LivaNova(LIVN) - 2025 Q2 - Quarterly Report

Filing Information LivaNova PLC filed its Form 10-Q for Q2 2025, reporting 54.6 million ordinary shares outstanding - LivaNova PLC filed its Form 10-Q for the quarterly period ended June 30, 2025 [1] - The company is a large accelerated filer, with ordinary shares traded on Nasdaq under LIVN [2][3] - As of July 30, 2025, there were 54,601,073 ordinary shares outstanding [3] Definitions This section defines key terms and abbreviations used throughout the report, including company references and plan names - Key terms defined include 'LivaNova', '2024 Restructuring Plan', '2029 Notes' ($345.0 million), 'DTD', and 'TRD' [7][8][10] Intellectual Property, Trademarks, and Trade Names LivaNova's intellectual property includes trademarks for its Neuromodulation, Cardiopulmonary, and advanced circulatory support systems - Trademarks cover Neuromodulation systems (e.g., VNS Therapy System, SenTiva), Cardiopulmonary products (e.g., Essenz, S5 Pro), advanced circulatory support systems (e.g., TandemLife, LifeSPARC), and obstructive sleep apnea systems (e.g., ImThera, aura6000) [11][12] Cautionary Note About Forward-Looking Statements This section warns readers about the inherent uncertainties and risks associated with forward-looking statements, advising against undue reliance - Forward-looking statements are identified by specific words and are based on inherently uncertain estimates and assumptions [13] - Key risks include global market volatility, supply chain pressures, cybersecurity, R&D failures, regulatory non-compliance, litigation, and tax law changes [13] - Readers are cautioned not to place undue reliance, and the Company undertakes no obligation to update or revise these statements [15] PART I. FINANCIAL INFORMATION This part presents LivaNova's unaudited condensed consolidated financial statements, management's discussion, market risk disclosures, and controls - All financial information is prepared in accordance with U.S. GAAP, with USD as the reporting currency [16] - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information [27] - Management believes the condensed consolidated financial statements reflect all necessary adjustments for a fair statement of operating results [27] ITEM 1. Financial Statements (unaudited) This section provides unaudited condensed consolidated financial statements and detailed notes on accounting policies, derivatives, and contingencies Condensed Consolidated Statements of Income (Loss) This statement presents LivaNova's net revenue, gross profit, operating income, and net income (loss) for the reported periods Condensed Consolidated Statements of Income (Loss) (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $352,524 | $318,575 | $669,379 | $613,487 | | Gross profit | $238,988 | $214,878 | $455,242 | $418,086 | | Operating income | $54,183 | $40,166 | $102,800 | $56,412 | | SNIA environmental liability expense | $(1,677) | — | $(362,070) | — | | Net income (loss) | $27,161 | $16,333 | $(300,161) | $(25,610) | | Basic income (loss) per share | $0.50 | $0.30 | $(5.51) | $(0.47) | | Diluted income (loss) per share | $0.50 | $0.30 | $(5.51) | $(0.47) | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement details net income (loss) and other comprehensive income (loss) components, including foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $27,161 | $16,333 | $(300,161) | $(25,610) | | Foreign currency translation adjustment | $50,841 | $(7,613) | $88,283 | $(24,936) | | Comprehensive income (loss) | $78,002 | $8,720 | $(211,878) | $(50,546) | Condensed Consolidated Balance Sheets This statement provides a snapshot of LivaNova's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $1,066,142 | $1,127,186 | | Total Assets | $2,506,702 | $2,506,389 | | Total Current Liabilities | $827,100 | $392,125 | | SNIA environmental liability | $392,268 | — | | Long-term debt obligations | $348,489 | $549,624 | | Total Liabilities | $1,383,863 | $1,186,131 | | Total Stockholders' Equity | $1,122,839 | $1,320,258 | Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the reported periods Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $86,886 | $53,337 | | Net cash used in investing activities | $(19,596) | $(18,932) | | Net cash (used in) provided by financing activities | $(213,403) | $25,277 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(129,918) | $55,249 | | Cash, cash equivalents, and restricted cash at end of period | $593,638 | $633,121 | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering various accounting aspects and significant events Note 1. Unaudited Condensed Consolidated Financial Statements This note details the basis of presentation for the unaudited financial statements, including cybersecurity incident costs and error corrections - LivaNova incurred $13.0 million in direct costs from a November 2023 cybersecurity incident through June 30, 2025, with $9.6 million reimbursed by insurance [28][106] - An immaterial error in classifying Cardiopulmonary employee costs was corrected, with no impact on operating or net income [29][98] Note 2. Derivatives and Risk Management This note describes LivaNova's use of derivative contracts to manage foreign exchange and equity price risks - LivaNova uses FX derivative contracts to reduce FX fluctuations and Capped Call Transactions to manage equity price risk from its 2025 and 2029 Notes [31][32] - All derivatives are measured at fair value and are not designated as hedging instruments; changes in fair value are included in earnings [33] - Net gains from freestanding FX derivatives were $25.4 million for the six months ended June 30, 2025, compared to $4.9 million in the prior year [34] Note 3. Fair Value Measurements This note explains the fair value measurements of derivative assets and liabilities, particularly for capped calls and contingent consideration - Capped call and embedded derivatives for 2025 and 2029 Notes are Level 3 fair value measurements due to significant unobservable inputs like stock price volatility [43][46] - ImThera contingent consideration arrangements are Level 3 fair value measurements, using unobservable inputs such as discount rates and payment probabilities [47] Fair Value of Derivative Assets and Liabilities (in thousands) | Type | June 30, 2025 Fair Value | December 31, 2024 Fair Value | | :--- | :--- | :--- | | Total derivative assets | $32,334 | $27,097 | | Total derivative liabilities | $49,462 | $54,734 | Note 4. Financing Arrangements This note details LivaNova's long-term debt obligations, including Term Facilities and convertible senior notes Long-Term Debt Obligations (in thousands, except interest rates) | Debt Type | June 30, 2025 | December 31, 2024 | Maturity | Interest Rate | | :--- | :--- | :--- | :--- | :--- | | Term Facilities | $107,722 | $313,014 | July 2027 | 7.36% | | 2029 Notes | $266,569 | $258,043 | March 2029 | 2.50% | | 2025 Notes | $55,713 | $53,887 | December 2025 | 3.00% | | Total long-term debt obligations | $348,489 | $549,624 | | | - An early repayment of $200 million on Term Facilities on May 2, 2025, resulted in a $2.7 million loss on debt extinguishment [51][52] - The 2025 Notes will be exchangeable at the holder's option from September 15, 2025, until shortly before maturity [54] Note 5. Commitments and Contingencies This note outlines LivaNova's various commitments and contingencies, including environmental liabilities, product litigation, and regulatory payback measures - LivaNova has an estimated liability of $40.4 million (€34.5 million) for the Saluggia site, with a maximum estimated loss of $55.3 million (€47.2 million) [57] - The Italian Supreme Court ruled LivaNova jointly liable for SNIA's environmental liabilities, resulting in a current liability of €334.8 million ($392.3 million) as of June 30, 2025 [64] - The provision for 3T Heater-Cooler device product liability litigation was $15.4 million as of June 30, 2025, with 60 claims worldwide [67] - The Italian MedTech payback measure liability was $19.7 million as of June 30, 2025; a new decree may allow settlement at 25% of original amounts [69] - A class action settlement for the November 2023 cybersecurity incident was approved on April 4, 2025, with an accrual of $1.2 million [71] Note 6. Stockholders' Equity This note details the changes in LivaNova's stockholders' equity, including net loss and comprehensive income adjustments Changes in Stockholders' Equity (in thousands) | Metric | December 31, 2024 | Six Months Ended June 30, 2025 Changes | June 30, 2025 | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $1,320,258 | $(197,419) | $1,122,839 | | Net loss | $(903,250) (Accumulated Deficit) | $(300,161) | $(1,203,411) | | Accumulated other comprehensive income (loss) | $(80,170) | $88,283 | $8,113 | | Additional paid-in capital | $2,220,658 | $14,119 | $2,234,777 | Note 7. Stock-Based Incentive Plans This note describes the company's equity-based compensation plans and the associated stock-based compensation expense - Shareholders approved the 2025 Director Incentive Plan (300,000 shares) and the Second A&R 2022 Plan (2,200,000 shares) for equity-based compensation [76][77] Stock-Based Compensation Expense (in thousands) | Type of Arrangement | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Service-based RSUs | $8,069 | $9,374 | | Service-based SARs | $6,134 | $6,523 | | Market performance-based RSUs | $929 | $1,046 | | Operating performance-based RSUs | $1,282 | $864 | | Employee share purchase plan | $543 | $618 | | Total | $16,957 | $18,425 | Note 8. Income Taxes This note discusses LivaNova's effective income tax rate and the potential impacts of new accounting pronouncements - Effective income tax rate for H1 2025 was (6.3)%, compared to (102.6)% in the prior year, influenced by pre-tax income, SNIA liability, and valuation allowances [82][141] - LivaNova is evaluating the potential impacts of the U.S. OBBBA (One Big Beautiful Bill Act) enacted on July 4, 2025, on R&D expense deductions and other tax items [83][142] Note 9. Income (Loss) Per Share This note presents basic and diluted income (loss) per share calculations and explains exclusions from diluted EPS Basic and Diluted Income (Loss) Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic income (loss) per share | $0.50 | $0.30 | $(5.51) | $(0.47) | | Diluted income (loss) per share | $0.50 | $0.30 | $(5.51) | $(0.47) | - The 2029 Notes and certain share-based compensation awards were excluded from diluted EPS for H1 2025 due to their anti-dilutive effect [84] Note 10. Geographic and Segment Information This note provides a breakdown of LivaNova's net revenue and segment income by its Cardiopulmonary and Neuromodulation segments and geographic regions - LivaNova's two reportable segments are Cardiopulmonary (HLMs, oxygenators) and Neuromodulation (VNS Therapy for DRE/DTD, aura6000 for OSA) [86][87] Net Revenue by Operating Segment and Geographic Region (in thousands) | Segment/Region | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Cardiopulmonary | $375,592 | $329,605 | 14.0% | | Neuromodulation | $290,563 | $276,748 | 5.0% | | Total Net Revenue | $669,379 | $613,487 | 9.1% | Segment Income (in thousands) | Segment | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :--- | :--- | :--- | :--- | | Cardiopulmonary | $56,098 | $34,338 | 63.4% | | Neuromodulation | $108,373 | $101,490 | 6.8% | | Total Segment Income | $164,471 | $135,828 | 21.1% | - Goodwill increased to $793.365 million as of June 30, 2025, from $750.006 million at December 31, 2024, primarily due to foreign currency adjustments in Cardiopulmonary [91] Note 11. Supplemental Financial Information This note provides additional financial details, including inventory components, accrued liabilities, and foreign exchange and other income/expense Components of Inventories (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Raw materials | $77,047 | $71,949 | | Work-in-process | $16,333 | $12,322 | | Finished goods | $71,970 | $63,295 | | Total Inventories | $165,350 | $147,566 | Components of Accrued Liabilities and Other (in thousands) | Component | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Italian MedTech payback measure | $19,690 | $15,981 | | Legal and professional costs | $18,972 | $17,379 | | Interest payable | $5,245 | $9,479 | | Restructuring liabilities | — | $2,003 | | Other accrued expenses | $26,057 | $33,463 | | Total Accrued Liabilities and Other | $103,240 | $118,485 | Foreign Exchange and Other Income/(Expense) (in thousands) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Embedded derivative fair value adjustment (2025 Notes) | $1,552 | $(1,363) | | Embedded derivative fair value adjustment (2029 Notes) | $3,726 | $(7,935) | | Capped call fair value adjustment (2025 Notes) | $(1,321) | $(8,533) | | Capped call fair value adjustment (2029 Notes) | $(2,077) | $477 | | Investment revaluation - Ceribell, Inc. | $(3,622) | — | | Impairment of investment in ShiraTronics, Inc. | — | $(5,750) | | Interest income | $10,626 | $14,358 | | FX fluctuations | $(1,850) | $(3,105) | | Total | $7,161 | $(12,116) | - The SNIA Litigation Guarantee was terminated on March 31, 2025, releasing $294.698 million in restricted cash [96] Note 12. New Accounting Pronouncements This note outlines recently issued accounting standards that will impact future financial disclosures, including income taxes and expense disaggregation - ASU No. 2023-09 (Income Taxes) will be effective after December 15, 2024, expanding income tax disclosures [97] - ASU No. 2024-03 (Expense Disaggregation) will be effective after December 15, 2026, requiring additional disclosures on expense categories [97] Note 13. Revision of Previously Issued Financial Statements This note details the correction of an immaterial error in classifying Cardiopulmonary employee costs, with no impact on income - An immaterial error in classifying Cardiopulmonary employee costs between cost of sales and SG&A was corrected, with no impact on operating or net income [98][99] Summary of Corrections to Impacted Financial Statement Line Items (in thousands) | Line Item | As Previously Reported (FY2024) | Adjustment (FY2024) | As Revised (FY2024) | | :--- | :--- | :--- | :--- | | Cost of sales | $382,564 | $17,389 | $399,953 | | Gross profit | $870,873 | $(17,389) | $853,484 | | Selling, general, and administrative | $526,265 | $(17,389) | $508,876 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on LivaNova's financial performance, covering business segments, macroeconomic impacts, and operational results - LivaNova is a global medical technology company focused on neurological and cardiac conditions, with shares listed on Nasdaq under 'LIVN' [102] - Macroeconomic factors like FX volatility, inflation, geopolitical instability, and supply chain challenges continue to impact the business [103] - The cybersecurity incident incurred $13.0 million in direct costs through June 30, 2025, with $9.6 million reimbursed by insurance [106] Business Segments Overview This section describes LivaNova's Cardiopulmonary and Neuromodulation segments, highlighting key products and clinical trial outcomes - Cardiopulmonary segment designs, develops, manufactures, markets, and sells products like Heart-Lung Machines (HLMs) and oxygenators [108] - Neuromodulation segment focuses on VNS Therapy for Drug-Resistant Epilepsy (DRE) and Difficult-to-Treat Depression (DTD), and the aura6000 System for Obstructive Sleep Apnea (OSA) [110][111][113][115] - CORE-VNS study for DRE showed early and lasting effectiveness of VNS Therapy, with 36-month data validating its use for severe focal seizures [112] - OSPREY clinical trial for OSA showed a 65% responder rate at 12 months with the aura6000 System, demonstrating significant reductions in AHI and ODI [114] - LivaNova initiated the process with CMS to seek reconsideration of national Medicare coverage for VNS Therapy in unipolar patients with TRD, supported by peer-reviewed articles [117][118] Results of Operations This section analyzes LivaNova's net revenue and segment income performance, noting the impact of the SNIA environmental liability Net Revenue by Operating Segment (in thousands) | Segment | Q2 2025 Net Revenue | Q2 2024 Net Revenue | % Change (QoQ) | H1 2025 Net Revenue | H1 2024 Net Revenue | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cardiopulmonary | $199,272 | $173,714 | 14.7% | $375,592 | $329,605 | 14.0% | | Neuromodulation | $151,670 | $142,876 | 6.2% | $290,563 | $276,748 | 5.0% | | Total Net Revenue | $352,524 | $318,575 | 10.7% | $669,379 | $613,487 | 9.1% | Segment Income (in thousands) | Segment | Q2 2025 Segment Income | Q2 2024 Segment Income | % Change (QoQ) | H1 2025 Segment Income | H1 2024 Segment Income | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cardiopulmonary | $31,407 | $19,627 | 60.0% | $56,098 | $34,338 | 63.4% | | Neuromodulation | $56,020 | $54,812 | 2.2% | $108,373 | $101,490 | 6.8% | | Total Segment Income | $87,427 | $74,439 | 17.4% | $164,471 | $135,828 | 21.1% | - A $(362.070) million SNIA environmental liability expense was recorded for the six months ended June 30, 2025 [120][135][136] - Interest expense decreased due to an early repayment of $200 million on Term Facilities [137] Cost of Sales and Expenses Analysis This section analyzes changes in cost of sales, SG&A, R&D, and other operating expenses, highlighting key drivers for each Costs and Expenses as a Percentage of Net Revenue | Expense Category | H1 2025 % of Net Revenue | H1 2024 % of Net Revenue | Change (pp) | | :--- | :--- | :--- | :--- | | Cost of sales | 32.0% | 31.9% | 0.1% | | Selling, general, and administrative | 39.9% | 40.9% | (1.0)% | | Research and development | 12.7% | 14.7% | (2.0)% | | Other operating expenses | 0.1% | 3.3% | (3.2)% | - SG&A expense decreased primarily due to lower costs from the November 2023 cybersecurity incident and related insurance recoveries [130] - R&D expense decreased primarily due to a $9.4 million reduction in costs associated with the DTD program for the six-month period [132] - Other operating expenses decreased due to an $11.5 million reduction in restructuring costs and an $8.5 million reduction in the 3T Heater-Cooler litigation provision for the six-month period [134] Liquidity and Capital Resources This section assesses LivaNova's short-term liquidity and working capital, noting the impact of the SNIA environmental liability - LivaNova's available short-term liquidity as of June 30, 2025, was $818.6 million, comprising $593.6 million in cash and equivalents and $225.0 million in revolving credit facility availability [145] - The decrease in working capital is primarily due to the increase in current liabilities, notably the SNIA environmental liability [24][64][145] Working Capital (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current assets | $1,066,142 | $1,127,186 | | Current liabilities | $827,100 | $392,125 | | Working Capital | $239,042 | $735,061 | Cash Flows Analysis This section analyzes the changes in cash flows from operating, investing, and financing activities for the reported periods Net Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Operating activities | $86,886 | $53,337 | +$33,549 | | Investing activities | $(19,596) | $(18,932) | -$(664) | | Financing activities | $(213,403) | $25,277 | -$(238,680) | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(129,918) | $55,249 | -$(185,167) | - Operating cash flow increased due to higher customer collections and lower restructuring payments [147] - Financing cash flow shifted from positive to negative primarily due to a $200 million early repayment of Term Facilities and the release of restricted cash from the SNIA Litigation Guarantee termination [149][96] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk LivaNova is exposed to market risks from foreign currency, equity prices, interest rates, and supplier concentration, managed through operations and derivatives - LivaNova is exposed to market risks from foreign currency exchange rates, equity price risk, interest rate risks, and concentration of procurement suppliers [150] - These risks are managed through regular operating and financing activities and, at times, derivative financial instruments [150] ITEM 4. Controls and Procedures LivaNova's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control - LivaNova's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025 [152] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025 [153] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information including Iran dealings, and a list of exhibits ITEM 1. Legal Proceedings Material legal and regulatory proceedings and settlements are detailed in Note 5 of the condensed consolidated financial statements - Material legal and regulatory proceedings are detailed in 'Note 5. Commitments and Contingencies' [154] ITEM 1A. Risk Factors No material changes to LivaNova's risk factors were reported since the 2024 Annual Report on Form 10-K and Q1 2025 Form 10-Q - No material changes to risk factors were reported since the 2024 Form 10-K and Q1 2025 Form 10-Q [155] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report [156] ITEM 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities to report for the period - No defaults upon senior securities to report [157] ITEM 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to LivaNova's operations - Mine safety disclosures are not applicable [158] ITEM 5. Other Information This section covers trading arrangements and details LivaNova's medical device sales in Iran through non-U.S. subsidiaries - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements [159] - LivaNova's non-U.S. subsidiaries sold medical devices in Iran, generating $3.5 million in gross revenue and $1.7 million in net profits for Q2 2025, and $8.8 million in gross revenue and $4.8 million for H1 2025 [160][161] - LivaNova believes its activities in Iran are consistent with applicable sanctions laws and intends to continue its business there [162] ITEM 6. Exhibits This section lists all exhibits filed with the report, including incentive plans, grant agreements, and CEO/CFO certifications - Exhibits include the Second Amended and Restated LivaNova PLC 2022 Incentive Award Plan, the 2025 Director Incentive Award Plan, and related grant agreements [165] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included [165] - Interactive Data Files (XBRL) for financial statements are provided [165] Signatures The report was signed by LivaNova's CEO, Vladimir Makatsaria, and CFO, Alex Shvartsburg, on August 6, 2025 - The report was signed by Vladimir Makatsaria, CEO, and Alex Shvartsburg, CFO, on August 6, 2025 [169][170]