# LivaNova PLC (LIVN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LivaNova PLC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1639691/000163969125000010/livn-20241231.htm
Accession: 0001639691-25-000010
Filing date: 2025-02-25
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LIVN/
All MD&A years: /company/LIVN/mda/
Previous year: /company/LIVN/mda/fy2023/ (FY 2023)
Next year: /company/LIVN/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes, which appear elsewhere in this Report. Certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not tie to percentages recalculated from the rounded numbers used for disclosure purposes. The following discussion, analysis, and comparisons generally focus on the operating results for 2024, 2023, and 2022.

LivaNova has elected to omit certain discussions on the earliest of the three years covered in this Report. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located in LivaNova’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on February 29, 2024, for reference to discussion of 2022, the earliest of the three fiscal years presented.

Description of the Business

LivaNova PLC is a market-leading global medical technology company. The Company designs, develops, manufactures, markets, and sells products and therapies that are consistent with LivaNova’s mission to provide hope for patients and their families through medical technologies, delivering life-changing solutions in select neurological and cardiac conditions. LivaNova is a public limited company organized under the laws of England and Wales and is headquartered in London, England. LivaNova’s ordinary shares are listed for trading on the Nasdaq under the symbol “LIVN.”

Macroeconomic Environment

The current macroeconomic environment, including FX volatility, inflationary pressures, geopolitical instability, and supply chain challenges, has impacted and may continue to impact LivaNova’s business, results of operations, cash flows, and financial condition. 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. For further discussion on these macroeconomic pressures and potential implications, refer to “Item 1A. Risk Factors” of this Report.

Cybersecurity Incident

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 also assessed the nature and scope of the affected data, analyzed its statutory notification obligations, and notified affected individuals and regulators as required by applicable law. For further discussion on legal and regulatory developments, refer to “Note 11. Commitments and Contingencies” in LivaNova’s consolidated financial statements in this Report. The incident has been contained, and the Company’s mitigation efforts are considered complete.

Through December 31, 2024, LivaNova incurred direct costs totaling $11.6 million in connection with this cybersecurity incident, including $9.0 million and $2.6 million during the twelve months ended December 31, 2024 and 2023, respectively. The total incurred direct costs primarily included external cybersecurity expert and legal fees, system restoration costs, and a $1.2 million provision related to the class action settlement, and do not include business interruption losses. The Company expects to incur additional costs related to this incident in the future. For further discussion on legal and regulatory developments, refer to “Note 11. Commitments and Contingencies” in LivaNova’s consolidated financial statements in this Report. 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 reimburse 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. During 2024, LivaNova received $8.4 million, including $5.1 million in reimbursement of covered costs and $3.3 million in reimbursement of business interruption losses under the Company’s cyber insurance policy. The Company’s insurance coverage may 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.

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Business Segments

LivaNova identifies operating segments based on how it manages, evaluates, and internally reports its business activities to allocate resources, develop, and execute its strategy and assess performance. Prior to 2024, LivaNova operated through three segments: Cardiopulmonary, Neuromodulation, and ACS. During the first quarter of 2024, the Company reorganized its operating and reporting structure upon initiating the 2024 Restructuring Plan. This involved transitioning all ACS standalone cannulae and accessories, including ProtekDuo and transseptal (TandemHeart) cannulae, into its Cardiopulmonary segment. Operations for other ACS products, including LifeSPARC and Hemolung systems, were discontinued in 2024. For additional information, refer to “Note 4. Restructuring” in LivaNova’s consolidated financial statements in this Report. This restructuring, along with changes in how the Company’s CODM regularly reviews information, allocates resources, and assesses performance, resulted in modifications to LivaNova’s reportable segments. Specifically, LivaNova’s former ACS segment is now included in “Other,” excluding the ACS standalone cannulae and accessories business, which is now included in the Cardiopulmonary reportable segment. As a result, LivaNova now has two reportable segments: Cardiopulmonary and Neuromodulation. The segment financial information presented herein reflects these changes for all periods presented. For additional information regarding LivaNova’s reportable segments, historical financial information, and its methodology for the presentation of financial results, refer to the consolidated financial statements and accompanying notes of this Report.

Cardiopulmonary

LivaNova’s Cardiopulmonary segment is engaged in the design, development, manufacture, marketing, and sale of cardiopulmonary products, including HLMs, oxygenators, autotransfusion systems, perfusion tubing systems, cannulae, and other related accessories. In particular, the Cardiopulmonary segment includes the Essenz Perfusion System, the Company’s next-generation HLM with an embedded patient monitor for tailored patient care strategies and sensing technology for data-driven decision-making during CPB procedures.

Information on the Cardiopulmonary segment that could potentially impact LivaNova’s consolidated financial statements and related disclosures is incorporated by reference to “Note 11. Commitments and Contingencies: Product Liability Litigation” in the consolidated financial statements included in this Report.

Neuromodulation

LivaNova’s Neuromodulation segment is engaged in the design, development, manufacture, marketing, and sale of devices that deliver neuromodulation therapy for treating DRE and DTD. LivaNova’s principal Neuromodulation product, the VNS Therapy System, consists of an implantable pulse generator and connective lead that stimulates the vagus nerve, surgical equipment to assist with the implant procedure, and equipment and instruction manuals that enable a treating physician to set parameters for a patient’s pulse generator. The lead does not need to be removed to replace a generator with a depleted battery. The Neuromodulation segment is also engaged in the development and management of clinical testing for LivaNova’s aura6000 System for treating OSA. The aura6000 device stimulates the hypoglossal nerve, which engages specific tongue and palate muscles to open the airway while a patient sleeps. LivaNova’s Neuromodulation segment also includes costs associated with the Company’s former heart failure program, which the Company wound down during 2023.

Epilepsy

LivaNova continues to make investments in R&D focused on improving the VNS Therapy System with an enhanced pulse generator, lead, and programming software, and LivaNova is developing new products that provide additional features and functionality. LivaNova also supports studies for the Company’s product development efforts and to build clinical evidence for the VNS Therapy System.

Peer reviewed evidence published in 2021 and 2022 continues to confirm the safety, efficacy, and cost effectiveness of VNS Therapy in both the adult and pediatric patient populations. In January 2022, the Journal of Neurology published a meta-analysis and systematic review that demonstrated the benefits of VNS Therapy in adults with DRE and improvements in seizure frequency without an increase in the rate of serious adverse events or discontinuations for that population. These data further support consideration of VNS Therapy for people who are not responding to ASMs and those unsuitable or unwilling to undergo surgery.

Depression and Obstructive Sleep Apnea

Discussions of Depression and Obstructive Sleep Apnea are incorporated by reference to the sections titled “Depression” and “Obstructive Sleep Apnea,” respectively, included within “Part I, Item 1. Business” in this Report.

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Results of Operations

The following table presents LivaNova’s annual consolidated results of operations (in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","2023","","2022"],["Net revenue","","$","1,253,437","","","$","1,153,545","","","$","1,021,805"],["Cost of sales","","382,564","","","382,295","","","314,577"],["Gross profit","","870,873","","","771,250","","","707,228"],["Operating expenses:"],["Selling, general, and administrative","","526,265","","","518,129","","","469,243"],["Research and development","","182,514","","","193,817","","","155,805"],["Impairment of goodwill","","\u2014","","","\u2014","","","129,396"],["Impairment of long-lived assets","","\u2014","","","89,974","","","\u2014"],["Other operating expenses","","33,043","","","37,828","","","29,536"],["Operating income (loss)","","129,051","","","(68,498)","","","(76,752)"],["Interest expense","","(63,070)","","","(58,853)","","","(48,250)"],["Loss on debt extinguishment","","(25,482)","","","\u2014","","","\u2014"],["Foreign exchange and other income/(expense)","","47,811","","","46,125","","","49,860"],["Income (loss) before tax","","88,310","","","(81,226)","","","(75,142)"],["Income tax expense (benefit)","","25,058","","","(98,876)","","","11,051"],["Loss from equity method investments","","(18)","","","(104)","","","(53)"],["Net income (loss)","","$","63,234","","","$","17,546","","","$","(86,246)"]]
[[/GREPCENT_TABLE]]

Net Revenue

The following table presents net revenue by operating segment and geographic region (in thousands, except for percentages):

[[GREPCENT_TABLE]]
[["","","","","","","","","% Change"],["","","2024","","2023","","2022","","2024 vs 2023","","2023 vs 2022"],["Cardiopulmonary"],["United States","","$","242,463","","","$","202,358","","","$","171,632","","","19.8","%","","17.9","%"],["Europe (1)","","168,024","","","157,414","","","128,545","","","6.7","%","","22.5","%"],["Rest of World (1)","","273,025","","","244,340","","","214,021","","","11.7","%","","14.2","%"],["","","683,512","","","604,112","","","514,198","","","13.1","%","","17.5","%"],["Neuromodulation"],["United States","","441,022","","","407,493","","","374,542","","","8.2","%","","8.8","%"],["Europe (1)","","54,899","","","57,435","","","50,291","","","(4.4)","%","","14.2","%"],["Rest of World (1)","","58,302","","","54,782","","","52,160","","","6.4","%","","5.0","%"],["","","554,223","","","519,710","","","476,993","","","6.6","%","","9.0","%"],["Other Revenue (2)","","15,702","","","29,723","","","30,614","","","(47.2)","%","","(2.9)","%"],["Totals"],["United States","","695,083","","","635,044","","","571,558","","","9.5","%","","11.1","%"],["Europe (1)","","220,032","","","214,792","","","178,802","","","2.4","%","","20.1","%"],["Rest of World (1)","","338,322","","","303,709","","","271,445","","","11.4","%","","11.9","%"],["","","$","1,253,437","","","$","1,153,545","","","$","1,021,805","","","8.7","%","","12.9","%"]]
[[/GREPCENT_TABLE]]

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(1)“Europe” includes the UK, Germany, France, Italy, the Netherlands, Spain, Belgium, Poland, Sweden, Switzerland, Austria, Norway, Portugal, Finland, and Denmark. Excluding Europe and the U.S., “Rest of World” includes all other countries where LivaNova operates.

(2)“Other Revenue” includes revenue from the Company’s former ACS reportable segment, as discussed above, as well as rental and site services income not allocated to segments.

The following table presents segment income (1) (in thousands, except for percentages):

[[GREPCENT_TABLE]]
[["","","","","","","","","% Change"],["","","2024","","2023","","2022","","2024 vs 2023","","2023 vs 2022"],["Cardiopulmonary","","$","76,848","","","$","26,407","","","$","17,106","","","191.0","%","","54.4","%"],["Neuromodulation","","195,309","","","153,384","","","172,775","","","27.3","%","","(11.2)","%"],["","","$","272,157","","","$","179,791","","","$","189,881","","","51.4","%","","(5.3)","%"]]
[[/GREPCENT_TABLE]]

(1)For a reconciliation of segment income to consolidated income (loss) before tax, refer to “Note 17. Geographic and Segment Information” in LivaNova’s consolidated financial statements included in this Report.

Cardiopulmonary

Cardiopulmonary net revenue for the year ended December 31, 2024 increased 13.1% to $683.5 million compared to the year ended December 31, 2023, with growth across all regions, driven by strong consumables demand and Essenz Perfusion System sales.

Cardiopulmonary segment income for the year ended December 31, 2024 was $76.8 million, compared to $26.4 million for the year ended December 31, 2023. The increase in segment income was primarily due to an increase in net revenue, as described above, as well as a decrease in the litigation provision related to LivaNova’s 3T Heater-Cooler device of $14.8 million. These increases in segment income were partially offset by increases in sales and marketing and R&D expenses.

Neuromodulation

Neuromodulation net revenue for the year ended December 31, 2024 increased 6.6% to $554.2 million compared to the year ended December 31, 2023, with growth in the Rest of World and U.S. regions, partially offset by a decline in Europe.

Neuromodulation segment income for the year ended December 31, 2024 was $195.3 million compared to $153.4 million for the year ended December 31, 2023. The increase in segment income was primarily due to an increase in net revenue, as described above, as well as a net decrease in R&D expense, primarily associated with the winding down of the Company’s heart failure program of $24.8 million. These increases in segment income were partially offset by an increase in sales and marketing expense to support the increased revenue.

Cost of Sales and Expenses

The following table presents costs and expenses as a percentage of net revenue:

[[GREPCENT_TABLE]]
[["","","2024","","2023","","2022"],["Cost of sales","","30.5","%","","33.1","%","","30.8","%"],["Selling, general, and administrative","","42.0","%","","44.9","%","","45.9","%"],["Research and development","","14.6","%","","16.8","%","","15.2","%"],["Impairment of goodwill","","\u2014","%","","\u2014","%","","12.7","%"],["Impairment of long-lived assets","","\u2014","%","","7.8","%","","\u2014","%"],["Other operating expenses","","2.6","%","","3.3","%","","2.9","%"]]
[[/GREPCENT_TABLE]]

Cost of Sales

Cost of sales consists primarily of direct labor, allocated manufacturing overhead, and the acquisition of raw materials and components.

Cost of sales as a percentage of net revenue was 30.5% for the year ended December 31, 2024, a decrease of 2.6 percentage points compared to the year ended December 31, 2023. The decrease was primarily due to an inventory obsolescence adjustment of $12.6 million during the year ended December 31, 2023 associated with the wind down of LivaNova’s ACS segment, as well as a decrease in amortization resulting from the impairment of the ACS segment’s developed technology intangible asset in 2023.

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Selling, General, and Administrative Expense

SG&A expenses are comprised of sales, marketing, general, and administrative activities.

SG&A expenses as a percentage of net revenue were 42.0% for the year ended December 31, 2024, a decrease of 2.9 percentage points compared to the year ended December 31, 2023. The decrease was 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 favorable volume leverage.

Research and Development Expense

R&D expenses consist of product design and development efforts, clinical study programs, and regulatory activities.

R&D expenses as a percentage of net revenue were 14.6% for the year ended December 31, 2024, a decrease of 2.2 percentage points compared to the year ended December 31, 2023. The decrease was primarily due to a decline in R&D expense of $24.8 million associated with winding down the Company’s heart failure program, which was completed during the fourth quarter of 2023, as well as a decline of $6.3 million associated with winding down the Company’s ACS segment, as described above.

Impairment of Long-Lived Assets

LivaNova tests goodwill and indefinite-lived intangible assets for impairment on an annual basis on October 1, or when events or changes in circumstances indicate that a potential impairment exists.

On January 5, 2024, the Board of Directors of LivaNova PLC approved the 2024 Restructuring Plan to enhance the Company’s focus on its core Cardiopulmonary and Neuromodulation segments. The main component of the 2024 Restructuring Plan was to wind down the ACS segment, which was substantially completed in 2024. The Company determined that it was more likely than not that the carrying amounts associated with the ACS segment, including the long-lived assets (asset group), may not be recoverable. This was determined to be a triggering event occurring in the fourth quarter of 2023 requiring an impairment assessment, based on certain factors, including the results of an updated long-term financial outlook for the ACS segment. As such, LivaNova recorded impairments of the following long-lived assets during the year ended December 31, 2023 (in thousands):

[[GREPCENT_TABLE]]
[["","","2023"],["Intangible assets:"],["Developed technology","","$","78,067"],["Trade names","","7,117"],["Property, plant, and equipment","","3,894"],["Operating lease assets","","896"],["","","$","89,974"]]
[[/GREPCENT_TABLE]]

Other Operating Expenses

Other operating expenses primarily consist of the provision for litigation involving LivaNova’s 3T Heater-Cooler device, the Saluggia site remediation provision, and restructuring expense.

Other operating expenses as a percentage of net revenue were 2.6% for the year ended December 31, 2024, a decrease of 0.7 percentage points compared to the year ended December 31, 2023. The decrease was primarily due to a decrease in the amount recorded for the litigation provision related to LivaNova’s 3T Heater-Cooler device of $14.8 million and a decrease in the amount recorded for the Saluggia site decommissioning provision of $2.3 million. These decreases were partially offset by an increase in restructuring expense of $12.4 million resulting from the 2024 Restructuring Plan. For additional information, refer to “Note 4. Restructuring” and “Note 11. Commitments and Contingencies” in the consolidated financial statements in this Report.

Interest Expense

LivaNova incurred interest expense of $63.1 million for the year ended December 31, 2024, compared to $58.9 million for the year ended December 31, 2023. The increase was primarily due to increases in average borrowings and the amortization of debt issuance costs.

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Loss on Debt Extinguishment

In connection with the 2025 Notes Repurchase Transaction, during the year ended December 31, 2024, LivaNova incurred a loss on debt extinguishment of $25.5 million. For additional information, refer to “Note 9. Financing Arrangements” in the consolidated financial statements in this Report.

Foreign Exchange and Other Income/(Expense)

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 gains and losses associated with LivaNova’s investments.

Foreign exchange and other income/(expense) was income of $47.8 million and $46.1 million for the years ended December 31, 2024 and 2023, respectively. For further details, refer to “Note 18. Supplemental Financial Information” in LivaNova’s consolidated financial statements included in this Report.

Income Taxes

LivaNova PLC is 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, unrecognized tax benefits associated with uncertain tax positions, and tax laws. 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.

LivaNova’s effective income tax rate was 28.4% and 121.7% for the years ended December 31, 2024 and 2023, respectively. Compared with the year ended December 31, 2023, the change in the effective tax rate for 2024 was primarily attributable to changes in the mix of taxable income in various jurisdictions, non-deductible interest and premiums, and changes in tax valuation allowances. For additional information, please refer to “Note 15. Income Taxes” in LivaNova’s consolidated financial statements included in this Report.

Critical Accounting Estimates

LivaNova has adopted various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. The Company’s most significant accounting policies are disclosed in “Note 2. Basis of Presentation, Use of Accounting Estimates, and Significant Accounting Policies” and “Note 3. Revenue Recognition” in LivaNova’s consolidated financial statements included in this Report.

To prepare LivaNova’s consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that may affect the reported amounts of the Company’s assets and liabilities, the disclosure of contingent liabilities as of the date of its consolidated financial statements, and the reported amounts of its revenue and expenses during the reporting period. LivaNova’s actual results may differ from these estimates. LivaNova considers estimates to be critical if the Company is required to make assumptions about material matters that are uncertain at the time of estimation, or if materially different estimates could have been made or it is reasonably likely that the accounting estimate may change from period to period. The following are areas requiring management’s judgment that LivaNova considers critical:

Goodwill and Long-Lived Assets

LivaNova allocates the purchase price consideration of an acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including property, plant, and equipment; inventories; accounts receivable; long-term debt; and identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. LivaNova allocates any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired to goodwill. LivaNova bases the fair value of identifiable intangible assets acquired in a business combination, including IPR&D, on valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use.

Intangible assets shown on the consolidated balance sheets consist of finite-lived and indefinite-lived assets expected to generate future economic benefits and are recorded at their respective fair values as of their acquisition date. Finite-lived intangible assets consist primarily of developed technology and technical capabilities, including patents, related know-how and licensed patent rights, trade names, and customer relationships. Customer relationships consist of relationships with hospitals and surgeons in the countries where LivaNova operates. Indefinite-lived intangible assets other than goodwill are composed of IPR&D assets acquired in acquisitions.

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Each reporting period, LivaNova determines whether there are circumstances that warrant an evaluation of the carrying amounts of LivaNova’s property and equipment and its finite-lived intangible assets to determine whether such carrying amounts continue to be recoverable. Such changes in circumstance may include, among other items, an expectation of a sale or disposal of a long-lived asset or asset group, adverse changes in market or competitive conditions, an adverse change in legal factors or business climate in the markets in which LivaNova operates, and operating or cash flow losses. Long-lived assets held and used are assessed for possible impairment by comparing their carrying values with their associated undiscounted, future cash flows. In order to calculate the impairment charge, LivaNova generally measures fair value by considering sale prices for similar assets, discounted estimated future cash flows using an appropriate discount rate, and/or estimated replacement cost.

LivaNova estimates the useful lives of its finite-lived intangible assets, which requires significant management judgment, and evaluates its intangible assets each reporting period to determine whether events and circumstances indicate a different useful life.

LivaNova evaluates the goodwill and indefinite-lived intangible assets for impairment annually on October 1st and whenever other facts and circumstances indicate that the carrying amounts of goodwill and other indefinite-lived intangible assets may not be recoverable. Estimating the fair value of goodwill and indefinite-lived intangible assets requires various assumptions, including revenue growth rates and discount rates. LivaNova performed a quantitative goodwill impairment assessment for its Cardiopulmonary and Neuromodulation reporting units as of October 1, 2024, including sensitivity analyses of key assumptions. The assessment was conducted using management’s current estimate of future cash flows. LivaNova concluded that the fair value of its Cardiopulmonary and Neuromodulation reporting units exceeded the carrying value of the respective reporting units and were, therefore, not impaired on the October 1, 2024 test date.

Income Taxes

LivaNova is a UK corporation and operates through the Company’s various subsidiaries in a number of countries throughout the world. LivaNova’s provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which the Company operates and earns income. LivaNova uses significant judgment and estimates in accounting for the Company’s income taxes. The Company recognizes deferred tax assets and liabilities for the anticipated future tax effects of temporary differences between the financial statements basis and the tax basis of LivaNova’s assets and liabilities, which are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

LivaNova files federal and local tax returns in many jurisdictions throughout the world and is subject to income tax examinations for its fiscal year 2019 and subsequent years, with certain exceptions. While LivaNova believes that its tax return positions are fully supported, tax authorities may disagree with certain positions the Company has taken and assess additional taxes, and, as a result, LivaNova may establish reserves for uncertain tax positions, which require a significant degree of management judgment. LivaNova regularly assesses the likely outcomes of its tax positions to determine the appropriateness of the Company’s reserves; however, the actual outcome of an audit can be significantly different from LivaNova’s expectations, which could have a material impact on the Company’s tax provision. The Company has accrued $15.2 million, of which $14.1 million is unrecognized tax benefit, as of December 31, 2024.

LivaNova periodically assesses the recoverability of its deferred tax assets by considering whether it is more likely than not that some or all of the actual benefit of those assets will be realized. To the extent that realization does not meet the “more-likely-than-not” criterion, the Company establishes a valuation allowance. LivaNova periodically reviews the adequacy and necessity of the valuation allowance by considering significant positive and negative evidence relative to its ability to recover deferred tax assets and to determine the timing and amount of valuation allowance that should be released. This evidence includes: profitability in the most recent quarters; internal profitability forecasts for the current and next two future years; the amount of deferred tax asset relative to estimated profitability; the potential effects on future profitability from increasing competition, healthcare reforms, and overall economic conditions; limitations and potential limitations on the use of LivaNova’s net operating losses due to ownership changes, pursuant to IRC Section 382; and the implementation of prudent and feasible tax planning strategies, if any. For additional information, please refer to “Note 15. Income Taxes” in LivaNova’s consolidated financial statements included in this Report.

Legal and Other Contingencies

Provisions for legal contingencies are recognized when the Company determines it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. Estimates are used in assessing the likelihood of a loss being incurred and when determining a reasonable estimate of the loss for each claim. Final settlement

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amounts may be materially different from the provision recorded. For additional information, please refer to “Note 11. Commitments and Contingencies” in LivaNova’s consolidated financial statements included in this Report.

Contingent Consideration Liabilities

Contingent consideration liabilities result from acquisition agreements that include potential future payment of consideration that is contingent upon the achievement of performance milestones and/or sales-based earnouts. Contingent consideration liabilities are measured at fair value each reporting period, the determination of which requires significant judgments and estimates. The fair value of contingent consideration is determined based on the consideration expected to be transferred based on estimated future cash flows of the acquired business, discounted to present value in accordance with accepted valuation methodologies. For additional information, please refer to “Note 8. Fair Value Measurements” in LivaNova’s consolidated financial statements included in this Report.

Embedded and Capped Call Derivatives

In June 2020 and March 2024, the Company issued the 2025 Notes and 2029 Notes, respectively, and entered into related capped call transactions. The 2025 Notes and 2029 Notes include embedded derivatives that are bifurcated from the 2025 Notes and 2029 Notes. The embedded derivatives are measured at fair value using a binomial lattice model and estimated discounted cash flows that utilize observable and unobservable market data. The capped call derivatives are 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 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 valuations. For additional information, please refer to “Note 8. Fair Value Measurements” and “Note 9. Financing Arrangements” in LivaNova’s consolidated financial statements included in this Report.

New Accounting Pronouncements

For a discussion of new accounting standards and disclosure requirements, please refer to “Note 19. New Accounting Pronouncements” in LivaNova’s consolidated financial statements included in this Report.

Liquidity and Capital Resources

Based on LivaNova’s current business plan, the Company believes that its sources of liquidity, which primarily consist of cash and cash equivalents, future cash generated from operations, and available borrowings under its revolving credit facility, will be sufficient to fund its uses of liquidity, primarily consisting of day-to-day operating expenses, working capital, capital expenditures, acquisition earnouts, and debt service requirements over the twelve-month period beginning from the issuance date of this Report. From time to time, LivaNova may access debt and/or equity markets to optimize its capital structure, raise additional capital, or increase liquidity, as necessary. LivaNova’s liquidity could be adversely affected by the factors affecting future operating results, including those referred to in “Part I, Item 1A. Risk Factors” above and by the contingencies referred to in “Note 11. Commitments and Contingencies” in LivaNova’s consolidated financial statements in this Report.

LivaNova’s operating and working capital 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.

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The following table presents selected financial information related to LivaNova’s liquidity (in thousands):

[[GREPCENT_TABLE]]
[["","","December 31,"],["","","2024","","2023"],["Available Short-term Liquidity"],["Cash and cash equivalents","","$","428,858","","","$","266,504"],["Availability under the 2021 First Lien Credit Agreement","","225,000","","","125,000"],["","","$","653,858","","","$","391,504"],["Working Capital"],["Current assets","","$","1,127,186","","","$","988,158"],["Current liabilities","","392,125","","","334,983"],["","","$","735,061","","","$","653,175"],["Debt Obligations"],["Current portion of long-term debt","","$","77,339","","","$","17,484"],["Short-term unsecured borrowing arrangements","","665","","","627"],["Current debt obligations","","78,004","","","18,111"],["Long-term debt obligations","","549,624","","","568,543"],["","","$","627,628","","","$","586,654"]]
[[/GREPCENT_TABLE]]

Debt and Capital

LivaNova’s capital structure consists of debt and equity. As of December 31, 2024, LivaNova’s total debt of $627.6 million was 47.5% of its total equity of $1,320.3 million. As of December 31, 2023, LivaNova’s total debt of $586.7 million was 45.9% of its total equity of $1,277.6 million.

During the year ended December 31, 2024, LivaNova received $335.5 million in proceeds from the issuance of long-term debt and repaid $247.5 million in long-term debt.

During the year ended December 31, 2023, LivaNova received $50.0 million in proceeds from the issuance of long-term debt and repaid $21.6 million in long-term debt.

On March 8, 2024, LivaNova and LivaNova USA entered into Incremental Facility Amendment No. 3, which provides for LivaNova USA to obtain revolving commitments in an aggregate principal amount of $225.0 million. For additional information, refer to “Note 9. Financing Arrangements” in the consolidated financial statements in this Report.

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 7. Derivatives and Risk Management” and “Note 9. Financing Arrangements” in the consolidated financial statements in this Report.

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Cash Flows

The following table presents net cash, cash equivalents, and restricted cash provided by (used in) operating, investing, and financing activities and the net increase in the balance of cash, cash equivalents, and restricted cash (in thousands):

[[GREPCENT_TABLE]]
[["","","2024","","2023","","2022"],["Operating activities","","$","183,038","","","$","74,914","","","$","69,921"],["Investing activities","","(48,160)","","","(40,331)","","","(38,414)"],["Financing activities","","18,551","","","21,484","","","280,130"],["Effect of exchange rate changes on cash, cash equivalents, and restricted cash","","(7,745)","","","6,187","","","(4,011)"],["Net increase in cash, cash equivalents, and restricted cash","","$","145,684","","","$","62,254","","","$","307,626"]]
[[/GREPCENT_TABLE]]

Operating Activities

Cash provided by operating activities for the year ended December 31, 2024 increased $108.1 million, compared to the prior year, primarily due to (i) an increase in net income adjusted for non-cash items of $72.2 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 $36.2 million.

Investing Activities

Cash used in investing activities during the year ended December 31, 2024 increased $7.8 million, compared to the prior year, primarily due to an increase in purchases of property, plant, and equipment of $12.1 million primarily related to purchases and development of internal-use software, partially offset by a decrease in purchases of equity investments of $5.4 million.

Financing Activities

Cash provided by financing activities during the year ended December 31, 2024 decreased $2.9 million, compared to the prior year, primarily due to payment of the ALung contingent consideration arrangement of $13.8 million during the year ended December 31, 2024, partially offset by an increase in proceeds from net debt borrowings and repayments of $5.7 million.

Market Risk

LivaNova is exposed to certain market risks as part of its ongoing business operations, including risks from foreign currency exchange rates, interest rate risks, and concentration of procurement suppliers that could adversely affect LivaNova’s consolidated financial position, results of operations, or cash flows. The Company manages these risks through regular operating and financing activities and, at certain times, derivative financial instruments.

Foreign Currency Exchange Rate Risk

Due to the global nature of LivaNova’s operations, the Company is exposed to FX fluctuations. Historically, LivaNova has maintained a foreign currency exchange rate risk management strategy that utilizes cash flow hedges and freestanding foreign currency derivatives to reduce the Company’s exposure to unanticipated fluctuations in forecasted revenue and costs, inter-company debt, bank deposits, accounts receivable, and accounts payable caused by changes in foreign currency exchange rates. Upon the settlement of LivaNova’s foreign currency cash flow hedges in the fourth quarter of 2022 and following an in-depth analysis of the utility of the Company’s cash flow hedging program, LivaNova discontinued its foreign currency cash flow hedging program. LivaNova continues to use freestanding derivative forward contracts to offset exposure to the variability of the value associated with assets and liabilities denominated in a foreign currency.

LivaNova mitigates its credit risk relating to counterparties of its derivatives through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting the Company’s exposure to individual counterparties and by entering into ISDA Master Agreements, which include provisions for a legally enforceable master netting agreement, with almost all of LivaNova’s derivative counterparties. The terms of the ISDA agreements may also include credit support requirements, cross-default provisions, termination events, and set-off provisions. Legally enforceable master netting agreements reduce credit risk by providing protection in bankruptcy in certain circumstances and generally permitting the closeout and netting of transactions with the same counterparty upon the occurrence of certain events.

Interest Rate Risk

LivaNova is subject to interest rate risk on its investments and debt. Historically, LivaNova has entered into interest rate derivative instruments designated as cash flow hedges to manage the exposure to interest rate movements and to reduce the risk of increased borrowing costs by converting floating-rate debt into fixed-rate debt. Under these agreements, LivaNova agrees to

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exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to agreed-upon notional principal amounts. These interest rate swaps are structured to mirror the payment terms of the underlying loan. The Company’s outstanding interest rate swaps expired on April 6, 2023. LivaNova elected not to renew the interest rate swaps. Interest expense associated with the Initial Term Facility is principally offset by holding proceeds from the Term Facilities in a depository account, which earns a floating rate of interest.

If interest rates associated with LivaNova’s variable-rate financing arrangements as of December 31, 2024 were to increase/(decrease) by 100 basis points, the effect on interest expense within LivaNova’s consolidated statements of income (loss) would be an increase/(decrease) of $3.2 million, respectively, offset by an increase/(decrease) in interest income from amounts held in variable-rate depository accounts.

Concentration of Credit Risk

LivaNova’s trade accounts receivable represents potential concentrations of credit risk. This risk is limited due to the large number of customers and their dispersion across a number of geographic areas, as well as LivaNova’s efforts to control its exposure to credit risk by monitoring its receivables and the use of credit approvals and credit limits. In addition, LivaNova has historically had strong collections and minimal write-offs. While LivaNova believes that its reserves for credit losses are adequate, essentially all of the Company’s trade receivables are concentrated in the hospital and healthcare sectors worldwide, and accordingly, LivaNova is exposed to their respective business, economic, and country-specific variables. Although LivaNova does not currently foresee a concentrated credit risk associated with these receivables, repayment is dependent on the financial stability of these industry sectors and the respective countries’ national economies and healthcare systems.

Factors Affecting Future Operating Results and Share Price

The material factors affecting LivaNova’s future operating results and share prices are disclosed in “Part I, Item 1A. Risk Factors” of this Report.