance, all actions to remediate the FDA’s inspectional observations in the Warning Letter are complete, and at this time, LivaNova is awaiting the FDA’s close-out inspection.
Product Liability
The Company is currently involved in litigation involving our 3T device. The litigation includes federal multi-district litigation in the U.S. District Court for the Middle District of Pennsylvania, various U.S. state court cases and cases in jurisdictions outside the U.S. A class action, filed in February 2016 in the U.S. District Court for the Middle District of Pennsylvania, consisting of all Pennsylvania residents who underwent open heart surgery at WellSpan York Hospital and Penn State Milton S. Hershey Medical Center between 2011 and 2015 and who currently are asymptomatic for NTM infection, was dismissed on July 16, 2021.
On March 29, 2019, we announced a settlement framework that provides for a comprehensive resolution of the personal injury cases pending in the multi-district litigation in U.S. federal court, the related class action in federal court, as well as certain cases in state courts across the United States. The agreement, which makes no admission of liability, is subject to certain conditions, including acceptance of the settlement by individual claimants and provides for a total payment of up to $225 million to resolve the claims covered by the settlement. Per the agreed-upon terms, the first payment of $135 million was paid into a qualified settlement fund in July 2019 and the second payment of $90 million was paid in January 2020. Cases covered by the settlement are being dismissed as amounts are disbursed to individual plaintiffs from the qualified settlement fund.
Cases in state courts in the U.S. and in jurisdictions outside the U.S. continue to progress. As of November 2, 2021, including the cases encompassed in the settlement framework described above that have not yet been dismissed, we are aware of approximately 85 filed and unfiled claims worldwide, with the majority of the claims in various federal or state courts throughout the United States. This number includes 8 cases that have settled but have not yet been dismissed. 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.
In the second quarter of 2021, we recorded an additional liability of $29.4 million due to new information received about the nature of certain claims. At September 30, 2021, the provision for these matters was $40.2 million. While the amount accrued represents our best estimate for those filed and unfiled claims that are both probable and estimable, the actual liability for resolution of these matters may vary from our estimate.support diverse cannulation strategies.
Neuromodulation
Our Neuromodulation segment designs, develops and markets Neuromodulation therapy for the treatment of drug-resistant epilepsy, DTD and obstructive sleep apnea. We are also developing and conducting clinical testing of the VITARIA System for treating heart failure through vagus nerve stimulation.
DTD UNCOVER Study
In April 2021, LivaNova and Verily, a subsidiary of Alphabet, announced that the first patient had been enrolled in their collaborative UNCOVER study, a subset of the RECOVER study. Data obtained from Verily-developed digital tools will complement the clinical outcomes collected in RECOVER, providing clinicians a more comprehensive view of depression patient biomarkers.
Obstructive Sleep Apnea
In June 2021, LivaNova received approval from the FDA to proceed with its investigational device exemption clinical study, “Treating Obstructive Sleep Apnea using Targeted Hypoglossal Neurostimulation (OSPREY).” The OSPREY study seeks to demonstrate the safety and effectiveness of the Aura6000® System, the LivaNova implantable hypoglossal neurostimulator intended to treat adult patients with moderate to severe obstructive sleep apnea.
Significant Accounting Policies and Critical Accounting Estimates
In addition toFor a discussion of our critical accounting policies provided in “Part II, Item 7. Management’sestimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that is included in our 2020the 2021 Form 10-K, refer to “Significant Accounting Policies” within “Note 1. Unaudited Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q.10-K.
The accompanying unaudited condensed consolidated financial statements of LivaNova and its consolidated subsidiaries have been prepared in accordance with U.S. GAAP on an interim basis.
New accounting pronouncements are disclosed in “Note 15. New Accounting Pronouncements” contained in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Results of Operations
The following table summarizes our condensed consolidated results of operations (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 (1) |
| Net sales | Net sales | | $ | 253,215 | | | $ | 240,083 | | | $ | 765,301 | | | $ | 664,686 | | Net sales | | | $ | 240,175 | | | $ | 247,603 | |
| Cost of sales | Cost of sales | | 83,105 | | | 92,448 | | | 256,828 | | | 234,079 | | Cost of sales | | | 71,732 | | | 84,195 | |
| Gross profit | Gross profit | | 170,110 | | | 147,635 | | | 508,473 | | | 430,607 | | Gross profit | | | 168,443 | | | 163,408 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | | | |
| Selling, general and administrative | Selling, general and administrative | | 109,042 | | | 104,036 | | | 347,471 | | | 331,711 | | Selling, general and administrative | | | 118,525 | | | 115,681 | |
| Research and development | Research and development | | 42,133 | | | 47,368 | | | 139,315 | | | 108,422 | | Research and development | | | 40,918 | | | 44,625 | |
| | Other operating expenses | | Other operating expenses | | | (505) | | | 8,800 | |
| Operating income (loss) | | Operating income (loss) | | | 9,505 | | | (5,698) | |
| Interest expense | | Interest expense | | | (7,840) | | | (15,936) | |
| | Foreign exchange and other gains/(losses) | | Foreign exchange and other gains/(losses) | | | 3,904 | | | (6,443) | |
| Income (loss) before tax | | Income (loss) before tax | | | 5,569 | | | (28,077) | |
| Income tax expense | | Income tax expense | | | 2,537 | | | 2,644 | |
| Losses from equity method investments | | Losses from equity method investments | | | (39) | | | (40) | |
| | Other operating expenses | | 1,067 | | | 3,739 | | | 43,103 | | | 12,611 | | |
| Operating income (loss) from continuing operations | | 17,868 | | | (7,508) | | | (21,416) | | | (22,137) | | |
| Interest income | | 178 | | | 47 | | | 293 | | | 482 | | |
| Interest expense | | (11,355) | | | (14,673) | | | (43,806) | | | (25,237) | | |
| Loss on debt extinguishment | | (60,238) | | | — | | | (60,238) | | | (1,407) | | |
| Foreign exchange and other gains | | 13,436 | | | 3,420 | | | 7,117 | | | 1,914 | | |
| Loss from continuing operations before tax | | (40,111) | | | (18,714) | | | (118,050) | | | (46,385) | | |
| Income tax expense (benefit) | | 2,098 | | | (3,990) | | | 9,094 | | | 17,581 | | |
| Losses from equity method investments | | (28) | | | (48) | | | (109) | | | (221) | | |
| Net loss from continuing operations | | (42,237) | | | (14,772) | | | (127,253) | | | (64,187) | | |
| Net loss from discontinued operations, net of tax | | — | | | — | | | — | | | (995) | | |
| Net loss | | $ | (42,237) | | | $ | (14,772) | | | $ | (127,253) | | | $ | (65,182) | | |
| Net income (loss) | | Net income (loss) | | | $ | 2,993 | | | $ | (30,761) | |
Net Sales
The table below presents net sales by operating segment and geographic region (in thousands, except for percentages):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | | % Change | | 2021 | | 2020 | | | % Change | | | 2022 | | 2021 | | | % Change |
| Cardiopulmonary | Cardiopulmonary | | | | | | | | | | | | | | | Cardiopulmonary | | | | | | | | |
| United States | United States | | $ | 40,143 | | | $ | 33,549 | | | | 19.7 | % | | $ | 113,290 | | | $ | 96,223 | | | | 17.7 | % | United States | | | $ | 38,096 | | | $ | 35,759 | | | | 6.5 | % |
| Europe | Europe | | 32,850 | | | 29,947 | | | | 9.7 | % | | 98,609 | | | 87,475 | | | | 12.7 | % | Europe | | | 32,067 | | | 30,626 | | | | 4.7 | % |
| Rest of World | Rest of World | | 50,242 | | | 43,704 | | | | 15.0 | % | | 137,931 | | | 140,925 | | | | (2.1) | % | Rest of World | | | 46,912 | | | 42,334 | | | | 10.8 | % |
| | 123,235 | | | 107,200 | | | | 15.0 | % | | 349,830 | | | 324,623 | | | | 7.8 | % | | | 117,075 | | | 108,719 | | | | 7.7 | % |
| Heart Valves | | | | | | | | | | | | |
| Neuromodulation | | Neuromodulation | | | | | | | | |
| United States | United States | | — | | | 3,129 | | | | (100.0) | % | | 4,929 | | | 8,990 | | | | (45.2) | % | United States | | | 87,210 | | | 82,300 | | | | 6.0 | % |
| Europe | Europe | | — | | | 7,945 | | | | (100.0) | % | | 14,407 | | | 22,822 | | | | (36.9) | % | Europe | | | 12,456 | | | 11,679 | | | | 6.7 | % |
| Rest of World | Rest of World | | — | | | 10,062 | | | | (100.0) | % | | 16,843 | | | 32,001 | | | | (47.4) | % | Rest of World | | | 10,561 | | | 9,720 | | | | 8.7 | % |
| | — | | | 21,136 | | | | (100.0) | % | | 36,179 | | | 63,813 | | | | (43.3) | % | | | 110,227 | | | 103,699 | | | | 6.3 | % |
| Advanced Circulatory Support | Advanced Circulatory Support | | | | | | | | | | | | Advanced Circulatory Support | | | | | | | | |
| United States | United States | | 14,925 | | | 12,331 | | | | 21.0 | % | | 40,449 | | | 28,075 | | | | 44.1 | % | United States | | | 10,963 | | | 12,560 | | | | (12.7) | % |
| Europe | Europe | | 355 | | | 162 | | | | 119.1 | % | | 761 | | | 835 | | | | (8.9) | % | Europe | | | 603 | | | 228 | | | | 164.5 | % |
| Rest of World | Rest of World | | 119 | | | 49 | | | | 142.9 | % | | 456 | | | 136 | | | | 235.3 | % | Rest of World | | | 117 | | | 204 | | | | (42.6) | % |
| | 15,399 | | | 12,542 | | | | 22.8 | % | | 41,666 | | | 29,046 | | | | 43.4 | % | | | 11,683 | | | 12,992 | | | | (10.1) | % |
| Cardiovascular | | | | | | | | | | | | |
Other (1) | | Other (1) | | | | | | | | |
| United States | United States | | 55,068 | | | 49,009 | | | | 12.4 | % | | 158,668 | | | 133,288 | | | | 19.0 | % | United States | | | — | | | 2,717 | | | | (100.0) | % |
| Europe | Europe | | 33,205 | | | 38,054 | | | | (12.7) | % | | 113,777 | | | 111,132 | | | | 2.4 | % | Europe | | | — | | | 8,284 | | | | (100.0) | % |
| Rest of World | Rest of World | | 50,361 | | | 53,815 | | | | (6.4) | % | | 155,230 | | | 173,062 | | | | (10.3) | % | Rest of World | | | 1,190 | | | 11,192 | | | | (89.4) | % |
| | 138,634 | | | 140,878 | | | | (1.6) | % | | 427,675 | | | 417,482 | | | | 2.4 | % | | | 1,190 | | | 22,193 | | | | (94.6) | % |
| Neuromodulation | | | | | | | | | | | | |
| Totals | | Totals | | | | | | | | |
| United States | United States | | 88,724 | | | 79,854 | | | | 11.1 | % | | 262,803 | | | 197,345 | | | | 33.2 | % | United States | | | 136,269 | | | 133,336 | | | | 2.2 | % |
Europe | Europe | | 12,516 | | | 10,475 | | | | 19.5 | % | | 38,799 | | | 27,474 | | | | 41.2 | % | Europe | | | 45,126 | | | 50,817 | | | | (11.2) | % |
| Rest of World | Rest of World | | 12,047 | | | 8,079 | | | | 49.1 | % | | 33,020 | | | 20,458 | | | | 61.4 | % | Rest of World | | | 58,780 | | | 63,450 | | | | (7.4) | % |
| 113,287 | | | 98,408 | | | | 15.1 | % | | 334,622 | | | 245,277 | | | | 36.4 | % | |
| Other | | 1,294 | | | 797 | | | | 62.4 | % | | 3,004 | | | 1,927 | | | | 55.9 | % | |
| Totals | | | | | | | | | | | | |
| United States | | 143,792 | | | 128,863 | | | | 11.6 | % | | 421,471 | | | 330,633 | | | | 27.5 | % | |
Europe (1) | | 45,721 | | | 48,529 | | | | (5.8) | % | | 152,576 | | | 138,606 | | | | 10.1 | % | |
| Rest of World | | 63,702 | | | 62,691 | | | | 1.6 | % | | 191,254 | | | 195,447 | | | | (2.1) | % | |
| Total | Total | | $ | 253,215 | | | $ | 240,083 | | | | 5.5 | % | | $ | 765,301 | | | $ | 664,686 | | | | 15.1 | % | Total | | | $ | 240,175 | | | $ | 247,603 | | | | (3.0) | % |
(1)For 2021, other primarily includes the net sales of the Company’s Heart Valves business, which was disposed of on June 1, 2021.
(2)Europe sales include those countries in which we have a direct sales presence, whereas European countries in which we sell through distributors are included in “Rest of World.”
The table below presents segment income from continuing operations (in thousands, except for percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | | | % Change | | 2021 | | 2020 | | | | % Change |
| Cardiovascular | | $ | 15,682 | | | $ | (7,311) | | | | | (314.5) | % | | $ | (7,033) | | | $ | (8,037) | | | | | (12.5) | % |
| Neuromodulation | | 36,155 | | | 21,154 | | | | | 70.9 | % | | 108,278 | | | 82,294 | | | | | 31.6 | % |
| Other | | (27,212) | | | (10,921) | | | | | 149.2 | % | | (92,109) | | | (58,407) | | | | | 57.7 | % |
Total reportable segment income from continuing operations (1) | | $ | 24,625 | | | $ | 2,922 | | | | | 742.7 | % | | $ | 9,136 | | | $ | 15,850 | | | | | (42.4) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | | | 2022 | | 2021 (1) | | | | % Change |
| Cardiopulmonary | | | | | | | | | | $ | 6,895 | | | $ | 1,442 | | | | | 378.2 | % |
| Neuromodulation | | | | | | | | | | 37,478 | | | 34,083 | | | | | 10.0 | % |
| Advanced Circulatory Support | | | | | | | | | | (5,438) | | | 2,393 | | | | | (327.2) | % |
Other (2) | | | | | | | | | | (23,082) | | | (30,195) | | | | | (23.6) | % |
Total reportable segment income (3) | | | | | | | | | | $ | 15,853 | | | $ | 7,723 | | | | | 105.3 | % |
(1)Segment income for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
(2)Other includes corporate shared service expenses for finance, legal, human resources, information technology and corporate business development. For 2021, other also includes the results of the Company’s Heart Valves business, which was disposed of on June 1, 2021.
(3)For a reconciliation of segment income from continuing operations to loss from continuing operationsincome (loss) before tax refer to “Note 13.12. Geographic and Segment Information” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
CardiovascularCardiopulmonary
Total CardiovascularCardiopulmonary net sales for the three months ended September 30, 2021March 31, 2022 compared to the three months ended September 30, 2020 decreased 1.6% and for the nine months ended September 30,March 31, 2021 comparedincreased 7.7% to the nine months ended September 30, 2020 increased 2.4%. Cardiopulmonary sales for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 increased 15.0% to $123.2$117.1 million primarily from growth in oxygenator and heart-lung machine sales across all regions. Cardiopulmonary sales for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 increased 7.8% to $349.8 million primarily related to growth indriven by oxygenator sales across all regions, growthdue to an increase in cardiac surgery procedure volumes and heart-lung machine sales in the U.S.Rest of World region, as well as the favorable impact of foreign currency fluctuations, partially offset by a reduction in capital equipment purchases in the Restunfavorable impact of World region. Advanced Circulatory Support sales for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 increased 22.8% and 43.4% to $15.4approximately $5 million and $41.7 million, respectively, resulting from continued adoption of LifeSPARC in the U.S. and an increase in procedure volumes. Heart Valve sales for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 declined $21.1 million and $27.6 million, respectively, due to the sale of the Heart Valves business on June 1, 2021.foreign currency fluctuations.
Cardiovascular operatingCardiopulmonary segment income for the three months ended September 30, 2021March 31, 2022 was $6.9 million as compared to $1.4 million for the three months ended September 30, 2020 increasedMarch 31, 2021. The increase in segment income was primarily due to an increase in net sales, in the Cardiopulmonary and Advanced Circulatory Support businesses, as discussed above, the divestiture of the Heart Valves business on June 1, 2021 and the net impact of the change in the fair value of the milestone-based contingent consideration arrangement associated with the acquisition of TandemLife of $6.5 million.
Cardiovascular operating loss for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 decreased primarily due to an increase in net sales in the Cardiopulmonary and Advanced Circulatory Support businesses, as discussed above, the divestiture of the Heart Valves business on June 1, 2021, as well as a decrease in 3T Heater-Cooler product remediation expense of $6.5 million. These decreases in operating loss were partially offset by an increase in the litigation provision related to our 3T Heater-Cooler device of $28.3 million.and related legal costs.
Neuromodulation
Neuromodulation net sales for the three and nine months ended September 30, 2021March 31, 2022 compared to the three and nine months ended September 30, 2020March 31, 2021 increased 15.1% and 36.4%6.3% to $113.3$110.2 million and $334.6 million, respectively, primarily due to improving market dynamicsgrowth across all regions resulting from increased hospital access and patient willingness to return to clinics.driven by replacement implants.
Neuromodulation operatingsegment income for the three and nine months ended September 30, 2021March 31, 2022 was $37.5 million as compared to $34.1 million for the three and nine months ended September 30, 2020 increasedMarch 31, 2021. The increase in segment income was primarily due to an increase in net sales, as discussed above. The nine-month period operating income was partially offset byabove, as well as the net impact of the change in fair value of the sales-based and milestone-based contingent consideration arrangement associated with the acquisition of ImThera of $48.5$3.5 million. These increases in operating income were partially offset by increases in R&D expenses for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 totaling $2.6 million associated with our RECOVER clinical trial and OSPREY clinical study.
Advanced Circulatory Support
Advanced Circulatory Support net sales for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 decreased 10.1% to $11.7 million primarily due to a reduction in patients treated with extracorporeal membrane oxygenation (ECMO) related to hospital staffing shortages and less severe COVID-19 cases.
Advanced Circulatory Support segment operating loss for the three months ended March 31, 2022 was $5.4 million as compared to segment income of $2.4 million for the three months ended March 31, 2021. The decrease in segment income was primarily due to an increase in selling, general and administrative expenses largely associated with business development costs related to the acquisition of ALung. For additional information, please refer to “Note 14. Subsequent Event” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Additionally, we incurred an increase in sales and marketing expenses during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Sales and marketing expenses in 2021 were reduced as a result of lower commercial related and discretionary spending due to COVID-19. The decrease in segment income was also impacted by a decline in net sales, as discussed above.
Cost of Sales and Expenses
The table below presents our comparative cost of sales and significant expenses as a percentage of sales:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change | | | 2022 | | 2021 | | Change |
| Cost of sales | Cost of sales | | 32.8 | % | | 38.5 | % | | (5.7) | % | | 33.6 | % | | 35.2 | % | | (1.6) | % | Cost of sales | | | 29.9 | % | | 34.0 | % | | (4.1) | % |
| Selling, general and administrative | Selling, general and administrative | | 43.1 | % | | 43.3 | % | | (0.2) | % | | 45.4 | % | | 49.9 | % | | (4.5) | % | Selling, general and administrative | | | 49.3 | % | | 46.7 | % | | 2.6 | % |
| Research and development | Research and development | | 16.6 | % | | 19.7 | % | | (3.1) | % | | 18.2 | % | | 16.3 | % | | 1.9 | % | Research and development | | | 17.0 | % | | 18.0 | % | | (1.0) | % |
| Other operating expenses | Other operating expenses | | 0.4 | % | | 1.6 | % | | (1.2) | % | | 5.6 | % | | 1.9 | % | | 3.7 | % | Other operating expenses | | | (0.2) | % | | 3.6 | % | | (3.8) | % |
Cost of Sales
Cost of sales consistedconsists primarily of direct labor, allocated manufacturing overhead, the acquisition cost of raw materials and components and product remediation expenses. components.
Cost of sales as a percentage of net sales was 29.9% for the three and nine months ended September 30, 2021March 31, 2022, a decrease of 4.1% compared to the three and nine months ended September 30, 2020 decreasedMarch 31, 2021. The decrease was primarily due to favorable product mix, largelypartially due to the sale of the Heart Valves business during the second quarter of 2021, as well as a decline in product remediation expenses associated with our 3T Heater-Cooler device. These decreases were partially offset by the net impact of the change in fair value of a sales-based contingent consideration arrangement of $28.7$1.9 million for the ninethree months ended September 30, 2021March 31, 2022 compared to the ninethree months ended September 30, 2020.March 31, 2021.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses consistedare comprised of sales, marketing, and general and administrative activities.
SG&A expenses as a percentage of net sales was 49.3% for the ninethree months ended September 30, 2021March 31, 2022, an increase of 2.6% compared to the ninethree months ended September 30, 2020 decreasedMarch 31, 2021. The increase was primarily due to an increasebusiness development expenses related to the acquisition of ALung. For additional information, please refer to “Note 14. Subsequent Event” in sales, partially offset by an increasethe condensed consolidated financial statements in sales and marketing expenses due to lower commercial related variable and discretionary spending as a result of COVID-19 duringthis Quarterly Report on Form 10-Q. Additionally, 3T legal costs increased $1.5 million for the ninethree months ended September 30, 2020.March 31, 2022 compared to the three months ended March 31, 2021.
Research and Development (“R&D”) Expenses
R&D expenses consistedconsist of product design and development efforts, clinical study programs and regulatory activities, which are essential to our strategic portfolio initiatives, including DTD, obstructive sleep apneaOSA and heart failure.
R&D expenses as a percentage of net sales were 17.0% for the three months ended September 30, 2021March 31, 2022, a decrease of 1.0% compared to the three months ended September 30, 2020 decreasedMarch 31, 2021. The decrease was primarily due to a decrease in R&D expense of $3.5 million resulting from the net impactsale of the Heart Valve business on June 1, 2021, as well as changes in the fair value of milestone-based contingent consideration arrangements of $7.3 million.$2.0 million, partially offset by increases in R&D expenses as a percentage of net sales for the nine months ended September 30, 2021 compared$2.6 million related to the nine months ended September 30, 2020 increased primarily due to an increase in R&D expense resulting from the net impact of changes in fair value of milestone-based contingent consideration arrangements of $20.2 million.DTD and OSA.
Other Operating Expenses
Other operating expenses primarily consists primarily of merger and integration expense, restructuring expense, the provision for litigation involving our 3T Heater-Cooler device, restructuring expense, and gain (loss) on the on sale of Heart Valves. merger and integration expense.
Other operating expenses as a percentage of net sales was (0.2)% for the three months ended September 30, 2021March 31, 2022, a decrease of 3.8% compared to the three months ended September 30, 2020 decreasedMarch 31, 2021. The decrease was primarily due to a decline in restructuring expenses of $6.2 million. Additionally, other operating expenses decreased $3.4 million from a decrease in the litigation provision related to our 3T Heater-Cooler device of $3.2 million. Other operating expenses as a percentage of net sales for the ninethree months ended September 30, 2021March 31, 2022 compared to the ninethree months ended September 30, 2020 increased primarily dueMarch 31, 2021. For additional information, please refer to an increase“Note 7. Commitments and Contingencies” in the litigation provision related to our 3T Heater-Cooler device of $28.3 million.condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Interest Expense
Interest expense for the three months ended September 30, 2021 of $11.4March 31, 2022 was $7.8 million as compared to $15.9 million for the three months ended September 30, 2020 of $14.7 million decreasedMarch 31, 2021, primarily due to the repayment of the Company’s 2020 senior secured term loan during the third quarter of 2021. Interest expense for the nine months ended September 30, 2021 of $43.8 million as compared to the nine months ended September 30, 2020 of $25.2 million increased primarily due to an increase in debt borrowings in June 2020 at increased borrowing rates. For further details, refer to “Note 6.5. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Loss on Debt Extinguishment
Loss on debt extinguishment for the three and nine months ended September 30, 2021 resulted from the early repayment and termination of the Company’s 2020 senior secured term loan and revolving credit facility with ACF FINCO I LP, respectively, totaling $60.2 million. For further details on loss on debt extinguishment refer to “Note 6. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Foreign Exchange and Other GainsGains/(Losses)
Foreign exchange and other gains consistedgains/(losses) consist primarily of changes in the fair value of the embedded exchange feature and capped call derivatives, gains and losses arising from transactions denominated in a currency different from an entity’s functional currency, and foreign currency exchange rate derivative gains and losses.losses and changes in the fair value of embedded and capped call derivatives.
We incurred foreignForeign exchange and other gainsgains/(losses) was a gain of $13.4 million and $7.1$3.9 million for the three and nine months ended September 30, 2021, respectively,March 31, 2022 as compared to $3.4 million and $1.9a loss of $6.4 million for the three and nine months ended September 30, 2020, respectively.March 31, 2021. For further details, on foreign exchange and other gains refer to “Note 14.13. Supplemental Financial Information” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Income Taxes
LivaNova PLC is resident in the UK for tax purposes. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries, and the income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary. Our effective income tax rate fluctuates based on, among other factors, changes in pretax income in countries with varying statutory tax rates, valuation allowances, tax credits and incentives, and unrecognized tax benefits associated with uncertain tax positions.
Our effective income tax rate from continuing operations for the three and nine months ended September 30, 2021March 31, 2022 was (5.2)% and (7.7)%, respectively,45.6% compared with 21.3% and (37.9)(9.4)%, respectively, for the for the three and nine months ended September 30, 2020.
March 31, 2021. Compared with the three months ended September 30, 2020,March 31, 2021, the change in the effective tax rate for the three months ended September 30, 2021 was primarily attributable to the discrete tax impact of the debt extinguishment as compared to a discrete tax benefit related to the settlement of tax litigation in Italy offset by a valuation allowance for certain jurisdictions outside of the U.S. during the three months ended September 30, 2020.
Compared with the nine months ended September 30, 2020, the change in the effective tax rate for the nine months ended September 30, 2021March 31, 2022 was primarily attributable to changes in the valuation allowances the discreteand changes in income before tax impact of the sale of the Heart Valve business and the debt extinguishmentin countries with varying statutory tax rates as compared to the $42.4 million realized discrete tax benefit related to the CARES Act and the discrete tax benefit due related to the settlement of tax litigationchanges in Italy offset by the establishment of a $74.5 million valuation allowance for the U.K.allowances and other jurisdictions outside the U.S.discrete items during the ninethree months ended September 30, 2020.
European Union State Aid Challenge
On April 2, 2019, the European Commission concluded that “when financing income from a foreign group company, channeled through an offshore subsidiary, derives from UK activities, the group finance exemption is not justified and constitutes State aid under EU rules.” Based upon our assessment of the technical arguments as to whether the UK group exemption is State aid, together with no material UK activities in our financing, no reserve relating to our tax position was recognized related to this matter. Furthermore, in December 2019, we amended our 2017 tax return filing to avail ourselves of different rules to determine UK taxation, which are not subject to the EU decision. We filed our 2018 tax return in a similar fashion. On October 1, 2021, we received a notification from HMRC stating that in agreement with our assessment, we are not a beneficiary of state aid as a result of our claim under Chapter 9 for the accounting periods 2015-2018, and accordingly, HMRC regards the issue as closed.March 31, 2021.
Liquidity and Capital Resources
Based on our current business plan, we believe that our existingsources of liquidity, which primarily consist of cash and cash equivalents, future cash generated from operations and borrowingavailable borrowings under our current debt facilities, will be sufficient to fund our uses of liquidity, primarily consisting of purchase obligations for expected operating, needs, working capital requirements,and R&D opportunities,needs, capital expenditures, acquisitions, and debt service requirements over the twelve-month period beginning from the issuance date of these condensed consolidated financial statements. From time to time, we may decide to access debt and/or equity markets to optimize our capital structure, raise additional capital or increase liquidity as necessary, including to refinance our Bridge Loan Facility and satisfy liabilities in the event of an adverse rulingthat may arise in connection with the SNIA litigation. Our liquidity could be adversely impacted by the factors affecting future operating results, including those referred to in “Part II,I, Item 1A. Risk
Factors” in the 20202021 Form 10-K as supplemented by the factors referred to in “Part II, Item 1A,1A. Risk Factors” in this Quarterly Reports on Form 10-Q as well as “Note 8.7. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Our operating, working capital and R&D purchase obligations primarily consist of liabilities arising from the normal course of business including inventory supply contracts, the future settlement of derivative instruments, and future payments of operating leases, as well as contingent consideration arrangements resulting from acquisitions, and obligations associated with legal and other accruals. The following table presents selected financial information related to our liquidity as of March 31, 2022 and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| Sources of liquidity | | | | |
| Cash and cash equivalents | | $ | 128,737 | | | $ | 207,992 | |
| Accounts receivable, net | | 182,112 | | | 185,354 | |
| Inventories | | 114,844 | | | 105,840 | |
Short-term derivative assets (1) | | 82 | | | 106,629 | |
Long-term derivative assets (1) | | 96,717 | | | — | |
Availability under revolving credit facility (2) | | 125,000 | | | 125,000 | |
| Short term uses of liquidity | | | | |
Short-term derivative liabilities (1) | | $ | 1,928 | | | $ | 183,109 | |
Short-term debt (2) | | 4,752 | | | 229,673 | |
| Short-term operating leases | | 10,967 | | | 11,261 | |
Short-term contingent consideration (3) | | 11,268 | | | 11,552 | |
Short-term 3T litigation provision (4) | | 30,126 | | | 32,845 | |
| Long-term uses of liquidity | | | | |
Long-term debt (2) | | $ | 455,810 | | | $ | 9,849 | |
Long-term derivative liabilities (1) | | 170,660 | | | — | |
| Long-term operating leases | | 30,876 | | | 35,919 | |
Long-term contingent consideration (3) | | 83,341 | | | 86,830 | |
Long-term Saluggia site liability (4) | | 37,923 | | | 38,788 | |
Long-term 3T litigation provision (4) | | 6,105 | | | 6,625 | |
(1)For additional information, please refer to “Note 6. Derivatives and Risk Management” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
(2)For additional information, please refer to “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
(3)For additional information, please refer to “Note 4. Fair Value Measurements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
(4)For additional information, please refer to “Note 7. Commitments and Contingencies” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Significant Liquidity Matters
On June 17, 2020,February 21, 2022, the Court of Appeal notified the Company that it granted the Company a suspension with respect to the payment of damages in the amount of €453.6 million (approximately $503.1 million at March 31, 2022) in the SNIA litigation until a decision has been reached on our appeal to the Italian Supreme Court. This suspension was subject to providing the SNIA Litigation Guarantee of €270.0 million (approximately $299.5 million at March 31, 2022) within 30 calendar days.
On February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., entered into the Bridge Loan Facility. On March 16, 2022, LivaNova delivered a borrowing notice for $220.0 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022.
On March 18, 2022, LivaNova PLC, acting through its Italian branch, entered into an Indemnity Letter and an Account Pledge Agreement with Barclays, further to which Barclays issued $287.5the €270.0 million aggregate principal amount of 3.00% Cash Exchangeable Senior Notes due 2025 (the “Notes”). Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option. This includes the right to exchange the 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 satisfied on September 16, 2021, which allows the holders of the Notes to request to exchange the Notes through December 31, 2021.SNIA Litigation Guarantee. As a result, we have reclassified our obligations from the Notes and the associated embedded exchange feature derivative as a current liability on the condensed consolidated balance sheet as of September 30, 2021. However, as of the date of filing of this Form 10-Q, no holders have elected to exchange the Notes. The 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 Notes is 16.3980 ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the Notes. If holders elect to exchange their Notes during the current period or any future periods in the event an exchange condition is met, we would be required to settle our exchange obligation through the payment of cash, which could adversely affect our liquidity. Currently, the Company believes it is unlikely the holders of the Notes will exchange significant amounts of the Notes.
The Company has also entered into privately negotiated capped call transactions with terms substantially similar to those applicable to the Notes. The capped call transactions are expected generally to offset any cash payments the CompanySNIA Litigation Guarantee, LivaNova is required to make upon exchangegrant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the Notes in excessamount of the principal amount thereof inSNIA Litigation Guarantee calibrated on a biweekly basis. At March 31, 2022, the event that the market value per ordinary share,cash collateral totaled $313.6 million and is classified as measured under the capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to an initial cap price of $100.00 per share. The capped call transactions expire on December 15, 2025 and must be settled in cash. If the capped call transactions are converted or redeemed early, settlement occurs at their termination value, which is equal to their fair value at the time of the redemption. The capped call transactions are included at their estimated fair value as of September 30, 2021 within current derivative assetsRestricted Cash on the condensed consolidated balance sheet.
The proceeds of the Bridge Loan Facility were used by LivaNova to post a portion of the cash collateral supporting the SNIA Litigation Guarantee. The Bridge Loan Facility bears interest at an adjusted term SOFR, with a floor of 0.5%, plus 3.5% increasing by 0.25% 15 days after drawing and by an additional 0.5% 90 days after drawing and every 90 days thereafter, with a maximum margin of 5.25% over adjusted SOFR. The Bridge Loan Facility, which matures on June 16, 2023, will become a current liability at the end of the second quarter 2022, and is subject to mandatory prepayment in connection with certain asset dispositions, equity or debt issuance as well as in the event that collateral securing the SNIA Litigation Guarantee is released. At this point in time, the Company believes it can secure additional debt financing to replace the Bridge Loan Facility prior to its maturity in mid-2023. While the Company has been successful in raising capital in the past, there can be no assurances as to when the Company will be able to secure replacement financing or whether it can do so on terms acceptable to the Company, in a timely manner, if at all.
On March 21, 2022, LivaNova delivered the SNIA Litigation Guarantee as required by the Court of Appeal, thereby satisfying the condition to obtain the suspension for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court.
Refer to “Note 6.5. Financing Arrangements” in the condensed consolidated financial statements in this Quarterly Report on Form 10-Q for additional information regarding our debt and debt transactions.
On August 6, 2021, the Company closed an offering and issued 4,181,818 ordinary shares, par value ₤1.00 per share, at an offering price of $82.50 per share. Net proceeds from the offering were approximately $322.6 million, after deducting underwriting discounts, commissions and offering expenses. Proceeds from the offering were used to repay the Company’s $450 million 2020 senior secured term loan.
Cash Flows
Net cash and cash equivalents provided by (used in) operating, investing and financing activities and the net increase (decrease) in the balance of cash, and cash equivalents and restricted cash were as follows (in thousands):
| | | Nine Months Ended September 30, 2021 | | | Three Months Ended March 31, | |
| | | | 2021 | | 2020 | | | | 2022 | | 2021 | |
| Operating activities | Operating activities | | $ | 69,064 | | | $ | (116,407) | | | Operating activities | | $ | 25,823 | | | $ | 19,480 | | |
| Investing activities | Investing activities | | 40,535 | | | (33,337) | | | Investing activities | | (5,482) | | | (9,858) | | |
| Financing activities | Financing activities | | (178,183) | | | 315,927 | | | Financing activities | | 214,877 | | | (8,328) | | |
| Effect of exchange rate changes on cash and cash equivalents | | (2,402) | | | 491 | | | |
| Net (decrease) increase in cash and cash equivalents | | $ | (70,986) | | | $ | 166,674 | | | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (826) | | | (1,587) | | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 234,392 | | | $ | (293) | | |
Operating Activities
Cash provided by operating activities during the ninethree months ended September 30, 2021March 31, 2022 increased by $185.5$6.3 million as compared to the same prior-year period. The increase iswas primarily due to an increase in net income adjusted for non-cash items of $23.4 million, largely driven by an increase in Neuromodulation and Cardiopulmonary net sales. This increase was partially offset by a decreasenet change in 3T litigation settlement paymentsworking capital of $99.8$17.1 million, largely attributable to the receipt of a CARES Act tax refund of $24.6$24.5 million during the ninefirst quarter of 2021 compared to the receipt of a CARES Act tax refund of $6.7 million during the three months ended September 30, 2021, an increase in sales and improved working capital management.
Investing Activities
Cash provided byused in investing activities during the ninethree months ended September 30, 2021 increased $73.9 million as compared to the same prior-year period. The increase is primarily due to proceeds from the sale of Heart Valves of $40.2 million, proceeds from the sale of LivaNova’s investment in and loan to Respicardia totaling $23.1 million, as well as a decrease in purchases in property, plant and equipment of $10.6 million.
Financing Activities
Cash used in financing activities during the nine months ended September 30, 2021 increased $494.1March 31, 2022 decreased $4.4 million as compared to the same prior year period. The increase is primarilyperiod largely due to a net repaymentdecline in purchases of borrowingsproperty, plant and equipment of $3.0 million.
Financing Activities
Cash provided by financing activities during the ninethree months ended September 30, 2021 of $453.3March 31, 2022 increased $223.2 million as compared to the same prior year period primarily due to net proceeds from borrowings under the Bridge Loan Facility of $387.0 million in the prior year period, as well as a payment of $35.6 million for the make-whole premium on long-term debt obligations made during the nine months ended September 30, 2021. These increases were partially offset by the net proceeds from the issuance of ordinary shares of $324.2 million during the nine months ended September 30, 2021, as well as the purchase of a capped call associated with our Notes of $43.1 million and a closing adjustment payment for the sale of our former CRM business of $14.9 million made during the nine months ended September 30, 2020.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements.
Contractual Obligations
Except for the repayment of the 2020 senior secured term loan discussed in “Note 6. Financing Arrangements,” we had no material changes in our contractual commitments and obligations from amounts listed under “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our 2020 Form 10-K.$218.3 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks as part of our ongoing business operations, including risks from foreign currency exchange rates, equity price risk, interest rate risks and concentration of procurement suppliers that could adversely affect our consolidated financial position, results of operations or cash flows. We manage these risks through regular operating and
financing activities and, at certain times, derivative financial instruments. Quantitative and qualitative disclosures about these risks are included in this Quarterly Report on Form 10-Q in “Part I, Note 7.6. Derivatives and Risk Management,” “Part I, Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and “Part II, Item 1A. Risk Factors” and in our 20202021 Form 10-K in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part I, Item 1A. Risk Factors.”
Item 4. Controls and Procedures
Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the most recent fiscal quarter reported herein. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2021.March 31, 2022.
(b) Changes in Internal Control Over Financial Reporting
During the third quarter of 2021, we implemented a new version of our financial consolidation system. Certain internal controls over financial reporting were designed and implemented as part of our implementation process. There have been no other changesNo change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-5(f) under the Exchange Act) occurred during the quarter ended September 30, 2021March 31, 2022 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal and regulatory proceedings and settlements, refer to “Note 8.7. Commitments and Contingencies” in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
ThereOther than as described below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A to our 20202021 Annual Report on Form 10-K.
Reductions or interruptions in the supply of the materials and components used in manufacturing our products may adversely affect our financial condition and business operations, particularly in the wake of COVID-19.
We maintain manufacturing operations in five countries located throughout the world and purchase many of the components and raw materials used in manufacturing these products from numerous suppliers in various countries. Any problem affecting a supplier (whether due to external or internal causes) could have a negative impact on us. Difficulties and delays in manufacturing, internally or through third-party providers or otherwise within the supply chain, may lead to voluntary or involuntary business interruptions or shutdowns, product shortages, withdrawals or suspensions of products from the market, and potential regulatory action.
In some cases, we purchase specific components and raw materials from primary or main suppliers (or in some cases, a single or sole supplier) for reasons related to quality assurance, cost-effectiveness and availability. While we work closely with our suppliers to ensure supply continuity, minimize the instances in which we rely on a sole supplier and take other countermeasures to reduce our supply chain risk, we cannot guarantee that our efforts will always be successful. Moreover, due to strict standards and regulations governing the manufacture and marketing of our products, we may not be able to locate new supply sources quickly or at all in response to a supply reduction or interruption, with negative effects on our ability to manufacture our products effectively and timely.
The COVID-19 pandemic has exacerbated this risk by, among other things, causing global supply chain shortages. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. We are managing our supply chain by giving long visibility to our suppliers, conducting regular supply critical risk reviews and closely monitoring our inventory, among other things, but any problem could quickly, negatively reverberate throughout the organization. To the extent we are unsuccessful in managing our supply chain, any such issues could have a material adverse effect on our business, results of operations, financial condition, cash flows and recoverability of our tangible and intangible assets.
Failure to comply with product-related government regulations may materially adversely affect our financial condition and business operations.
Both before and after a product is commercially released, we have ongoing responsibilities under FDA and other applicable non-U.S. government agency regulations. For instance, many of our facilities and procedures and those of our suppliers are subject to periodic inspections by the FDA, which can result in inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, the FDA could ban such medical products, detain or seize adulterated or misbranded medical products, order a recall, repair, replacement, or refund of such products, refuse to grant pending PMA applications or require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health. In 2015, we received a warning letter from the FDA alleging certain violations of FDA regulations, which resulted in certain devices that were manufactured in Munich, Germany, to be denied admission to the U.S. until resolution of the issues set forth by the FDA in the warning letter. In April 2022, a Form 483 was issued at the conclusion of the FDA’s inspection of our Germany facility. See “Note 7. Commitments and Contingencies” in this Form 10-Q for additional information.
If the FDA does not agree with the proposed corrective or preventive actions in the response to the Form 483, or accepts them but finds that we have not implemented them adequately, or if we otherwise fail to comply with applicable regulatory requirements, the FDA could decide not to close out the 2015 Warning Letter based on the most recent inspection, even if they agree with our most recent Form 483 response. In addition, the FDA could require that a successful re-inspection be completed
in the future in order to close out that Warning Letter and/or the most recent inspection. As we continue to work with the FDA, we remain subject to the terms of the 2015 Warning Letter, which subjected our legacy 3T devices to refusal of admission into the U.S. and which stated that premarket approval applications for Class III devices to which certain Quality System regulation deviations identified in the Warning Letter were reasonably related would not be approved until the violations had been corrected; however, with clearance for K191402, 3T devices manufactured in accordance with K191402 are not subjected to the import alert and the premarket approval restriction applied only to the Munich and Arvada facilities, which do not manufacture or design devices subject to Class III premarket approval.
While we work diligently to manage our ongoing responsibilities, the FDA and other non-U.S. government agencies could assess civil or criminal penalties against us, our officers or employees and impose operating restrictions on a company-wide basis. The FDA could also recommend prosecution to the U.S. Department of Justice. An adverse regulatory action could restrict us from effectively marketing and selling our products, limit our ability to obtain future pre-market clearances or PMAs, and result in a substantial modification to our business practices and operations. These potential consequences, as well as any adverse outcome from government investigations, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
In addition, in the U.S., device manufacturers are prohibited from promoting their products other than for the uses and indications set forth in the approved product labeling (so called “off-label uses”). Our VNS Therapy System, for example, is indicated in the U.S., as an adjunctive therapy in reducing the frequency of seizures in patients 4 years of age and older with partial onset seizures that are refractory to antiepileptic medications, yet a number of physicians elect to prescribe our device for certain patients suffering from generalized seizures. While physicians may exercise their discretion in prescribing a device off-label, any failure on the part of the device manufacturer to comply with off-label regulations could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.
Governmental regulations outside the U.S. have, and may continue to become, increasingly stringent and common. In the EU, for example, Reg MDR (Medical Device Regulation) became effective in May 2021, resulting in significant additional premarket and post-market requirements which must be in place by May 2024. During this transition period, the European Commission is allowing companies to use their MDD (Medical Device Directive) certifications. LivaNova is working to obtain all appropriate approvals and intends to be fully compliant by the May 2024 deadline, as penalties for regulatory non-compliance can be severe, including fines and revocation or suspension of a company’s business license, mandatory price reductions and criminal sanctions.
We are subject to the risks of conducting business internationally.
We develop, manufacture, distribute and sell our products globally, and we intend to continue to pursue growth opportunities worldwide. Our international operations are subject to risks that are inherent in conducting business globally and under non-U.S. laws, regulations and customs. These risks include possible nationalization, invasions, wars, negative consequences associated with Brexit, expropriation, importation limitations, pricing restrictions, government shutdowns and violations of laws, and the resulting issues from any such risks. In February 2022, for example, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the market due to international sanctions, to consider the potential impact of raw material sourced from the region, and to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation and/or continuation of the conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the Russian authorities in response to international sanctions. Our profitability and operations are, and will continue to be, subject to a number of risks and potential costs, including: local product preferences and product requirements; longer-term receivables than are typical in the EU or the U.S.; difficulty enforcing agreements; creditworthiness of customers; trade protection measures and import and export licensing requirements; imposition of sanctions; different labor regulations and workforce instability; higher danger of terrorist activity, war or civil unrest; selling our products through distributors and agents; and political and economic instability. Any of the aforementioned risks could adversely affect our business, results of operations, financial conditions and cash flows.
From time to time, certain of our subsidiaries have limited business dealings in countries subject to comprehensive sanctions, including Iran, Sudan, Syria and now Russia. These business dealings represent an insignificant amount of our consolidated revenues and income, but expose us to a heightened risk of violating applicable sanctions regulations. Violations of these regulations are punishable by civil penalties including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts and revocations or restriction of licenses, as well as criminal fines and imprisonment. We have established policies and procedures designed to assist with our compliance with such laws and regulations, but there can be no
assurance that our policies and procedures will prevent us from violating these regulations in every transaction in which we may engage, and such a violation could adversely affect our reputation, business, results of operations, financial conditions and cash flows.
Our functional currency is the U.S. dollar; however, a portion of the revenues earned and expenses incurred by certain of our subsidiaries are denominated in currencies other than the U.S. dollar. We determine the functional currency of our subsidiaries that exist and operate in different economic and currency environments based on the primary economic environment in which the subsidiary operates, that is, the currency of the environment in which an entity primarily generates and expends cash. For transactions denominated in currencies other than our functional currencies, fluctuations in the exchange rate will impact our results of operations and financial condition. Although we may elect to hedge certain foreign currency exposure, we cannot be certain that the hedging activity will eliminate our currency risk.
In addition, in many of the countries where we operate, employees are covered by various laws and/or collective bargaining agreements that endow them, through their local or national representatives, with the right to be consulted in relation to specific issues, including the downsizing or closing of departments and staff reductions. The laws and/or collective bargaining agreements that are applicable to these agreements could have an impact on our flexibility, as they apply to programs to redefine and/or strategically reposition our activities. Our ability to implement staff downsizing programs or even temporary interruptions of employment relationships is predicated on the approval of government entities and the consent of labor unions. A negative response from a works council or union-organized work stoppages by employees could have a negative impact on our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Disclosure Pursuant to Section 13(r) of the Exchange Act of 1934
Section 13(r) of the Exchange Act requires issuers to disclose in their quarterly reports certain types of dealings with Iran, including transactions or dealingdealings with government-owned entities, even when those activities are lawful and do not involve U.S. persons. One of our non-U.S. subsidiaries currently sells medical devices, including cardiopulmonary, cardiac surgery and neuromodulation products, to privately held distributors in Iran.
We have limited visibility into the identity of these distributors’ customers in Iran. It is possible that their customers include entities, such as government-owned hospitals or sub-distributors, that are owned or controlled directly or indirectly by the Iranian government. To the best of our knowledge at this time, we do not have any contracts or commercial arrangements with the Iranian government.
Our gross revenues and net profits attributable to the above-mentioned Iranian activities were $2.7$1.8 million and $1.1$0.9 million for the three months ended September 30, 2021, respectively, and $7.3 million and $3.1 million for the nine months ended September 30, 2021,March 31, 2022, respectively.
We believe our activities are consistent with applicable law, including U.S., EU, and other applicable sanctions laws, though such laws are complex and continue to evolve rapidly. We intend to continue our business in Iran.
Item 6. Exhibits
The exhibits marked with the asterisk symbol (*) are filed or furnished (in the case of Exhibit 32.1) with this Quarterly Report on Form 10-Q. The exhibitsExhibits marked with the cross symbol (†), if any, are management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10)(iii) of Regulation S-K.
| | | | | |
Exhibit
Number | Document Description |
| First LienAmendment 2 to the Credit Agreement, dated August 13, 2021as of March 16, 2022, by and among LivaNova PLC, LivaNova USA, Inc., the lenders and issuing banks party theretoLenders and Goldman Sachs Bank USA as First Lien Administrative Agent |
| Letter of indemnity in respect of the issuance of Trade Finance guarantee by Barclays Bank Ireland PLC, Italy Branch dated March 18, 2022, by and First Lien Collateral Agent,among LivaNova PLC Italian Branch and Barclays Bank Ireland PLC, Italy Branch, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed on August 16, 2021March 21, 2022 |
| Pledge Agreement dated as of March 18, 2022, among LivaNova PLC Italian Branch and Barclays Bank Ireland PLC, Italy Branch, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed on March 21, 2022 |
| Certification of the Chief Executive Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of the Chief Financial Officer of LivaNova PLC pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Certification of the Chief Executive Officer and Chief Financial Officer of LivaNova PLC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101* | Interactive Data Files Pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) the Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, (ii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30,March 31, 2022 and 2021, and 2020, (iii) the Condensed Consolidated Balance Sheet as of September 30, 2021March 31, 2022 and December 31, 2020,2021, (iv) the Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30March 31, 2022 and 2021, and 2020, and (vi) the Notes to the Condensed Consolidated Financial Statements |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | LIVANOVA PLC |
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Date: November 3, 2021May 4, 2022 | By: | /s/ DAMIEN MCDONALD |
| | Damien McDonald |
| | | Chief Executive Officer |
| | | (Principal Executive Officer) |
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| | LIVANOVA PLC |
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Date: November 3, 2021May 4, 2022 | By: | /s/ ALEX SHVARTSBURG |
| | Alex Shvartsburg |
| | | Chief Financial Officer |
| | | (Principal Accounting and Financial Officer) |
