LivaNova PLC

Current report

None.

Current report

None.

Current report

Not applicable.

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Item 1A. Risk Factors

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Risks Related to LivaNova’s Indebtedness

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Paying amounts due with respect to LivaNova’s outstanding 2025 Notes and 2029 Notes on interest payment dates, at maturity and upon exchange or conversion thereof, as applicable, will require a cash payment. LivaNova may not have sufficient cash flow from its business operations to pay when due or be able to raise the funds necessary to pay when due, amounts owed with respect to the 2025 Notes and 2029 Notes and/or any amounts owed under the Company’s revolving credit facility and term facilities, which could adversely affect LivaNova’s business and results of operations.

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On June 17, 2020, LivaNova’s wholly-owned subsidiary, LivaNova USA, issued the 2025 Notes, and on March 8, 2024, LivaNova issued the 2029 Notes. The ability to make scheduled payments of interest on, and principal of, to satisfy exchanges for cash or conversions, as applicable, in respect of, and/or to refinance LivaNova’s outstanding Notes or other indebtedness (including any indebtedness under LivaNova’s revolving credit facility or term facilities) depends on the Company’s future performance, which is subject to economic, financial, competitive and other factors beyond its control. For further information on LivaNova’s term facilities, please refer to “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report under the section entitled “Liquidity and Capital Resources.”If LivaNova is unable to generate enough cash flow to make payments on the 2025 Notes, the 2029 Notes or other indebtedness when due, the Company may be required to adopt one or more alternatives, such as selling assets or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. LivaNova’s ability to refinance the 2025 Notes, the 2029 Notes or other indebtedness, which the Company may need to do in order to satisfy its obligations thereunder, will depend on the capital markets and LivaNova’s financial condition at such time. LivaNova may not be able to engage in these activities on desirable terms or at all, which could result in a default on the 2025 Notes and 2029 Notes and/or LivaNova’s revolving credit facility and term facilities.

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The holders of the 2025 Notes and 2029 Notes have the right to require LivaNova to repurchase the aforementioned notes upon the occurrence of a fundamental change (as defined in the indentures) at a repurchase price equal to 100% of the principal amount of the 2025 Notes and 2029 Notes to be repurchased, plus accrued and unpaid interest, if any. Upon repurchase of the 2025 Notes and 2029 Notes, LivaNova will be required to make cash payments as required by the indentures. LivaNova may not have enough available cash or be able to obtain financing at the time the Company is required to make repurchases of, or exchange or convert, as applicable, the 2025 Notes and 2029 Notes. LivaNova’s failure to repurchase the 2025 Notes and 2029 Notes or exchange or convert the 2025 Notes and 2029 Notes, as applicable, at a time when the repurchase or exchange or conversion is required by the applicable indentures would constitute a default under such indentures.

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In addition, LivaNova’s indebtedness including under the 2025 Notes and 2029 Notes, combined with the Company’s other financial obligations and contractual commitments including those under LivaNova’s revolving credit facility or term facilities, could have other important consequences. For example, it could:

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•Make LivaNova more vulnerable to adverse changes in government regulations and in the global economy, healthcare and competitive environment;

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•Limit the Company’s flexibility in planning for, or reacting to, changes in LivaNova’s business and its markets;

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•Place the Company at a disadvantage compared to LivaNova’s competitors who have less debt;

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•Limit LivaNova’s ability to borrow additional amounts for working capital, to fund acquisitions and for other general corporate purposes; and

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•Make a sale of the Company less attractive to buyers or more difficult to complete.

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Any of these factors could harm LivaNova’s business, results of operations, cash flows and financial condition. In addition, if LivaNova incurs additional indebtedness under the revolving credit facility or term facilities, the risks related to LivaNova’s business and its ability to repay the Company’s indebtedness, including under the 2025 Notes and 2029 Notes, would increase.

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For additional information, please refer to “Note 4. Financing Arrangements” in LivaNova’s condensed consolidated financial statements included in this Report.

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The conditional exchange or conversion features of the 2025 Notes and 2029 Notes, as applicable, if triggered, may adversely affect LivaNova’s liquidity and operating results.

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If the conditional exchange feature of the 2025 Notes is triggered, holders of the 2025 Notes are entitled to exchange the 2025 Notes at any time during specified periods, at their option. Holders of the 2025 Notes for example, are entitled to exchange the 2025 Notes during the current calendar quarter if the closing price of LivaNova’s ordinary shares for at least 20 trading days (whether or not consecutive) during the last 30 consecutive trading days of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price – the exchange price being $60.98 per share and the “conversion trigger” (subject to other conditions per the indenture governing the 2025 Notes) being $79.27 per share – on each applicable trading day. The exchange condition was not satisfied on December 31, 2023, and therefore, exchangeability was not an option from January 1, 2024, through March 31, 2024. If holders elect to exchange their 2025 Notes during future periods following the satisfaction of an exchange condition as laid out in the indenture governing the 2025 Notes, LivaNova would be required to settle its exchange obligation through the payment of cash, which could adversely affect the Company’s liquidity.

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Holders of the 2029 Notes may convert their 2029 Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2028 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of LivaNova’s ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the Convertible Notes Measurement Period was less than 98% of the product of the last reported sale price of LivaNova’s ordinary shares and the conversion rate on each such trading day; (3) if LivaNova calls such 2029 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date, but only with respect to the 2029 Notes called (or deemed called) for redemption; or (4) upon the occurrence of specified corporate events. On or after December 15, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2029 Notes at any time, regardless of the foregoing circumstances. Upon conversion of the 2029 Notes, LivaNova will pay cash up to the aggregate principal amount of the 2029 Notes to be converted and pay or deliver, as the case may be, cash, LivaNova’s ordinary shares, or a combination of cash and LivaNova’s ordinary shares, at LivaNova’s election, in respect of the remainder, if any, of LivaNova’s conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted. Such settlement of a conversion for cash could adversely affect the Company’s liquidity.

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The effective interest rate and related interest expense reported in LivaNova’s consolidated financial statement of operations is significantly greater than the stated interest rate of the 2025 Notes and 2029 Notes and may result in volatility to the Company’s reported financial results, which could adversely affect the price at which LivaNova’s ordinary shares trade.

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LivaNova will settle exchanges of the 2025 Notes entirely in cash. Additionally, upon conversion of the 2029 Notes, LivaNova will pay cash up to the aggregate principal amount of the 2029 Notes to be converted and pay or deliver, as the case may be, cash, LivaNova’s ordinary shares, or a combination of cash and LivaNova’s ordinary shares, at LivaNova’s election, in respect of the remainder, if any, of LivaNova’s conversion obligation in excess of the aggregate principal amount of the 2029 Notes being converted. Accordingly, the exchange or conversion feature, as applicable, that is part of the 2025 Notes and 2029 Notes is accounted for as a derivative pursuant to accounting standards relating to derivative instruments. This resulted in an initial accounting valuation of the exchange or conversion feature, as applicable, which was bifurcated from the debt component of the 2025 Notes and 2029 Notes, resulting in an original issue discount. The original issue discount is amortized and recognized as a component of interest expense over the term of the 2025 Notes and 2029 Notes, which results in an effective interest rate reported in LivaNova’s consolidated statements of operations in excess of the stated interest rate of the 2025 Notes and 2029 Notes. Although this accounting treatment does not affect the amount of cash interest paid to holders of the 2025 Notes and 2029 Notes or LivaNova’s cash flows, it reduces the Company’s earnings and could adversely affect the price at which its ordinary shares trade.

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Additionally, for each financial statement period after issuance of the 2025 Notes and 2029 Notes, a derivative gain or loss is and will be reported in LivaNova’s consolidated statements of (loss) income to the extent the valuations of the exchange feature and conversion feature, as applicable, changes from the previous period. The 2025 Capped Calls and 2029 Capped Calls described below and elsewhere in this Report are also accounted for as derivative instruments. The valuation of the exchange feature of the 2025 Notes and 2025 Capped Calls utilizes significant observable and unobservable market inputs, including stock price, stock price volatility, risk-free interest rate, and time to expiration of the 2025 Notes. The valuation of the conversion feature of the 2029 Notes and 2029 Capped Calls similarly utilizes significant observable and unobservable market inputs, including stock price, expected volatility, risk-free interest rate, expected dividend yield, and time to expiration of the 2029 Notes. The change in input values at the current period end compared to the previous period end may result in a material change in the respective valuations and the gain or loss resulting from the exchange feature of the 2025 Notes and 2025 Capped Calls and the conversion feature of the 2029 Notes and 2029 Capped Calls, as applicable, and may not completely offset each other. As such, there may be a material net impact on LivaNova’s consolidated statements of operations, which could adversely affect the price at which its ordinary shares trade.

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The arbitrage or hedging strategy by purchasers of the 2025 Notes and 2029 Notes and Option Counterparties in connection with LivaNova’s 2025 Capped Calls and 2029 Capped Calls may affect the value of LivaNova’s ordinary shares.

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LivaNova expects that many investors in, and potential purchasers of, the 2025 Notes and 2029 Notes will employ, or seek to employ, an arbitrage strategy with respect to the 2025 Notes and 2029 Notes. Investors would typically implement such a strategy by selling short LivaNova’s ordinary shares underlying the 2025 Notes and 2029 Notes and dynamically adjusting their short position while continuing to hold the 2025 Notes and 2029 Notes. Investors may also implement this type of strategy by entering into swaps or options on LivaNova’s ordinary shares in lieu of or in addition to selling short the Company’s ordinary shares. This activity could decrease, or reduce the size of any increase in, the market price of LivaNova’s ordinary shares at that time.

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In connection with the pricing of the 2025 Notes and 2029 Notes, LivaNova entered into the 2025 Capped Calls and 2029 Capped Calls, respectively. The 2025 Capped Calls and 2029 Capped Calls are expected generally to offset cash payments due upon exchange of the 2025 Notes and to compensate (through the payment of cash to LivaNova) for potential dilution to the Company’s ordinary shares, or to offset cash payments due, upon conversion of the 2029 Notes in excess of the principal amount thereof in the event that the market price per ordinary share of the Company at the time of exchange of the 2025 Notes or conversion of the 2029 Notes, respectively, is greater than the strike price under the 2025 Capped Calls or 2029 Capped Calls, respectively, with such offset subject to a cap based on the respective cap prices. It is LivaNova’s understanding that the Option Counterparties, or their respective affiliates, in connection with establishing their initial hedges of the 2025 Capped Calls and 2029 Capped Calls, purchased LivaNova’s ordinary shares and/or entered into various derivative transactions with respect to the Company’s ordinary shares concurrently with or shortly after the pricing of the 2025 Notes and 2029 Notes. The Option Counterparties or their respective affiliates may modify these initial hedge positions by entering into or unwinding various derivatives with respect to LivaNova’s ordinary shares and/or purchasing or selling its ordinary shares or other of LivaNova securities in secondary market transactions prior to the maturity of the 2025 Notes and 2029 Notes (and are likely to do so during any observation period related to an exchange of the 2025 Notes or upon a repurchase or redemption of the 2025 Notes or related to a conversion of the 2029 Notes or upon a repurchase of the 2029 Notes by LivaNova, if LivaNova unwinds a corresponding portion of the 2025 Capped Calls or 2029 Capped Calls). This activity could cause or avoid an increase or decrease in the market price of LivaNova’s ordinary shares at that time.

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LivaNova is subject to counterparty risk with respect to the 2025 Capped Calls and 2029 Capped Calls.

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The Option Counterparties are financial institutions, and LivaNova is subject to the risk that they might default under the 2025 Capped Calls and 2029 Capped Calls. LivaNova’s exposure to the credit risk of the Option Counterparties is not secured by any collateral.

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If an Option Counterparty becomes subject to insolvency proceedings, LivaNova will become an unsecured creditor in those proceedings, with a claim equal to the Company’s exposure at that time under the 2025 Capped Calls and/or 2029 Capped Calls with that Option Counterparty. LivaNova’s exposure will depend on many factors but generally an increase in the Company’s exposure will be correlated to an increase in the market price and in the volatility of its ordinary shares. In addition, upon a default by an Option Counterparty, LivaNova may suffer adverse tax consequences and may, on a net basis, have to pay more cash than the Company currently anticipates to settle exchanges or conversions of the 2025 Notes, and to pay more cash or suffer more dilution than the Company currently anticipates with respect to the ordinary shares upon conversions of the 2029 Notes, and the effect of which would not be compensated for by the Company. LivaNova can provide no assurances as to the financial stability or viability of the Option Counterparties.