LivaNova PLC

Previous wording

The current macroeconomic environment, including foreign exchange volatility, inflationary pressures, geopolitical instability, and supply chain challenges, has impacted and may continue to impact LivaNova’s business and profitability. Furthermore, LivaNova continues to experience logistical, capacity, and labor constraints. However, to date, the Company’s supply of raw materials and the production and distribution of finished products have not been materially affected. The Company continues to respond to such challenges, and while LivaNova has business continuity plans in place, the impact of the ongoing challenges the Company is navigating, along with their potential escalation, may adversely affect its business.

Current wording

The current macroeconomic environment, including inflationary pressures, geopolitical instability, and supply chain challenges, has impacted and may continue to impact LivaNova’s business and profitability. Furthermore, LivaNova continues to experience logistical, capacity, and labor constraints. However, to date, the Company’s supply of raw materials and the production and distribution of finished products have not been materially affected. The Company continues to respond to such challenges, and while LivaNova has business continuity plans in place, the impact of the ongoing challenges the Company is navigating, along with their potential escalation, may adversely affect its business.

Previous wording

As previously disclosed, in November 2023, LivaNova detected a cybersecurity incident that resulted in a disruption of portions of the Company’s information technology systems. Promptly after detecting the issue, LivaNova began an investigation with assistance from external cybersecurity experts and coordinated with law enforcement. The Company implemented remediation measures to mitigate the impact of the incident. The Company continues to assess the nature and scope of the affected data and analyze its legal notification obligations, and the Company is notifying affected individuals and regulators as required by applicable law. The Company believes the incident is contained and mitigation efforts are complete.

Current wording

As previously disclosed, in November 2023, LivaNova detected a cybersecurity incident that resulted in a disruption of portions of the Company’s information technology systems. Promptly after detecting the issue, LivaNova began an investigation with assistance from external cybersecurity experts and coordinated with law enforcement. The Company quickly implemented remediation measures to mitigate the impact of the incident. The Company also assessed the nature and scope of the affected data, analyzed its legal notification obligations, and notified affected individuals and regulators as required by applicable law. The Company believes the incident is contained and mitigation efforts are complete.

Previous wording

Through June 30, 2024, LivaNova incurred direct costs totaling $8.3 million in connection with this cybersecurity incident, including $2.9 million and $5.7 million during the three and six months ended June 30, 2024, respectively. These costs primarily include external cybersecurity experts, legal counsel, and system restoration costs, and do not include business interruption losses or potential losses associated with class action-related litigations, as discussed in “Note 6. Commitments and Contingencies” in the condensed consolidated financial statements in this Report. The Company expects to incur additional costs related to this incident in the future. LivaNova maintains insurance, including cyber insurance, which is subject to certain retentions and policy limitations that may limit the amount that the insurers may pay the Company. During the second quarter of 2024, LivaNova filed a claim for insurance reimbursement of covered costs and business interruption losses related to this incident for which it has yet to receive reimbursement or recognize the amount filed as a receivable. The Company’s insurance coverage may be insufficient or unavailable to cover any or all costs and expenses related to this cybersecurity incident.

Current wording

Through September 30, 2024, LivaNova incurred direct costs totaling $10.8 million in connection with this cybersecurity incident, including $2.5 million and $8.2 million during the three and nine months ended September 30, 2024, respectively. These costs primarily include external cybersecurity expert and legal fees, system restoration costs, and a $1.2 million provision related to the class action settlement, as discussed in “Note 6. Commitments and Contingencies” in the condensed consolidated financial statements in this Report, and do not include business interruption losses. The Company expects to incur additional costs related to this incident in the future. LivaNova maintains insurance, including cyber insurance, which is subject to certain retentions and policy limitations that will likely limit the amount that the insurers may pay the Company. LivaNova has filed claims for insurance reimbursement of covered costs and business interruption losses related to this incident and has submitted additional claims and supplemental requests for reimbursement as new costs have been incurred. LivaNova has not yet received reimbursement or recognized a receivable. The Company’s insurance coverage will likely be insufficient to cover all costs and expenses related to this cybersecurity incident or may be unavailable to cover all costs and expenses related to this cybersecurity incident.

Previous wording

In March 2024, the Company announced that the OSPREY clinical study had achieved a positive predictive outcome and would conclude enrollment sooner than expected. This development signified that there is a greater than 97.5% probability that the OSPREY trial will successfully meet its primary endpoint.

Current wording

In March 2024, the Company announced that the OSPREY clinical study had achieved a positive predictive outcome, and as a result, enrollment concluded early. This development signified that there is a greater than 97.5% probability that the OSPREY trial will successfully meet its primary endpoint.

Previous wording

In June 2024, the Company announced the preliminary results for the unipolar patient cohort of the RECOVER clinical study, assessing the use of VNS Therapy in treatment-resistant depression. The study did not meet its primary endpoint for the unipolar cohort; however, statistical significance was achieved in select secondary endpoints. The Company expects to publish the unipolar cohort data, including details on the primary endpoint and secondary endpoints, in peer-reviewed journals in the fourth quarter of 2024. The Company intends to continue pursuing coverage for VNS Therapy while reducing investment in the DTD program in 2025.

Current wording

In June 2024, the Company announced the preliminary results for the unipolar patient cohort of the RECOVER clinical study, assessing the use of VNS Therapy in treatment-resistant depression. The study did not meet its primary endpoint for the unipolar cohort; however, statistical significance was achieved in select secondary endpoints. The Company expects to publish two manuscripts on the unipolar cohort data, including details on the primary endpoint and secondary endpoints, in peer-reviewed journals in the fourth quarter of 2024. The Company intends to continue pursuing coverage for VNS Therapy while reducing investment in the DTD program in 2025.

Previous wording

For a discussion of LivaNova’s critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2023 Form 10-K. During the six months ended June 30, 2024, there were no material changes to the application of critical accounting policies and estimates previously disclosed in LivaNova’s 2023 Form 10-K.

Current wording

For a discussion of LivaNova’s critical accounting estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2023 Form 10-K. During the nine months ended September 30, 2024, there were no material changes to the application of critical accounting policies and estimates previously disclosed in LivaNova’s 2023 Form 10-K.

Previous wording

Cardiopulmonary net revenue for the three and six months ended June 30, 2024 increased 12.7% to $173.7 million and 13.7% to $329.6 million, respectively, compared to the three and six months ended June 30, 2023, with growth across all regions, driven by Essenz Perfusion System sales and strong consumables demand.

Current wording

Cardiopulmonary net revenue for the three and nine months ended September 30, 2024 increased 15.6% to $172.2 million and 14.4% to $501.8 million, respectively, compared to the three and nine months ended September 30, 2023, with growth across all regions, driven by Essenz Perfusion System sales and strong consumables demand.

Previous wording

Neuromodulation segment income for the three and six months ended June 30, 2024 was $54.8 million and $101.5 million, respectively, compared to $38.1 million and $65.2 million for the three and six months ended June 30, 2023, respectively. These increases in segment income were primarily due to increases in net revenue, as described above, as well as decreases in

Current wording

Cardiopulmonary segment income for the three and nine months ended September 30, 2024 was $21.7 million and $56.0 million, respectively, compared to segment loss of $2.2 million and segment income of $19.8 million for the three and nine months ended September 30, 2023, respectively. These increases in segment income were primarily due to increases in net revenue, as described above, as well as decreases in the litigation provision related to LivaNova’s 3T Heater-Cooler device of $5.9 million and $8.9 million, for the three- and nine-month comparative periods, respectively.

Previous wording

Neuromodulation net revenue for the three and six months ended June 30, 2024 increased 7.3% to $142.9 million and 9.0% to $276.7 million, respectively, compared to the three and six months ended June 30, 2023, with growth across all regions, driven by an increase in total implants.

Current wording

Neuromodulation net revenue for the three and nine months ended September 30, 2024 increased 8.5% to $139.9 million and 8.8% to $416.6 million, respectively, compared to the three and nine months ended September 30, 2023, with growth in the U.S. and Rest of World regions, partially offset by a decline in Europe.

Previous wording

SG&A expense as a percentage of net revenue was 40.5% and 42.2% for the three and six months ended June 30, 2024, respectively, down 2.3 and 2.7 percentage points compared to the three and six months ended June 30, 2023, respectively. These decreases were primarily due to a decrease in sales and marketing expenses driven by the wind down of the ACS segment, partially offset by $2.9 million and $5.7 million in costs during the three and six months ended June 30, 2024, respectively, associated with the November 2023 cybersecurity incident, as described above.

Current wording

SG&A expense as a percentage of net revenue was 41.4% and 41.9% for the three and nine months ended September 30, 2024, respectively, down 5.7 and 3.7 percentage points compared to the three and nine months ended September 30, 2023, respectively. These decreases were primarily due to a decrease in sales and marketing expenses driven by the winding down of the ACS segment, as described above, as well as an increase in net revenue, partially offset by $2.5 million and $8.2 million in costs during the three and nine months ended September 30, 2024, respectively, associated with the November 2023 cybersecurity incident, as described above.

Previous wording

R&D expense as a percentage of net revenue was 14.0% and 14.7% for the three and six months ended June 30, 2024, respectively, down 3.4 percentage points compared to both the three and six months ended June 30, 2023, respectively. These decreases were primarily due to R&D expense declines of $8.1 million and $16.8 million for the three- and six-month comparative periods, respectively, associated with winding down the Company’s heart failure program, which was completed during the fourth quarter of 2023.

Current wording

R&D expense as a percentage of net revenue was 15.3% and 14.9% for the three and nine months ended September 30, 2024, respectively, down 1.0 and 2.6 percentage points compared to both the three and nine months ended September 30, 2023, respectively. These decreases were primarily due to R&D expense declines of $4.9 million and $21.7 million for the three- and nine-month comparative periods, respectively, associated with winding down the Company’s heart failure program, which was completed during the fourth quarter of 2023, and R&D expense declines of $1.7 million and $4.4 million for the three- and nine-month comparative periods, respectively, associated with winding down the Company’s ACS segment, as described above. These decreases were partially offset by increases of $6.0 million and $6.5 million for the three- and nine-month comparative periods, respectively, associated with the Company’s DTD program.

Previous wording

Other operating expenses as a percentage of net revenue was 1.5% for the three months ended June 30, 2024, a decrease of 2.2 percentage points compared to the three months ended June 30, 2023. The decrease was primarily due to an $8.1 million decrease in the amount recorded for the litigation provision related to LivaNova’s 3T Heater-Cooler device, partially offset by an increase in restructuring expense of $1.9 million resulting from the 2024 Restructuring Plan. Other operating expenses as a percentage of net revenue was 3.3% for the six months ended June 30, 2024, an increase of 0.9 percentage points compared to the six months ended June 30, 2023. The increase was primarily due to an increase in restructuring expense of $10.4 million resulting from the 2024 Restructuring Plan, partially offset by a $3.1 million decrease in the amount recorded for the litigation provision related to LivaNova’s 3T Heater-Cooler device. For additional information, refer to “Note 2. Restructuring” and “Note 6. Commitments and Contingencies” in the condensed consolidated financial statements in this Report.

Current wording

Other operating expenses as a percentage of net revenue was 2.9% and 3.2% for the three and nine months ended September 30, 2024, respectively, decreases of 2.7 and 0.3 percentage points compared to the three and nine months ended September 30, 2023, respectively. The decreases were primarily due to declines of $5.9 million and $8.9 million in the amount recorded for the litigation provision related to LivaNova’s 3T Heater-Cooler device for the three- and nine-month comparative periods, respectively, and a decrease in the Saluggia decommissioning provision of $2.3 million recorded during the three and nine months ended September 30, 2023. These decreases were partially offset by increases in restructuring expense of $1.4 million and $11.8 million for the three- and nine-month comparative periods, respectively, resulting from the 2024 Restructuring Plan. For additional information, refer to “Note 2. Restructuring” and “Note 6. Commitments and Contingencies” in the condensed consolidated financial statements in this Report.

Previous wording

Interest expense increased to $15.5 million and $31.4 million for the three and six months ended June 30, 2024, respectively, compared to $14.8 million and $28.2 million for the three and six months ended June 30, 2023, respectively, primarily due to increases in average borrowings and the amortization of debt issuance costs, partially offset by a decrease in interest rates. For additional information, refer to “Note 4. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Current wording

Interest expense increased to $15.9 million and $47.3 million for the three and nine months ended September 30, 2024, respectively, compared to $15.0 million and $43.2 million for the three and nine months ended September 30, 2023, respectively, primarily due to increases in average borrowings and the amortization of debt issuance costs. Additionally, interest expense for the nine-month comparative period increased due to an increase in interest rates. For additional information, refer to “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Previous wording

In connection with the 2025 Notes Repurchase Transaction, during the six months ended June 30, 2024, LivaNova incurred a loss on debt extinguishment of $25.5 million. For additional information, refer to “Note 4. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Current wording

In connection with the 2025 Notes Repurchase Transaction, during the nine months ended September 30, 2024, LivaNova incurred a loss on debt extinguishment of $25.5 million. For additional information, refer to “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Previous wording

Foreign exchange and other income/(expense) consists primarily of gains and losses arising from transactions denominated in a currency different from an entity’s functional currency, FX derivative gains and losses, interest income, changes in the fair value of embedded and capped call derivatives, and an impairment of LivaNova’s investment in ShiraTronics, Inc.

Current wording

Foreign exchange and other income/(expense) consists primarily of gains and losses arising from transactions denominated in a currency different from an entity’s functional currency, FX derivative gains and losses, interest income, changes in the fair value of embedded and capped call derivatives, and an impairment of LivaNova’s investment in ShiraTronics.

Previous wording

Foreign exchange and other income/(expense) was expense of $3.0 million and $12.1 million for the three and six months ended June 30, 2024, respectively, compared to income of $2.7 million and $28.3 million for the three and six months ended June 30, 2023, respectively. For additional information, refer to “Note 12. Supplemental Financial Information” in the condensed consolidated financial statements in this Report.

Current wording

Foreign exchange and other income/(expense) was income of $24.7 million and $12.6 million for the three and nine months ended September 30, 2024, respectively, compared to income of $8.6 million and $36.8 million for the three and nine months ended September 30, 2023, respectively. For additional information, refer to “Note 12. Supplemental Financial Information” in the condensed consolidated financial statements in this Report.

Previous wording

LivaNova PLC is resident in the UK for tax purposes. LivaNova’s 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. The Company continually assesses the realizability of its worldwide deferred tax asset and valuation allowance positions and, when required, establishes or releases valuation allowances accordingly. LivaNova operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subjected to review by tax authorities.

Current wording

LivaNova PLC is a resident in the UK. LivaNova’s effective income tax rate fluctuates based on, among other factors, changes in pre-tax income in countries with varying statutory tax rates, valuation allowances, tax credits and incentives, and unrecognized tax benefits associated with uncertain tax positions. LivaNova’s tax returns are periodically audited or subjected to review by tax authorities. The Company operates in multiple jurisdictions worldwide and assesses the recoverability of its deferred tax assets for each period and jurisdiction by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. Depending on operating results in the future, a release of a valuation allowance could occur within the next 12 months. The timing and amount of the valuation allowance release could vary based on the Company’s assessment of all available evidence.

Previous wording

LivaNova’s effective income tax rate for the three and six months ended June 30, 2024 was 24.2% and (102.6)%, respectively, compared to 77.6% and 43.0% for the three and six months ended June 30, 2023, respectively. The decrease in the effective tax rate for both the three and six months ended June 30, 2024, compared to the prior year periods, was primarily attributable to changes in valuation allowances, year-over-year changes in income before tax in countries with varying statutory tax rates, and certain discrete tax items.

Current wording

LivaNova’s effective income tax rate for the three and nine months ended September 30, 2024 was 25.9% and 76.9%, respectively, compared to (268.4)% and 90.1% for the three and nine months ended September 30, 2023, respectively. The change in the effective tax rate for both the three and nine months ended September 30, 2024, compared to the prior year periods, was primarily attributable to changes in valuation allowances, year-over-year changes in income before tax in countries with varying statutory tax rates, and certain discrete tax items.

Previous wording

On March 8, 2024, LivaNova issued $345.0 million aggregate principal amount of 2.50% notes due 2029. The 2029 Notes are senior unsecured obligations of the Company. In connection with pricing the 2029 Notes, the Company entered into privately-negotiated capped call transactions with certain financial institutions. The Company used part of the proceeds from the issuance of the 2029 Notes to repurchase $230.0 million aggregate principal amount of the 2025 Notes in privately-negotiated transactions for an aggregate cash repurchase consideration of $270.5 million. Contemporaneously with the 2025 Notes Repurchase Transaction, the Company and the financial institutions party to the 2025 Capped Calls agreed to terminate a portion of the 2025 Capped Calls in a notional amount corresponding to the amount of 2025 Notes repurchased. For additional information on LivaNova’s debt obligations and Capped Call Transactions, refer to “Note 4. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Current wording

On March 8, 2024, LivaNova issued $345.0 million aggregate principal amount of 2.50% notes due 2029. The 2029 Notes are senior unsecured obligations of the Company. In connection with pricing the 2029 Notes, the Company entered into privately-negotiated capped call transactions with certain financial institutions. The Company used part of the proceeds from the issuance of the 2029 Notes to repurchase $230.0 million aggregate principal amount of the 2025 Notes in privately-negotiated transactions for an aggregate cash repurchase consideration of $270.5 million. Contemporaneously with the 2025 Notes Repurchase Transaction, the Company and the financial institutions party to the 2025 Capped Calls agreed to terminate a portion of the 2025 Capped Calls in a notional amount corresponding to the amount of 2025 Notes repurchased. For additional information on LivaNova’s debt obligations and Capped Call Transactions, refer to “Note 3. Derivatives and Risk Management” and “Note 5. Financing Arrangements” in the condensed consolidated financial statements in this Report.

Previous wording

Cash provided by operating activities during the six months ended June 30, 2024 increased $50.5 million, compared to the same prior year period, primarily due to an increase in net (loss) income adjusted for non-cash items of $32.2 million and a decrease in 3T Heater-Cooler litigation settlement payments of $15.4 million.

Current wording

Cash provided by operating activities during the nine months ended September 30, 2024 increased $83.4 million, compared to the same prior year period, primarily due to (i) an increase in net income adjusted for non-cash items of $61.3 million, (ii) an increase in customer collections, (iii) reduced cash outflows for inventories, and (iv) a decrease in 3T Heater-Cooler litigation settlement payments of $17.1 million.

Previous wording

Cash used in investing activities during the six months ended June 30, 2024 increased $0.8 million, compared to the same prior year period, primarily due to an increase in purchases of property, plant, and equipment of $5.2 million, partially offset by a decrease in purchases of equity investments of $5.0 million.

Current wording

Cash used in investing activities during the nine months ended September 30, 2024 increased $9.3 million, compared to the same prior year period, primarily due to an increase in purchases of property, plant, and equipment of $14.6 million, primarily related to purchases and development of internal-use software, partially offset by a decrease in purchases of equity investments of $5.7 million.

Previous wording

Cash provided by financing activities during the six months ended June 30, 2024 decreased $5.5 million, compared to the same prior year period, primarily due to payment of the ALung contingent consideration arrangement of $13.8 million during the six months ended June 30, 2024, partially offset by an increase in proceeds associated with net debt borrowings and repayments of $6.9 million.

Current wording

Cash provided by financing activities during the nine months ended September 30, 2024 decreased $4.5 million, compared to the same prior year period, primarily due to payment of the ALung contingent consideration arrangement of $13.8 million during the nine months ended September 30, 2024, partially offset by an increase in proceeds associated with net debt borrowings and repayments of $6.5 million.